Morgan Stanley analyst Brian Nowak and colleagues this morning respond to an article from Tuesday in the industry trade publication "DC Velocity," by author Mark Solomon, that said Amazon (AMZN) is expanding its fulfillment efforts to become much more like a generalized parcel delivery service in competition with Fedex (FDX) and UPS (UPS).
Solomon, in the DC Velocity article, wrote that Amazon is "testing a program to offer two-day nationwide deliveries for all shippers, including those who aren't Amazon customers." Solomon related that the program is "being piloted in Los Angeles and Orange County."
Nowak and colleagues this is a "logical" next step for Amazon. The company had been providing first " fulfillment by Amazon," or FBA, where it convinces sellers on Amazon.com to use its warehouses.
But then Amazon added " Seller Flex," in which Amazon picks up packages from a seller's warehouse if they prefer.
Now, writes Nowak, Amazon "reportedly'wants to pick up all of (a customer's) orders regardless of what they are and where they're going,' - indicating intentions to become a full-fledged parcel carrier," quoting from the Solomon article.
Nowak sees Amazon having the resources, and he sees the company further reducing its reliance on UPS and Fedex:
AMZN plans to use its own assets. According to the report, AMZN is willing to ship items of all sizes (not just eCommerce packages) and is planning to offer all deliveries using its two-day Prime program. This will be executed through the many links in its in-house network including last mile, thousands of tractors and trailers, 40 B767, dedicated rail IM, global freight forwarding license, in-house freight brokerage app and more - click links to see notes. Reducing reliance on UPS and FDX. The report also states that AMZN is seeking to reduce its reliance on the big carriers and will only rely on outside providers on "high confidence" routes. This makes sense to us as our own work has suggested that AMZN can be up to 2/3rd cheaper than legacy parcel avg. rev/unit at similar delivery density (see our Parcel report here), which was seemingly confirmed by AMZN on its recent 3Q conf. call. Moreover, UPS has also been struggling to meet on-time requirements this peak season, likely exacerbating AMZN's concerns.
Amazon today is up $9.68, or 0.8%, at $1,173.81.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
