FedEx Corp. (FDX) and United Parcel Services Inc. (UPS) face new competitive pressure after Amazon.com Inc.’s (AMZN) latest push into the delivery space with its recently launched “Seller Flex” program. In October, the e-commerce and cloud computing giant said that it has been testing a service in which it picks up packages from third parties selling on its platform and delivers them to consumers’ homes. As Amazon positions itself to take over a role traditionally handled by FedEx and UPS, one team of analysts expects the company to become a full-fledged parcel carrier. (See also: FedEx, UPS Can Beat Amazon Delivery Entry: Goldman.)
Last week, industry trade publication DC Velocity ran a piece by Mark Solomon making the case that Amazon will expand its fulfillment efforts and become much more like a generalized parcel delivery service. Solomon indicated that the Seattle-based online retailer is planning “two-day nationwide deliveries for all shippers, including those who aren’t Amazon customers,” and that it is being tested in Los Angeles and Orange County.
Cheaper Than Legacy Parcel?
In response to the article, Morgan Stanley analyst Brian Nowak issued a research note in which he called Amazon’s continued delivery expansion a “logical” next step for the company. He noted Amazon has the resources and plans to use its own assets as it reduces its reliance on UPS and FDX. The report also indicated that Amazon will only rely on outside providers for “high confidence routes.”
“This makes sense to us as our own work has suggested that AMZN can be up to two-thirds cheaper than legacy parcel avg. rev/unit at similar delivery density,” wrote Nowak, also noting that this was “seemingly confirmed” by Amazon on its recent third quarter earnings call. He added that UPS has been struggling to meet on-time requirements this peak season, “likely exacerbating AMZN’s concerns.” (See also: Buy FedEx—It Will Not Be ‘Amazoned’: Cowen.)