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Amazon is stepping on the accelerator to ramp up its transport volumes. A month after it angled for LTL volumes, it is going after a bigger share of the US parcel market with pricing designed to entice customers of FedEx and UPS.
In another step toward opening its logistics network to customers not using its Fulfilment By Amazon service, the Internet giant’s logistics arm is now gunning for parcel volume that has been the traditional domain of the integrators, offering pricing that is competitive with, or undercuts FedEx and UPS.
According to logistics data platform Loop, shippers can save up to $6 per package by shifting residential traffic from the integrators to Amazon.
One key lever appears to be dropping surcharges, a tactic bound to resonate with shippers frustrated by an endless succession of surcharge hikes on top of general rate increases in excess of inflation. Between January and late September last year, for example, UPS implemented 15 price increases.
The integrators, especially FedEx, have signalled their intention to focus on B2B and high-yield B2C traffic rather than pursue growth in the low-yield B2C segment – and both have also turned their backs on Amazon volumes.
Cathy Morrow Roberson, founder and head analyst of Logistics Trends & Insights, said she was not surprised by Amazon’s move.
“They can do it because they have spare capacity,” she said. “They will undercut everybody for a while to build up volume. They did that with air [cargo].”
She reckons Amazon is taking chunks out of volumes that had moved on FedEx Ground, adding that the pricing offensive was probably creating problems for UPS. Unlike FedEx, which leverages third-party contractors for its ground deliveries, UPS drivers are unionised, commanding higher pay than in the gig economy, where drivers are paid about $15 per hour, she pointed out.
And Satish Jindel, founder and president of SJ Consulting, sees no future for the integrators in low-yield e-commerce deliveries. The vehicle type for residential parcel deliveries is a sedan, not a van, he commented.
Shares of UPS and FedEx declined after Morgan Stanley analyst Ravi Shanker cautioned clients that Amazon’s expansion in deliveries could pose a threat to the integrators. He noted that Amazon was not in a position to go after the high-yielding traffic FedEx and UPS focus on, as it lacked the overnight capabilities, but added that it would likely move on that front before long.
FedEx and UPS stocks fell in May after the launch of Amazon Supply Chain Services as a bundled enterprise offering.
On the other hand, Amazon is reportedly also undercutting some US Postal Service charges, which suggests a broader push to build up volume.
Coming after the announcement of Amazon’s LTL service that raised questions about its exact nature, the parcel pricing move adds to the impression that Amazon Shipping may feel pressure to raise its network utilisation, added Ms Roberson.
“They have the capacity, and they may be under pressure to utilise it more,” she said.
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