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Supply Chain News: Parcel World Continues to Turn


 

Amazon Cuts Off FedEx for Merchant Deliveries, while will Soon Pass UPS in Total Parcel Volumes

Dec. 18, 2019
SCDigest Editorial Staff


The action in the parcel shipping and efulfillment sector continues to come in hot and heavy.

That includes the news Tuesday that Amazon has informed its marketplace sellers that it would no longer let them use FedEx's ground-delivery network during the holiday season, due to alleged poor delivery performance.

Supply Chain Digest Says...

Amazon is using "density and technology to drive efficiency," Morgan Stanley said, noting it is picking off dense urban deliveries from its former parcel partners.


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The move threatens to cause turmoil and impact the bottom lines of the third-party merchants during the peak weak of the Christmas shopping season. If they can't use FedEx's ground-delivery network for Prime orders, the merchants must quickly find new ways to ship the goods, likely involving higher costs than their contracted FedEx rates, while risking delivery delays as the new carriers (UPS and USPS) are utilized instead.

This is no trivial matter: 58% of Amazon's total merchandise sold now comes through third party merchants who sell on Amazon's platform but generally take care of their own fulfillment, though they can use Fulfillment by Amazon and Shipping with Amazon services.

"Some sellers exclusively use FedEx for Seller Fulfilled Prime [SFP] because they have negotiated good freight rates or have daily pickups," Steve Yates, CEO of Prime Guidance, a company that consults third-party sellers on Amazon and other ecommerce sites, told CNBC. "Not being able to use FedEx for SFP shipments will cause sellers who negotiated good FedEx ground rates to incur higher costs and some may need to scramble to get another carrier to pick up orders."

Amazon told sellers it was only temporarily restricting their access to FedEx's ground-delivery network.

"We have seen a drop in the delivery performance of FedEx Ground and FedEx Home ship methods for Seller Fulfilled Prime shipments," Amazon told sellers in an email delivered Sunday. "To protect Prime customer experience, FedEx Ground and FedEx Home will be temporarily unavailable in Buy Shipping for Prime shipments... until the delivery performance of these ship methods improves."

Amazon told sellers they could still use FedEx's Express shipping service for Prime orders, or FedEx's ground and home delivery services for standard, non-Prime orders. However, FedEx Express is double or triple the cost of using FedEx ground.

Of course, FedEx earlier this year made major news by walking away from its Amazon business as its contracts for providing services to Amazon directly expired this summer.

Some are saying the move is just another in a series of steps Amazon is taking to build out its own parcel shipping capabilities.

"You don't have to eagle eye vision though to read the writing on the wall," one merchant said in an email to CNBC. "Amazon is eventually trying to decrease its reliance on all third-party carriers, and UPS is probably the next in line."

This isn't a first for Amazon. In 2018, Amazon prevented sellers from using first-class shipping with the US Postal Service for Prime orders, citing similar performance issues.


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Meanwhile, new research from Morgan Stanley says Amazon is already delivering about half of its own packages in the US and will soon pass both United Parcel Service and FedEx in total parcel volume.

Morgan Stanley said Amazon Logistics "more than doubled its share" of US package volumes from about 20% a year ago and is now shipping at a rate of 2.5 billion per year. By comparison, Morgan Stanley estimates UPS and FedEx have US shipping volumes of 4.7 billion and 3 billion packages per year, respectively."

Morgan Stanley expects Amazon in-house handled parcel volumes to grow at an astounding 68% annual rate through 2022. If accurate, it would mean Amazon Logistics will be handling 6.5 billion packages per year by 2022, versus 5 billion packages per year for UPS and 3.4 billion packages for FedEx.

Amazon is using "density and technology to drive efficiency," Morgan Stanley said, noting it is picking off dense urban deliveries from its former parcel partners.

According to Morgan Stanley's estimate, about 61% of Amazon Logistics' package volumes are from suburban areas, 28% are from urban areas, and just 11% are from rural areas – the latter half the rural share of its competitors.

As a result of all this, Morgan Stanley lowered its price target on UPS shares to $78 from $85 — about 33% below its current price.

Amazon simply continues to change the face of logistics.


What do you think of Amazon cutting off FedEx? Are UPS a nd FedEx in trouble because of Amazon?Let us know your thoughts at the Feedback section below.

 

 

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