Amazon Considering Options After UPS Delays

Following the United Parcel Service's large-scale delays over Christmas, Amazon is evaluating its shipping options.

Jan 8, 2014 at 9:22AM

Obviously, the holidays are a busy time for shipping companies. Gift-hungry consumers, pouncing on holiday deals and discounts from (NASDAQ:AMZN) especially, turn to companies like FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) for their shipping needs.

This year, however, things got a bit messy. UPS especially was unable to handle the massive volume of shipments. As a result, many shipments from Internet retail giants such as Amazon were delayed. Amazon and other online retailers are now reevaluating their delivery options. 

Shippers swamped
The sheer volume of holiday shipments over the Christmas period clearly overwhelmed UPS, turning out to be far greater than the company's initial expectations. According to UPS, severe weather conditions in some places also played a part in the massive snafu. With angry consumers venting on social media, UPS has suffered a serious loss of face.

Original projections for around 132 million deliveries were clearly smashed, which is either an encouraging sign for the American consumer spending environment, or simply a bad job from UPS in terms of predicting holiday traffic. What probably also contributed to the delays was a shorter than usual holiday shopping period and a higher percentage of Christmas purchases being done online. The delays were countrywide, affecting shoppers from East to West.

Main competitor FedEx faced similar issues during the yuletide shopping frenzy, although problems seem to have been less widespread. Between Thanksgiving and Christmas, the shipper handled some 275 million shipments, most of which ended up at their respective destinations on time. However, several local depots became overwhelmed, not even attempting to make some deliveries in the days before Christmas.

Amazon's response
As the major U.S. online retailer, Amazon of course had to deal with some of the backlash. The company's response was brisk: It offered $20 gift vouchers to customers who were affected by the shipping delays. Additionally, the company has offered to refund the shipping costs for delayed items.

Also, Amazon has stated it is currently reviewing the performance of delivery companies. The company seems quite ready to take shipping matters into its own hands, as became clear from CEO Jeff Bezos' plans to use drones at some point in the future. According to Amazon, the company passed on all the deliveries to the shippers on time. Declining to give exact figures on how many customers were affected, Amazon stated that only a small percentage of shoppers faced delays.

The online retail titan has plenty of cash to throw at the venture of developing its own delivery service, and the backlash it faced as a result of the Christmas delays could serve to expedite the development of these options. If major online retailers such as Amazon decide to launch their own delivery services, shippers like UPS and FedEx could potentially find themselves in a lot of trouble.

In fact, Amazon already has its own delivery services. AmazonFresh, which provides consumers with fresh produce, delivers products using its own trucks and employees or contractors. Additionally, the company's Locker service delivers products to pickup points such as 7-Eleven stores using its own logistics. It isn't hard to see how Amazon would theoretically be able to expand upon these services should they find their traditional delivery partners' service unsatisfactory. Also, Amazon recently announced a partnership with the U.S. Postal Service for Sunday deliveries. 

The bottom line
UPS dropped the ball during the holiday madness this year, having severely underestimated the massive volume of deliveries. To be fair, poor weather also contributed to the delays. As such, Amazon has already said it will be investigating the competence of its shipping partners, and may choose to expand on its own delivery options. Online retailers providing their own delivery services could potentially leave shippers in very hot water indeed.

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Fool contributor Daniel James has no position in any stocks mentioned. The Motley Fool recommends, FedEx, and United Parcel Service. The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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