Amazon has come a long way from its humble beginnings as an online bookstore. Over the past two decades, the company has redefined many industries and disrupted even more.
Parcel shipping is no exception. Amazon Prime’s two-day shipping has redefined consumer expectations. With its new Amazon Seller Flex experiments, the company looks poised to change the game on the carrier side of the equation.
What Is Amazon’s New Delivery Service?
Amazon is testing a new delivery service called Amazon Seller Flex. With this experimental program, the online giant is pushing into parcel delivery — picking up packages from third-party merchants and delivering them to the customer’s home.
Amazon has framed the move as a way to gain greater control over its supply chain. Seller Flex will expand the number of items eligible for two-day shipping with Prime and free up space in the retail giant’s overcrowded warehouse, sources tell Bloomberg.
In recent years, Amazon has worked hard to expand its footprint beyond the digital world. It has built brick-and-mortar stores, created a network of distribution centers, and even acquired its own air fleet. Considering this, creating a carrier service doesn’t seem so farfetched, as Supply Chain Dive notes.
Amazon has also worked to expand the number of items available for Prime’s two-day delivery by launching Seller Fulfilled Prime in 2016. As long as merchants could demonstrate they could meet the shipping speed promise, their listings could include the Amazon Prime item marking.
Up to this point, the third-party merchants enlisted FedEx and UPS to deliver the packages to the customer. Now Amazon is taking charge of this function.
While the news of Amazon Seller Flex caused a stir, the program isn’t entirely new. Two years ago, Amazon launched the service in India. Today, the company is piloting the service on the West Coast, with plans to expand nationwide in 2018.
What Does This Mean For Parcel Carriers?
As news of Amazon Seller Flex broke, stocks dipped for both UPS and FedEx as investors worried about new competition. However, all companies involved appear to be downplaying these fears.
“FedEx and UPS have been seeing this coming for years,” Annibal Sodero, Assistant Professor at the University of Arkansas, told Supply Chain Dive. “They know that the next entrants will be Google and Facebook.”
For its part, Amazon also brushed aside immediate fears. Amazon spokesperson Kelly Cheeseman told MarketWatch, “We are using the same carrier partners to offer this program that we’ve used for years, including UPS, USPS and FedEx.”
However, we see Amazon’s new program creating much-needed competition in the parcel industry. Amazon isn’t going away — and it isn’t going to fail. We expect that Amazon will disrupt the industry and do what DHL was unable to do: Bring real competition to the shipping industry.
When it comes to making the next move, there are many directions Amazon could take. The company could eventually tell businesses they must fulfill all of their orders with Amazon, a move that would totally cut out the major carriers.
FedEx says Amazon orders account less than 3 percent of its revenue, while analysts estimate that it makes up 5-10 percent of rival UPS revenue, Bloomberg reported.
What Does This Mean For Shipping Businesses?
If you’re a business leader, Amazon’s push into parcel delivery could be a breath of fresh air. The rise of a third major carrier could provide some much-needed industry competition, pushing costs down for businesses.
Parcel shipping has been a duopoly between UPS and FedEx since DHL pulled out of the US market in January 2009. In the years since, businesses have seen their shipping costs steadily march upward with little reprieve.
Businesses who rely on shipping have found themselves caught in a difficult spot with few remedies. Consumers want faster shipping that is also free, yet shipping costs continue to tick upward.
UPS and FedEx are already starting to move in different directions when it comes to surcharges, fees, and general rate increases. Adding a third carrier to the mix could hasten this trend, and perhaps usher in an entirely different shipping paradigm.