On Friday, Feb. 9, the Wall Street Journal published a report detailing a new service from e-commerce giant, Amazon called “Shipping with Amazon,” an Amazon owned and operated logistics network that could eventually challenge the established carrier duopoly.
While Amazon has yet to officially announce the service or address the report directly, the Wall Street Journal says the service will start in Los Angeles and deliver goods sold by third-party vendors. Expect to see the service expanding to Amazon’s other larger markets shortly.
Both FedEx and UPS stocks fell after the report on Friday, but recovered slightly on Monday. This is certainly big news for the transportation industry, just look at Amazon’s impact on the e-commerce market as a whole. Fortunately, it’s not likely that any significant industry changes will occur in the near future, if at all. The established carriers all have widespread, efficient logistics networks and have had decades to fine-tune them. And while Amazon is a gigantic company with consistent quarterly profit margins in the hundreds of millions of US dollars, it isn’t the only one using these carriers’ services.
Yes, this will without a doubt have an impact on the established shipping market, but experts say there’s room for a new competitor thanks to current economic expansion trends and rising e-commerce volumes. The market will adjust to change as it always has.
At the end of the day, there’s no need to panic. Director of Parcel Services at AFS Logistics, Joe Darwin says Amazon is attempting to do what UPS and FedEx did to the US Postal Service years ago – skim the cream off the top. This means taking the packages with the least amount of transit / highest margin and bring them in-house.
This news should really come as no surprise to anyone. Last summer, Amazon purchased Whole Foods for $13.7 billion, adding grocery business to their list of business lines that currently includes e-commerce marketplace, a Hollywood studio and a thriving cloud computing branch. And there are reports that Amazon will soon be taking on the healthcare industry.
Darwin says Amazon currently doesn’t have the resources to organically grow a logistics network to compete on the whole with UPS and FedEx in the short term.
“I would anticipate them purchasing those assets in the future if they want to expand this service to areas other than the top 10-15 largest metro areas in the US,” Darwin says.
Doom and gloom scenarios make for much better headlines. No matter what you read in the coming weeks, this doesn’t mean the end of the establishment. Amazon probably isn’t going to take over the world… yet.
Joe Darwin, Director of Parcel Services, has been with AFS 13 years and has over 25 years of experience in parcel pricing, rate negotiation and network optimization. For more information on AFS Parcel Service, call 877-242-3383 or visit afs.net/parcel.