The Wall Street Journal reported today (Paid subscription required) that Amazon is preparing to launch a parcel delivery service that would position the online retailer to compete directly with FedEx and UPS.

Readers of the Supply Chain Matters blog should not at-all be surprised by today’s announcement. If you indulge us a bit of boasting- we informed you of what was coming despite the vehement denials of Amazon executives and some logistics and transportation trade publications.

In a blog commentary published in October 2015 reflecting on the first set of parcel rate and surcharge hikes by major carriers FedEx and UPS, this Editor declared:

A final note: Yes, there are realities that nationwide parcel delivery networks require large asset investments, but disruptors such as Amazon, Google, Lyft and Uber strive to challenge any status-quo. From this author’s view: The door is now open for alternatives

Subsequently, in March of last year, we clearly communicated: Reality Acknowledged- Amazon is a Logistics and Transportation Provider. In essence, the strategy was outlined as a similar business model related to Amazon Web Services, namely to not only aggressively invest in logistics and transportation capability, but to also monetize the capability as a stand-alone service offering.

The WSJ reports that the new service will be dubbed, Shipping with Amazon or SWA, and will involve picking-up packages from businesses and shipping them to consumers. Citing sources knowledgeable to Amazon’s intent, the program will be piloted in Los Angeles in the coming weeks with Amazon third-party sellers that sell their goods in the Fulfilled by Amazon program. Of little surprise, the report indicates that Amazon’s intent is to undercut FedEx and UPS on pricing. The SWA program was also previously tested and rolled out in London.  According to the report, the online retailer will continue to rely on the U.S. Postal Service and other carriers for augmented last-mile delivery, if-required.

Admittedly, Amazon has a long way to go to come close to matching the transport network capabilities of existing global parcel transportation providers. Yet, the online retailer is noted for its think bigger and bold strategies that have multi-year dimensions. From our lens, what will unfold is SWA being, yet another extension of self-contained services provided to third-party merchants, that will include inventory and merchandising management. Leveraging the ongoing leased logistics and transportation network is a means to control over costs, similar to how annual Amazon Prime memberships help to defray significant transportation costs. Amazon’s ongoing initiatives further add the presence of a new disruptor in parcel logistics and transportation, one willing to undercut the pricing power of existing carriers.

As to what industry supply chain teams should expect to unfold from today’s development, we reference our 2018 Predictions for Industry and Global Supply Chains (Available for complimentary downloading in our Research Center) Prediction Seven calls for global transportation carrier networks and third-party logistics strategies to turn toward achieving added scale. That includes added strategic alliances, mergers, added acquisitions and some fallout.

Amazon remains the “elephant in the room” of logistics and transportation, with global online players Alibaba, JD.com and Walmart also investing in logistics scale. Today’s report of an online retailer offering independent parcel deliver services as a component of B2B to B2C customer fulfillment is one of others to unfold in the coming months. It is just the beginning of what we believe are other developments to follow.

 

Bob Ferrari

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