No company in the world spends more on shipping than Amazon. Last year, it spent more than $27 billion to deliver goods to its customers. Yet, Amazon accounts for approximately 10% of UPS© business and for FedEx© it accounts for less than 2%. As Amazon has moved to take over its own shipping business, these companies might not feel much initial impact. But what should investors be paying attention to?

In GLG’s teleconference, FedEx: Outlook Challenges Post-Amazon Relationship we put that question to Eric Lim, Former Vice President of Corporate Strategy at UPS.

 

FedEx will go through some short-term pain with the loss of top-line revenue that Amazon’s scale has provided. But, in my opinion, the company is concerned with the long-term implications of Amazon becoming a more material competitor in the package delivery space.

Clearly, Amazon is potentially positioning itself to be a legitimate package delivery company not just in the States, but in the world. Amazon’s announcement that it is putting approximately 100,000 carbon-neutral delivery trucks on the road only underlines their seriousness about the space.

FedEx’s attempt to disassociate themselves from Amazon will have little effect, blunted by UPS’s continued enablement of Amazon. If you look at UPS’s Q2 announcement, you see a big jump in their Next Day Air volume (30%). A measurable part of that is almost certainly due to Amazon’s exit from the FedEx network.

However, Amazon’s journey to becoming a small package provider is not straight-forward. The company has 60-70 warehouses in the United States alone, but those are set up to take products from inventory shelves and dispatch them through outbound lines. It’s totally different from having a system set up to sort and process thousands of packages that may or may not be coming from Amazon.

Nonetheless, Amazon has piloted concepts in California and the U.K. where you can ship with Amazon, even if you are not an Amazon customer. The road will be rocky, but Amazon has clear intentions of lowering the price-per-delivery in the package delivery space.

Eric Lim, Former Vice President of Corporate Strategy at UPS

Eric Lim spent 35 years at United Parcel Service (UPS) across multiple business functions including corporate strategy, corporate finance, industrial engineering and supply chain solutions. In his most recent role at UPS (Vice-President of the Corporate Strategy Group; January 2015-February 2016), he led a team that was exploring a strategic relationship with a leading international package delivery company in Asia.

This post is excerpted from the GLG teleconference, FedEx: Outlook Challenges Post-Amazon Relationship. If you’d like access the full transcript or talk to Eric (or any of our more than 700,000 subject matter experts), submit the form below.