October 10, 2017
In a move which has been predicted for some time, the e-commerce giant Amazon.com is finally getting ready to take on UPS and FedEx.
The Seattle-based company has been working on how to wean itself from full dependence on other shipment carriers. Part of why is simply to provide more reliable rapid delivery service to its customers. It has been stuck in the past by relying way too much on third parties, and famously in 2013 had to hand out refunds to shoppers who were not able to get their gifts on time, to a large extent because of a last-minute shipping crunch.
Its latest foray into this is a project the company calls Seller Flex. The way it works is Amazon will work with warehouses of third-part merchants as the source of products to be shipped. But unlike what happens currently, where how the package is shipped is decided by the seller, this time Amazon would make the decisions as to how to ship.
The idea is less about replacing any given carrier which brings the goods from point A to point B, and instead far more about managing what is referred to in other industries as ‘the last mile’ business. In telecommunications, for example, often the most expensive part of the infrastructure is the ‘last mile’ that connects the main trunk lines to individual houses. The same is true in shipping, where the most handling and most cost goes into the final door-to-door delivery.
This last area is also where Amazon has learned how to excel, on the front end of the process. It pioneered methodologies to simplify and automate how shipments are picked and wrapped for delivery in the warehouse. It believes – and there is no reason to question – it has the skills to handle the ‘last mile’ on the delivery end better than most.
Amazon has been testing this service for about two years in India. Earlier this year it began trying out a similar service within states along the U.S. West Coast. In both cases it is not providing much in the way of information on what is working and what is not.
What Amazon is clear on is the importance of continuing to support its ‘Amazon Prime’ service, one which for an annual fee guarantees that customers will have their products delivered within two days from Amazon fulfillment centers. They expanded that to include what is called ‘Seller Fulfilled Prime’, which extends that delivery promise to certain goods which sellers store in their own warehouses.
This new service, Seller Flex, will require Amazon to support 2-day shipments, overnight, Amazon Prime, Seller Fulfilled Prime, and so-called ‘regular’ shipments which are processed not based on speed but on the most cost-effective approach to delivering them.
As to what routes might be used for these shipments, Amazon has been evaluating having its own airline fleet and even the use of drones to bring packages to their destination.
In doing all this, Amazon will not be eliminating having some reliance on UPS and FedEx. But with its shipments currently adding up to between 5 and 10 percent of UPS’ sales and around 3 percent of that of FedEx, any significant shift in how Amazon routes its deliveries will definitely make a dent in their final revenues.