From SCDigest's On-Target E-Magazine
- April 30, 2014 -
Supply Chain News: Amazon Rolling Out Its Own Fleet of Trucks
Will Company become a True Rival to USP, FedEx in the End?
SCDigest Editorial Staff
In a move that has long been expected, Amazon.com is now testing use of its own fleet of delivery trucks, in what could be a major threat to UPS, FedEx and the US Postal Service, especially if the company eventually uses its trucks to also do deliveries for others.
Amazon is piloting use of its own private fleet in three markets: New York City, Los Angeles, and San Francisco, after an earlier pilot in the UK. The delivery vans use contract drivers. Amazon has also built its own parcel tracking system, similar to those used by UPS and FedEx.
SCDigest Says: |
 |
| Sanford C. Bernstein & Co. analysts estimate that Amazon shipped about 608 million packages within the US during 2013. Of that, the USPS handled 35%, UPS 30%, regional shippers 18% and FedEx about 17%, Bernstein estimates. |
|
What Do You Say?
|
|
|
|
Of course, Amazon is already piloting delivering groceries in its own trucks under its Amazon Fresh service available now in a few markets.
Why such a move? Amazon may believe it can handle boxes locally from its DCs to customers less expensively than it pays UPS and FedEx. Shipping costs are a major line item in Amazon's cost structure and have rising. Shipping costs, in fact, have grown as a percentage of revenue every year since 2009.
In its just released Q1 earnings report, Amazon's sales were up a healthy 23%, but shipping costs rose even more, up 31%.
Amazon may also be interested in controlling the users experience in some way through use of its own drivers. The company could, for example, end its fledgling partnership with the USPS for Sunday delivery in a few select markets and make those with its own fleet.
Amazon might also be able to better set up specific times for delivery, do same day deliveries, or deliver later in the evening than UPS is willing to do. Amazon is in fact making Sunday deliveries in parts of London using its own trucks.
In the long run, Amazon might even turn into a rival to the major parcel carriers not only for its own deliveries, but by doing so for others as well, company executives told the Wall Street Journal, though they noted such a move would be years off. But such a strategy could be a nice addition to its growing third party "fulfillment by Amazon" service and give it more delivery density.
A recent job posting on Amazon's site noted that "Amazon is growing at a faster speed than UPS and FedEx, who are responsible for shipping the majority of our packages. At this rate Amazon cannot continue to rely solely on the solutions provided through traditional logistics providers. To do so will limit our growth, increase costs and impede innovation in delivery capabilities. Last Mile is the solution to this. It is a program which is going to revolutionize how shipments are delivered to millions of customers."
In his annual letter to shareholders last month, Amazon founder and CEO Jeff Bezos also noted that “We've created our own fast, last-mile delivery networks in the UK, where commercial carriers couldn't support our peak volumes. There is more invention to come."
Experts question in how many markets Amazon could efficiently deliver in, but as the 20+% growth continues, it may get the density it needs to pull it off in many more markets over time.
Last month, consultant Jim Tompkins, CEO of Tompkins International, said that Amazon has made plans to service the top 40 US markets with its own delivery trucks, and the rest with so-called regional parcel carriers such as such as the East Coast's LaserShip Inc. and the West Coast's OnTrac, as well as continue to get some service from the USPS. He implied UPS and FedEx would be cut out entirely.
If Amazon never turns into a direct competitor, pulling a significant chunk of its business from the existing parcel carriers would not have all that strong an impact on their financial fortunes.
(Transportation Management Article Continued Below)
|
30% (UPS' share of Amazon deliveries ) of 608 million total packages equals 182 million. Using an average shipping charge of say $6.00 per parcel would suggest UPS therefore has over a billion dollars in of annual revenue at risk. In 2013, UPS had total revenues of about $55 billion dollars, further implying Amazon-based revenues are less that 2% of UPS' total sales. However, Amazon continue to grow at that more than 20% clip, meaning that share would rise over time.
