Analysts: Amazon May Launch Own Package Delivery Fleet
Amazon.com Inc., the world’s largest online retailer, may be close to launching a third-party transportation and logistics service and reportedly has begun recruiting executives to develop its own delivery fleet, according to industry sources and recently published reports.
“Amazon is not finished disrupting industries,” said Colin Sebastian, an analyst with Baird Equity Capital, who laid out the rationale for Amazon using its technological and distribution capabilities to begin hauling goods for itself and others.
“Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global providers,” Sebastian wrote in a recent report. “We would expect Amazon to introduce competitive transportation and logistics services on an incremental basis [but] with a long-term focus.”
The global market for fulfillment services, including package delivery, freight forwarding and contract logistics, represents a $400 billion to $450 billion “market opportunity” for Amazon, Sebastian said.
Amazon, which started as an online bookseller in 1995, generated $89 billion in sales in 2014 and is on track to reach $100 billion this year.
Company spokeswoman Kelly Cheeseman declined to speak with Transport Topics, other than saying: “We have a long-standing policy of not commenting on rumors or speculation.”
Amazon uses a mix of companies, including UPS Inc. and FedEx Corp., along with the U.S. Postal Service and local couriers, to deliver goods from more than 100 distribution facilities in the United States and 180 facilities worldwide.
“We believe that global logistics is a highly competitive and fragmented market that has yet to capitalize fully on the emergence of Web-based technologies,” Sebastian said in his report. “As such, we believe certain segments of the logistics market, namely last-mile parcel delivery as well as the much larger contract-logistics space, are areas in which Amazon could provide a compelling alternative to traditional shipping/logistics providers.”
Other analysts say they see the same signs but are skeptical of how far Amazon can go to compete with existing transportation and logistics service providers.
“We know that Amazon is willing to try just about anything,” said Dave Ross, an analyst for Stifel Equity Research Group.
“Our sense is that this will be an ever-emerging transportation solution for the company, and they may shift directions a few times before settling on what they really want.”
In a report published earlier this year, Ross said that UPS and FedEx “will remain an important component of Amazon’s distribution strategy for the foreseeable future.”
Jim Tompkins, CEO of Tompkins International, a supply chain consulting firm in Raleigh, North Carolina, said he’s convinced that Amazon can and will be a major player in providing local delivery service for customers.
“A key competitive weapon for e-commerce is speed of delivery,” he said.
Amazon already operates a small fleet of trucks to deliver groceries in select cities and uses contract drivers to make same-day deliveries in at least 17 metropolitan areas. Amazon founder Jeff Bezos has invested over the years in a number of delivery-related ventures, including the defunct online grocery delivery startup Webvan and more recently Convoy, a Seattle-based company that offers a mobile app that can be used to procure and manage transportation using existing truck operators.
Amazon also is testing the use of drones, and last week, in an ironic move, the company opened its first brick and mortar retail store, called Amazon Books, near the University of Seattle.
Satish Jindel, president of SJ Consulting Group, said he believes Amazon will provide its own delivery service in part because it will give the company leverage in negotiating with other carriers.
To retain business with Amazon, Jindel added, UPS and FedEx must make adjustments in pricing and operations to accommodate more local package-delivery volume.
By offering goods from third-party sellers, Amazon already acts as a transportation manager, said Evan Armstrong, president of Armstrong & Associates, a research and consulting firm in West Allis, Wisconsin.
“This is nothing new in third-party logistics, where 3PLs and carriers often compete for business from shippers and in turn benefit from each other’s services,” Armstrong noted.Securing transportation capacity from UPS, FedEx and others while developing its own transportation network — a blend of cooperation and competition known as “coopetition” — Armstrong said, “is a customer-centric approach.”
Amazon has begun assembling a team of executives to support a rollout of a shipping network in 2016, said Mark Solomon, executive editor of the trade magazine DC Velocity.
In a column posted online Oct. 21, Solomon reported that Amazon had retained a recruiting firm to identify senior executives within the small-package industry to create a service that would guarantee delivery within a 90-minute to two-hour window.
Evidence of Amazon’s intentions, however, also can be gleaned from job descriptions on the company’s website, which include 56 current openings for supply chain and transportation management jobs, including senior program manager — last-mile transportation, brokerage operations in East Point, Georgia, and program managers for supply chain, linehaul scheduling, inbound transportation and home delivery.
When asked about plans for delivery services in a conference call with analysts after the release of third-quarter earnings last month, executives said Amazon values its relationships with current carriers and will continue to invest in “infrastructure” to achieve faster delivery times.
