Can Amazon Disrupt FedEx in the 2020s?

Just as Amazon will continue to take market share away from the advertising duopoly of Facebook and Google, it can do the same against FedEx and UPS in 2020 and onwards.

Amazon as a logistics and transportation company really will be a thing!

Part of Amazon’s competitive advantage is how it tracks the performance of delivery workers. Amazon recently did something huge vs. FedEx: it just barred third-party sellers from using FedEx for deliveries. FedEx’s stock is down more than 10% today, December 18th, 2019, and it’s just a sign of things to come. FedEx’s earnings slipped up badly at the end of 2019.

According to the WSJ, the ban was due to the poor performance of FedEx relative to its peers like UPS. Amazon’s aggressive approach to employee monitoring is similar to how China is approaching logistics, namely Coupang, the Amazon of South Korea, is also getting things right.

Amazon is looking to become a logistics company in its own right

As Amazon gets more into physical stores, grocery and elevating Amazon Prime to new heights, last mile delivery is key no matter the cost. Disrupting the entire logistics industry is a distinct possibility here with drones and increasing autonomous trucking and vehicles on the horizon.

The idea that Amazon will take on UPS and FedEx is not new, but it’s an evolving story. Amazon recently expanded Amazon Air to include 50 planes and several new regional hubs, including a $1.5 billion hub opening in northern Kentucky in 2021.

Amazon divorcing itself from FedEx is really Amazon saying its ready to do its own thing in this space. Amazon and FedEx cut ties earlier this year. Amazon continues to use UPS, USPS, and its own delivery network to transport items to customers.

Amazon Logistics already delivers ~50% of Amazon US volumes, focused on urban areas, Morgan Stanley reports. The firm estimates Amazon Logistics will reach a volume of 6.5 billion packages per year by 2022, far exceeding its estimate for UPS at 5 billion packages per year and FedEx at 3.4 billion packages per year.

What this essentially means is Amazon could become a direct competitor to UPS and FedEx in the near future. As it learns to handle more of its own load, it can enter the third party market.

Amazon added 15 Boeing 737s to its cargo arm in June, bringing more logistics in house. Amazon has been growing its Amazon Air unit, which currently counts on cargo airlines Atlas Air and ATSG to fly its packages. While we might have to wait a few years for those fancy air balloons and drone delivery at scale, Amazon isn’t waiting for the future.

FedEx in earnings reported a net income of $660 million for the three months ending November 30, down nearly 40% from the same period a year earlier. Revenue also fell to $17.3 billion from $17.8 billion over that time. It’s clear FedEx is on the decline, while Amazon logistics is improving.

Amazon contractors are using an app to track legions of delivery workers and score their driving behavior on a scale of 0 to 850, according to interviews with Amazon drivers.

FedEx has weirdly yet to master on-time delivery of holiday packages from warehouses to homes and in this ultra competitive business that’s a deal-breaker. As Chinese E-commerce players fuel the future of logistics, it’s clear Amazon is starting to disrupt FedEx and it could be another bad year for FedEx in 2020.

A significant drop in operating income in FedEx’s Ground division — down 42% to $342 million, from $590 million in the same period last year shows how badly FedEx is in trouble. Investor confidence in FedEx is also in decline, of the 28 analysts surveyed by FactSet who cover Fedex, 10 have reduced their price targets following the results in late 2019.

Amazon is Improving as FedEx is Losing

Amazon Logistics is the e-commerce giant’s in-house logistics operation and should continue to increase its market share. Amazon learned early on that speed is convenience for customers. Amazon’s “relentless” strategy has played out in several ways this month as stocks have turned bullish again in December, 2019.

Projections are very bullish on Amazon becoming legit in the logistics space, with Amazon Logistics estimated at 6.5 billion packages per year by 2022, far exceeding its estimate for UPS at 5 billion packages per year and FedEx at 3.4 billion packages per year. Too good to be true? We’ll see, everyone still fears Amazon.

Amazon has a history of relentlessly snuffing out competitors and playing hardball wherever possible. That kind of ruthlessness and innovation have created a lot of jobs for Americans at Amazon, however with a rising cost in the fortunes of other businesses. As Amazon moves more into automation, the future scenario is clear.

How serious is Amazon as a logistics and transportation company? In its 2018 annual financial filing released earlier this month, it listed “transportation and logistics services” among its group of competitors for the first time. FedEx should be afraid, very afraid!

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