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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 of opening its logistics network to customers who are not using its Fulfilment By Amazon service, the Internet giant’s logistics arm is now gunning for more parcel volume that has been the traditional domain of the integrators. It is offering pricing that is competitive with or undercuts charges levied by FedEx and UPS, parcel industry experts have reported.
According to logistics data platform Loop, shippers can save up to $6 per package with a shift of residential traffic from the integrators to Amazon.
One key lever appears to be dropping surcharges, a tactic that is bound to resonate with shippers frustrated by an endless succession of surcharge hikes on top of general rate increases in excess of inflation rates. Between January and late September of last year UPS implemented as many as 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. Both have also turned their backs on Amazon volume.
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 remarked. “They will undercut everybody for a while to build up volume. They did that with air [cargo].”
She reckons that Amazon is taking chunks out of volumes that have moved on FedEx Ground, adding that the pricing offensive is likely 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.
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 is not in a position to go after the high yielding traffic that FedEx and UPS concentrate on, as it lacks the overnight capabilities, but added that it would likely move on that front before long.
FedEx and UPS stocks had dropped in May upon 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, Ms Roberson reflected.
“They have the capacity and they may be under pressure to utilise it more,” she said.