Category: Industry News

Amazon is on a spending spree to grow its shipping business and isn’t content with only delivering products purchased on its own site. The company is now moving cargo for outside customers in its latest move to compete directly with FedEx and UPS.

“They want to be a new kind of U.S. Postal Service where everything can get everywhere, but also quickly,” said e-commerce consultant Chris McCabe, who was a seller performance investigator at Amazon from 2006 to 2012.

Amazon said in its first-quarter earnings report that capital expenditures were up a whopping 80% from a year earlier, helping it increase capacity of its in-house logistics network by 50% year over year. According to SJ Consulting Group, Amazon is now shipping 72% of its own packages, up from 46.6% in 2019.

An outcome of the pandemic-accelerated e-commerce boom, the demand for parcel services continues to exceed the supply. Like previous years, network capacity limits will be stretched for all carriers this holiday season and into 2022.

UPS recently put a number on it: the daily demand exceeds the parcel market’s network capacity by 5 million packages per day. Both UPS and FedEx are actively issuing significant off-contract rate increases to some of its largest e-commerce shippers to both increase revenue as well as free up capacity if/when those customers divert parcel traffic to alternate providers.

In addition, both FedEx and UPS have announced “peak” surcharges to apply this holiday season and beyond. While they might initially sound innocuous, detailed analysis reveals these added surcharges pack a wallop. This article seeks to provide shippers with a digestible understanding of announced price increases, as well as offer a handful of suggestions to mitigate the full financial strain of peak surcharges.

Ware2Go, the on-demand fulfillment and warehousing provider founded by UPS Inc., said 89% of consumers plan to do as much or more of their shopping online even as restrictions that began at the height of the coronavirus pandemic begin to ease and stores reopen.

Ware2Go, which focuses on one- to two-day shipping, said its survey July 8 shows convenience as the reason for such strong results.

“The pandemic pushed people to take more of their business and shopping online, and now that shoppers have had a taste of that convenience, the bar for merchants has again been raised to compete and win,” Ware2Go CEO Steve Denton said in a statement. “Our research shows that shipping speed directly impacts brand loyalty and that brands have an incentive to prioritize sustainability.”

Despite being a company with a $174 billion market cap, UPS is sometimes misunderstood. For example, one common line of thought is that Amazon.com’s expansion of its delivery network will eat into revenue and profits at UPS and FedEx. However, the recent investor day presentations from UPS went a long way to easing investor fears. Let’s take a look at why.
What the market is worried about

It’s no secret that Amazon is expanding its delivery network, and that’s caused some disruption at UPS and FedEx. Indeed, FedEx has ended contracts with Amazon, and UPS has had to adjust its business strategy in response — its focus on the small and medium-sized (SMB) market for growth is one example.

The concerns aren’t just about Amazon taking revenue; there’s also the fear that UPS and FedEx margins will come under concerted pressure as they chase e-commerce delivery growth. Moreover, the need to continually invest in expanding their networks could constrain cash flow growth.