U.S. stocks are lower in early afternoon trading, with the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) down 1.34% and 1.07%, respectively, at 12 p.m. EST. Shares of United Parcel Service and FedEx Corporation are underperforming, ostensibly on a Seattle Times story revealing that Amazon.com, is negotiating to lease 20 Boeing 767 jets to serve its own air-delivery service.
Is Amazon preparing to disrupt yet another industry? Should delivery service goliaths United Parcel Service and FedEx be concerned? It appears the answer to both of those questions is yes.
The Seattle Times report is just the latest clue that fits with other information like pieces in a jigsaw.
Last month, Motherboard, part of Vice's website, reported that a secretive air cargo operation out of Wilmington, Ohio -- code name "Aerosmith" -- that launched in September has been contracted by "a mysterious client that many believe to be Amazon." The operation, which includes a state-of-the-art facility, is run by Air Transport Services Group (one of the companies Amazon approached about leasing the Boeing planes).
According to Business Insider, in October, data from e-commerce software provider ChannelAdvisor showed that Amazon had added 21 new logistics facilities worldwide over the previous 12 months for a total of 173 (that's +12%), with three-fifths of that total in North America.
The move into the delivery business would be a sound decision; in fact, Amazon appears to be uniquely positioned to take on the incumbent providers. As analysts at Robert W. Baird & Co. pointed out in this report published in October under the title "Yet Another Massive Market on the Horizon":
Amazon's cloud technology expertise and increasingly complex fulfillment, logistics and delivery network seem to be obvious foundation to offer third-party services, with an incremental $400-450 billion market opportunity.
We believe Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global providers, and with an investor base that is historically tolerant of large-scale investment and low margin revenues. We note there is currently ~$170 billion in market capitalization in legacy companies that may be ripe for disruption.
Amazon is capable, and it has no lack of ambition when it comes to pursuing new (and large) opportunities. If I were in the executive suite at UPS or FedEx, today's news would be a source of genuine concern.