Amazon Likely To Offer Consumers a Standalone Alternative to UPS and FedEx

Two of the most innovative companies in the world are Google and Amazon. They’re impressive in similar ways. They’ve built capabilities, scaled them, and used their new internal capacity to compete aggressively in adjacent industries.

No one can touch what Google has done in artificial intelligence at scale. They built and effectively managed large scale data storage, and branched out to manage web services for other companies (Google Cloud). They used the data storage and search capability to offer e-mail, which they scan to learn tremendous amounts about their customers.

When I receive an email with travel plans, Google knows where I’m going. They know where I have dinner reservations, too, and tell me when I should to make it to a restaurant on time. They’re embedded in my phone through its operating system, and track location. There’s no company with the kind of integrated understanding of habits, preferences, and plans that rivals Google.

Amazon, too, needed to build huge storage and bandwidth. Their volume of e-commerce is breathtaking, but it also spikes significantly during peak buying periods like Black Friday. They needed to be able to manage Black Friday traffic, but once built those systems were ripe for leasing out to other companies (Amazon Web Services). They began by selling books, grew into areas like music, and now sell everything. They’re in grocery delivery, and have experimented and pulled the plug on experiments aggressively (Groupon didn’t eat the world, and neither did Amazon Local).

Just as Amazon built up server capacity for its own needs before offering that capacity for sale, Amazon has built its delivery network to manage its own package delivery – but will eventually take on UPS and other shipping services, and will do it with the same relentless focus on understanding what customers want and delivering that to them.

Amazon now delivers more of its own packages than UPS and FedEx do. They’ll deliver over 3.5 billion packages around the world in 2019. That alone is two-thirds of the volume of all UPS deliveries on behalf of all of their customers.


Credit: Amazon

The Amazon package business may exceed FedEx volume in 2020 and UPS volume in 2021. Amazon reports that they employ 90,000 workers at U.S. delivery stations. They have a network of independent drivers in branded vehicles. They’ve built the scale to deliver Christmas, but Christmas comes only once per year.

While they’ve told investors that their delivery network will ultimately bring down their shipping cost, that seems like a very limited piece of what it’s all about. It guarantees them the capacity they need, it might even lower their cost, but they’ve built an asset that’s only so far deployed in a limited way. Offering their shipping services throughout the world to other merchants could put them in direct competition with UPS generating $7 billion in revenue within 2-3 years.

Additionally, Amazon has begun offering a shipping service — dubbed Amazon Shipping — to merchants in some areas that would include non-Amazon deliveries as well, putting the company into direct competition with its current big partners like UPS and USPS. In these instances, Amazon would act in many ways like a traditional shipping company, handling everything from picking up orders at a merchant’s warehouse to executing the final delivery to their customer’s door. Morgan Stanley estimates that Amazon Logistics could be handling 1.5 billion to 3.5 billion non-Amazon packages by 2022, adding at least $7 billion in revenue to Amazon’s overall business.

Groceries (and delivery services like Instacart) are having to contend with Amazon in food delivery. Amazon (the bookseller) and Google (the search engine) are now dominant players in cloud computing. Will Amazon’s next big move be to disrupt air cargo?

It was only just 2016 when the very first Prime Air 767 got its livery. Now if your airline is retiring its 767s it’s probably because of demand from Amazon.

Amazon appears to be succeeding in the world of atoms, not just bits, which is an area Google hasn’t managed to crack yet. Cargo by the way is the airline deregulation that everyone agrees worked.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. From an historical perspective, is it in the long run good for the consumer, let alone current firms and their employees, for mega companies like Amazon to dilute, if not slowly destroy competitors?

    Look what Japan, Inc did to the American marketplace in the 1970s by undercutting competitors until they simply dominated the marketplace.

    For now, I can only think of two American firms where the consumer would be better served if their competition would just swallow them–American Airlines (determined to win the race to the bottom) and Amtrak (currently a government sanctioned monopoly using its power to subsidize its deficit-ridden Northeast Corridor by requiring all other states to pay exorbitant, non-GAAP compliant full cost allocation.)

  2. Amazon will be forced to divest its companies. Maybe not next year, but it is definitely on the horizon. Amazon is too big and very manipulative of markets it enters. Competition doesn’t stand a chance. That is why it will be broken up. Even competitors merging will not help, because that will result in duopolies, which will be bad for consumers.

  3. This has been inevitable, and I welcome it. I think shipping is different from shopping. Yeah, Amazon has a stranglehold on same-day and one-day delivery of items purchased from them, but offering end-to-end shipping just provides another option in addition to UPS, FedEx, and USPS. Having more options for shipping when selling on eBay, for example, can only help consumers for the foreseeable future by driving down costs thru competition.

    Now, if 20 years down the road Amazon has crushed UPS and FedEx into nothingness, then we could have an issue. But if we do, it means Amazon outperformed those companies (and presumably at a lower price). Being scared of a new entrant into a market because they might eliminate the competition is exactly the reason you need new entries into markets, it means the previous kings of that segment weren’t doing it well enough and/or at the right price.

    Naturally, I’d like to see foreign carriers do the same with US domestic air travel. But we don’t allow it because we know they’d do it better, and protecting the crap product the US airlines give us is allegedly in our best interest.

  4. It’s kinda funny how they don’t deliver to rural areas, they don’t deliver large items like the furniture they sell. The price they get charged by those with means will continue to rise and limit any potential savings. The union will also be making a good push into the delivery drivers at Amazon they have terrible work conditions and make the least out of all delivery drivers. Plus UPS, FedEx, Post office can and will shut them down at Chris time if they really feel threatened. Amazon wouldn’t be able to deliver anything as they would be back logged for weeks they would have to shut down their site.

  5. It’s kinda funny how they don’t deliver to rural areas, they don’t deliver large items like the furniture they sell. The price they get charged by those with means will continue to rise and limit any potential savings. The union will also be making a good push into the delivery drivers at Amazon, they have terrible work conditions and make the least out of all delivery drivers. Plus UPS, FedEx, Post Office can and will shut them down at Christmas time if they really feel threatened. Amazon wouldn’t be able to deliver anything as they would be back logged for weeks on end. They would have to shut down their site to catch up sending prime members elsewhere.

  6. They are using AAWW and ATSG for their air transport arent they? Do they have any aircraft they own directly?

  7. Amazon may start to deliver its own packages but they are one company. UPS has so much clientele bedsides them. The next Amazon is Fashionnova, who do you think ships their stuff already? UPS, a company that has been around over 100 years, a trucking company. FEDEX is known as an airline with different tax benefits from the government. Do your homework, don’t sell UPS stock, buy more.

  8. My ups truck had more amazon packages than ever on Christmas Eve thanks to Amazon NOT being able to handle their own deliveries. Amazon customers should thank ups for saving their Christmas.

  9. Read recently that Amazon is cherry picking zip codes and using USPS for deliveries that do not fit their guidelines respective to profitability. Amazon is taking on the logistics industry. Watch the coming years. This focus is one that can only lead to anti trust and monopoly issues.

  10. Instead of “They began by selling bookings”, I think you meant “They began by selling books”. Bookings maybe in the future?

  11. This was an interesting theory but there are some holes in this argument. 1st: aws hasn’t been a monopoly in that market. Microsoft and Google are still major players. 2: Amazon delivery is entirely different from UPS and FedEx. Ups and FedEx offer a timed delivery service something Amazon doesn’t do. They’re more of threat to USPS package delivery than the previous other 2. 3. Amazon’s competitors wouldn’t allow alternatives (FedEx, UPS) to leave the market and have to rely on Amazon for their delivery.

  12. Wake me up when they have their own airline. No Prime Air doesn’t count because those are flown by other airlines who are having trouble keeping pilots. Wake me up when they have a network that even comes close to what FedEx does on an international level. You are comparing apples and bowling balls here.

  13. Sigh….

    Another article about how Amazon “delivers it’s own packages”

    Another miss.

    Amazon does not deliver anything. They do not own an aircraft. They do not employ any pilots.

    It’s entirely subcontracted out to Atlas, Southern, ATI… And soon Mesa, and sun country.

    They paid FedEx and UPS to deliver their packages, and now they’re just paying others less and playing them all against each other. The result is lower wages to overworked pilots. This Is an industry she profession that historically does not do well under these conditions, and the results should be no more apparent than in the recently released docket of the Atlas Air crash. Which was operating for Amazon.

    I don’t know how Amazon continues to trick writers into thinking they’re reinventing the wheel. They are managing to create a “regional” industry within cargo and drive down wages. They’re not “innovative”, they’re destructive.

  14. While Amazon, Google, Apple and other such large tech giants with major household name recognition have done great things for consumers, they also are in some way a long-term threat to American technological innovation since they basically act as lid on the ability for Independent, boot-strapping tech startups to get talent, and these giants sort of cap startup’s growth potential even if such startups see good success.

    About Amazon’s own delivery service being built up, I prefer that Amazon do it without being allowed to buy out FedEx or UPS.

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