June 18, 2018

UPS keeps sliding after Amazon's entry into the shipping business

15 February 2018, 05:01 | Melvin Schneider

A UPS worker delivers packages

A UPS worker delivers packages

Shipping is now a $21 billion dollar expense for Amazon, and they are listed as one of the biggest shipping clients in the US. It is expected to rollout sometime in the coming weeks.

Once again Amazon is in the news about logistics and the potential for encroachment on territory owned by UPS and FedEx, both of which have Amazon as a major client, the next iteration of what began as Amazon Seller Flex last fall.

Amazon's been pushing toward having more control over its logistics for a while now: they've purchased stakes in at least 2 shipping companies (Yodel, Colis Prive), have a fleet of almost 6k shipping trailers, and own an air freight subsidiary with 32 planes.

Amazon doesn't really make anything but they sell everything, and if you hate shopping as much as I do they make it far less painless.

Amazon controls almost its entire sales process, save for logistics, which the e-commerce titan spent almost $20B on previous year.

Amazon is no stranger to dipping its toe in different stages of the shipping and delivery process. It also created a service called "Deliver With Amazon", which lets local delivery services partner with Amazon to get packages to local customers. With an operating margin of less than 3%, Amazon needs to find ways to face the challenges of managing order costs, which include transporting, sorting, handling, and delivery.

Past year alone, Amazon spent $21.7 billion shipping products sold on its site to its customers.

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The other consideration is that delivery services are actually big money.

Amazon's Prime membership is expanding rapidly.

More than 5 billion items shipped through Amazon's Prime membership program a year ago, according to the company. Free shipping is a huge draw for the consumer.

In an interview with Walt Mossberg at the Code Conference in 2016, the company's Chief Executive Jeff Bezos said "Amazon's business with carriers like UPS and the U.S. Postal Service is growing even as the company gets more involved in the delivery realm".

UPS does not reveal what percentage of its income comes from Amazon. The company's per package volume rose by about 4.5 percent to 5.08 billion. UPS carries about 30% of Amazon's total USA shipments, which is the equivalent of $1 billion in annual revenue from Amazon. "Amazon's fleet of 767 cargo planes allows for later two-day shipping cutoff times for Prime members, and more flexible inventory management across fulfillment centers", they add in the note.

"B2B - and especially the supply chain - has been slow to innovate with innovative tech solutions just because they typically work with large products that are more deeply rooted in brick-and-mortar commerce", he told the E-Commerce Times. Baird identified shipping services as a $400 billion to $500 billion market opportunity for Amazon.

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