UPS, FedEx fall on report Amazon readying delivery service

Anthony Chukumba Loop Capital Markets senior research analyst discusses Amazon’s plans for a delivery service

Citing people familiar with the matter, The Wall Street Journal today reported that the e-commerce giant will roll out Shipping with Amazon, meant to cut out the middleman by sending drivers to warehouses and other retailers for package pickup, then courier to consumers in the 37 cities in which it already delivers.

For that reason, Shipping with Amazon is starting small. And if Amazon ends up realizing months from now that it needs an established partner to help solidify its global parcel delivery business, it can go bargain shopping.

Amazon, it seems, wants to enter every possible business segment it can to add more and more revenue streams to its growing empire. Amazon also uses the U.S. Postal Service and smaller delivery companies. Eventually, its envisioned that the service will be open to other businesses as well.

Cowen analyst Helane Becker wrote in an investor note Friday that worries about Amazon's push into the shipping world were "somewhat overblown", saying the complex delivery networks of FedEx and UPS were "highly hard to replicate".

Amazon, which has been edging into the delivery business for some time, would not confirm the report - but didn't deny it either. The company then plans to expand to more cities later in the year. Amazon is piloting a new service called "Shipping with Amazon" (SWA), an indication that the e-commerce giant is moving closer to becoming an integrator in its own right, reports the WSJ.

Other equities research analysts have also recently issued reports about the company.

Opportunity Awaits       Fed Ex and UPS have quarterly margins that are multiples higher than Amazon              Source Bloomberg
Opportunity Awaits Fed Ex and UPS have quarterly margins that are multiples higher than Amazon Source Bloomberg

"We think the current economic expansion and surging e-commerce volumes are able to support a new competitor", Corridore wrote in a research note to investors. Amazon would then be able to take the packages they pick up from vendors directly to consumers in the 37 cities where they now make deliveries according to the report.

The push into shipping is similar to what the company built with Amazon Web Services, its web hosting and cloud computing division, which was built off of the massive data centers the company built to host its retail apparatus, said Colin Sebastian, a senior research analyst who tracks Amazon for investment firm Baird. Acadian Asset Management LLC now owns 45,244 shares of the shipping service provider's stock worth $11,291,000 after purchasing an additional 17,288 shares during the last quarter. (NYSE:FDX) by 1.1% during the 4th quarter, according to its most recent disclosure with the Securities and Exchange Commission (SEC).

The report that it may kick off its own delivery service comes one day after the Seattle-based company announced two-hour food delivery for Prime members from Whole Foods, which it bought for almost $14 billion. Currently, UPS shares are down over 3%, while FedEx is seeing a drop of almost 4%.

Initially, SWA will be offered as a service to merchants selling goods on Amazon's marketplace.

News of the test sparked investor concern that the world's largest online retailer would upend the shipping market.

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