Amazon’s Foray into Small Parcel Shipping

The transportation world received a bit of a shake-up this month, as word finally leaked of Amazon’s plans to expand into the small parcel universe currently occupied primarily by UPS and FedEx. Stocks plummeted, experts pontificated, and the two dominant carriers publicly expressed doubts of any imminent threat to their market share. As the dust settles, everyone in the logistics world is wondering who will emerge the winner of the new parcel price wars.

It’s unlikely that either FedEx or UPS were caught unaware by Amazon’s test program to pick up ecommerce shipments from its sellers in the Los Angeles market—first reported by the Wall Street Journal—as news has been leaking about Amazon’s ambitions in the logistics industry ever since 2016. At the time, Amazon insisted that its initiatives, ranging from aircraft leases to a last-mile delivery service with their own fleet of trucks, were internal improvements meant to complement, not compete, with existing carriers. Now, with the announcement of the Seattle giant’s Shipping With Amazon (SWA) brand, the gloves are off and Amazon has stated their intention to compete with FedEx and UPS on price.

The obvious result here is that feeling the crunch, UPS and FedEx will ease up on their rampant price increases and dig for deeper discounts to retain their customer base, especially if Amazon eventually expands their services to beyond just their own e-sellers. While an additional option should naturally lower prices and increase efficiencies in an industry log-jammed by the existing duopoly, it should be noted that the space Amazon is moving into is hardly one that UPS and FedEx have been eager about. The ecommerce B2C boom has hurt the carriers financially by taking resources away from the much more profitable B2B volume. Meanwhile, retailers like Amazon live for the same holiday rush that has wrecked havoc on UPS and FedEx operationally over the last half-decade, causing the same delivery problems that prompted Amazon to look into taking more ownership over their end supply chain in the first place two to three years ago.

But for Amazon to even be considered in the same breath as UPS and FedEx would require substantial progress from the former, as despite its recent spurt of investments it still trails significantly the two market leaders in infrastructure, equipment and expertise. Analysts have estimated that to catch up with the current duopoly Amazon will need to spend “tens of billions” of dollars—but with 13.2 billion dollars already invested in warehouses and other logistical enterprises in 2017, compared to $5-6 billion in capital spending from UPS and FedEx each, according to Bloomberg, Jeff Bezos has proven that his company can’t be considered a long-shot in becoming a major player in whichever industry the tech titan sets his eyes on next.

One key advantage Amazon would have over its two older would-be competitors is its expertise in technology. Flashy viral videos of drone deliveries aside, the future of parcel (and practically every other industry there is) lies in artificial intelligence, and experts have speculated that Amazon’s move into logistics could be an indication of their progress in driverless delivery car technology, an area of development that FedEx and UPS are sure to be actively engaging in as well.

At the end of the day, more consumer choice is always good for the consumer. If expanded to a level where they can reach all (or most) domestic delivery areas, the presumably residential delivery focused SWA program will certainly force UPS and FedEx to be more flexible with their pricing. At the same time, Amazon could ease the two carriers’ burdens as well by poaching away their least profitable volume, improving their margins and granting them operational relief during the busiest times of the year. Most importantly, this additional competitive pressure will certainly spur further investments and innovation in technology and operational efficiency for all players involved, resulting in an improved customer experience in addition to possibly better pricing.