Logistics is nothing new for Amazon. In fact, it’s a prime reason behind the company’s success and why it has been able to disrupt the entire retail industry. For years the e-tailer has invested in its logistics infrastructure to find faster and better ways to deliver packages - and it’s paying big dividends for both the company and its customers.
It’s gone so well for Amazon that the company is pushing further into the logistics space with a focus squarely on last-mile delivery. And, it’s getting a lot of attention within the industry.
According to the Wall Street Journal, Amazon is planning on expanding into the logistics market with a new service called Shipping With Amazon (SWA), putting it into direct competition with shipping giants FedEx and UPS. The initial launch will be limited to Los Angeles - first to its third-party sellers, then most likely expanding to non-affiliated shippers. Since Amazon already makes some of its own deliveries in 37 U.S. cities, it is likely the program can expand very quickly into those markets as well.
Can Amazon Compete on a Large Scale?
Amazon is expected to offer more competitive pricing than FedEx and UPS, which could make it a more economical shipping option. However, the exact pricing structure has not been announced. Managing costs as a carrier is all about shipment volume and delivery density. Because the company already delivers so many of its own packages, shipments from outside the Amazon network can be a way to fill up empty space on delivery vehicles while adding to the company’s bottom line. It will require a large investment in infrastructure and technology to deliver the way FedEx and UPS do, and it will also take time. The e-commerce company does not have the capacity or equipment to be able to ship on such a large scale – at least not yet.
Once this pilot program rolls out on a broader scale, it will be interesting to see if shippers will be swayed by lower shipping prices or other possible advantages. With shipping costs rising yearly due to annual General Rate Increases (GRI), every shipper is looking to cut costs in this area. While this may sound good on paper, retailers may want to think twice about allowing their biggest competitor to get closer to their customer base.
Delivering Your Customers into the Hands of a Competitor
As part of the SWA model, Amazon would need some level of data and system integration with the retailers they are servicing. Working directly with an Amazon-based shipping system, for example, is in many ways like turning over an entire customer database to Amazon. There are obvious risks and reasons why this is a bad idea.
Amazon has yet to announce how it would handle securing data and information, or if part of the service will include any shipping system or small parcel TMS. But, even without a direct connection to a retailer’s order database, Amazon, in its role as a carrier, will still have access to names, addresses, shipping manifests, and other detailed information about every shipment.
Amazon is well positioned to change the way we ship today. There is a lot of work to be done by the company to compete with the big carriers on any level, but retailers who want to consider Amazon as an option will need to be very careful when they consider the information they are sharing. Even if Amazon can provide huge savings – the cost of losing control of the customer relationship may be far greater.