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What It Would Take for Amazon to Become UPS or FedEx

“An interesting article that puts things in proper perspective. Just because Amazon decides to enter a space does not mean they will dominate over established players but that’s how they get the headlines while adding efficiency to their system. “

The shipping titans have a large head start over the online retail giant
Paul Ziobro Feb. 10, 2018 7:00 a.m. ET

Amazon.com Inc. AMZN -0.81% may have ambitions to compete against FedEx Corp. and the United Parcel Service Inc. with its own shipping business. But the online retail giant is a long way from reaching the scale of America’s freight titans.
Dubbed “Shipping with Amazon,” the service is expected to start in Los Angeles, serving the company’s independent merchants that sell on its site. It is envisioned to expand to additional cities and outside businesses, too. Still, Amazon’s ability to one day haul and deliver packages for other retailers and consumers at a national scale would require tens of billions of dollars in investment, analysts say. It would also need thousands of trucks, hundreds of planes and to build thousands of sorting centers to handle millions of packages a day.
Amazon has only leased up to 40 planes and has roughly 300 warehouses in the U.S., including fulfillment centers, sortation centers and delivery stations, according to supply-chain consultancy MWPVL International Inc. The company today mostly contracts and leases with delivery couriers rather than owning its own assets, a limiting factor, say analysts.

Amazon is “far away from having enough capacity to handle all of its own shipping,” much less having excess capacity to sell to shippers outside its third-party merchants “and truly start competing” with UPS and FedEx,” Wolfe Research analyst Scott Group wrote in a Friday note.

The shipping giants have a sizable head start over Amazon. UPS has shuttled packages for more than a century, since just before the introduction of Ford’s Model T. FedEx began more than 40 years ago.
FedEx has roughly 650 aircraft, 150,000 trucks, 400,000 employees and 4,800 operating facilities globally to handle about 12 million shipments a day. UPS’s larger operation handles more than 20 million packages a day with service to more than 220 countries and territories globally. Its fleet includes more than 500 owned and leased aircraft and over 1,000 package cars and other vehicles to deliver packages.

Amazon generated an estimated 1.2 billion shipments last year domestically, according to MWPVL International. But most of those were delivered via the U.S. Postal Service, UPS and FedEx.

“The industry is just so big, I would be shocked if FedEx or UPS are scared right now just because Amazon is going to create an option,” said Paul Thompson, chairman of Transportation Insight, a Hickory, N.C.-based logistics company.
Even if Amazon does start picking up some volume, “the last-mile business at risk for UPS and FDX [FedEx] is very low-yielding and we believe very low margin…So losing some last-mile business may not be a bad thing,” Mr. Group added. Amazon’s push into delivery could also prompt both carriers to raise rates more aggressively because the company still depends on both to deliver much of its package volume.

Meanwhile, picking up a few packages could generate extra revenue for the Amazon, says Marc Wulfraat, president of MWPVL International. The “Shipping with Amazon” option would allow the company to use empty trucks’ return trips to haul freight in urban areas where it already has logistics infrastructure in place.
After dropping off their deliveries for the day, Amazon drivers could swing by merchants’ warehouses and load up their vehicles with additional parcels. Those outbound packages could then be sent on to regional sortation centers and routed to other markets by truck or plane.

“They throw 30 packages on the truck, he [the driver] goes back to the delivery station where he started his journey, and now the package is in the Amazon ecosystem,” Mr. Wulfraat said.

Amazon’s deeper push into the delivery space adds to competition that includes established players, as well as regional players and startups trying to figure out how to deliver packages to homes.
“It’s a very competitive space,” Postmaster General Megan Brennan said Friday in response to a question about Amazon potentially encroaching more on delivery. “We have to earn that business every day.”

Click to read full article by: Paul Ziobro Feb. 10, 2018 7:00 a.m. ET

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