Amazon tests delivery in Los Angeles, shipping shares
sink
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[February 10, 2018]
By Jeffrey Dastin and Eric M. Johnson
(Reuters) - Amazon.com Inc is testing a
program to ship its sellers' goods, sending shares in FedEx and UPS
tumbling even though analysts and the companies played down any
near-term threat to the two global delivery businesses.
Amazon is running "Shipping with Amazon" in Los Angeles and possibly
other locations, a person familiar with the matter told Reuters on
condition of anonymity.
News of the test sparked investor concern that the world's largest
online retailer would upend the shipping market. FedEx Corp and United
Parcel Service Inc shares were down more than 4 percent in afternoon
trading.
FedEx, UPS and analysts played down the idea that a trial poses a
near-term threat to the couriers' businesses.
Cowen and Co analyst Helane Becker estimated Amazon would have to invest
$100 billion to build a global network of facilities, planes and trucks
to compete with FedEx and UPS.
The program, while still at an early stage, aims to reduce hurdles that
some sellers face getting their inventory to Amazon's facilities.
Under the new process being tested, Amazon sends a truck to pick up
sellers’ products, which then takes inventory either directly to an
Amazon fulfillment center or to the U.S. Postal Service or to couriers
like FedEx, depending on what's most cost-effective, said the person who
spoke to Reuters.
Amazon has run a number of experiments in Los Angeles because the city
is spread out and is a big market for deliveries. "Shipping with Amazon"
is currently intended for select third-party sellers in the test, not
for businesses in general, and still it is not yet ready to roll out
widely to sellers on Amazon, said the person.
FedEx and UPS customers should not expect to shift their business to
Amazon any time soon. The Seattle-based company has considered taking
work from the couriers on a conceptual level but does not have
initiatives currently planned to ramp up competition, the person said.
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The Amazon logo is seen at the Young Entrepreneurs fair in Paris,
France, February 7, 2018. REUTERS/Charles Platiau
Amazon said on Friday it was "always innovating and experimenting on behalf of
customers and the businesses that sell and grow on Amazon to create faster
lower-cost delivery choices."
UPS and FedEx have both spent billions of dollars in recent years to upgrade and
expand their networks to handle soaring e-commerce volumes. UPS said last week
it plans to spend $7 billion on upgrading its network this year alone.
UPS and FedEx also consider Amazon an important customer. Amazon accounts for
less than 10 percent of total revenue for UPS and 4 percent of revenue for
FedEx, according to Wolfe Research analyst Scott Group.
UPS and FedEx declined to comment on Amazon's specific strategies or decisions
regarding the utilization of their services.
"There is tremendous opportunity in the business-to-customer market and more
growth coming to the sector and UPS, irrespective of how other companies shift
strategies," UPS spokesman Glenn Zaccara said.
An earlier report on Amazon's plan "demonstrates a lack of basic understanding
of the full scale of the global transportation industry," FedEx spokesman
Patrick Fitzgerald said.
(Reporting by Eric Johnson in Seattle, Jeffrey Dastin in San Francisco and Ankit
Ajmera and Sonam Rai in Bengaluru; Editing by Bernard Orr and Anna Driver)
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