Shares in both FedEx and UPS tumbled more than 4 per cent on Friday following reports that Amazon plans to launch a delivery service that could potentially undercut the logistics giants.
Amazon will begin testing a delivery service for its marketplace sellers in Los Angeles, The Wall Street Journal reports, before expanding the service to other US cities.
“Dubbed ‘Shipping with Amazon,’ or SWA, the new service will entail the online retail giant picking up packages from businesses and shipping them to consumers, according to people familiar with the matter,” WSJ reports.
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The Journal notes that Amazon already delivers some of its own orders in at least 37 US cities.
The latest report builds on years of speculation that Amazon intends to bypass the carriers, cutting its ever-growing delivery costs.
One school of thought is that Amazon plans to commercialise SWA, as it did with its cloud computing business AWS, and offer the service to businesses outside the Amazon ecosystem.
But analysts are skeptical the service will pose a real threat in the near term, arguing it would take a years and billions of dollars of investment to build up the scale needed to challenge UPS and FedEx.
The official line from FedEx and UPS is not to comment on hypothetical situations. Both companies find themselves in the tricky situation where one of their biggest customers is also a potential competitor.
During its most recent earnings call, FedEx executives played down the threat saying, “We’ll just say that Amazon is a long-standing customer of FedEx. But however, it should be noted that FedEx has no single customer that represents more than 3 per cent of revenue or volume.”
Amazon’s other logistics plays include ocean freight, an air cargo hub, semi trailers, drones and couriers that delivery packages inside homes.
The company is obsessed with accelerating delivery times. Amazon subscribes to the principle that “no customer is ever going to say they want slower delivery or higher prices.”
Last week the company announced it was bringing two-hour delivery to Whole Foods stores for Amazon Prime Now members.