Commentary

Amazon Pausing Third-Party Shipping Trial

Amazon Shipping, the experimental delivery service competing with FedEx and United Parcel Service to deliver third-party parcels in Los Angeles and a few other cities in the U.S., is going on hiatus in June.

“We understand this is a change to your business, and we did not take this decision lightly,” Amazon said in a note to shippers seen by The Wall Street Journal’s Paul Ziobro, who broke  the story late Tuesday. “We will work with you over the next several weeks so there is as little disruption to your business as possible.”

“We regularly look at a variety of factors across Amazon to make sure we're set up in the right way to best serve our customers,” an Amazon spokesperson tells Reuters in an email confirming the halt in service.

“The company is grappling with a demand surge in the United States, where most residents are under stay-at-home orders to stop the spread of the novel coronavirus that is sweeping around the globe. Amazon has been unable to get many packages to customers in one or two days, as it had promised prior to the epidemic,” point out  Reuters’ Ayanti Bera in Bengaluru and Lisa Baertlein for Yahoo Finance.

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“The pause comes amid a huge surge in business for Amazon, and online shopping more broadly. … Last month, Amazon announced it would hire 100,000 new distribution workers to keep up with the demand. It also warned customers they could see longer-than-usual delivery times because of the large volume of orders,” writes  Clare Duffy for CNN Business.

“Amazon in the past had sought to woo shippers to the new service by offering simpler rates, including the elimination of many fees and surcharges that other carriers add on to pad their revenues. It tested the program in London and Los Angeles, but didn’t make it widely available in the U.S.,”  the WSJ’s Ziobro writes.

“Amazon remains a force in the shipping industry, with over 30,000 vehicles, 20,000 trailers and dozens of aircraft that move packages across the country. In addition to its own delivery drivers, Amazon also hands off a significant chunk of its home deliveries to UPS and the U.S. Postal Service,” Ziobro adds.

“Amazon declined to break down the size and scope of the pilot test or the number of third-party merchants that use Amazon Shipping, or to specify when and if it might restart the program,” writes Andria Cheng for Forbes.

“Third-party seller services is a key growth driver for Amazon, with sales there up 30% in the fourth quarter, double the growth rate Amazon generated from its own online store sales. Third-party sellers represented 53% of the number of units sold through Amazon globally, according to the company’s most recent Q4 earnings report,” Cheng adds.

FedEx shares were up 8.27% and UPS gained 6.33% yesterday following the  news of the suspension of Amazon Shipping.

“J.P. Morgan analyst Brian Ossenbeck kept his ratings at neutral for both FedEx and UPS, but said he expects the stocks to react ‘favorably' to the WSJ report,” Tomi Kilgore writes for MarketWatch

“The news reads slightly more positive for FedEx considering it no longer ships for Amazon and was viewed as at risk for direct competition,” Ossenbeck wrote in a note to clients. “However, we expect UPS will also benefit on news its largest customer has suspended a competing service for non-Amazon volumes, but we expect Amazon will continue to insource its own deliveries over time.” 

“Just three weeks ago, the company decided it was going to give priority to household items, consumer staples, medical supplies, things people needed in light of the coronavirus. So now this is another step away from providing that kind of service to customers outside of Amazon,” observes  Bloomberg News’ Dave Wilson.

“Amazon has been unable to get many packages to customers in one or two days, as it had promised prior to the epidemic. The company last month banned sellers from shipping any non-essential items to its warehouses as it shifted its focus to demand for basic staple items such as medical supplies and baby products,” writes  Nicolas Vega for the New York Post.

“The suspension of the Amazon Shipping program will allow the company to focus on its core delivery operation, said Trevor Outman, founder of consultancy Shipware,” Vega adds.

That, and its takeover of the world of retail, entertainment and cloud computing in general. 

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