E-commerce giant Amazon.com, Inc. (AMZN: NYSE) announced plans to push further into last-mile delivery services, in an effort to address the continued surge in online shopping and residential deliveries.
The retail giant unveiled a new program to partner with entrepreneurs and small businesses to deliver Amazon shipments to its growing pool of online customers. For a minimum investment of $10,000, individuals can lease up to 40 Amazon-branded delivery vehicles to deliver packages. The company also said that under this program they would provide uniforms, insurance programs, and fueling programs for potential fleet operators, and is considering offering tax and payroll courses to assist new entrepreneurs that partner with the company. This program would be separate from Amazon’s existing Amazon Flex program, which pays individuals between $18 and $25 dollars to deliver packages for the company using their own vehicles.
The company estimates that an individual operating a 40-vehicle fleet could earn up to $300,000 per year under this new program. Amazon said that they hoped for hundred of new partners to sign up for the program in more than two dozen states over the next 18 months. If the program is successful, the company expects to roll it out into more states and other countries going forward.
“More than enough for everybody”
This new program represents a potentially significant expansion of Amazon’s own delivery capabilities and further complicates its relationship with parcel carriers UPS, FedEx, and the USPS. Historically, Amazon has relied heavily on existing carriers to help fulfill increasingly fast delivery commitments as the company expanded its Prime delivery services and distribution network. In fact, Amazon has recently come under fire from the Trump administration for its use of the USPS for a large chunk of last-mile delivery at relatively low cost.
As such, many may view this new program as a way for Amazon to break away from the traditional small package carriers and begin a full-fledged delivery service. Amazon has noted the risks associated with leveraging external partners for its delivery service in the past, and has seen shipping costs nearly double from 2015 to 2017. Shares of UPS (UPS: NYSE) and FedEx (FDX:NYSE) both tumbled more than 2.5% in the aftermath of the announcement.
For its part, the company continues to downplay any plans to disassociate from any of its current parcel shipping partners, instead framing this move as an effort to combine with existing partners to meet surging demand.
“There’s so much growth here in parcel delivery that there’s more than enough for everybody. We need to build more of our own capacity,” noted Amazon senior vice president of worldwide operations Dave Clark. “We use everything in order to meet our scale and meet our needs. I don’t see that changing in the future,” he said.
There is certainly enough evidence to suggest that this is the case. E-commerce remains one of the steadiest, fastest growing areas in the entire economy, with double digit growth in every year of this current expansion. Analysis from Slice Intelligence last year showed that Amazon’s share of online purchases continues to grow, and more than 40% percent of all e-commerce flows through Amazon.
Amazon’s traditional carrier partners have taken steps to expand their networks, but have also struggled to keep up with the rapid increase of residential delivery, particularly during the peak holiday season rush. As a result, this new program could be seen as just another way of adding overall capacity a market that is constantly asked to deliver more at a faster pace.
Still, it’s hard to ignore the threat that Amazon poses should it ever decide to completely break off relationships with existing major carriers, or in a more extreme case, actually begin delivering non-Amazon packages. This new program may not be geared towards establishing a full-fledged Amazon delivery company, but it serves as a reminder of what could be in the long run.
