As Amazon.com (AMZN 0.40%) raced to build out its fleet of delivery vans, trucks, and planes, there seemed to be no impediment to the e-commerce giant eventually taking on the heavyweights of logistics and transportation, FedEx (FDX 0.55%) and UPS (UPS 3.68%).
Even the SEC filings of the companies began recognizing each other as potential competitors, and in the case of FedEx, it began distancing itself from propping up what was increasingly becoming a rival, ending contracts with Amazon to deliver certain packages.
The spread of the novel coronavirus and the business impacts it has created is making Amazon rethink its strategy, though, and that's great news for FedEX and UPS investors. Here's why.
Image source: Amazon.com.
Revving its engines
Launched in Los Angeles in 2017, the delivery business that shipped packages from businesses to customers was the first concrete evidence that Amazon had actual designs on competing with the industry giants.
While purchasing tens of thousands of delivery trucks and vans, leasing dozens of cargo planes, and opening several airport hubs around the country were all strong clues it was moving quickly in that direction, actually testing out the service on a small scale, then adding more cities to its routes as it grew more proficient confirmed that Amazon had designs on taking on FedEx and UPS.
Yet in a note to the program's customers seen by Business Insider, Amazon said:
At Amazon, we regularly evaluate the requirements of our businesses to ensure we are structured in the best way possible to meet the evolving needs of our customers. After careful consideration, we have decided to pause our Amazon Shipping service in the US. Our last day for pick-ups will be June 5th.
The wording in the note makes it appear as though this is a temporary measure, and The Wall Street Journal contends it's because Amazon needs to focus on the surge in orders it's receiving due to the coronavirus pandemic: It needs to concentrate its available resources on delivering essential goods and services. Still, the timing is curious.
Ready for relief
By the beginning of June, hopefully we'll be well past the worst part of the crisis and stepping into recovery. The Institute for Health Metrics and Evaluation expects the number of deaths caused by the pandemic to peak on April 12, after which the situation is expected to improve.
And though subject to revision based on the fluidity of the situation, many businesses are looking at May as the month when the return to normalcy will begin.
So, while the nearly two-month lead time Amazon is giving customers lets them find a replacement service, it also means the demand Amazon is currently experiencing in its warehouses and on its delivery drivers will have likely eased considerably by then.
By the time Amazon suspends the program, the constraints under which it's operating should be diminishing.
Focusing on what matters
This shows us that even Amazon can't do everything, and the first sign was its decision to prioritize essential products.
Kale Abrahamson, CEO and co-founder of Nine University, an Amazon fulfillment consultant for third-party retailers, sees it as a smart course correction. "Amazon basically just said that they are going to leave 'normal' consumer-to-consumer shipping to the FedExes and UPSs of the world and focus all their energy on keeping Amazon as the greatest B-to-C shippers in the world," he said in an email.
An online seller group told Business Insider the service also wasn't reliable, often losing packages, which offset the value of the deep discount pricing the service offered.
Try, try again
FedEx and UPS have operated for decades, developing extensive, integrated global air and ground networks that allow them to optimize the efficiency of their assets. Amazon may be learning that it's not as easy or profitable to operate a logistics and transportation network at scale as the two giants make it seem.
Although it may relaunch the delivery program at some point in the future, FedEx and UPS investors should be comforted by the knowledge the e-commerce giant may not be as great a threat to their business as originally believed.
FedEx reported last month its ground shipment volumes were rising as social distancing caused more people to order goods online, and UPS deliveries are soaring as well. Amazon, though, finds it necessary to shutter its nascent service.
The inevitability of Amazon becoming a viable competitor against these blue chip leaders in logistics and transportation perhaps wasn't so inevitable after all.
