Amazon is finally throwing its hat into the ring of carriers. Industry experts have long speculated the company would one day compete with FedEx and UPS - myself included, with a few articles in PARCEL noting that Buy With Prime appeared to be a step in this direction. Now, it is launching Amazon Shipping, a service that bears a closer resemblance to the national carriers than anything they’ve offered before.
Amazon Shipping has one key distinction from other services like FBA or Buy With Prime - pickup. Other Amazon services require pre-shipping inventory to their warehouses. Amazon Shipping’s 7 days-a-week pickup allows shippers to integrate Amazon’s fulfillment services with their own distribution networks.
The service will deliver packages up to 50 lbs., in two to five days (notably, there’s no express/two-day option), anywhere in the contiguous US.
Currently, pickups are only available in 15 metro markets, a major short-term limitation. Amazon Shipping Director Michael Cox has shared the company has plans to expand pickup service areas, saying “anywhere Amazon has a facility, we want to be there, so it’s just a matter of when.”
So why would a FedEx or UPS customer consider adding Amazon Shipping to their carrier mix?
Here are the top reasons:
1.Capitalizing on the Carrier Diversification TrendCOVID added fuel to the growing trend of parcel carrier diversification. Shippers are adding multiple carriers into their mix - seeking risk reduction, improved transit times, or cost savings. This trend won’t reverse. The timing is right for a new player with a national reach.
Amazon technically launched Amazon Shipping in 2020 but put it on hiatus due to the pandemic. The relaunch was likely driven by its over-expansion of their network during COVID (the company has plenty of capacity to fill) and to capitalize on this trend.
2.Competitive Rates
Amazon Shipping’s base rates appear to be very competitive. Ripley MacDonald, VP of Amazon Shipping, has shared that most customers pay 30% less than base rates with FedEx or UPS.
The pricing structure itself appears to be simple compared to FedEx or UPS. Even if prices become more comparable, shippers might be attracted by the clarity in charges Amazon Shipping provides.
Notably, there’s no residential delivery surcharge. This is a home run for e-commerce businesses. Residential delivery surcharges are typically in the top three fees we see for shippers. Residential final-mile delivery is by far the most inefficient segment of the supply chain. Amazon, however, has specialized in residential delivery, and does it with remarkable efficiency.
Similarly, Amazon won’t charge extra fees for weekend deliveries. For e-commerce companies looking to satisfy their customers’ desire for the fastest delivery possible, this could be a significant source of savings.
3.Speedy Claims System
Amazon touts a system that will resolve most claims within 24 hours. This is a far faster turnaround than the major carriers, or even other Amazon services, offer. The promise of fast, hassle-free claim resolution could be a welcome change from the auditing process most shippers are used to.
It's clear why Amazon Shipping could become a player in the parcel carrier market; but just how aggressive will the growth be?
Capturing a share of the market is a lucrative opportunity, but the timing of the relaunch is most likely driven by an immediate need to fill excess capacity. The deferred service times of two to five days support this theory, as Amazon is showing a reluctance to dedicate its fastest, most prioritized deliveries to Amazon Shipping packages. For now, it is trying to fill up empty space in trucks.
Still, that doesn’t mean the company won’t be aggressive in growing its customer base.
Carrier and delivery services are estimated to be a $163 billion industry in the US. Winning even a fraction of market share from FedEx or UPS could earn any carrier major profits. And Amazon is the most well-positioned to do it.
The industry hasn’t seen an entry to the market quite like this since DHL’s first attempt at entering the US market, which failed and led to an eventual 10-year exit from the US.
Unlike DHL, Amazon has a diverse portfolio of revenue streams. Amazon Web Services (AWS) alone generated over $23 billion in operating profit in 2022. It’s possible that Amazon could use profits from its other branches to supplement Amazon Shipping, operating it at a loss to gain initial market share before adjusting pricing.
Additionally, Amazon already has a built-in customer base using its other services: 1.9 million businesses sell on Amazon. Some consider that eligibility requirement a limitation, but it’s no small group of potential shippers.
Amazon Shipping’s (re)launch will be remembered as a watershed moment in the world of parcel delivery. While the initial rollout is limited, the service's potential impact on the broader e-commerce and shipping landscape cannot be underestimated. Promises of competitive pricing, simplified fee structures, and a strong focus on customer satisfaction all position Amazon Shipping to attract a range of shippers seeking to diversify their carrier mixes.
Amazon Shipping has a long way to go before the FedEx/UPS duopoly can be considered a triopoly. Still, after years of analysts “crying wolf” that each new service was a step towards becoming a true competitor, that day has finally come.
Caleb Nelson is Chief Growth Officer at Sifted, a Logistics Intelligence software company.
This article originally was published in the November/December, 2023 issue.
