Amazon Evolving Into a Parcel Delivery Company, Competing With FedEx and UPS?
UPS has more than a century's experience delivering parcels. It's spent billions developing a system of efficiencies, and it continues to invest in smarter package and driver routing, sorting expansion, vertical industry integration, customer automation, delivery transit upgrades, brand awareness, etc. It would be difficult for any company to compete with UPS (and FedEx) on any significant scale.
Amazon shipped 608 million packages in 2013; UPS shipped 4.3 billion. It's estimated that UPS handled about 200 million packages for Amazon, which, of course, is as much as 4 percent to 5 percent of the overall total for the package delivery giant. So a total loss of Amazon's business would certainly impact UPS volumes and revenues, but might actually improve yield per shipment since Amazon's pricing is very low margin.
I appreciate Amazon's entrepreneurial ethos. It categorically has already and will continue to change the game for multiple industries, including shipping. I'm quite confident that Amazon has the management team, finances and infrastructure to handle a percentage of its parcel deliveries. But it will take years, if ever, for Amazon's logistics unit to supplant parcel delivery companies like UPS. Rather, it's likely that Amazon-handled deliveries will be limited to only a few densely populated markets.
Furthermore, it will be more expensive and difficult than perhaps Amazon is currently envisioning. An old industry joke comes to mind: How do you make a million dollars in the shipping business? Start with $2 million.
Finally, we haven't seen the consumer demand for same-day delivery service, which again is one of the key drivers in Amazon's plan to handle deliveries. All the research we've seen points to the conclusion that same-day deliveries aren't being fueled by consumer demand (outside of specialty products and perhaps some electronics).
Rob Martinez is the CEO of Shipware LLC, a professional services firm that transforms businesses through intelligent distribution solutions and strategies. Rob has helped some of the world’s most recognizable brands reduce parcel shipping costs an average of 25 percent through contract negotiations, rate benchmarking, modal optimization, invoice audit and other savings vehicles. A cum laude graduate of UCLA, Rob has 20 years of transportation industry experience, including executive positions at DHL and Stamps.com, in addition to his work as an outside consultant since 2001.