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Amazon Prepares to Launch Its Own Delivery Service

This Friday, Amazon announced the upcoming launch of its delivery service which is called “Shipping with Amazon.” The company hopes to compete against FedEx and UPS in the shipping and handling business.

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    Amazon plans to service 37 US cities  (Source: David Paul Morris/ Bloomberg News)

Amazon plans to service 37 US cities  (Source: David Paul Morris/ Bloomberg News)

“Shipping with Amazon” expects to run in Los Angeles first to cater to online merchants. As Amazon is able to haul and deliver more packages, the service will expand to more cities. Shipping at a national scale requires billions of dollars in investment as well as thousands of additional trucks, planes, and sorting centers.

While the project may seem daunting, analysts don’t see it becoming a potential threat to existing shippers such as UPS and FedEx. UPS has been operating for more than a century and owns more than 500 aircraft carriers and 100,000 delivery vehicles. FedEx also boasts a large resource pool with 400,000 employees and 4,800 facilities operating globally.

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    Amazon has invested in 4,000 freight trucks (Source: AP Images)

Amazon has invested in 4,000 freight trucks (Source: AP Images)

According to MWPVL International, Amazon generated 1.2 billion domestic shipments last year, with the majority of shipments delivered via the US Postal Service, UPS or FedEx. Even if if Amazon does temporarily disrupt market shares, in the long term other shipping companies will be just fine.

Scott Group, an analyst at Wolfe Research, explains: “The last-mile business at risk for UPS and FDX [FedEx] is very low-yielding and we believe very low margin… so losing some last-mile business may not be a bad thing,"

“Shipping with Amazon” could also motivate UPS or FedEx to surge their rates due to Amazon’s significant dependence on the two carriers. Still, the company’s decision to enter the delivery industry will force competition between established shipping giants, regional players, and newcomers.

 “It’s a very competitive space,” says Megan Brennan, Postmaster General of the United States. “We have to earn that business every day.”