Report says Amazon is focusing on in-house delivery service

Global e-commerce powerhouse Amazon is hard at work on a new delivery service offering that is geared towards making more products available for free two-day delivery while helping to relieve overcrowded warehouses, a Bloomberg report stated today.

Citing two people “familiar with the plan,” Bloomberg said that this initiative will drive Amazon more deeply into services typically handled for the Seattle-based company by UPS and FedEx.

The report explained that Amazon first began work on this service, entitled Seller Flex, in India in 2015 and subsequently “slowly marketing” it to United States-based merchants with an eye on a national expansion. And it noted that its U.S. launch kicked off on the West Coast earlier this year, which is expected to be followed with what the report called a broader rollout.

In terms of how Seller Flex works, Bloomberg said that Amazon will oversee package pickups from the warehouses of third-party merchants selling goods through Amazon.com and delivery to customers’ homes. These tasks are currently handled for Amazon by UPS and FedEx. And while Amazon may still use UPS and FedEx for delivery, the report said that Amazon will decide how to send a package, as opposed to leaving that at the discretion of the seller.

Among the benefits of handling more deliveries for Amazon, cited in the report, are things like providing greater flexibility and control over the last mile to consumer’s homes, saving money through volume discounts, and helping to avoid congestion in Amazon warehouses through keeping merchandise in outside sellers’ facilities.  Other noted benefits include how Seller Flex would provide Amazon with more flexibility into warehousing and delivery operations of merchant partners, with the potential of making full use of their product inventory, storage, space, and customer proximity with a quick delivery guarantee.

Seller Flex is interesting from a delivery and distribution on a few different levels, according to Jerry Hempstead, president of Hempstead Consulting.

“It's for retailers that peddle their products on the Amazon site. So in some situations, dependent on volume, of course, it’s more efficient to pick up some packages I think they are looking at regional footprints) and inject the volumes directly,” he said. This is in lieu of moving volume from retailer to Amazon fulfillment and then from Amazon fulfillment to consumer. This next logical step can reduce mileage on a piece of inventory, reduce handling, and reduce time to consumer gratification.”

As for the potential impact of Amazon’s Seller Flex on UPS and FedEx, Hempstead said it is not perceived as a “huge threat,” saying it is more of a logical nuance. And he noted that some retailers that use Amazon to sell their items select their own carrier today but are required to meet Amazon’s delivery requirements and some of that business may be subject to diversion away from the integrators.

“I think this new offering will be limited in clientele and delivery footprint,” said Hempstead.

A research note issued by Baird and Co. analyst Colin Sebastian said that Amazon’s final-mile efforts reflect a logical extension to its model as it builds network density, justifying incremental insourcing of purchased transportation spend, as well as ongoing efforts to continue managing rising costs in its final-mile delivery network.

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. Other logistics-related efforts of note by Amazon include things like testing drone delivery of parcels, and building an Uber-like app for freight, among others.

“Amazon’s steps to build out its delivery business certainly has the industry abuzz,” Rob Martinez, president and CEO at Shipware, an audit and parcel consulting services company, told LM earlier this year. “Amazon’s stated goal—rather than to compete with the likes of FedEx and UPS—is simply to minimize their reliance on the national carriers. But make no mistake about it: Amazon is already into the transportation business in a big way. In the past few years, they’ve amassed a fleet of delivery vehicles, negotiated extended leases on forty 767 air freighters, announced plans to invest $1.5 billion in an air cargo hub in northern Kentucky, and recently started acting as a freight forwarder by handling ocean shipments from China. While the national carriers publicly feign disinterest in Amazon’s recent moves, only stating that Amazon remains a very good customer, secretly they have to be nervous.”