We recently reported on Amazon's full blown launch global shipping, which moved some 4.7 million cartons from China to the US last year, according to an recent article in USAToday.
That capability gives Chinese manufacturers a direct, end-to-end logistics service to reach customers in the US. Such Amazon ambitions were first reported back in 2016, said to be developing under a project code named Dragon Boat, but Amazon has spent the majority of the time denying it was building global logistics capabilities. (See After Three Years of Secrecy, Amazon Starting to Ramp Up Global Logistics Services.)
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| The Journal says one etailer reviewed Amazon's shipping rates and said they were about 10% lower than UPS and FedEx on average. |
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There have been similar denials by Amazon to periodic reports that it was also investing in building a domestic parcel service, competing directly with the USPS, UPS and FedEx.
Now, the Wall Street Journal reports that Amazon "is rolling out its own delivery network, [and] trying to poach shippers from FedEx and UPS by targeting a common complaint: fuel surcharges and extra fees that drive up the cost of home deliveries."
The start up service is called Amazon Shipping, and after testing the program in London and Los Angeles, Amazon is said to be expanding it to other markets. With the program Amazon can pick up shipments at the distribution centers of other companies, get then into its network, and then deliver them directly to shoppers.
As a result, Amazon Shipping can be seen as an extension to the Shipping with Amazon program it announced in early 2017, under which it would also pick up shipments from its marketplace customers and leverage its network to improve on cost and service versus companies dealing directly with parcel carriers themselves. (Is Amazon Really Building its Own Parcel Network?)
But with that program, the major parcel carriers would mostly be used for actual customer delivery. Now with Amazon Shipping, the packages will arrive to customers on an Amazon truck.
To break into the market, Amazon is using price as the weapon, waiving many fees that the major parcel carriers use and which are key to their profitability, the Journal reports. Those accessorial charges are levied for home deliveries (versus shipments to a business), the peak holiday season fees recently invented by UPS, weekend delivery, fuel surcharges, so-called dimensional weighing add-ons, and more.
Though negotiable, especially for a giant shipper such as Amazon, those extra fees can greatly increase the cost of shipping. The published add-in for residential surcharge at FedEx is $3.80 per carton and $3.95 at UPS – as much as 40% of the average ground-delivery charge.
"If it's a guaranteed service with none of those surcharges, they're going to undercut the residential delivery market," John Haber, chief executive of the supply-chain consultancy Spend Management Experts, notes to the Journal.
The Journal says one etailer reviewed Amazon's shipping rates and said they were about 10% lower than UPS and FedEx on average.
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Most of Amazon's business involves residential shipments, unlike UPS and FedEx, which continue to see most shipments they handle going to businesses, where there is often great density in terms of parcels per delivery and stops within a given area. Residential deliveries have fewer parcels per stop and are far more spread out, increasing the parcel company's cost per carton.
 As a result, Amazon analyzed its costs and pricing schedule based on residential delivery from the start, so there is no need for a surcharge. However, that doesn't eliminate the underlying cost dynamics that make residential deliveries more expensive for whatever company is doing the work.
Publically, FedEx and UPS have been raising their rates about 5% annually, though Amazon is surely negotiating lower increases. Meanwhile, a commission in Washington DC recently recommended that the US Postal Service, which handles the preponderance of Amazon's US shipping, raise its rates to more effectively cover its costs.
In a world of Amazon Prime and free two-day shipping, those increases from the carriers simply continue to expand Amazon's loss of shipping, which it once reported quarterly but no longer does, but is still clearly in the bilons of dollars annually.
In 2018, Amazon launched its Amazon Delivery Service Partners program, which enables local entrepreneurs to lease up to 40 Amazon Prime-branded vans and handle deliveries in their areas, picked up from a local Amazon fulfillment center.
FedEx and UPS have in the past downplayed the parcel shipping ambitions of Amazon, which is a significant customer for both.
Since talk of Amazon's parcel shipping ambitions began, executives at FedEx and UPS have largely downplayed the threat, noting the tens of billions they have spent and continue to spend to build their delivery networks.
Just in December, FedEx founder and board chair Fred Smith said that "We don't see them (Amazon) as a peer competitor of ours for many reasons."
Last week, a FedEx spokeswoman also declined to comment on Amazon's strategy. "We are confident in our position as a global transportation trailblazer, and optimistic about the future," the spokeswoman told the Journal.
"Amazon is promising other features to position it as more user-friendly than traditional carriers," the Journal also reported. "According to its marketing pitch to shippers, Amazon will offer rates that are easier to understand than the pricing systems that UPS and FedEx use. Also, it will ensure that if Amazon makes a delivery mistake, it won't impact the merchant's seller rating on its site."
What do you think of Amazon's parcel program? Will it work? Why or why not? Let us know your thoughts at the Feedback section below.
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