Amazon.com Inc.'s (AMZN) new delivery service for business has taken its competition with the traditional shipping giants to a new level. "Shipping with Amazon," or SWA, is set to roll out in Los Angeles with the e-commerce leader's "third party merchants" and then span across the U.S. within the next few years, according to The Wall Street Journal.
The service will allow Amazon drivers to pick up packages from businesses and ship them directly to consumers, beginning with merchants that sell goods on its global online platform. Eventually, the Seattle-based retail behemoth hopes to offer the service to other non-third-party sellers, posing a major threat to delivery companies United Parcel Service Inc. (UPS) and FedEx Corp. (FDX) as it seeks to undercut their costs. The courier companies have seen their shares decline 1.5% and 0.9% respectively on the news as of Friday morning. (See also: How Jeff Bezos Got to Be the World's Richest Man.)
SWA stems from a Los Angeles pilot project first reported on over a year ago and was previously tested and rolled out in London. Given that Amazon already delivers some of its own packages, any other space filled on its trucks will serve as additional revenue, allowing the company to lower prices.
Diversifying Outside its Online Business
In an increasingly digital, interconnected world wherein consumers are purchasing more goods from home, Amazon has won an upper hand with the development of its own robust freight and parcel delivery network, where it can take matters into its own hands. The company reportedly started working on its logistics networks during the 2013 holiday season, wherein a surge in parcel growth caused a number of missed deliveries from parcel services.
At the same time, various moves by Amazon outside of online retail, including its expansion into ocean freight, aircraft leasing and in-home delivery, have given the company more edge over its competitors, such as the world's largest retailer, Walmart Inc. (WMT). Amazon now boasts the largest and fastest growing cloud computing platform, Amazon Web Services (AWS), and holds assets such as a Hollywood studio and its hundreds of Whole Foods brick-and-mortar grocery stores.
Building out a delivery network will be no easy feat for the e-commerce giant, which will need to invest billions on the project to successfully deliver packages for other businesses on a national scale. UPS plans to spend as much as $7 billion upgrading its delivery network this year, after decades of operation. On FDX's December earnings call, analysts probed on the prospect of Amazon entering the shipping business. Management noted that while they don't comment on hypothetical situations, the retailer is a longstanding customer, yet no customer accounts for over 3% of revenue or volume. (See also: Amazon Inching Ahead in Competition With Alphabet.)