Ever since Jeff Bezos founded Amazon (AMZN) in 1994, he has spent tens of billions of dollars to transform the business from a cut-rate bookseller to an e-commerce giant. The company now not only sells almost every imaginable product but it’s also leading the market in cloud computing -- and producing award-winning original content.
Now, speculation is growing that package delivery may be the next market the billionaire wants to conquer.
According to The Wall Street Journal, the Seattle-based company, which has been beefing up its logistics operations for the past few years, plans to “one day haul and deliver packages for itself as well as other retailers and consumers -- potentially upending the traditional relationship between seller and sender.”
The newspaper came to this conclusion through discussions with “nearly two dozen current and former Amazon managers and business partners.” None of them were named, which isn’t a surprise given the company’s penchant for security.
According to the paper, Amazon has recruited dozens of UPS (UPS) and FedEx (FDX) executives and hundreds of other workers, and is snapping up long-haul tractor trailers, delivery drones and aircraft, such as its fleet of 40 Boeing 767-300s it’s leasing for its branded Prime Air logistics service.
Amazon contributes about $1 billion to UPS revenue annually and slightly less for FedEx, according to analyst David Vernon of Bernstein Research. He rates UPS as a “buy” and FedEx as “market perform.”
Amazon needs to expand its logistics operations to meet the growing demand from its core e-commerce business, which has been fueled by the popularity of its Amazon Prime free shipping service, rather than any desire to enter the package delivery business, according to Vernon.
The company, which spent $11.5 billion on shipping last year, is expected to add 21 new fulfillment cents by the end of the third quarter, an increase of 10 from a year earlier. In total, it has 159 fulfillment centers, 26 sort centers, 38 delivery stations, 52 Prime Now hubs on a global basis and 16 Fresh Delivery stations.
UPS and FedEx have also publicly indicated they aren’t concerned about a looming competitive threat from Amazon. A UPS statement described Amazon as a “good customer” and noted that it “valued our mutually beneficial relationship.” FedEx also emphasized the positive in a statement to CBS MoneyWatch: “Amazon is a long-standing and valuable FedEx customer,” the delivery giant said. “Our global network – built over 40+ years and spanning 220 countries and territories around the world – powers the engine of e-commerce.”
The delivery network that Amazon is building “doesn’t do the same stuff that the networks UPS and FedEx do,” Vernon said. “Is there a way for Amazon to get a package overnight between LA and Chicago? No.”
Even if Amazon were to quit using FedEx, UPS and the U.S. Postal Service, analysts note that they can still get plenty of business from other e-commerce players because web-based retail sales currently account for only about 10 percent of overall spending. Forrester Research expects those sales to hit $480 billion in 2019 compared with $334 billion in 2010.
“We believe [Amazon] will continue to experiment with its own network and inventory management processes in order to optimize costs and improve customer service,” said a recent client note from Stifel. The firm noted that the primary problem for Amazon is getting packages delivered during the peak holiday shopping season.