Amazon is the 800-pound gorilla in e-commerce retailing, but what is its impact on parcel carriers, less-than-truckload carriers, and the third-party logistics markets? Armstrong & Associates delves into that question in its latest report, Amazon Logistics Market Estimates, Benchmarking, and Predictions.
The first sector that may come to mind when talking about e-commerce is the parcel business, and indeed the report points out that e-commerce makes up about 30% of the North American parcel market. Armstrong estimates that Amazon (and Fulfillment by Amazon) accounts for 6.5% of total UPS revenue and 4.7% of FedEx revenue.
FedEx disputes the Armstrong estimate, telling HDT, "Amazon.com Inc. is not FedEx Corp.’s largest customer. The percentage of total FedEx revenue attributable to Amazon.com represented less than 1.3% of total FedEx revenue for the 12-month period ended Dec. 31, 2018."
E-commerce volumes have helped propel significant growth in revenue in the U.S. domestic package segment – profit growth, however, has been harder to come by. UPS and FedEx have been making significant investments in things such as network optimization and automation, adding new facilities and expanding existing ones.
Several reports have shown that Amazon is taking more control of its own last-mile delivery. It has a fleet of 4,000 trailers (some reports indicate up to 7,500 trailers) for transport between warehouses and fulfillment centers, the report notes. The company does not own tractors, instead handling transportation through truckload and LTL carrier partners, via 3PL partner capacity, parcel carriers, partnerships with last-mile delivery providers, or independent contractors using their own vehicles for last-mile delivery.
By the end of 2019, Armstrong reports, Amazon expects to have a fleet of 20,000 vans, owned by fleet-management companies, which then lease the vans to small delivery-service providers. The typical company under this scenario will employ 100 drivers and lease 20 to 40 branded vehicles.
Armstrong also points out that “taking control of the last mile also allows Amazon to expand delivery days and hours,” noting that FedEx just launched Saturday delivery, UPS is expanding its Saturday delivery to additional markets, and USPS already provides Sunday delivery for Amazon. “Amazon could push the envelope and put pressure on its competitors with its own delivery schedule.”
Amazon could go further, delivering not just to the door, but to inside the home, “crossing the threshold. “While indoor delivery historically was limited to white-glove-type deliveries, Amazon and others are pushing the envelope and seeking ways to add value to the customer (Walmart, for example, will put groceries in the refrigerator),” the report notes.
However, Armstrong believes the scenario of Amazon developing ground capabilities to rival UPS and FedEx “is very unlikely at this time.”
Amazon as 3PL
E-commerce makes up 7% of the U.S. third-party logistics market, and Armstrong points out that “Amazon is acting increasingly like a 3PL.” It estimates Amazon is acting like a 3PL for 12% of all business-to-consumer e-commerce shipments. Third-party sellers on Amazon’s marketplace represent more than half of all units sold through Amazon, and about half of those sellers use the company’s Fulfillment by Amazon program.
Armstrong expects this trend to continue, as third-party sales on Amazon’s marketplace continue to accelerate (including partnerships with big brands like Nike), and as it works on improving its third-party seller fulfillment and pass efficiencies along to those sellers – including continuing to raise the bar for fulfillment speed.
The company could be even more aggressive, Armstrong says, even extending its 3PL services beyond its own marketplace to multiple industries. This could involve acquisition of an existing 3PL.
The complete report and other A&A market research can be found at: https://www.3plogistics.com/product-category/guides-market-research-reports/.
Article updated 11:55 a.m. EST 2/1/2019 to add FedEx comment.