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What Are the Implications of Amazon Entering the Package Delivery Business?

Posted by Rick Williams on Mar 9, 2017 8:58:22 AM

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If you're a small-package shipper, the prospect of Amazon entering the package delivery market should be intriguing. Currently, doing business for you means offering a handful of carriers (UPS, FedEx and perhaps the U.S. Postal Service), so your clients have the best possible shipping options. 

Amazon could become the shiniest tool in your toolbox; but their entry still brings up a few questions. 

What are the benefits and drawbacks of them entering the package delivery business? Why is having Amazon as a shipping option important? And, most importantly, how likely is it that they will get into the marketplace? 

Let’s take a deeper look.

Amazon and the Package Delivery Business

Long known as a provider of consumer goods, as well as a bevy of other technology-based services, Amazon, according to USA Today, is "quietly" entering the package delivery business. One indication of this was their purchase of Colis Privé, a delivery firm based in France.

While Amazon didn't comment on this acquisition, analyst John Haber suggests that this is a sign that Amazon is looking to enter the carrier arena, competing with the likes of UPS and FedEx, probably in the near future. Even though Amazon told The Seattle Times that it continues to maintain a good relationship with UPS and FedEx, Haber thinks that the comments are palliative, at best.

Using smaller and foreign carriers for proof of concepts is the logistics equivalent of a “beta test” in the tech world, where ideas, concepts and new technologies can be field-tested, analyzed, implemented and/or discarded. 

Haber states, "We anticipate they will either make a similar acquisition on the U.S. domestic side (perhaps buying a regional carrier) or continue building out a delivery network internally.” That's not all.

The massive Seattle-based empire has acquired a 4.2 percent stake in a second shipping firm, Yodel, based in the United Kingdom. More recently, Amazon was also testing out cargo planes in the Wilmington, OH, area. Per USA Today, the "test run" of cargo planes came right after it was discovered that Amazon was making daily from its headquarters to both Poland and Germany.

All of this suggests that Amazon, within the next five years, will likely become a bigger player in the U.S. package delivery market. And, in typical fashion, the firm will likely bring innovation and technology to the mostly static and technology starved transportation marketplace.

What Does This Mean for the Industry?

As one of the truly revolutionary companies of the last 100 years, my first thought is to never underestimate Jeff Bezos and his team. 

My guess is, if/when Amazon enters the marketplace, it will be with a high degree of specificity; carefully selecting dense delivery zip codes, while mixing a high volume of Amazon residential deliveries and B2B deliveries with packages from selected, non-competing B2B shippers (medical, electronics, etc.). This would provide them with the fastest opportunity to break-even, financially, in the short term, and a base to leverage their new technologies and gain market share as quickly as possible.

If 70 percent of shipping volume is picked-up and delivered in 30 percent of all U.S. zip codes, this reduces the profitable U.S. market from over 50,000 zip codes to less than 15,000, and these areas should be their primary target market. With this approach, it would then be possible to provide improved package delivery to these “Amazon zips” at a similar or lower cost than the “legacy” carriers.

(Not having to carry the very unprofitable rural and sparsely populated zips that can still be served by the legacy carriers. However, I suspect with the legacy carriers quickly responding to this cream skimming with much increased rural or Seasonal Surge pricing, that could throw a financial wrench in Amazon's plans.)

Most importantly, the market is ready for a fresh, new national carrier; particularly one that takes package pick-up, delivery, reporting, status, billing, tracking and labeling to the next level with its extensive experience in both technology and support.

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Topics: Insider, carriers