- 15 February 2019
- Transport / Logistics Services
Amazon delivery partners frequently report that there is lots of spare space inside the company’s large depots: “It’s for SWA” they say.
Piloted in Los Angeles and London in 2018, Shipping With Amazon (SWA) is an end to end parcel delivery service that is widely expected to be rolled out this year across the UK and US and possibly other markets.
SWA was in the news again this week after Amazon described its services in its latest regulatory filing at the end of January as including “transportation and logistics services.”
This has led to ripples on the stock market affecting quoted companies such as UPS, FedEx and Royal Mail. Amazon Logisitcs is already the third biggest carrier in the UK by volume, and the rollout of SWA will give it another step up in growth.
One point often cited by those in the industry is that the scale of investment that Amazon would have to make to set up a US network to rival those of the big two – with their networks of hubs and aircraft – would be enormous. One rumour, reported by Reuters on the 29th of January, is that it might be cheaper for Amazon to acquire FedEx. This has to be balanced by the fact that only 7% of the goods it has delivered by other carriers in the US is done by FedEx, while 21% goes through UPS. Amazon is the second biggest corporation in the world at an estimated market cap of $1 trillion but even UPS may be too big a target for Amazon.
In the UK, the barriers are far lower. The compact geographical size means that the capex required to set up a leading network is an order of magnitude lower. And there are still potential acquisition targets which would cost a lot less than FedEx. Amazon did buy an option on 5% of Yodel a few years ago but has not made any more moves to acquire a UK carrier.
We hear that SWA in the UK is so far focusing mainly on smaller sellers – typically marketplace sellers who don’t use FBA (Fulfilment by Amazon). However, for it to reach the kind of scale which is worthwhile to Amazon, bigger retailers are the most likely target customers. But would they be willing to use Amazon as their delivery partner? Or would they be wary of becoming too dependent on their biggest competitor? We can’t yet know, but we believe that there are signs suggesting many probably will hold their noses and do it. We note that Amazon has been successful in getting UPS and FedEx to work with it, and that many retailers are happy to use its Web Services division – setting aside any long term strategic concerns for an attractive short term commercial proposition.
One thing US industry commentators emphasise is that Amazon would looking to compete with UPS and FedEx by not imposing surcharges on its clients. The Wall Street Journal reported in late January, “the retailer is promising to forgo many fees that the traditional carriers use to pad their revenue, such as extra charges to deliver packages to homes, during the peak holiday season or on weekends, according to an email sent last week to shippers in the New York area and reviewed by The Wall Street Journal.”
This could amount to a 40% reduction in fees compared to FedEx or UPS and would be a huge draw to clients of the major players (even as retail clients might recoil at paying a competitor to deliver their goods). The impact on big players such as the USPS, Royal Mail and even UPS could be huge should SWA take all Amazon’s business and start taking customers from them.
In the UK it is likely to also be competitive on price. Its focus on smaller parcels suggests it is more of a threat to the Royal Mail than to Hermes and Yodel – but all carriers would be likely to lose some share if and when it takes off in a big way.
When the SWA story broke just over a year ago, markets wobbled. The latest news, which originated from its regulatory filing, has not caused such a large share price reaction. David Abney, CEO of UPS has recently said that he views Amazon as both a competitor and a customer. Because of Amazon’s heavy reliance on UPS, people are bearish about the company – expecting a massive fall in shares should SWA go live – but less so of FedEx. Indeed, should FedEx be an acquisition target the reverse could be true for them.
Amazon has long been building its logistics network. For many the question is when, not if, it rolls out SWA. That ‘when’ appears likely to be 2019.