E-commerce giant Amazon has already surpassed UPS and FedEx as the nation’s biggest parcel carrier. Now, the company is opening its delivery network of warehouses to all businesses instead of just its own orders to compete head-to-head with the shipping giants.
The Seattle-based firm said Monday its Amazon Supply Chain Solutions division will provide distribution, warehousing and last-mile delivery services to any business, spanning industries from automotive to healthcare and retail, to ship raw materials to finished goods.
“The transportation and logistics industry has always been competitive.”
The move extends a familiar approach for Amazon: The company expanded its Amazon Web Services, or AWS, over three decades from a technology platform for its e-commerce sales into the world’s biggest cloud computing service. It’s doing the same with its global logistics network by officially becoming a third-party shipper competing with UPS and FedEx and such global warehousing and shipping giants as DHL, Maersk Logistics and DSV.
“It’s a playbook Amazon ... has run for years,” parcel and e-commerce delivery pricing consultant Nate Skiver, the owner of LPF Spend Management who produces a newsletter called Special Delivery, said in a post on LinkedIn. “Build world-class capabilities to meet internal needs. Productize and make it available commercially.”
Amazon’s push comes as UPS and FedEx have said they would reduce their reliance on handling Amazon and lower-profit e-commerce shipments because of the rising costs of returning orders cuts into the profits of shipping companies. UPS and FedEx said they would focus instead on servicing smaller and midsize businesses and higher-margin deliveries such as healthcare and automotive items.
“Amazon is bringing the infrastructure, intelligence, and scale of its supply chain services, proven over decades, to businesses everywhere, much like Amazon Web Services did for cloud computing,” Peter Larsen, vice president of Amazon Supply Chain Services, said in a statement.
The step reflects a shift for more than one large company, reflecting the risk in a changing industry landscape. UPS, based just north of Atlanta, said in February it plans to close at least 22 sorting facilities and truck terminals this year to cut costs as it intentionally shrinks its shipping business with online retailer Amazon.
UPS, FedEx shares fall
UPS reduced its share of revenue from shipping goods for Amazon to 8.8% in its most recent quarter, down from recent highs of more than 13%, UPS CEO Carol Tomé said in the company’s earnings call last week.
Nearly two-thirds of the parcel service’s 8% year-over-year decline in U.S. average daily volume “came from the glide down of Amazon volume and our deliberate actions to remove lower-yielding e-commerce volume from our network,” UPS Chief Financial Officer Brian Dykes said during the call.
Investors in the two shipping giants may hold a different view. UPS shares were down 10.5% while FedEx fell nearly 10% in midday trading Monday. Amazon’s shares edged up 1.2%.
Amazon said it has already signed deals with consumer goods giant Procter & Gamble, multinational conglomerate 3M and apparel firms Land’s End and American Eagle Outfitters to rely on Amazon’s logistics network across their supply chains.
Amazon has been evolving into an integrated freight and logistics provider over the past few years. In late 2023, the tech giant launched Supply Chain by Amazon, an automated supply chain solution for sellers, and the following year added Amazon Air Cargo, which allows shippers to buy space on its private airline.
With the rollout of Supply Chain Services, third-party logistics joins other major Amazon businesses such as AWS, e-commerce sales and third-party seller services, advertising, digital entertainment and physical stores such as Whole Foods.
Shipping growth push
A weaker outlook for household goods consumption is pushing Amazon to expand its massive fulfillment network into third-party logistics, said Juan Arias, CoStar’s national director of industrial analytics.
Annual U.S. growth in personal consumption expenditures, a key measure of economic activity, came in at just 0.7% in March, well below the typical rate of more than 3%, Arias said. Slower population and employment growth, a sluggish housing market and a resurgence in inflation will continue to be a drag on consumer goods spending, he said.
“Amazon is trying to tap into other markets as consumer demand for goods in the U.S. has moderated, particularly over the past year,” Arias said.
The e-commerce giant will likely use its existing fulfillment footprint rather than expand into new warehouse space to handle its new third-party logistics business, he added.
Amazon has built over 85 same-day fulfillment centers across the U.S. that will carry the firm’s most frequently ordered items as part of a more streamlined format for fast delivery.
It uses more than 1 million robots across its fulfillment and delivery centers to help pick, sort and transport orders in as little as 20 minutes.
Citi analyst Ari Rosa said Amazon’s launch of supply chain services represents “an incremental step” to compete in the global shipping and logistics business that includes ocean freight wholesalers and trucking companies as well as logistics giants like FedEx and UPS.
“The transportation and logistics industry has always been competitive, and Amazon does not have the scale or physical network to displace all competitors,” Rosa said in an investor note. “Companies with hard assets, quality offerings and entrenched customer relationships will remain competitive, with the biggest risk to asset-light logistics providers.”