When I joined the supply chain field in 2021, there were whispers that Amazon would be entering the parcel shipping market as a carrier. This was greatly felt by my clients, who are retail and pharmaceutical shippers looking to save more money on their shipping contracts. I ignored it as sensationalist news, as the consequences would be great for the existing carriers, like UPS and FedEx, and it would be operationally difficult for Amazon to implement quickly. That is, until my team got to analyze a parcel proposal from them in March of 2024.

The following is a first pass look at Amazon’s proposal and its implicit impacts on the parcel market. This is not intended to serve as advertising for one carrier over another, but to study if Amazon has the correct feather wand to compete with the big cats like UPS and FedEx in the parcel industry.

Amazon Notable Contract Terms

Amazon’s contract terms were largely based around what we see for UPS contracts. It contained only five accessorials, a fair earned discount tier structure, a ramp-up period, good minimum charges, and an average DIM divisor. The real meat of the savings came from ground residential rates compared to the other carriers (along with the limited accessorials). Overall, my team was expecting higher savings and a few more bells and whistles, but it was competitive with the other carriers who had submitted proposals.

Amazon Shipping Pros

- Cost-Effectiveness: Amazon’s contract contained no residential fees and focused on ground pricing, utilizing its highly capable ground network. Amazon's entry could also drive down shipping costs due to increased competition from the other carriers.

- Easy Technological Integration: Amazon’s advanced package tracking and logistics management mean shippers’ order tracking is streamlined and easily predictable for customers.

- Speed: Amazon's shipping network may offer faster delivery options by capitalizing on its existing infrastructure.

- Scalability: Amazon is no rookie to the holiday peak season. Amazon’s ability to handle large volumes of parcels benefits the shippers who want to minimize losses and keep customer satisfaction high as the year ends.

Amazon Shipping Cons

- Potential Market Disruption: Amazon's entry may significantly disrupt current shipping rates and contracts with other carriers, straining longstanding business relationships and potentially angering employee unions such as the UPS Teamsters.

- Dependency Risks: Shippers may begin to rely on a single provider like Amazon if their pricing is truly competitive over the incumbent carriers. This could be risky for shippers if Amazon alters terms or prices in the future, or if Amazon has outages due to peak season or a cyberattack on its warehouses, such as in 2023.

- Limited Customization: Amazon's processes tend to be highly standardized, potentially offering less flexibility for specialized shipping needs, such as medical shippers needing refrigeration and signature services, or outdoor companies needing to ship dangerous goods like gasoline or batteries.

Amazon Overall Impact and Outcome for Client

Overall, our client decided not to go for the Amazon proposal. Amazon was offering wonderful ground rates, but the contract did not contain the level of customization and care the client needed. They saw it as a risk to be one of first testers of this service and did not want to strain their current business partnerships with FedEx and UPS. Our client mentioned that they’d keep Amazon in their back pocket for promotional periods or for areas there are higher mixes of residential in the future but didn’t currently have the technological capabilities to optimize the benefits of the Amazon contract. While Amazon’s shipping services could’ve offered a compelling alternative for our client, there were trade-offs in terms of potential market volatility, damage to business relationship and Amazon’s (limited) time in the parcel market.

Chelsea Snedden is a Senior Consultant on Körber’s Transportation Consulting team, she specializes in parcel sourcing, benchmarking, as well as building out unique transportation solutions that drive ROI for clients. Additionally, as an advocate for sustainability, she often works with clients on carbon emissions reporting.

This article originally appeared in the May/June, 2024 issue of PARCEL.