You’ve probably heard the news: Amazon is reportedly testing its own shipping service, which will move goods for Amazon Marketplace retailers. Shipping With Amazon — reported in The Wall Street Journal, Reuters, and The Washington Post but not yet officially confirmed by the company — would be the e-commerce giant’s latest move toward disrupting the parcel shipping industry.
Shipping With Amazon would be a third-party service, whose couriers would pick up products from businesses who sell on Amazon.com and deliver their merchandise to Amazon warehouses, where it would join the company’s massive distribution network — which still relies on traditional carriers, at least for now.
Despite Amazon’s enormous market reach, building a delivery network big enough to compete with FedEx and UPS will require huge investments in vehicles and distribution hubs, which could take years. But the new service follows the rollout of Amazon Seller Flex, which picks up third-party merchants’ sales and delivers them directly to local customers, by just six months.
Amazon is building a comprehensive supply chain one link at a time — and sellers are already expressing interest in switching to this new carrier.
For Customers: Faster Parcel Deliveries
Amazon has been experimenting with a wide range of faster delivery options for years now. The key to their strategy is their fulfillment centers: 44% of Americans live within 20 miles of one of these warehouses, and as Amazon continues to expand and Americans move toward cities, that share is likely to grow. Traditional retailers have tried to imitate this model with ship-from-store options, but those programs can’t compare to Amazon in scale.
Amazon has also innovated in last-mile delivery. In response to customer complaints about doorstep theft — and a desire for greater efficiency for drivers — the company debuted Amazon Locker. They installed parcel lockers in the lobbies of apartment buildings and in central urban destinations. Drivers deposit packages there, customers receive notifications confirming delivery, and then use a private one-time code to open the locker and collect their order.
Beyond that, there’s the much-hyped Amazon Prime Air service, which could use drones to deliver packages in as little time as 30 minutes. It’s still in private trials in the United Kingdom, but is poised to cut costs enormously if it can remove drivers from urban delivery altogether. And Amazon Fresh, a same-day grocery delivery service, continues to prove successful.
Amazon has a track record for fast deliveries. The company normalized two-day shipping, and has excelled in the growing same-day delivery market. As Amazon’s delivery offerings expand to cover more and more logistics — fulfillment center to customer, and now seller to fulfillment center — we should expect delivery times to fall toward a two-day norm.
For Shippers: Cheaper Shipping (Potentially)
Amazon remains one of the traditional carriers’ biggest customers. The company has surely negotiated favorable contracts, but it’s still subject to rate increases, holiday surcharges and oversized package fees. If Amazon can bring shipping in-house, it can cover its own costs, rather than paying another company’s margins.
The company may have the size and resources to pass those savings on to end-line customers. Or the profits may just move from FedEx and UPS to Amazon. But because Amazon has already standardized free shipping for Prime customers, buyers may not notice either way. Shipping costs are already built into the costs of Prime products; an Amazon-owned delivery service may do the same thing.
Internet Retailer Research surveyed sellers in February and found that a majority would consider switching from their current carriers, as long as the price was right. However, 55% said they wouldn’t switch unless Amazon’s prices were 10% to 20% lower than their current carriers. Only 21% said they’d switch if Amazon were 1% to 9% cheaper.
Beating traditional carriers on price shouldn’t be difficult for Amazon. Beating them by 10% to 20% might be harder. But again, Amazon benefits from its size and access to capital. The company operated at a loss for the first decade of its life; executives likely expect the delivery service to lose money out of the gate, and may be willing to keep prices artificially low to secure shippers’ contracts.
UPS has been delivering parcels in the U.S. for more than a century, and FedEx for nearly 50 years. Amazon will not be able to catch up right away. If the pattern we’ve seen so far holds, Amazon will debut one link in the supply chain after another. The company may not be able to cut out traditional shippers for years, if ever.
Legacy carriers probably won’t see a huge drop in revenue, at least not right away. Amazon is only responsible for about 10% of UPS’s revenue and 3% of FedEx’s revenue.
But Amazon has already been disrupting industries — bookstores, retail at large, grocery, video and more — for two decades. It’s reasonable to expect them to upend this one too.
In the meantime, start gathering as much data as you can on your shipping profile. If you have to negotiate with Amazon someday instead of with FedEx or UPS, you’ll need to understand your shipping needs as well as possible.
Reveel can help you build that database with software, and later, help you use it to prepare for contract negotiations. We can also run a free invoice audit to save you money starting now. Let’s connect today to keep your business ahead of the game.