Amazon.com reports a profit near $2 billion, the largest in its history, as the world’s largest online retailer draws millions of new customers to its Prime fast-shipping club for the holiday season and as changes to U.S. tax law added to its bottom line.
FedEx touted its “40-year head start” as a competitive edge over newcomers, after a report that Amazon.com is moving toward direct competition with FedEx and UPS.
The Wall Street Journal reported Friday that “Shipping with Amazon” would pick up packages from businesses and ship them to consumers.
The WSJ, citing people familiar with the matter, said Seattle-based Amazon is preparing to start the service in the next several weeks in Los Angeles with “third-party merchants” and then roll it out more broadly.
A spokesman said UPS sees plenty of opportunity to grow with burgeoning e-commerce, and Memphis-based FedEx Corp. has long maintained it doesn’t expect Amazon’s delivery business to pose a serious threat to FedEx’s bottom line in the foreseeable future.
Patrick Fitzgerald, FedEx senior vice president of integrated marketing and communications, said Friday, “The headline in today’s Wall Street Journal demonstrates a lack of basic understanding of the full scale of the global transportation industry. A much clearer explanation of what it takes to truly provide outstanding service to e-commerce and all customers is featured in a video available on fedex.com/dream.”
The Journal’s online headline read: “Amazon to Launch Delivery Service That Would Vie With FedEx, UPS.”
The video emphasizes FedEx has “a 40-year head start” on building a shipping network tailor-made for e-commerce, an $1.7 trillion industry that’s growing significantly faster than brick-and-mortar retail.
A major presence by Amazon in the shipping industry could affect FedEx two ways: more competition for other shippers’ business, and the loss of some of Amazon’s volume in the FedEx network.
FedEx, UPS and Amazon shares were all down Friday, while the market posted a modest gain. FedEx shares declined 1.65 percent; UPS was down 2.64 percent; and Amazon lost 0.81 percent.
Amazon was a hot topic during FedEx’s quarterly earnings call in December.
“If Amazon starts competing for shipping business, how would that impact your go-to-market strategy?” analyst David Vernon asked.
“Obviously, we don’t address hypotheticals,” FedEx Chairman and CEO Frederick W. Smith said before referring the question to Raj Subramaniam, executive vice present and chief marketing and communications officer.
“All I can add to that is to just say that Amazon is a long-standing customer of FedEx. However, it should be noted that FedEx has no single customer that represents more than three percent of revenue or volume,” Subramaniam said.
FedEx officials have repeatedly stated they believe it would be difficult for Amazon to replicate the domestic and global networks, systems and practices that FedEx has built over nearly 45 years since the company’s 1973 launch at Memphis International Airport.
Indeed, FedEx’s more than 400,000 employees operate 664 planes, more than 170,000 trucks and motorized vehicles, 68 ground hubs and distribution centers, 11 air express hubs and 370 freight service centers.
FedEx has invested heavily in recent years in automated sorting technology for FedEx Ground, its front-line business for domestic e-commerce.
The Amazon move also comes at a time when FedEx Express, the domestic and international air express business, is gearing up to spend more than $1.5 billion to modernize and expand hubs in Memphis and Indianapolis.
Smith said in December, “… we are quite confident that we can handle nationally larger amounts of the e-commerce packages in the future at profitable rates because of the investments we’ve made. These automated facilities … we have two major hubs coming online next year and a couple more after that. These are substantial improvements to our ability to handle this type of traffic on a profitable, long-term basis.”
FedEx officials have fielded questions about competition from Amazon for years.
In March 2016, FedEx officials said they weren’t surprised by Amazon’s move to build out its U.S. delivery infrastructure by leasing cargo jets and buying a stake in Air Transport Services.
After a deal was announced in 2013 for Sunday deliveries of Amazon packages by the U.S. Postal Service, Smith said he didn’t see Amazon challenging the dominance of FedEx, UPS and the post office in domestic package deliveries in the near future.
“In certain situations, an Amazon.com or some very large e-tailer, they can unquestionably do local deliveries, choose to do so, and I think in the cases of some of them, they use various local delivery options today,” Smith said.
“But for the vast majority of products moved, it’s almost certain that they’re going to be moved, they’re going to be delivered by one of those three networks and some of the smaller regional players, as far as the eye can see,” Smith added.
Nearly five years down the road, the prospect of head-to-head competition looms larger than ever, but it remains to be seen how much Amazon is willing to invest in building out networks to compete with FedEx, UPS and USPS.
Reach reporter Wayne Risher at (901) 529-2874 or [email protected].