Earlier this month, shares of traditional delivery companies United Parcel Services Inc. (UPS) and FedEx Corp. (FDX) dipped as Amazon.com Inc. (AMZN) announced it was moving into their territory. With the launch of "Shipping with Amazon" (SWA), the Seattle-based retailer is rolling out its service to "third party merchants" that sell on its global online platform with plans to expand the offering first outside its pilot city, Los Angeles, and ultimately to sellers outside of its network.
In a note to clients this week, one team of analysts on the Street indicated that investors overreacted regarding Amazon's potential threat to the courier companies, instead overlooking the potential damage to the U.S. Postal Service. Due to factors including Amazon's sheer size and its ability to undercut its rivals in terms of what it offers its employees and its customers, the USPS is the "primary company at risk," despite recent headlines. (See also: Would 'Shipping with Amazon' Kill UPS and FedEx?)
The USPS, Amazon's largest carrier, stands not only to lose volume to SWA, but also "generally lacks the same labor flexibility and service offerings" as the e-commerce and cloud computing giant, wrote JPMorgan analyst Brian Ossenbeck in a note to clients. "Postal workers are unionizing and Amazon Flex drivers can also provide premium products and services such as perishable goods and same day deliveries."
Mulling Over the Last Mile
Ossenbeck rates FDX at overweight, with a price target of $315 reflecting a 30.3% upside from Tuesday morning. Shares of the Memphis-based delivery giant are down 11.8% over the most recent one-month period, compared to the S&P 500's 3.9% decline over the same period. He is less bullish on shares of UPS, rating the stock at neutral with a 12-month price target at $139, implying an 31.4% gain in the next year. Trading down 0.5% at $105.84 on Tuesday, UPS has sunk 20.3% over the past month.
The analyst suggested that Amazon's localized pickup and delivery system, beginning within the Amazon ecosystem, is not fairly comparable to the standard ground offerings of either UPS or FedEx but is in direct competition with "the final mile of USPS."
"While UPS and FedEx could face pressure if the capabilities expand into business-to-business or international deliveries, we expect the lost volumes to SWA or the FBA [Fulfillment By Amazon] Onsite optimization will actually provide some relief to the significant mix pressure from an accelerating pace of business-to-consumer volume growth," added Ossenbeck. (See also: Amazon Eclipses Microsoft in Market Value: A 1st.)