Amazon is back at it again. The online marketplace has found a new way to further vertically integrate. Documents reviewed by Bloomberg, revealed that Amazon is experimenting with a new delivery service that will increase the number of packages available for free two-day delivery and ease overcrowding in the e-commerce giant’s warehouses. In other words, this means that Amazon is opening out its logistical reach beyond its facilities by branching out into the delivery business.
Amazon’s new courier service, Seller Flex, aims to ship parcels from third parties selling on the company’s website to shoppers’ homes, a function usually handled by delivery giants, the United Parcel Service Inc. (UPS) and FedEx Corp. (FedEx).
Amazon’s bid to take over some ownership of their deliveries may threaten the survival of UPS and FedEx. A report on CNBC.com in October 2017 suggests that delivery companies’ shares were dropping as investors grew worried over Amazon’s efforts to disrupt the industry. UPS stocks lost over 0.7%, while FedEx shares fell 1.6%.
For now, Amazon is shrewdly cherry-picking areas with dense delivery, according to analyst and director of industrial equity research, Keith Schoonmaker, in a CNBC report. However, things may go from bad to worse for these companies if Amazon decides to offer delivery services to third parties more broadly, said Baird analyst, Colin Sebastian.
Also, concerns still mount over what the future may hold for delivery companies as Amazon continues to bait sellers who use their platform with lower delivery costs, logistics, software, warehouse inspections as well as recommendation. Even more worrisome is the fact that Amazon will now decide how a parcel is sent, instead of leaving it up to the seller as usual.
For Amazon, handling more deliveries itself will give the company greater control and flexibility over how a package is sent, enable it to save money through volume discounts as well as prevent its warehouses from being overwhelmed, as they get to keep merchandise in the third party sellers’ own facilities. What Amazon is trying to do is to cut cost from having to pay FedEx and UPS to take care of deliveries. At this rate, it is only a matter of time before Amazon become its own fully developed logistics and delivery company.
Currently, Amazon is accepting new sellers and has changed the name of the new, now invite-only program to FBA Onsite. Documents viewed by CNBC showed that Amazon described the new FBA Onsite program as “a ‘groundbreaking’ program that combines the best parts of its existing fulfillment programs and brings down shipping rates.”
Sellers can now keep products in their own warehouses and still take part in programs like “Subscribe and Save,” which provides buyers discounts on frequently bought products, and “Small and Light,” a free delivery service for items that are cheap to ship because of their small and light sizes.
The struggle for delivery companies like UPS and FedEx, who have been acting as the middlemen for a while now, is that Amazon now seeks to bypass them. This is not just by venturing into courier services, but also by offering more attractive services to merchants. Luckily, Amazon is only one of many clients of the couriers so they will suffer a hit but not go bankrupt over this possible loss.