Report indicates Amazon is prepping for a new delivery service

The most recent example of global e-commerce powerhouse Amazon expanding its logistics portfolio was highlighted in a Wall Street Journal report published today.

According to the report, Amazon is taking steps to introduce a delivery service for businesses, entitled “Shipping with Amazon” (SWA), that would position it as a direct competitor with the parcel duopoly of UPS and FedEx.

As for the approach, Amazon would take with SWA, the report explained that the service would have Amazon picking up packages from businesses and shipping them to consumers, with the service expected to kick off in Los Angeles soon with third-party merchants selling goods through Amazon.com. And following the Los Angeles launch, Amazon would expand SWA to more cities.

Other key takeaways from the report noted that Amazon would like to open it up beyond third-party sellers to other businesses as well and that Amazon is “planning to undercut UPS and FedEx on pricing, although the exact rate structure is unclear.”

This development is in sync with recent comments made by Amazon CFO Brian Olsavsky the company’s recent fourth quarter earnings call in regards to its logistics operations and plans.  

“We will continue to build our logistics capability…and that will be all the way to end delivery,” he said. “We've been able to increase service levels in many of the cases by delivering ourselves,” adding “... shipping cost is always going to be a strong part of our offering, and it’s going to be increasing due to our business model, and we, at the same time, look to minimize the cost by getting more and more efficient in that area.”

Stifel analyst Dave Ross observed in a research note that his firm believes these statements are consistent with Amazon's long-standing primary directives of improving service and experience for its customer base, and reducing costs in the network.

“Of course, the idea is to grow the offering, if successful. This makes sense - at least in support of Amazon's existing business, as it leverages independent contractors' empty backhaul, so now they can come back to the fulfillment/sortation center with packages,” wrote Ross. “And while this won't threaten FedEx and UPS from an existential point of view, it may start to change pricing discussions in the market, challenging large carrier margins. We continue to believe Amazon will do more in logistics but compete in a leaner, more targeted, asset-light fashion.”

Jerry Hempstead, president of parcel consultancy Hempstead Consulting,  said in an interview that Amazon does not yet have the infrastructure to do on demand pickups for the vast amorphous market, adding that he thinks they would want to chase that business.

“It looks to me like Amazon orders coming from select vendors will simply look and route like they are coming from an Amazon stocking location,” he said. “It’s not Amazon making sales calls on other companies soliciting business away from other carriers. Actually it will pump orders into others networks, just downstream. I think this is a mechanism for Amazon drop shipments originating from vendors and cutting out the intermediate stop in an Amazon fulfillment center. It takes out handling steps, reduces inventory, reduces time in transit etc.”

In recent years, Amazon has been diligent in expanding its own logistics network in the form of things like opening 20 regional sort centers and launching its own air network contracting with ATSG and Atlas Airlines, and getting into ocean freight. Other logistics-related efforts of note by Amazon include things like testing drone delivery of parcels, and building an Uber-like app for freight.

Some other things it has focused on include a new delivery service offering, entitled Seller Flex, which could prove to be a major competitive advantage for the e-commerce bellwether in terms of how it negotiates rates with FedEx and UPS. Seller Flex is geared toward making more products available with free, two-day delivery while helping to relieve overcrowded warehouses. According to a Bloomberg report, the initiative will drive Amazon more deeply into services typically handled for the Seattle-based company by UPS and FedEx.

And in late January Bloomberg reported that Seller Flex had been reamed to FBA Onsite, noting that along with changing the name of the offering, Amazon is recruiting more sellers and telling merchants they can keep goods in their own warehouses, as in the past merchants had to send goods to Amazon facilities and then pay extra fees to participate in FBA Onsite, as well as Amazon’s household goods fulfillment service called Subscribe and Save that offers discounts on frequently purchased items. Among the benefits of FBA Onsite cited in the report were: increasing inventory; shortening delivery times; reducing costs; and letting merchants send inventory to Amazon warehouses and pay Amazon to handle storage, packing and deliver.

“Amazon is growing like a weed, when it comes to its logistics and supply chain plans,” an industry observer said. “They have lots of logistics requirements and will continue to grow logistics capacity in a few different ways. One is by continuing to do business with 3PLs and carriers, and the other is to build out its own transportation network on its own, as well as increasingly provide third-party services and compete with 3PLs.”