Dive Brief:
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On a Wednesday conference call with analysts, FedEx EVP of market development and corporate communications T. Michael Glenn dismissed the idea that Amazon's shipping operations could become a major threat to FedEx.
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Amazon is unlikely to have the time or resources to scale its delivery operations to compete with the "big three" shippers, FedEx, UPS, and the United States Postal Service, Glenn said.
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He also noted that FedEx is well positioned to provide retailers with omnichannel services like ship-from-store. With items like mattresses and big-screen TVs now being sold online, FedEx is changing its charges to accommodate such large deliveries, soon reducing its maximum length from 60 inches to 48 inches for its initial handling charge.
Dive Insight:
Glenn told analysts that that more than 95% of all e-commerce orders are delivered by FedEx, the United States Postal Service (which also works with FedEx for many of its deliveries, including Priority Mail) and UPS, according to FedEx's estimates.
“In fact, if we were to isolate our e-commerce business one could argue that FedEx is one of the most profitable e-commerce companies in business today,” Glenn said.
In a rapidly shifting e-commerce environment, more e-commerce deliveries are coming from a variety of sources, including stores that are starting to act like mini fulfillment centers. And a wider variety of goods, including previously non-traditional e-commerce items like mattresses, are being delivered, he said. FedEx is well positioned to adapt to these changes, Glenn said, noting that Amazon’s push into increase its own fulfillment services is nothing the company hasn’t seen before.
"Large retailers have long had their own transportation capabilities, primarily to enable movement and positioning of inventory across their store and fulfillment locations,” he noted. “While recent stories and reports of a new entity competing with the three major carriers in the United States grabs headlines, the reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.”
Seeking Alpha pointed to a Tuesday note from RBC Capital Markets analyst Mark Mahaney, stating that Amazon’s shipping and fulfillment costs continue to rise faster than its sales.
"All in, we believe it is likely Amazon will make a concerted effort to take over ever larger portions of its supply chain," Mahaney's report said. "However, a full-blown Amazon parcel delivery operation would likely take years to complete, so we believe [FedEx] and UPS would have time to react."
