Reports indicate that online retail giant Amazon is planning to unveil a delivery service which will ship packages from businesses to consumers. According to sources the service will be known as ‘Shipping With Amazon’. Per The Wall Street Journal, the service will initially be offered in Los Angeles before it is rolled out more broadly as the year wears on. This comes in the wake of the chief financial officer of Amazon giving a hint last week about the e-commerce giant’s retail ambitions.
“Although we have a strong partner network here, we will always be able to leverage our strength and our knowledge about where shipments are going, both within our network and to final customers that will create opportunities for us,” said Amazon’s CFO.
Following the report shares of shipping giants FedEx and UPS slid. Those of Amazon also slipped since analysts urged caution on the grounds that building a delivery network that is competitive is not easy.
It is understood that Amazon’s desire to get into shipping has been brewing since the 2013 festive season when many of its packages suffered from late delivery. Having fueled the online shopping boom the millions of packages are now straining networks such as FedEx and UPS besides the United States Postal Service and other smaller firms.
Late last year UPS underwent challenges after underestimating demand especially over Thanksgiving and Cyber Monday. Consequently UPS has indicated that it will use the amount it will generate from the recent tax cuts in the United States in network improvement. So far Amazon has taken leases on approximately 40 airplanes and has also started arranging ocean freight shipments to the United States from China. It has also hired an army of delivery drivers.
Executives at FedEx and UPS have however downplayed the threat Amazon poses arguing that massive investments would be needed over a long period of time both on land and in the air. Amazon however has the resources as it possesses cash reserves of over $20 billion. Last year it generated a profit of $3 billion and sales of approximately $178 billion.
If and when Amazon gets into the shipping business, delivery firms are likely to hemorrhage business slowly at first before the pace gets quicker once Amazon has built out its own shipping network. Per analysts the amount of revenue that UPS generates from Amazon is estimated to be in the range of 6% while FedEx generates around 3% from the Seattle, Washington-based online retail giant.