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Anna Johansson
Anna Johansson
Articles (38) 

FedEx and UPS Fall Thanks to Amazon Delivery

Can stocks take the heat?

FedEx and UPS Stocks Decrease Thanks to Amazon Delivery

FedEx (NYSE:FDX) was once the crème de la crème as far as parcel delivery was concerned, but the landscape began to shift remarkably once Amazon (NASDAQ:AMZN) delivery began to muscle in.

Amazon stocks steadily rose alongside the talk of opening its very own delivery service. FedEx and UPS (NYSE:UPS) stocks have fallen as a result of this new but weighty kid on the block.

Amazon experiments with delivery service

When Amazon announced it would guarantee two-day shipping for an annual fee, the market response was swift and substantial. Now UPS, FedEx, USPS and other shipping services are struggling with packed warehouses and long nights of delivery, especially near the holidays.

In order to relieve overcrowding, minimize shipping delays, cut costs and increase customer satisfaction, Amazon began to consider the possibility of cutting its ties with various shipping partners and taking on the delivery function itself.

In fact, Amazon moved beyond just talking about a possible new shipping arm. The company piloted in-house shipments in India as much as two years ago, and now it’s pushing the service to merchants in the U.S.

Amazon has launched the service on a trial basis in several Western states, near its current warehousing hubs, and if the process goes well, the company will open up delivery to the entire nation in early 2018.

“Having control of the logistics gives Amazon a tighter grip on the consumer experience. Now, they do not need to rely on merchants and on logistics providers to fulfill a consumer promise no more holiday fiascos!” Ricardo Rubi of Simon-Kucher commented to MarketWatch. “Of course, this would give Amazon a lot more leverage during negotiations with retail partners.”

Essentially, the move toward in-house shipping makes solid business sense. Although it’s too early to confirm the success of Amazon’s delivery service, there are likely to be repercussions, both positive and negative, for the other shipping firms.

FedEx, UPS stocks react to Amazon delivery

Shortly following Amazon’s announcement that it would test its own delivery services, UPS stocks dropped by more than two percentage points, according to a CNN Money report. FedEx also fell by a little more than 1%.

On the other hand, Amazon’s shares inched up by almost a full percent, most probably due to the announcement of its future direction. The dips in stock prices are understandable, but not necessarily cause for concern. In fact, both UPS and FedEx have been performing near their all-time highs this year.

Delivery services seem unconcerned

The impact may not turn out to be as far reaching for the competing delivery companies as we might initially expect. UPS reported that business-to-consumer shipments compose nearly half of all of its package volume.

The company did not disclose how much of its packages come from Amazon, but UPS representatives did say that no single customer makes up more than 10% of the firm’s revenue. One may conclude that losing Amazon as a customer is not liable to derail UPS’s business entirely.

“Amazon is a valued UPS customer,” said Steve Gaut, a UPS spokesman. “We support all our customers with industry-leading e-commerce solutions and expect to expand these relationships further in the future.”

Likewise, FedEx said that residential e-commerce shipments constitute a rapidly growing market but still not a large portion of its shipments. Most of the revenue at FedEx comes from business-to-business platforms. If Amazon goes, FedEx also seems confident that it will be able to adapt.

“We don’t comment on speculative news stories, but there continues to be reporting related to our networks and the transportation industry that demonstrates a clear misunderstanding of the scale, infrastructure and complexity involved in running a global transportation network,” said Patrick Fitzgerald, senior vice president of integrated marketing and communications at FedEx.

“FedEx and other transportation providers are innovating as it relates to new services for e-commerce residential deliveries, but that is only one piece of the capabilities that we provide,” Fitzgerald concluded.

FedEx has also shown a spike in the price of the company’s delivery routes. This is based on discretionary cash flow so when certain routes generate more money, the prices rise.

Over the last few years, the firm has reported a steady increase of about 15% per year for routes. Given such steady figures of growth, FedEx professes to remain unconcerned about Amazon’s latest endeavors.

Ultimately, shipping companies may continue to prevail, even if Amazon takes its own business elsewhere. Other strong ecommerce companies will continue to use the more long-established shippers, including, but not limited to, Best Buy (NYSE:BBY), Costco (NASDAQ:COST), Walmart (NYSE:WMT), Target (NYSE:TGT) and others.

We can expect stock values for FedEx and UPS to bounce back and continue an upward trend based on the companies’ successes in the past few years. Although Amazon’s foray into shipping nationwide may likely evolve into a reality, it’s not necessarily apt to leave a huge dent in the business of other shipping services.

Disclosure: I do not own any of the stocks mentioned in this article.

About the author:

Anna Johansson
Anna is a freelance writer, researcher, and business consultant. A columnist for Entrepreneur.com, HuffingtonPost.com and more, Anna specializes in entrepreneurship, technology, and social media trends. Follow her on Twitter and LinkedIn.

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