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Logistics

How Worried Should We Be About Amazon’s Logistics Ambitions?

Every time Amazon gets into a new business area, it makes waves. The recent announcement that Amazon is launching its own delivery service is no different. As of 2016, products sold on Amazon accounted for around 600 million annual shipments—and Amazon’s revenue has been growing at around 10% annually, at least part of which is likely due to increased volume.

That’s a lot of packages. UPS handles the largest share of Amazon packages, around 30% of the total—200 million packages annually.

So how worried should UPS and others in the logistics industry be about Amazon’s delivery service?

Why Is Amazon Getting Into Shipping
According to Fortune, Amazon has three interrelated reasons for starting its own delivery service. First of all, Amazon’s overall business model is to handle as much of the sales process as possible—for example, Amazon doesn’t just sell books, it has both a publishing house and its own device to read books on. In addition, at the moment Amazon loses money on last-mile shipping and doesn’t have much control over shipments that come from third-party sellers rather than from an Amazon warehouse.

Handling shipments in-house is a way for Amazon to control more of the sales process, to cut delivery costs and to offer two-day delivery on a wider selection of products. Of course, there is also a lot of money in last-mile delivery, which make it an attractive area to expand into.

A Reality Check
Even though Amazon ships a huge number of packages annually, even the most-exposed logistics company, UPS, probably wouldn’t suffer enormously even if it lost all Amazon-related businesses. According to the most recent numbers, UPS ships 20 million packages and documents every day, so Amazon’s share, even in the unlikely event that UPS lost 100% of it’s current Amazon shipments, wouldn’t be more than 10-15 days worth of deliveries.

More importantly, e-commerce has been growing steadily at around 15% percent annually, which has created tremendous challenges and growth opportunities for last-mile logistics companies like UPS. Especially around the holiday season, there is often more demand for last-mile deliveries than existing companies can handle, and as e-commerce continues to expand that trend will likely continue.

The bigger threat to traditional last-mile carriers is if Amazon started to offer delivery for products not purchased on Amazon, because that represents a much larger portion of total shipping volume That threat is harder to evaluate—but also less likely to materialize.

Amazon has proven that it can build a global infrastructure network in a relatively short amount of time—but it would still be years before it would have the kind of fleet that could take on big industry players like UPS or FedEx.

Amazon’s entry into an industry has often pushed legacy companies to streamline their operations, through greater adoption of digital tools and better efficiency. Small and midsize last-mile delivery companies are most likely to feel the pinch if Amazon starts gobbling up market share—and they can benefit enormously from using digital tools to improve customer satisfaction and loyalty now.

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