Amazon’s in-house delivery push has the industry’s attention

While it may not be a tremendous game changer, last week’s news that Amazon is taking steps to step up its plans to increase its package delivery and logistics services capabilities through the introduction of a new offering that, it said, will enable entrepreneurs to set up their own businesses to deliver Amazon packages, still remains notable and fairly significant too.

Is it significant enough for one to consider the notion that the global e-commerce bellwether could eventually force its way into the conversation with UPS and FedEx as a top parcel carrier with a true national delivery footprint? No, it is way too premature, as well as highly unlikely that would come to fruition, according to many industry stakeholders.

There are many reasons for that, too, including the density and physical assets and infrastructure such an endeavor like that would require, not to mention to financial commitment too, but I am pretty sure that part would not be a huge concern for Amazon.

In any event, when this news broke last week, there was no shortage of feedback from people about what Amazon’s expanded push into gaining more control over its own deliveries really means.

Rob Martinez, CEO and co-founder of San Diego-based parcel consultancy Shipware LLC, put it this way: “My initial thoughts are that this is the Airborne Express model – but only delivering packages for one customer: Amazon.  What a great way to control their costs!”

That is an apt way of describing it for sure, it seems. And many of Martinez’ colleagues at Shipware had various takes on it as well.

Rebecca Lannon, Client Solutions Manager for Shipware and an 11-year FedEx Revenue Management veteran, explained that while she does not see Amazon as a threat to major carriers at this point in time, as e-commerce continues to grow at a rapid pace and carriers reach capacity, it is becoming necessary for additional options in package delivery.

“The carriers aren’t able to expand their networks fast enough to keep up with demand,” she said. “Additional entrants into the marketplace are essential if we expect to see deliveries continue to arrive at the consumers door step on time. Maybe Amazon is onto something. Is it possible for other retailers to build their own transportation network in house and save on transportation costs? The bigger picture is not Amazon becoming a direct competitor, but other organizations building similar networks on their own and taking profits and market share away from UPS/FDX/DHL/USPS.”

At the moment, though, she observed it is really still too early to say how this will impact the industry, noting that Amazon has a fleet, but may currently lack the expertise in place to optimize the fleet. She also noted that the only packages that are cost effective to deliver are in large dense, markets and that Amazon may never be able to deliver 100% of their own packages and may not make a play to become a major carrier.

What Amazon is doing, according to Keith Myers, Shipware senior consultant for professional services and ex-FedEx revenue management executive, looks like the FedEx ISP model.

This led to the question of whether Amazon will face any of the same legal challenges that the ISP program faced. 

“I’m still amazed FedEx was able to keep them as contractors and not employees,” he said. “For customers that sell on Amazon, they’ll need to be aware that those packages might not contribute to their earned discounts/portfolio tiers anymore since they probably won’t go on FedEx or UPS. In the short term, I don’t think much will change but as more contractors come onboard and volumes scale, then the question will be does Amazon want to move into deliveries of non-Amazon shipments?  My guess is no – it’s not worth the extra hassle.”

Shipware USPS specialist Gordon Glazer said that, from his perspective, it is going to be a fantastic move for Amazon to have uniformed drivers in Branded vehicles making deliveries.  

“[The] current setup with Flex always seemed to me to be kind of sketch, folks in unmarked private vehicles and white vans lurking in the neighborhood,” he said.

And, pointing to a 2017 Amazon 10-K filing, he noted that Amazon outlined the multibillion-dollar cost of making good on its free shipping offers.

“Shipping costs, which include sortation and delivery center and transportation costs, were $11.5 billion, $16.2 billion, and $21.7 billion in 2015, 2016, and 2017,” the filing said. “We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we reduce shipping rates, we use more expensive shipping methods, and we offer additional services.”

That is a huge number, even when putting Amazon’s reach size, scope, and scale into perspective.

That becomes even more apparent, when Amazon’s volumes are put into context, as they were by John Haber, founder and CEO at Spend Management Experts.

Haber explained that analysts are forecasting a significant shift of volume away from the Big 3 (UPS, FedEx and the U.S. Postal Service) over the next couple of years.

“Amazon ships over a billion packages a year, and current estimates have the Big 3 delivering approximately 83% of those (with the USPS delivering nearly 50%),” he said. “With this new program, some anticipate the total volume handled by them to drop to around 65% over the next five years.”

If those numbers are indeed accurate, that data point sure is significant.

What’s more, Haber said that Amazon continues to build out its logistics infrastructure, which will continue to reshape the delivery market.

“Although Amazon is currently focused on delivering Amazon packages, if successful, this could further open the door into pickup and delivery managed by Amazon for other customers,” he said.

“This move demonstrates that Amazon has decided to take more control of its own destiny and not simply rely on the Big 3 to provide the capacity and speed they need (or want) for customer deliveries. This move could also negatively impact regional parcel carriers that Amazon currently utilizes. It will also likely take drivers from the regional carriers, and potentially other companies such as Uber and Lyft, causing the impact to be felt in other industries.”

What happens with Amazon from here on the delivery front really remains to be seen on various fronts. What is clear, though, is that it is taking what it views as needed and necessary steps to take further control of its logistics capabilities. And whether it is, or is not, as big a deal as some think it could be, it’s clearly not a little deal either and you can be sure FedEx and UPS, as well as countless other carriers, are definitely paying close attention.