FedEx and UPS Could Lose Billions as Amazon Air Expands

January 10, 2019

Amazon.com (NASDAQ: AMZN) is expanding its fleet of cargo planes to 50, potentially taking billions of dollars in business from FedEx (NYSE: FDX) and UPS (NYSE: UPS), as it assumes more responsibility for its own deliveries. It also positions Amazon as a future carrier rival.

Because analysts estimate the online retailer accounts for about 3% to 5% of FedEx’s revenue and percentages in the low teens for UPS — though last year the carrier said no customer represented more than 10% — it’s clear UPS has more to lose than FedEx, though losing a significant customer is never good.

While Amazon might not be looking to replace FedEx or UPS, or even the U.S. Postal Service for that matter, but rather to supplement them, it still means they’re going to feel the hit.

Amazon is already responsible for about half of all e-commerce conducted in the U.S. and analysts forecast U.S. online sales will exceed $1 trillion by 2025. The USPS is seen as bearing most of the burden for Amazon’s sales, handling 62% of its package shipments, followed by 21% by UPS and 8% by FedEx. Another 9% is delivered by regional carriers. But as delivery rates rise across the board, the cost to Amazon is not insignificant and it makes sense it will want to internalize more of the delivery process.

Morgan Stanley estimates Amazon saves $2 to $4 per package when it uses its own fleet, or some $2 billion annually. That’s about 10% of what Amazon spent on shipping in 2017. The USPS raised its rates last October, a move that will cost the e-tailer $1 billion in 2019, and that’s on the basis of the postal service handling just 40% to 50% of Amazon’s deliveries. With FedEx and UPS both raising their rates by an average of 4.9%, the costs to Amazon will be substantial.

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GO AMAZON !!!!

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