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Amazon and the Courier Companies – increasing competition ahead

According to Amazon’s most recent company report, its shipping costs were $9 billion in the last quarter – a 23% increase from the previous quarter, but shows just how much customers value Amazon Prime’s free shipping options. Amazon has already taken some steps to build a delivery infrastructure to supplement its partners (the 3Ps – third party partners). Last year was the first time sales from the ‘3Ps’  out performed Amazon’s own offerings on its platforms. Thus it makes absolute sense that Amazon has been leasing a fleet of airplanes to carry cargo, has delivery vans, and has been piloting the ‘Shipping with Amazon’ initiative which entails drivers picking up packages from 3Ps sellers and delivering them (see our report in a Newsletter last year where we suggested this as a model for Africa).

In its quarterly report Amazon added “transportation and logistics services” to the long list of industries and services it views as competition. While Amazon relies on shipping partners, like USPS, UPS  and FedEx to make deliveries, the disclosure signals that Amazon is getting serious about making its mark with its own delivery service. I was particularly interested in a report by the consultants Armstrong & Armstrong. This is worth quoting:  “If Amazon does choose to try to become a major parcel player, it would be embarking on that endeavour even as UPS and FedEx invest massive figures in their own technology, automation, facilities, assets and capacities. Entering an oligopolistic market is an exercise in game theory, so Amazon should tread carefully.

With its ‘coopetition’ relationship with FedEx and UPS, Amazon could risk upsetting pricing negotiations and access to service as it gains strength as a rival.” It is particularly revealing to see a serious consultancy label the major couriers as an “oligopoly”.  Finally, Amazon reported in its 2018 Q4 quarterly figures that profits rose 63% to $3bn, while revenue was up 20% to $72.4bn. It predicted sales to grow 10%-18% in the first quarter 2019!

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