With Amazon’s recent announcement of Shipping with Amazon, in which the company will pick up and ship packages to customers (effectively removing the need for third-party carriers), there’s no doubt this will have an impact on the tech-resistant shipping industry. This industry has been very insular to technology as a result of the sheer market dominance enjoyed by FedEx and UPS, and it is indeed fascinating to see one of the largest technology companies in the world enter this space. However, following the chain of events at Amazon beginning a few years ago with secret project Dragon Boat, which focused on leasing planes to ship products directly from manufacturers in China, this move is not a surprise but rather in line with expectations.
Amazon has always shunned dependencies to reach its customers, and irrespective of how big Amazon grew, unless it found a way to create its own shipping service, it would always be dependent on shipping carriers. Thus, making an ambitious move toward removing this dependency was always in the cards. In fact, many of Amazon’s newer services, including Prime Now and Amazon Key, have removed the need for a shipping carrier for the last mile. The most surprising part of Shipping with Amazon is not the content of the announcement, but just how quickly Amazon has decided to assume responsibility for the last-mile deliveries from other companies, which signals strong intent to move quickly in this domain.
Impact on Retailers
From a merchant perspective, it would indeed be refreshing to see increased competition in a space that has been a duopoly for several decades now. Expectations will, of course, include lower prices, but rather than ending with that, a tech company like Amazon entering the space will also raise expectations for a better, transparent, and flexible delivery experience both for merchants and their customers, which has been a long-standing, unmet need in the last-mile delivery space.
However, what merchants will also have to keep in mind is the amount of their data Amazon will control. In fact, the shipping data a company generates is almost all that is needed to figure out where a company’s customers are, how it is doing, which products are selling more, and which sales areas are growing faster. With FedEx or UPS, this data was primarily used to plan last-mile networks. With Amazon, this data will likely go toward deciding which products to sell next, even though the last thing that merchants may want is to compete with Amazon in the products they sell.
Impact on the Shipping Industry
For Amazon, even with its might and reputation, entering the shipping carrier space is not without huge risk. Shipping is inherently a commodity; however, the duopoly in the market ensured that UPS and FedEx have outsized market control. This meant shipping was never priced like a true commodity and had huge margins for the carriers. However, with the entry of Amazon, we may see a stage where prices fall significantly.
It remains to be seen if those lower prices will leave enough of a margin for Amazon to turn a profit, especially with the huge investments, time, and effort required to build delivery networks comparable to what UPS and FedEx have built over several decades. Not making these investments and operating only in specific markets will lead to the perception of Amazon as just another smaller regional carrier, like many others who stay in business but never really challenge FedEx or UPS. Additionally, both UPS and FedEx are established companies entrenched in their domain, leaving no doubt that they will fiercely compete with Amazon to protect their market with a fair chance of winning, rather than simply rolling over.
However, from Amazon’s perspective, this is indeed a risk worth taking because, if Shipping with Amazon is successful, the company could grow into a retail behemoth that can transport a product from a manufacturer to end customerwithout any dependencies and the ability to not only make the process fast and seamless but also squeeze every ounce of margin at every stage. To achieve this vision, even at Amazon’s current volumes, it would have to pick up the volume from other merchants to create a sustainable last-mile delivery network, and this move attempts to do just that.
If this Amazon initiative proves successful and grows into a true UPS or FedEx competitor, it would not only build another sustainable business vertical for the company, but it would also give it a tremendous amount of additional competitive intelligence, fuel an infusion of modern tech into a usually tech-resistant shipping industry, and let Amazon take an unprecedented amount of control over its end customer experience, directly in line with the company’s customer-obsessive business principles. In fact, one of the most interesting stories in tech over the next few years may come from the shipping industry, with Amazon leading the charge.
Sriram Sridhar, co-founder and CEO of LateShipment, is an expert in leveraging technology to optimize supply chain and e-commerce development. His focus centers on enhancing business operations through technology and creating simple but effective solutions to eliminate company-wide growth barriers.