Published: Fri, October 06, 2017
Markets | By Erika Turner

FedEx and UPS Shares Fall Over Worries of Amazon Delivery Service

FedEx and UPS Shares Fall Over Worries of Amazon Delivery Service

Amazon is trialling a service called "Seller Flex" that will provide delivery services for third-party merchants on its platform, according to a new report from Bloomberg. While the e-commerce giant now partners with both FedEx and UPS for most of the two-day deliveries for its Amazon Prime customers, Bloomberg notes that Amazon wants to make more of its products available for two-day delivery while also freeing up some space in its overcrowded warehouses.

Amazon has been testing the new service in India for two years, Bloomberg said, adding it was deployed in West Coast states on a trial basis earlier this year.

Amazon will also oversee pickup of packages from warehouses of third-party merchants selling goods on its website and their delivery to customers.

Amazon has invested heavily in its logistics network over the years and taken on losses to build it out.

Its Fulfillment by Amazon offering already lets merchants ship goods to Amazon warehouses around the USA, where they can be stored, packed and shipped to customers.

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In March, FedEx CEO Fred Smith was quoted as saying a move like that wouldn't be a huge disruptor for his company given that 85 percent of its business is business to business rather than e-commerce.

By handling deliveries from seller's warehouses, Amazon gains greater flexibility and control over the last mile, benefits from cost reduction through volume discounts and frees up space in its own fulfillment centers, Bloomberg reasoned.

When asked whether UPS and FedEx investors should be concerned about Amazon entering the market, Cramer said "yes". The service is meant not only for businesses to reach customers but also for home-to-home delivery in as little as two hours in selected cities.

And while FedEx suggested risks of Amazon's in-house capabilities in its 2016 10-K, FedEx explained they are well-positioned and said any negative reaction misunderstands the scale and complexity of its business. First of all, Amazon's third-party sellers have become furious at the site over implementing unilateral policies, and this appears to be yet another intrusion from their perspective.

Amazon has always been experimenting with making deliveries faster. Online holiday spending in the US will hit $129 billion this year, up 12 percent from a year ago, according to Forrester Research Inc.

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