Rumors of Amazon’s entry into the parcel business have been roiling the shipping industry for more than a year now. Every few months, a small piece of evidence makes their package delivery program a possibility a little more real.
First, it was Seller Flex, bringing third-party merchants into Amazon’s existing fulfillment network. Then it was Hub by Amazon, which threatened to disrupt the package pick-up market. Then came Shipping with Amazon, another link in the supply chain.
Now, there’s hardware. Amazon has ordered 20,000 vans for parcel delivery purposes, Mercedes-Benz announced in September. The automaker has promised to build its Sprinter vans under Amazon’s brand “for the retail company’s new Delivery Service Partner program.”
Mercedes-Benz explained the program briefly in a press release: “small business owners will work with third-party fleet management companies to procure their customized vans and get special leases in order to keep startup costs low.”
What Will Amazon’s 20,000 Vans Do?
“We’re proud to partner with Mercedes-Benz Vans to contribute to local economies through the order of Amazon branded Sprinter vans produced at their new plant in North Charleston” said Amazon’s Senior Vice President of Worldwide Operations, Dave Clark, in the Mercedes-Benz announcement.
He added, “thanks to the tremendous response to Amazon’s new Delivery Service Partner program, we are excited to increase our original order of branded Sprinter vans to 20,000 vehicles so new small businesses will have access to a customized fleet to power deliveries of Amazon packages.”
This announcement came with a little new information about Amazon’s notoriously private program. First, the Seattle Times reported that about 10,000 companies have applied to participate in the Delivery Service Partner program. Amazon initially ordered only 4,500 vans; they saw so much interest that they multiplied that order by more than four.
Sprinter is a well-established line of vehicles, but Amazon is now the world’s largest Sprinter customer.
It’s important to note that Amazon will not own these vans although they will carry Amazon’s brand. Third-party fleet management companies will own them, and Delivery Service Partner companies will get a special lease for their operation.
That means the online retailer isn’t technically operating its own shipping service—at least not yet. It’s also much smaller than the U.S.’s leading carriers. The United Parcel Service operates 119,000 vehicles, and FedEx Ground uses about 60,000.
Criticism From Competitors Centers on Environmental Impact
A number of industry-watchers have criticized Amazon for choosing the Sprinter van, a traditional diesel-powered vehicle rather than an electric one.
“COME ON AMAZON—WALK THE WALK NOT JUST TALK THE TALK!”, wrote one commentator on LinkedIn. “If anyone can be the trendsetter it is Amazon” another replied.
For their parts, UPS and FedEx, have been investing heavily in low-emissions vehicles and those that run on alternative fuels.
At UPS, the 119,000-vehicle fleet includes 9,300 vehicles that run on alternative fuels. UPS operates 300 fully electric delivery trucks and 700 hybrid trucks. Additionally, the company says it has invested millions of dollars in trucks that run on compressed natural gas or CNG.
In July, Trucks.com reported that UPS had ordered a total of 1,000 Workhorse electric delivery trucks. These trucks can travel about 100 miles on a single battery charge at a cost of just $6 per 100 miles. This is dramatically cheaper than diesel. Supply Chain Dive added that UPS has “pre-ordered 125 electric trucks from Tesla and Daimler AG’s battery-powered light-duty trucks.”
UPS aims to have a quarter of its delivery fleet (some 30,000 vehicles) running on alternative fuels by 2020.
FedEx has not pursued alternative fuels nearly as actively as UPS, but the company is currently testing a zero-emission delivery van that runs on hydrogen fuel cells. Their battery-powered vehicles currently have a range of 160 miles.
If the pilot is successful, FedEx says it will order 19 additional hydrogen-powered vans, per Supply Chain Dive.
FedEx and UPS Are Not Worried About Amazon’s Package Delivery Program
Amazon’s 20,000 vans are another link in the supply chain it is quietly but aggressively assembling. In a matter of months, Amazon has added several critical services to that chain. Each time, the company says the service is limited to third-party sellers or only fulfilling some small need. When we add all those small services together, they create a picture of a fully formed delivery service.
The world’s largest delivery companies, FedEx and UPS have publicly shrugged off Amazon’s announcement saying their low tens of thousands of vans won’t come close to replicating their services. But it probably won’t be a small number for long.
Shippers must be prepared for Amazon’s entry into the third-party logistics market. For some, it may make sense to utilize some of Amazon’s services to deliver packages. For others, the considerations might be more strategic. For example, how can Amazon’s offerings be used in contract negotiations for shippers seeking better rates from UPS and FedEx?
Amazon’s shipping service will compete with UPS and FedEx, not with shippers themselves. But that doesn’t mean shippers can ignore the company’s moves. The more closely supply chain managers watch Amazon, the better positioned they’ll be to bargain with competing carriers.
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