Amazon Reportedly Looking to Lean Less on UPS

Amazon Reportedly Looking to Lean Less on UPS
Image credit: REUTERS | Rick Wilking

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This story originally appeared on Fortune Magazine

Amazon has reportedly been seeking alternative ways to deliver its packages and is re-examining its relationship with carrier United Parcel Service.

The online retailer has been holding talks with air-cargo companies to lease airplanes, and is seeking to lower its costs and reliance on delivery partners like UPS, sources told The Wall Street Journal.

Already testing its own delivery network of trucks and venturing into package-delivering drones like Amazon Prime Air, the company could be viewing UPS as a future competitor instead of a present ally, The Journal added.

“Amazon’s interest is not in doing what may be good for UPS,” Satish Jindel, a parcel-industry analyst with SJ Consulting, told The Journal. “Their interest is in getting control over logistics.”

Shipping costs are one of Amazon’s fastest-growing expenses, The Journal notes. In a check with their annual reports by The Journal, outbound shipping costs totaled 11.7 percent of revenue in the third quarter, up from 10.4 percent a year ago. 

Any move to cut out third-party shipping companies like Federal Express and UPS will have a significant hit on their bottom line. The Amazon account alone is worth around $1 billion to UPS, sources told The Journal. And according to DC Velocity, FedEx’s SmartPost product saw a 6 percent decrease in average daily volume due to a drop in usage from a major customer that the logistics trade publication believes to be Amazon.

This news also dovetails with recent reports that the retailer sees an opportunity to foster its own transportation network, and is already building out its own cargo operations.

Fortune has reached out to UPS for comment.

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