The Amazon threat to UPS is overstated and the partnership between the two companies is misunderstood and strong.
- Amazon’s dominance, and continued growth of its e-commerce business segment, requires that it rely on at least one parcel carrier to support that growth. With FedEx out of the picture and Amazon taking most of their USPS parcel-select deliveries in-house, they need UPS to support returns via the UPS Store network, augment one-day/overnight delivery and make rural deliveries where their Delivery Service Partners don’t operate.
- We can speculate that UPS’ Amazon business may be near a negative margin and is driving UPS revenue per package in the wrong direction. However, this same ugly, high volume Amazon business, is also allowing UPS to scale and reduce cost in many other parts of its parcel transportation business and reduced cost via increased scale is the key to a carrier’s success in the age of e-commerce.
- I believe that UPS has some type of agreement in place with Amazon that guarantees it a generous flow of business for years to come.
- At some point in the next year, Amazon will move its Shipping with Amazon test platform into the real world and don’t be surprised to see UPS play a role with both pick-up and line-haul functionality as it will take time for Amazon to develop capability in both of these areas.
- Amazon hates FedEx so look for Amazon to continue to make it difficult for Prime Marketplace Merchants that self-fulfil, to use FedEx as a service provider. This will result in more of those merchants having to move their shipping to UPS.
- With FedEx starting to move 2 million package deliveries per day away from the USPS, both Amazon and UPS could compete, maybe even collectively, for the Postal Service’s airlift contract. FedEx has owned this business for years and is currently paid about 2 billion US dollars per year to move Express Mail, Priority Mail and First Class Mail. The contract is not up for renewal for a few years, but it takes that long to develop a competitive threat for that kind of enormous business opportunity.
The UPS/Amazon business relationship should benefit both companies for many years, moving forward.
Dean Maciuba is the Director of Consulting Services at Logistics Trends & Insights LLC and he is an expert on last-mile delivery, Amazon, e-commerce, and the design/implementation of speciality distribution solutions.
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