Thursday, June 2, 2016

AMAZON DELIVERY NOT LOOKING TO COMPETE WITH UPS AND FEDEX

Do investors understand what Amazon is really doing with supply chain management to drive order immediacy and to dominate retail and e-commerce? Their delivery actions support those--not competing with UPS or FedEx. They are just taking control of their supply chain.  But who knows, down the road after proof of concept with their own needs?


Delivery Won’t Be the Driver at Amazon

Comments by CEO Jeff Bezos suggest Amazon isn’t planning to supplant FedEx or UPS anytime soon, and investors should be glad



An Amazon.com fulfillment center in DuPont, Wash. ENLARGE
An Amazon.com fulfillment center in DuPont, Wash. Photo: Getty Images
Amazon.com AMZN -0.46 % may not be taking over the entire world after all—or at least not quite all of it.
Amazon isn’t aiming to take over the last mile of delivery from the likes of FedEx, FDX -0.16 % United Parcel Service UPS -0.19 % or the U.S. Postal Service, but rather to “supplement it heavily,” chief Jeff Bezos said Tuesday at a conference hosted by technology website Recode. This is necessary for peak selling seasons ahead of the major gift-giving holiday in the countries in which Amazon operates, Mr. Bezos said.
Keeping up with peak demand undoubtedly will be an expensive proposition for Amazon, involving the building of more fulfillment centers and possibly even the launch of delivery drones. But that is nothing compared with what it would cost to completely supplant traditional shippers. FedEx reported more than $4.3 billion in capital expenditures in its most recent fiscal year, roughly the same as Amazon. That should cause investors to breathe a sigh of relief.
Granted, FedEx and UPS boast higher return on equity than Amazon. But a longtime bull argument for the e-commerce giant has been its ability to pare back its investment once it has become sufficiently dominant in a market, effectively flipping a switch to achieve profitability.
The day of major windfall has yet to arrive for the company’s retail business, but Amazon has been steadily profitable for the first time in years over the past four quarters as its higher-margin cloud services business continues to grow. Attempting to become the next FedEx—and to dominate that market as it has tried to do with so many others—could quickly cause those green shoots of profitability to wither and die.
For investors, Amazon’s shipping restraint may be a welcome delivery.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com