Amazon holiday quarter delivers, threatens profit
squeeze for UPS and FedEx
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[February 01, 2020] By
Lisa Baertlein
(Reuters) - Amazon.com Inc's <AMZN.O> rapid
expansion of one-day shipping delivered a strong holiday quarter and
showed the rising ambition of the company, which in six years has
created a network that handles nearly as many packages as FedEx Corp <FDX.N>.
Amazon's growth may squeeze profits at United Parcel Service Inc <UPS.N>
and other carriers, but a booming e-commerce industry and Amazon's own
needs mean the older companies are not packing it in.
The world's biggest online retailer started making its own deliveries
after an unexpected surge in 2013 holiday orders swamped UPS and FedEx.
Amazon delivered 3.5 billion - or roughly half - of its global orders in
2019.
![](http://archives.lincolndailynews.com/2020/Feb/01/images/ads/current/fcs_funeral_lda082613.png)
By comparison, 46-year-old FedEx handled about 3.8 billion deliveries in
its latest fiscal year. Amazon also made significant gains against UPS,
which was founded in 1907, and had volume of 5.5 billion last year.
Research firm eMarketer expects global online sales to hit $6.25
trillion in 2023 - up 560% from 2013.
"There's definitely a room for a third" major shipper, said Cathy Morrow
Roberson, founder of Logistics Trends & Insights, who added that the
UPS-FedEx duopoly keeps U.S. prices high.
The average cost of shipping a U.S. parcel was $9.51 in 2018, versus
$1.81 in China and $5.26 in Germany, according to the Pitney Bowes
Parcel Shipping Index.
The dominant U.S. carriers are getting squeezed as Amazon competition
lowers rates and e-commerce pushes up some costs. Online orders cost
more to handle than business packages because they are often far-flung,
one-off residential deliveries. The physical breadth of the United
States also means costs could remain higher than in other countries.
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![](../images/020120pics/busine57.jpg)
The logo of Amazon is seen at the company logistics centre in Boves,
France, August 8, 2018. REUTERS/Pascal Rossignol/File Photo
![](http://archives.lincolndailynews.com/2020/Feb/01/images/ads/current/debbiesfloral_lda_VALENTINES_2020.png)
Amazon so far is reserving lower-cost urban deliveries for its in-house service,
while handing rural packages to carriers. The density of urban environments
means costs per package are lower than rural routes.
UPS has some leverage because its unified delivery network is more efficient
than the split FedEx Express and Ground networks. But, UPS depends on Amazon for
11.6% of its revenue.
"As with any customer, there's no such thing as unattractive freight, just
unattractive pricing, so it will be up to UPS to make a decent return on this
growing customer," Stifel analyst David Ross said in a client note.
Amazon's use of inexpensive independent contractors and e-commerce dominance
give it the ability to negotiate hard.
Memphis, Tennessee-based FedEx broke up with Amazon over the summer, giving up
about 1% of its revenue. UPS's U.S. Next Day Air business scooped up much of
that volume - and saw a 9.2% drop in revenue per package for 2019.
UPS's unionized workforce - and its dependence on Amazon business - leaves it
particularly exposed to competition from the Seattle company's rising logistics
unit.
"That will be a bigger hit to UPS than FedEx," Roberson said.
![](http://archives.lincolndailynews.com/2020/Feb/01/images/ads/current/charrons_sda_032114.png)
(Reporting by Aakash Jagadeesh Babu, Jasmine I S and Neha Malara in Bengaluru;
Editing by Saumyadeb Chakrabarty and Jonathan Oatis)
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