Amazon is planning to launch a delivery service to cater for its third party sellers in a move that will become a direct threat to industry leaders FedEx and UPS.
The new service is expected to deliver items from different companies to their customers. In the early stages the service will be available for Amazon’s third party sellers and will then gradually expand to serve other businesses. The operation will debut in Los Angeles in a few weeks’ time and later roll out to other locations.
Amazon already has in place a deal with UPS that has grown in strength over the years. UPS delivers a lot of items for Amazon’s Prime program. The deal is likely to continue going forward but uncertainty over the future sent FedEx and UPS shares south on the announcement.
If Amazon succeeds in this new venture, it will greatly improve delivery speeds which are sometimes impacted by third parties. Items shipped from the company’s warehouses can be processed quickly in time for the free two-day shipping that’s available to Prime members. However, when items are being shipped from third party sellers, it becomes increasingly difficult for Amazon to control the delivery times. Owning the entire process will ensure that Amazon tracks every order to bring in much needed efficiency which is the cornerstone of Prime membership. This might as well lead to more people joining the program.
An in-house delivery service will help the company control the logistics aspect which remains an important part of its business. This will save the company from any disruptions that may result from delays by third-party service providers. This can also improve on quality and customer satisfaction by controlling how items are packaged and handled.
Amazon’s overall costs could also come down substantially considering that the company spent over $20 billion on deliveries alone in 2017. With the big players such as UPS reporting revenues of $18.83 billion in the past quarter, an entry by Amazon may be a big boost to its bottom line.