If time goes back ten years, how many people would believe that one day Amazon would surpass United Parcel Service (UPS) and FedEx to become the largest express delivery company in the United States?
And now, this scene has happened.
According to media sources citing Amazon insiders and internal documents on Monday, the Seattle based e-commerce giant has delivered more packages to American households in 2022 than United Parcel Service, and it is expected to further widen this gap this year. Previously, Amazon's package delivery volume had surpassed FedEx's in 2020.
By quantity, the United States Postal Service, which has an official background, remains the largest package delivery service company; The company currently handles billions of packages for the three aforementioned companies.
According to internal documents seen by industry insiders, Amazon had delivered over 4.8 billion packages in the United States before Thanksgiving this year, and its internal forecast is that the number of packages delivered will reach approximately 5.9 billion by the end of this year. Last year, Amazon shipped a total of 5.2 billion packages.
As a comparison, UPS has previously stated that its domestic shipping volume this year is unlikely to exceed last year's 5.3 billion. In the first nine months of this year, UPS processed approximately 3.4 billion packages domestically in the United States. As of the fiscal year ending May 31, 2023, FedEx's local express and ground delivery volume was approximately 3.05 billion packages.
It should be noted that Amazon's data only includes packages shipped by Amazon from start to finish. The data for UPS and FedEx also includes the packages they received and handed over to the postal service for final delivery, so the gap between Amazon and the latter two is actually larger than the above numbers.
Ten year changes
Ten years ago, Amazon was once a major customer of UPS and FedEx, and executives of these two companies generally scoffed at the idea that Amazon might one day replace them. However, in recent years, the rapid growth of Amazon's express delivery business, coupled with the strategic shift of FedEx and UPS, has completely changed the overall landscape of the US express delivery industry.
Amazon's self built logistics can be traced back to 2013, when Amazon relied on FedEx and UPS to transport internal packages. But in 2013, packages during the shopping season experienced significant delays, prompting Amazon to start building a global logistics network on its own. In 2014, Amazon began building its own warehouses and fleets to create its own transportation network, reduce reliance on external carriers, and gradually take the initiative into its own hands.
Amazon's rise was once seen as a joke by logistics industry executives. In 2016, Fred Smith, the then CEO of FedEx, dismissed the notion that Amazon posed a threat to logistics giants as a "fantasy". Smith stated at the time, "In the foreseeable future, the main delivery drivers for e-commerce goods are likely to continue to be UPS, USPS, and FedEx."
At the time of Smith's statement, Amazon's logistics business was indeed far behind UPS and FedEx in terms of scale. But in the following years, Amazon caught up and established one of the world's largest logistics networks.
In 2018, Amazon launched a plan where entrepreneurs can open their own franchise stores and ship Amazon packages for as little as $10000. This is similar to the Ground department under FedEx, which also adopts a contractor model to be responsible for local routes. A former Amazon executive stated that the Amazon project has approximately 200000 drivers in the United States, helping the company quickly accelerate the daily delivery of packages.
Make rapid progress
In the early stages of the epidemic, Amazon seized a key opportunity to expand its e-commerce coverage. The company has built hundreds of new warehouses, sorting centers, and other logistics facilities, and its network size has almost doubled from the beginning of the epidemic to the end of 2021. Dave Clark, former CEO of Consumer Business at Amazon, is the main designer of Amazon's logistics network.
At present, Amazon has begun to regionalize its logistics network to reduce the transportation distance of packages within the United States, so as to deliver products to customers faster and improve profitability. Amazon CFO Brian Olsavsky stated in a recording of a company wide meeting earlier this month, "The improvement in delivery speed is a key driver of growth and has increased the frequency of purchases by our Prime members."
A spokesperson for Amazon stated that the progress Amazon has made in delivery is largely attributed to its route franchise plan. She added that the company will continue to collaborate with other express delivery partners and carriers to help handle additional capacity.
As Amazon's share of express delivery continues to increase, FedEx and UPS have expressed in recent years that their business focus is no longer on competing for delivery volume, but on delivering packages with higher profits.
In 2019, FedEx announced its departure from Amazon, ending its air and land delivery partnerships with the latter. As a major customer, Amazon accounted for approximately 11% of UPS revenue at that time.
FedEx stated that its focus is on the e-commerce market outside of Amazon. A spokesperson for FedEx stated that it has already gained market share in a segmented segment of the domestic parcel market in the United States this year.
Of course, although Amazon has surpassed these two traditional logistics companies in residential delivery, it is currently unable to fully replicate their global coverage and reverse logistics capabilities are relatively weak. Morgan Stanley analyst Brian Ossenbeck pointed out, "Amazon is excellent in one-way networks, with faster delivery speeds, but its pickup and delivery coverage has not yet reached the same level."
It is worth mentioning that as Amazon gradually stands out from its tripartite relationship with FedEx and UPS on the other side of the ocean, Chinese e-commerce giants similar to Amazon's self built logistics system are still striving to gain more market share.
As far as the Chinese market is concerned, JD.com has built core barriers through its own logistics system. Although Alibaba does not have its own logistics, it has established an open logistics platform called Cainiao Network and formed Cainiao Alliance with Zhongtong, Yuantong, Shentong, Yunda, Baishi, etc., strengthening logistics control. It is not difficult to foresee that the struggle between SF Express, the big brother of China's logistics industry, and emerging tycoons such as JD.com and Cainiao, may lead to a more intense "power struggle" than their American counterparts