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Amazon’s Growing Delivery Capacity A Threat To Profits Of Carriers Like UPS And FedEx


02/02/2020


Amazon’s Growing Delivery Capacity A Threat To Profits Of Carriers Like UPS And FedEx
Over the last six years, the one day shipping delivery mechanism for Amazon.com Inc has helped the company to create a transportation and delivery network that is able to deliver almost as many packages as that by FedEx Corp.
 
This one day shipment delivery helped Amazon to record a very strong performance during the recently concluded holiday season quarter. It also shows that high ambitions of the company.
 
According to analysts, profits at United Parcel Service Inc and other courier companies could get reduced because of Amazon’s growth. However given the fact that there is a constant boom in the e-commerce industry and the need for Amazon to serve its own customers means that the courier companies can relax for now.
 
Following an unexpected increase in the holiday orders in 2013, deliveries of all of which went to UPS and FedEx, Amazon - the largest online retailer of the world, began developing its own delivery mechanism. In 2019, about half of its total global orders – about 3.5 billion packages, were delivered by Amazon itself. Compared to that in the same period, about 3.8 billion deliveries were handled by the 46-year-old FedEx. And compared to the total deliveries made by the UPS last year, Amazon’s own deliveries were not far away with the e-commerce giant delivering 3.5 billion packages globally while UPS delivered 5.5 billion packages. It should be mentioned that UPS was founded in 1907.
 
According to predictions of research firm eMarketer, the value of the global online sales market is slated to touch $6.25 trillion in 2023 which will be 560 per cent greater than the number in 2013.
 
Cathy Morrow Roberson, founder of Logistics Trends & Insights, said that “there’s definitely a room for a third” major shipper. Roberson added the dominance of the market by UPS and FedEx keeps prices of delivery high in the United States.
 
However the competition being provided by Amazon is lowering rates which is squeezing the profits of the established United States carriers which is accentuated by the rising of some costs of e-commerce deliveries. It is often costlier to fulfill online order deliveries compared to business packages because online deliveries are often in far flung or one off residential areas. .
 
Lower cost urban deliveries are being done by Amazon through its in-house service so far while carriers have been used for handling of rural packages. Costs per package are lower than rural routes because of the density of urban environments.
 
Analysts however pointed out that the unified delivery network of UPS is more efficient than the split FedEx Express and Ground networks. However 11.6 per cent of UPS’s revenues come from deliveries of Amazon.
 
“As with any customer, there’s no such thing as unattractive freight, just unattractive pricing, so it will be up to UPS to make a decent return on this growing customer,” Stifel analyst David Ross said in a client note.
 
In contrast, business terms with Amazon were broken up over the summer by the Memphis, Tennessee-based FedEx which resulted in a loss of just 1 per cent of its revenues.
 
(Source:www.reuters.com)