Amazon, the world’s largest online retailer, has relied on delivery services such as United Parcel Service and the US Postal Service to get its millions of packages to its customers … until now.
The web-based retailing giant is not testing its own network of “last mile” delivery services in San Francisco and plans to launch similar test runs soon in Los Angeles and New York, according to the Wall Street Journal.
Under the new system, trucks loaded with Amazon packages are loaded onto Amazon’s own trucks and delivered to customers by Amazon employees. While relatively low-tech compared to the experimental flying drones Amazon reportedly also is developing, taking control of its own delivery system will substantially reduce its enormous shipping costs, at least after the initial investment in trucks, equipment and labor.
But the move also could be a big blow to UPS, FedEx and the US Postal Service, especially since Wal-Mart, eBay and Google are reportedly also developing their own delivery services. Currently, UPS handles about 30% of Amazon’s deliveries, with the Postal Service handling 35% and FedEx about 17%. Smaller regional shippers handle the remaining 18%.
Rising Shipping Rates
Both UPS and FedEx raised the ground rates they charge between 3% and 5% per year over the past five years. Those rising shipping costs were cited by Amazon when it announced earlier this year it was raising the prices of it’s Amazon Prime two-day shipping membership by $20, or 25%.
Jack Atkins, an airfreight and logistics analyst for Stephens Inc., said Amazon shipments only account for about 1% of the revenue for both UPS and FedEx, so if Amazon were to launch the delivery service nationally it might not be as devastating as it seems.
In fact, FedEx CEO Fred Smith said last December that Amazon “can unquestionably do local deliveries should they choose to do so.” But he added that most of the nation’s other packages would continue to be transported by FedEx and other delivery companies.
Already Delivering in the UK
Amazon CEO Jeff Bezos said this isn’t the first time the online retailer has experimented with delivering its own packages.
“We’ve created our own fast, last-mile delivery networks in the UK, where commercial carriers couldn’t support our peak volumes,” Bezos said. “There is more invention to come.”
But some in the UK have complained that Amazon’s delivery performance was less than stellar, with many complaints of missed, late or inaccurate deliveries.
Problems with Christmas Deliveries
Marc Wulfraat, president of MWPVL International, a logistics consulting company said Amazon is green-lighting its delivery system in the wake of complaints over the Christmas holidays regarding delays caused by the company overloading other delivery services with its packages.
“What happened during Christmas cost a huge amount of money,” Wulfraat said.
Jerry Hempstead, president of Hempstead Consulting, said San Francisco, LA and New York are three of Amazon’s biggest customer bases, so it’s not surprising they are starting there.
“Of course, this is the most profitable business for whomever is their current service provider to Amazon, so Amazon will skim off the best and leave the lower density zip codes to someone else to deliver,” Hempstead said.
In addition to delivery, Amazon also is experimenting with other product lines, including original video programming, set-top boxes for streaming video and smartphones, among other products.
