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UPDATED: Logistics Showdown: UPS and Amazon Battle for Supremacy

Update 01/14/2024: FedEx has just entered the end-to-end logistics arms race with its own ecommerce platform, fdx

In a corporate news post dated January 14th, the legacy carrier revealed plans for a groundbreaking ecomm platform set to debut this fall. This “data-driven commerce platform” promises comprehensive ecommerce solutions, empowering online sellers to seamlessly handle shipments, customer sales, fulfillment, and returns.

What is a Data-Driven Commerce Platform?

FedEx’s recent announcement is brimming with marketing jargon, emphasizing terms like “data-driven” and offering an “end-to-end ecommerce solution for businesses of all sizes.”

In ecommerce, data-driven management simply means using the data collected by a company to improve customer relationships. In FedEx’s case, participating sellers can leverage the carrier’s extensive logistics network and “insights from moving 15 million packages per day” to make smarter supply chain decisions (e.g., provide accurate parcel delivery dates, more cost-effective shipping routes), thereby allowing them to build stronger connections with customers.

While the announcement lacks specifics on how it plans to compete with Amazon, FedEx highlighted the utilization of its services like ShopRunner, acquired by FedEx in 2020, to enable sellers  to connect with customers, display estimated delivery times, manage shopping carts, track packages, assess the carbon emissions impact, and handle returns.

More importantly, FedEx emphasized that its focus is not on entering the marketplace business to serve consumers directly, but rather to provide sellers with digital capabilities they need to enhance their customers’ shopping experience.

What does this mean for Amazon? More competition.

This strategic move intensifies FedEx’s ongoing competition with Amazon, which saw the company opting not to renew a 2019 contract for the said rival. Amazon reciprocated by briefly barring Prime deliveries via FedEx during the holidays, citing performance issues. 

FedEx and UPS have both faced challenges from Amazon, with the ecomm giant surpassing them in US home package deliveries in 2022. This shift occurred shortly after Amazon developed an extensive logistics network utilizing third-party contractors. See report below.

Shared Opinions on FedEx’s Strategic Move

In the comments section of The Verge’s post on the topic, readers express a mix of skepticism and frustration regarding FedEx’s venture into e-commerce to compete with Amazon.

Complaints about the carrier’s past experiences, such as difficulties with returns and delivery mishaps, raise doubts about its end-to-end logistics capability. Some believe that FedEx’s sometimes inconvenient handling of certain packages may hinder its competitiveness, contrasting it with UPS. 

Others, however, welcome the prospect of increased competition for Amazon, hoping it will lead to improved service quality and customer experiences. A recurring theme is the need for reliable and customer-focused services, with varying opinions on whether FedEx can effectively challenge Amazon in the ecommerce arena.
As of this writing, fdx is presently undergoing a private preview, with an anticipated broader launch scheduled for the fall of 2024. Sellers interested in participating can express their interest through a registration form. Additionally, the company did not specify any brands currently involved in the pilot program.

The logistics industry, valued at $1.5 trillion, has traditionally been dominated by a select few major players such as USPS, FedEx, and UPS. However, over these last few years, Amazon has emerged as the frontrunner, surpassing both UPS and FedEx in parcel volume for 2022.

What was once dismissed as a legitimate threat by FedEx CEO Fred Smith has not only solidified its dominance but has also set new records, delivering an astounding number of packages across the United States.

This marked a pivotal moment in the ongoing competition for parcel delivery supremacy in the the country. UPS in particular, far from conceding defeat, is gearing up for a formidable counterattack, unveiling strategic initiatives to regain its foothold in the rapidly changing logistics arena.

Amazon’s Rise

The ascent of Amazon is nothing short of extraordinary, considering that as recently as 2014, it held no stake in the US parcel delivery market. The company relied entirely on legacy carriers such as FedEx and UPS for its delivery needs.

In the years that followed, Amazon made multi-billion dollar investments in constructing a massive fulfillment and logistics infrastructure, including warehouses, trucks, planes, and an extensive fleet of delivery drivers. By bolstering its in-house shipping capabilities, Amazon gradually diverted its business from reliance on other carriers.

The divergence in strategies became even more apparent when FedEx severed ties with Amazon in 2019. This move allowed FedEx to concentrate on optimizing its operations and enhancing profitability.

In 2022, UPS put shipping limits on Amazon to put more focus on B2B deliveries as eCommerce growth slowed down, allowing the eCommerce titan to win more marketshare.

Over the last three years, Amazon’s share of deliveries has steadily increased. From holding zero stake in the logistics market in 2014, the company grew to grab 21% market share in 2021, closely trailing UPS at 24% and surpassing FedEx at 16%. USPS, meanwhile, maintained its dominance with 38%.

Amazon’s rise led to a reshaping of the delivery service hierarchy, albeit with USPS still the top player, delivering packages for the three logistics giants.

Presently, the retailer continues to transform shipping from a mere cost center into a revenue-generating asset by extending its logistics empire as a service to non-Amazon eCommerce businesses.

Amazon’s Record-Breaking Delivery Numbers

Before Thanksgiving this year, Amazon had already achieved a remarkable feat by delivering more than 4.8 billion packages in the country. According to documents reviewed by The Wall Street Journal (WSJ), the company’s internal projections anticipate reaching a staggering 5.9 billion deliveries by the end of 2023.

To put this into perspective, Amazon shipped 5.2 billion packages in the previous year, underscoring the significant growth and efficiency of its delivery network.

As can be recalled, Amazon recently reached its fastest Prime delivery speeds ever, which Doug Herrington, the CEO of Worldwide Amazon Stores, attributes to the strategic overhaul of the retailer’s fulfillment model.

Herrington highlights the pivotal shift from a national fulfillment network to a more regionalized model as a key factor in this achievement. Amazon now operates its delivery network from 8 regions covering seperate geographical areas. Approximately 76% of all US orders now are fulfilled from the region in which the order originated. These strategically located facilities are stocked with a diverse array of products, facilitating prompt delivery to nearby locations while maintaining the ability to dispatch items efficiently to transfer between regions based on location demand.

Beyond the structural changes, Amazon has implemented a series of enhancements to its last-mile delivery process. This includes:

By shortening the distances certain products need to travel and making improvements to the Partnered Carrier program, Amazon has not only achieved ultrafast delivery but has also managed to curtail transportation costs, further solidifying its commitment to efficient and cost-effective logistics solutions.

Related: Amazon Enters the 3PL Space with Amazon Warehousing and Distribution

Comparative Analysis with UPS and FedEx

For context, UPS has acknowledged that its domestic volume for the current year is unlikely to surpass the 5.3 billion packages delivered in the previous year. This total includes packages delivered to customers through collaboration with the postal service. In the first nine months of 2022, UPS handled approximately 3.4 billion parcels domestically.

FedEx, on the other hand, reported that its domestic Express and Ground parcel volume reached around 3.05 billion for the fiscal year ending May 31, 2023. While FedEx and UPS have consistently downplayed the importance of engaging in a volume race, and have instead put more focus on delivering more profitable parcels, Amazon’s ascent to the top cannot be ignored.

UPS Counters Amazon’s Dominance with Bold Moves

The battle for supremacy in the logistics arena has reached new heights, with UPS actively positioning itself to dethrone Amazon.

Beefing Up its Returns Network

The legacy carrier recently acquired Happy Returns, a reverse logistics company, thereby adding over 10,000 box-free locations to its US returns footprint, one of the keys to building a robust logistics business.

Why it matters?

  • Shoppers seek returns that are simple, convenient, and free of hassle, often influencing their buying choices based on a store’s return policy. Consumer reseach reveals that 87% of online shoppers deemed free returns as a crucial factor in their purchasing decisions, ranking it as the most preferred return option. Notably, over 30% of the respondents acknowledged their likelihood of abandoning a brand due to the absence of convenient return methods. Additionally, 70% of individuals engaging in online shopping expressed willingness to pay more for convenient returns experience and that brand loyalty increases with the offering of more eco-friendly and sustainable processing.
  • With merchandise returns approximating 8.5% of overall retail sales in 2023, UPS aims to address the rising costs for retailers by optimizing return processes and minimizing environmental impact.

The acquisition also allows UPS to compete with Amazon’s evolving return policies, emphasizing the importance of easy returns for increased shopper loyalty.

In a blog post, Happy Returns outlined its plans to amplify and expedite its returns process through a strategic collaboration with UPS. The company highlighted the appeal of UPS’s substantial capacity and operational efficiency, emphasizing that while UPS manages millions of packages daily, Happy Returns processes a comparable volume in just one month.

In addition, UPS’s expertise in box-free, in-person drop-offs through a third-party network with prominent brands and its utilization of automation at its package sorting facility in Louisville, Kentucky, adds an additional layer of advantage to this partnership.

Happy Returns, now part of UPS, offers a convenient solution for retailers and consumers, leveraging over 5,200 UPS neighborhood store locations for returns processing, providing a hassle-free experience.

Offering a Major Pay Bump

In August 2023, UPS reached a landmark five-year agreement with the Teamsters Union, heralded as a ‘new benchmark in the labor movement.’

The agreement between the legacy carrier and the Union resulted in salary increases for all 340,000 package handlers and delivery drivers within the supply chain company. Full-time drivers are now earning approximately $170,000 annually in pay and benefits.

Every UPS union worker is slated to receive a $2.75 per hour salary increase this year, followed by incremental wage raises totaling $7.50 per hour over the next five years. These adjustments will elevate UPS’s average top rate for its unionized full-time drivers to $49 per hour, establishing them as the highest-paid delivery drivers in the United States.

This development brought positive news for UPS drivers, and predictably some Amazon Delivery Service Partner (DSP) drivers are now contemplating a potential shift to UPS, given these recent improvements in compensation.

The hiring website for Amazon’s DSP program outlines that drivers under this program can anticipate a workload of 40 hours per week, comprehensive benefits, competitive compensation, and access to a vehicle, among various other offerings.

Two drivers, in conversation with Business Insider, indicated that their hourly wages now stand at approximately $18 following recent pay raises, a stark contrast to UPS’s $49/hour rate for full timers.

“I think it puts Amazon in this situation where they’re going to have to decide if they want to keep quality drivers or not,” a delivery driver told the news outlet.

Suppose DSP drivers start shifting over to UPS, the legacy carrier will likely gain a competitive edge (vs. Amazon) in growing their labor force toward handling increased shipment volumes, enhancing efficiency, and potentially offering more diversified and flexible services. For example, some vehicles may be optimized for last-mile delivery in metropolitan areas, while others may be designed for long-haul transportation.

The larger fleet allows UPS to optimize routes, improve reliability during peak periods, and strengthen its market share and competitive positioning. This advantage may lead to strategic pricing, increased brand trust, and a broader geographic reach, influencing the dynamics of the logistics and package delivery market.

Looking Ahead

Amazon’s reported figures encompass only packages that the company handles entirely from start to finish. In contrast, UPS includes packages they give to the postal service for the final leg of delivery in their volume calculations. This distinction emphasizes Amazon’s end-to-end control and streamlined logistics process.

But according to JP Morgan analyst, Brian Ossenbeck, despite the company’s dominance in last-mile delivery, it has not managed to replicate the expansive global coverage or the complementary aspects of operations exhibited by both UPS and FedEx.

Ossenbeck emphasizes this distinction, stating, “Amazon excels in the one-way network, efficiently delivering goods at accelerated speeds, but it lacks the equivalent level of pick-up and delivery coverage found in its counterparts.”

Nevertheless, Amazon’s surpassing of UPS and FedEx in parcel volume for 2023 signifies not only a milestone for the company but also a transformative moment in the competitive landscape of the last-mile logistics industry. The eCommerce giant’s relentless pursuit of excellence and innovation has propelled it to the forefront, cementing its position as the country’s premier delivery service.

Related: Amazon and Flexport Vie for End-to-End Logistics Supremacy, Battle for Last-Mile Logistics Heats Up as Amazon Expands Same-Day Delivery Network

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