It is no secret that Amazon has grown to be the top online retailer over the last four years. In 2015, 51 cents of every dollar spent online went through Amazon. While everyone has their eyes on their potential revenue for 2016, Amazon is quietly slipping under the radar with their next task at hand: establishing their dominance by horizontally integrating themselves into every market from vendor to last-leg deliveries at an unprecedented rate. Amazon is about to become a carrier with better service and cheaper than UPS or FedEx. When, not if, this becomes reality, we might see some competition to the Oligopoly of FedEx and UPS and hopefully turn against each other to drive down their prices to the ground.
Demand is Shifting: Consumers Ditching Malls and Department Stores; Want One-Click Convenience
While the ever-changing company continues to tweak their optimized delivery services, Amazon is continuing to turn the market away from classic brick and mortar shopping. On one side, large retailers like Wal-Mart are closing their stores due to reduced profits as they compete with online purchases. On the other, carriers are feeling the burn of online deliveries by losing shipping volumes that normally would be delivered to these retail stores. EZ Worldwide Express, an LTL carrier whose primary deliveries are to Forever 21 and Disney stores, is filing for bankruptcy following a very poor year in revenues, citing online purchases causing a significant and unforeseeable loss in shipping volumes. Meanwhile, Amazon is gearing up to open another warehouse in Kent, Washington in the coming months. Consumers are shifting their buying habits, moving away from the long drives to malls and department stores and enjoying the convenience of a one-click, one-stop shop. They are letting Amazon take care of the driving for those deliveries, and Amazon is already well on the way to optimizing the final leg deliveries.
Factory to Warehouse: Amazon is Fed Up with UPS and FedEx Inbound Costs to Ship Ocean or Air Freight
Last December, Amazon announced their intentions to bring in new transportation services by leasing 20 jets and becoming an NVO. Amazon China is now authorized as a company that is able to sell ocean freight services. Previously, Amazon was using other brand names such as UPS and FedEx to bring goods to their warehouses and for last-leg deliveries. These implementations would eliminate a chunk of the reliance Amazon has had on other carriers. In addition to this, Amazon is also expanding their global markets by opting for ocean trade. By reducing internal costs to ship goods, they are not only growing their own profit margin, but they are shifting demands from giants like FedEx and UPS, and putting the two companies in a compromising position for shipping volumes and revenues. As for the shippers, this means the potential for more competition between the oligopoly and better chancesfor lower rates.
Last Leg Deliveries: UPS and FedEx are so overpriced that even USPS is getting in on the deal
Surprisingly, Amazon has started to conduct services and make Sunday deliveries using USPS, a company that has been so far in the red could not operate without heavy subsidies. While their agreement and the details of the services are kept under wraps, USPS is getting plenty out of the deal. Last week, USPS announced that they would not be changing their rates for Amazon, only one of a few retailers that did not receive changes to their rates. USPS has slowly begun to adopt Amazon's systems for deliveries, even going so far as to make same-day deliveries. Amazon has again taken the middleman out of the job by sorting the packages in their warehouses, which keeps FedEx and UPS' hands off potentially millions in extra fees. For now, Amazon is allowing USPS to stay afloat by giving them the power to resurrect itself from what was thought to be a curtain call for the carrier.
Short on drivers? No problem. Amazon Flex is the Uber of deliveries
For these final leg deliveries, Amazon is also implementing the new shared service Amazon Flex. Like Uber, Amazon is hiring people across the US to become their drivers, where drivers use their personal vehicles and smart phones to make deliveries. The fluidity of deliveries alleviates some of the pressure for drivers and capacity in truckloads. Additionally, Amazon is creating a safety net for Amazon Prime, where the demand for free two-day shipping is on the rise. They are behaving the way shippers should by taking control of their deliveries, yet they are developing an internal dedicated delivery service. What is even more important about this shift is that there is no fleet being leased. Instead, Amazon is using existing software and existing vehicles at little cost to them. This creates benefits for both the shipper and the consumer, as Amazon can now guarantee faster shipping while fighting back against peak demands during the holiday season to make these deliveries.
Amazon will force necessary competition for UPS and FedEx
Again, Amazon is playing the game of eliminating middlemen and extraneous costs that have made shippers grow to loathe carriers like UPS and FedEx. Start to finish, Amazon is making optimizing the market for consumers. They very well could be the revolution since the deregulation of transportation that breaks apart the existing oligopoly between UPS and FedEx. Shippers should pay close attention to the market in the coming months as more retailers jump on board with Amazon. It could be the start of a desperate attempt by FedEx and UPS as they try to make up their shipping volumes. Or, this could be the year where Amazon moves from being a retailer to a carrier. When the time comes, CPC will be prepared to help Shippers find smarter solutions in the changing market place.
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