Wall Street commentary on Amazon creating problems for UPS and FedEx may be overblown

Wall Street analysts continue to indicate or suggest that the Seattle-based e-tailer titan Amazon raises significant risks for the parcel duopoly of UPS and FedEx, according to a Bloomberg report published this week.

The report, citing a research report from UBS analyst Tom Wadewitz, states that Amazon presents a long-term risk for UPS and FedEx, with the company likely to build out its package delivery options, adding that the timing of the expansion is unclear.

Bloomberg also cited a report from Morgan Stanley, which observed that UPS and FedEx face “underappreciated competitive risks as the tech giant has been building up its freight delivery service.” And it cited Morgan Stanley estimates that stated the opportunity costs of the ramp up of the Amazon air network accounts for 2% of potential revenue losses for UPS and FedEx in 2018, which could grow to 10% or more by 2025.

Even with the potential of Amazon bringing more logistics operations in-house, Wadewitz wrote that “there is a meaningful period of time when competition from an Amazon package delivery offering is unlikely to be broad enough to have a broad impact on UPS and FedEx,” according to Bloomberg, adding that changes in how Amazon uses UPS and FedEx would be gradual. 

An industry observer told LM that the publicity Amazon is receiving focused on speculation of it being a threat to UPS and FedEx is a concern.

“Yes, Amazon could offer a door-to-door pick up and delivery service now that it has 20,000 of its on vans out there, and cell phones could ‘Uberize’ small parcel service, however, I believe this would be harmful to Amazon’s core mission of providing a fast, efficient purchasing platform for purchasing items,” said Jerry Hempstead, president of Hempstead Consulting.

Putting that into perspective, Hemsptead explained that Amazon could divert some traffic from FedEx and UPS, but, at the end of the day, UPS and FedEx are really in a different business than Amazon. 

“FedEx does little business with Amazon, and if UPS considered them a real threat then they should sever ties with them and no longer enable them to be a threat, at least on those packages UPS transports for them,” he said. “At the very least transport then at deeply discounted rates. In any event, I continue to believe that there is a symbiotic relationship between Amazon, USPS, and UPS and they work together to be mutually successful. Amazon is busy being Amazon and taking care of the Amazon customer universe. Yes there may be some overlap of Amazon customers and FedEx and UPS customers but the Amazon business is not the most attractive or profitable business out there for UPS and FedEx, and I’m sure there are days they would appreciate shedding some of it.”

What’s more, he said that most of the business today moves under negotiated contracts between UPS and FedEx, adding that these are long-term relationships between seasoned reps and logistics professionals at major shippers.

“Have you heard anyone who has been called on by their Amazon sales rep yet?” said Hempstead.  “This pondering by Wall Street analysts is all about creating volatility from which they can make money. It is not about any deep seeded understanding of the sales process in the parcel industry.”