Published: Fri, October 06, 2017
Finance | By Kristine Clayton

FedEx and UPS Shares Fall Over Worries of Amazon Delivery Service

FedEx and UPS Shares Fall Over Worries of Amazon Delivery Service

Using a third-party Amazon merchant can mean waiting longer for your product to arrive, though, but Amazon's new delivery service may fix that. From Amazon Prime Air jets to its Flex service, where independent contractors deliver packages for Amazon, the company is employing more of its own solutions to complement traditional shippers like UPS and FedEx.

Amazon didn't specifically deny the report but issued a statement to GeekWire in response to questions about the reported plans, saying "We are using the same carrier partners to offer this program that we've used for years, including UPS, USPS and FedEx". The project, which is dubbed "Seller Flex", was deployed in West Coast states on a trial basis earlier this year, and is eyeing a broader rollout in 2018. Amazon had started its own delivery service two years ago in India. Amazon recorded an all-time high of almost $7.2 billion lost on shipping in 2016, according to GeekWire's analysis of the e-commerce giant's financial results.

"At this time, it would not be cost effective for Amazon to completely replace UPS and FedEx", according to a recent note Cowen's John Blackledge.

In FedEx's latest annual report, the company said the residential e-commerce market is the fastest-growing, but the revenue is "much smaller" than its business-to-business revenue.

Taking over some responsibility for delivery enables Amazon to protect that edge as rivals like Wal-Mart Stores Inc. enhance their own delivery operations. Amazon.com would provide free two-day delivery to eligible customers. And while it doesn't eliminate UPS and FedEx from the mix, it would probably move more control over to Amazon long-term.

And while FedEx suggested risks of Amazon's in-house capabilities in its 2016 10-K, FedEx explained they are well-positioned and said any negative reaction misunderstands the scale and complexity of its business.

It's important to remember that Amazon is not the only e-commerce game in town.

The online giant is experimenting with a program that rivals services handled by longtime partners UPS and FedEx. First of all, Amazon's third-party sellers have become furious at the site over implementing unilateral policies, and this appears to be yet another intrusion from their perspective.

But the popularity of this service strains Amazon's capacity during the end-of-year holidays.

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