First Amazon.com changed the way we shop. Now it’s changing the way we ship.
In the past few months, Amazon has moved openly and aggressively to increase its reach, capabilities and capacity in the logistics and distribution arena. The Seattle-based company purchased thousands of trailers blazoned with Amazon logos in the U.S., registered as a non-vessel-operating common carrier to better manage the flow of goods from China to the U.S. and leased 20 U.S. domestic cargo planes from Air Transport Services Group.
Across the U.S., Amazon fulfillment and sortation centers and smaller Amazon Prime Now hubs and Amazon Fresh grocery delivery stations are mushrooming. Through a mobile phone application, Prime Now offers two-hour delivery of select items for free to Amazon Prime members in more than 25 U.S. metropolitan markets. One-hour delivery costs $7.99.
Amazon is expanding rapidly in Europe, building a delivery and fulfillment network country by country, and expanding shipments into China using a free trade zone in Shanghai.
Is Amazon looking to compete directly with FedEx, UPS and DHL in the package-delivery market? FedEx founder and chairman Fred Smith on March 16 called that idea “fantastical” and said reports of market disruption are based on a lack of in-depth knowledge of logistics.
“Network design, technology, facilities, capabilities and route/stop densities are the key elements in the FedEx, UPS and (U.S.) Postal Service systems that make it highly likely these entities will remain the primary carriers for e-commerce shipments in the U.S. for the foreseeable future,” Smith told Wall Street analysts during FedEx’s fiscal third-quarter 2016 earnings conference call. A surge in e-commerce boosted volumes at all three FedEx divisions, including package carriers FedEx Express and FedEx Ground, during the quarter.
“It would be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx” or UPS and the U.S. Postal Service, Mike Glenn, president of FedEx Services, said during the conference call. No single customer, Glenn also noted, represents more than 3 percent of total FedEx revenue. For context, 3 percent of FedEx revenue for the nine months ending Feb. 29 would be $1.1 billion.
To FedEx, Amazon’s actions resemble those of traditional retailers that use internal transportation operations to position inventory across store and fulfillment locations. Amazon isn’t a traditional retailer, however, and its rapid growth, its investment in technology and increasingly time-specific delivery demands are challenging transportation suppliers, including the big parcel carriers.