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Amazon to Delivery Companies: Yes, We're Building Our Own Service, But Don't Worry

Amazon to Delivery Companies: Yes, We're Building Our Own Service, But Don't Worry
Image credit: REUTERS | Rick Wilking

Over the last few months, we've seen multiple reports about Amazon possibly taking steps to build its own delivery and logistics business, across truck trailers, air flights and ocean freights.

Some reports even said that Amazon is secretly putting together a team to spearhead the initiative, leading to speculation that Amazon could upend an industry dominated by companies like FedEx, DHL and UPS.

On Thursday, analysts finally got a chance to ask Amazon CFO Brian Olsavsky about it.

Olsavsky played down the significance of Amazon's interest in the business. Yes, Amazon is indeed building its own logistics business, he said, but it's not meant to replace any of the existing partners.

Nothing to see here.

"What we found in order to properly serve our customers at peak, we’ve needed to add more of our own logistics to supplement our existing partners. That’s not meant to replace them," Olsavsky said.

He blamed Amazon's rapid growth and the fact that the carriers have not been able to keep up with its growing demand, especially during peak seasons. 

"And those carriers are just no longer able to handle all of our capacity that we need at peak. They’ve been and continue to be great partners, and we look forward to working with them in the future. It’s just we’ve had to add some resources on our own," he added.

Olsavsky noted that the thousands of truck trailers it bought last month are meant to be used "primarily for movement between our warehouses and our sort centers," indicating they won't be replacing the door-to-door delivery work UPS or FedEx have been doing for them.

The bigger play?

Olsavsky's comment makes sense, given Amazon had some trouble with its deliveries in previous holiday seasons, when its shipping partners couldn't deliver in time. Plus, building a full-fledged logistics company is a huge endeavor that could cut into its costs and cause long-term volatility.

Amazon is currently spending more than 10 percent of its revenue on shipping, or roughly $3 billion last quarter. For a company that's barely profitable, any measure to cut costs in this area would be a welcome thought.

Whether Olsavsky's explanation satisfies everyone remains to be seen, but many analysts believe that Amazon could tap into an attractive new market if it decides to turn its logistics assets into a full-fledged business.

In fact, Baird Equity Capital recently wrote in a note that there are plenty of signs that point to an Amazon logistics business and that it has "powerhouse potential" to become a major player in the space.

"Among other opportunities, Amazon has 'powerhouse potential' in the large transportation and logistics market, dominated by global enterprises such as DHL and UPS. Our assessment of Amazon's broadening fulfillment ecosystem, internal domain expertise, and early initiatives with Prime Now to offer third-party delivery suggests there is evidence Amazon may ultimately pursue more comprehensive third-party services," it wrote.


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