Amazon's new delivery program shouldn't hurt FedEx, UPS

Amazon looks to be moving deeper into the shipping world.

The online retailer plans to launch a program called “Shipping with Amazon” in Los Angeles in a few weeks, in which the company will pick up and ship packages to customers, according to a report from The Wall Street Journal. The service, which will expand to more cities as soon as this year, would start with third-party sellers on Amazon but could eventually open to other businesses, the report said.

The program seems to mesh with Amazon’s efforts to build up its own shipping infrastructure so it can handle the growing mountains of packages it needs to deliver. Last year, more than 5 billion items shipped with its Prime program worldwide, the company has said. Amazon has invested in a new air cargo hub in Kentucky, 40 Prime Air cargo planes and 4,000 truck trailers. It also runs its own on-demand local delivery service called Amazon Flex. Longer term, Amazon is among a handful of companies including UPS and DHL that are developing delivery drones.

Amazon started investing in these resources after the 2013 holiday season, when some of its packages were delivered late by its shipping partners. That work should help ensure customers packages will arrive on time more often.

“We’re always innovating and experimenting on behalf of customers and the businesses that sell and grow on Amazon to create faster lower-cost delivery choices,” an Amazon spokeswoman said Friday, without confirming whether Shipping with Amazon was in the works.

But, even with those growing investments, there’s strong reason to believe Amazon will need to rely on UPS, FedEx and the US Postal Service for many years to come. Amazon would need to significantly amp up its investment in shipping to match those other organizations, several analysts said.

“Amazon leases 40 planes, FedEx has 659 — there is no comparison,” Anthony Chukumba, an analyst at Loop Capital Markets, told The Washington Post on Friday.

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 difficult to replicate.” She said Amazon takes up about 3 percent of FedEx’s total revenue and about 10 percent of UPS’ revenue.

For their part, UPS and FedEx on Friday offered confidence in their own businesses.

Patrick Fitzgerald, a senior vice president at FedEx, said the Journal’s headline — “Amazon to Launch Delivery Service That Would Vie With FedEx, UPS” — “lacked a basic understanding of the full scale of the global transportation industry.”

A UPS spokesman said his company “continues to support Amazon” and declined to comment on Amazon’s business plans.

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