UPS and FedEx stock prices plunged Monday after Amazon announced plans to upend the shipping business by opening its shipping network to all comers.
Amazon, which has spent decades perfecting its vast logistics empire, launched Supply Chain Services on Monday, a program that will put it in direct competition with other shipping giants. The Seattle-based tech titan will offer every piece of its supply chain — from freight to fulfillment to distribution — to any business that wants to use it. Those companies won’t even need to be sellers on Amazon’s marketplace.
Amazon has already branched out from simply being an e-commerce platform. The company’s Buy with Prime and Fulfillment by Amazon programs help third-party sellers and other retailers take advantage of Amazon’s last-mile service — the last step from a storage warehouse to a customer’s doorstep — and use their own websites.
But the new program will allow Amazon to manage the entire journey, from manufacturer to customer.
In a news release, Amazon said companies like American Eagle, Procter & Gamble and 3M are already using the service, all showing different stages of the journey.
3M is using freight services to move products from manufacturing sites to distribution centers, American Eagle is using Amazon’s parcel shipping network to deliver online orders to customers and Procter & Gamble is using freight services to transport raw materials to production facilities.
The news immediately sent UPS’ share price down 10% and FedEx’s down by more than 9% Monday morning. Both stocks recovered a percentage point or so on Tuesday.
Amazon said the move to scale its logistics network outside of the company is similar to the one made by its cloud computing business, Amazon Web Services, about two decades ago.
Originally built for Amazon’s own e-commerce network, AWS now powers hundreds of thousands of companies’ online services and business including Netflix, Reddit, BMW and McDonald’s. The cloud provider is also the largest by market share, with a sizable gap between itself and companies like Microsoft and Google.
“Amazon is bringing the infrastructure, intelligence, and scale of its supply chain services — proven over decades — to businesses everywhere, much like Amazon Web Services did for cloud computing,” said Peter Larsen, vice president of Amazon Supply Chain Services, in a news release.
The three main services Amazon will provide with the new program are freight, distribution and fulfillment, and parcel shipping. However, shipping speeds won’t be quite the same for customers as they are directly through Amazon’s Prime network. The company said its parcel shipping service for outside companies will have predictable two- to five-day delivery speeds.
But Amazon said it will use its own transportation network for the entire supply chain, a fleet of more than 80,000 semitractor-trailers all operated by third-party outfits that contract with Amazon. The company also has more than 100 aircraft at its disposal.
“We’re confident we can give any other business access to the same cost efficiency, reliability, and speed that we’ve built for Amazon customers,” Larsen said.
