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FedEx and UPS aren’t Going Anywhere: Reasons Why Amazon isn’t Trying to Take Their Place
There’s been a considerable buzz of late that Amazon is priming itself to push FedEx and UPS out of the game as a carrier. The first thought was that Amazon’s drones would be a major disruptor, eliminating the need for carrier trucks. Then it was Amazon’s growing air cargo network that was the “sure sign” of the e-tailers rise to carrier superiority. In reality, Amazon actually doesn’t present a threat to either of these carriers, and here’s why.
Amazon isn’t focusing on Package Delivery
Package delivery, while having the potential to be lucrative, isn’t Amazon’s goal. Instead, their entire business structure is about creating life-time- value customers. Essentially, the idea is to get a customer's business, fulfill their orders, and make them a dedicated Amazon customer. Carriers, like FedEx and UPS, on the other hand, are looking to maximize profit of deliveries. The obvious point is that, yes, Amazon wants to lower their shipping costs and building a shipping network accomplishes just that. However, rather than a growing subset for their business, it simply allows Amazon to keep their shipping prices competitive which means better customer retention.
Shipping Expansion is Necessary
Amazon does have a knack for turning profit off an in-house asset, Amazon Cloud Computing, for example. However, in the case of Amazon’s carrier network, it’s not necessarily in direct competition with other freight companies, but is, instead, a necessity for the company’s business model. FedEx’s Mike Glenn says that he’s aware of "Amazon's need for supplemental capacity related to inventory management, which is driving some of the investments they are making in transportation." This move, however, isn’t a vie for competition of business. Rather, it further develops Amazon’s goal for same-day deliveries, a market that FedEx isn’t looking to compete with on a "day to day basis," according to Glenn.
Profit Beyond Volume
When breaking it down, the goals between the carriers and the e-commerce company aren’t the same. Both UPS and FedEx are looking for ways to boost the profitability of their e-commerce deliveries, such as dimensional weight pricing, which was introduced last year. Amazon, on the other hand, is merely looking to continue to grow volume and customer base. Amazon isn’t the only game in town when it comes to e-commerce, either. The fact of the matter is, as e-commerce continues to grow at such a steady rate, there’s more than enough business to go around.
Amazon’s not as Big as You Might Think
For being such a colossal business, Amazon isn’t quite the monolithic company you might expect. In fact Amazon, for being FedEx’s largest customer, only accounts for maybe 3% of its total revenue. Which means that even if Amazon was able to develop a shipping network big enough to write off FedEx, it doesn’t mean that FedEx is going to go down because of it.
A MASSIVE Undertaking
While Amazon is good at sidling up to a business partner to glean what makes them successful, that doesn’t mean they can just shove them out of the game easily. Both FedEx and UPS have been in the game too long for that. Both have a global network and decades of experience, not to mention considerable business volume in a number of large economies. Even if Amazon wanted to, it’s simply not possible for them to create that kind of business. Rather, it’s more about each company leveraging the strengths of another. For example, both FedEx and UPS rely on USPS for last mile deliveries. Why? Because USPS already has a defined network that operates on a residential level.
In short, it doesn’t make sense for Amazon to reinvent the wheel, so to speak, as the household carriers already have an established system that works quite well. Rather than trying to generate the resources to develop an operation on par with either FedEx or UPS, they’re simply trying to help facilitate their own business and help cut some costs. A good business move? Yes. Signs for a market take over? Not so much.
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