New e-commerce strategies a bane for UPS, FedEx

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Global courier delivery firms FedEx and UPS might be concerned about overseas shipments to markets like China, but they also need to direct some attention to problems closer to home.

Major retailers in the country are trying new e-commerce strategies that might affect the demand for FedEx and UPS services such as long-distance deliveries, said experts.

For example, Amazon is constructing distribution warehouses near its clients so that it can cut shipping costs. The company is also increasingly relying on its own delivery trucks.

Moreover, retailers such as Best Buy, Wal-Mart and Gap are delivering more online orders from outlets closer to buyers rather than from distribution centres farther away.

“UPS and FedEx are not only watching this, they are likely concerned about it. Big companies like Amazon and Wal-Mart will dictate which direction this goes. Those are the companies that FedEx and UPS need to fill their planes and trucks,” said Longistics Executive Lou Tapper.

The biggest threat is Amazon, with its growing number of delivery trucks and huge warehouses near highly urbanised areas such as San Francisco and Los Angeles.

Thanks to this strategy, Amazon’s shipping costs slid to 4.7 per cent of revenue in Q1 2013 from 5.1 per cent a year ago. That is quite significant for a company of that size, said Morningstar Equity Analyst R.J. Hottovy.

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