Amazon.com Inc. is experimenting with a new delivery service intended to make more products available for free two-day delivery and relieve overcrowding in its warehouses, according to two people familiar with the plan, which will push the online retailer deeper into functions handled by longtime partners United Parcel Service Inc. and FedEx Corp.
The service began two years ago in India, and Amazon has been slowly marketing it to U.S. merchants in preparation for a national expansion, said the people, who asked not to be identified because the U.S. pilot project is confidential. Amazon is calling the project Seller Flex, one person said. The service began on a trial basis this year in West Coast states with a broader rollout planned in 2018, the people said. Amazon declined to comment.
The new program called Seller Flex would allow more items on Amazon – even those sold by third parties – to be listed with the Prime badge of two-day shipping, according to sources.
Amazon itself will handle the pickup of packages from sellers. In some cases, it will also handle delivery to customers, eliminating the major delivery partners of UPS and FedEx.
Those delivery companies will be used in some instances, sources noted, but Amazon will still be shipping the product to customers instead of relying on a third party to get it there.
Shares of UPS fell more than 2 percent Thursday. FedEx dropped as much as 1.6 percent before recovering slightly.
Bloomberg News is reporting Amazon is trying out a new delivery program called “Seller Flex” where the company will pick up packages from third-party sellers selling on its platform and deliver the products to consumers.
Amazon clarified that the offering will continue to use some of its current delivery partners, but didn’t comment on whether it will increase its own deliveries directly to customers.
“We are using the same carrier partners to offer this program that we’ve used for years, including UPS, USPS and FedEx,” Amazon said in a statement.
One analyst believes a big expansion by Amazon into the delivery business is inevitable.
“Given the investments that Amazon is making in fulfilment infrastructure and transportation to support its own retail business, we view it simply a matter of time until they offer these services to third parties more broadly,” Baird analyst Colin Sebastian wrote in an email. “This is the same strategy that Amazon has successfully utilized in retail (third party marketplace) and technology (AWS) where they offer as a service the same platforms built to run their business.”
UPS has downplayed the Amazon disruption threat in the past.
“We don’t believe that Amazon’s strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we’re investing in technology, we have a great mutual relationship with them,” UPS CEO David Abney said in December 2016.
But the Amazon disruption threat has been a worry popping up periodically on earnings conference calls with analysts over the last year for both FedEx and UPS.
FedEx on such a call in March of this year was asked about Amazon diving deeper into delivery. CEO Fred Smith signaled to analysts that his company may be less exposed to this risk than rival UPS.
“The vast majority of FedEx’s business is business to business. Eighty-five percent-plus of our business has nothing to do with e-commerce,” he said.
Amazon shares are outperforming the delivery companies again this year so far. The internet e-commerce giant is up 29 percent year to date through Wednesday versus UPS’ 4 percent and FedEx’s 19 percent returns. The S&P 500 is up 13 percent in the same time period.
This isn’t the first time Amazon has made moves building out its own delivery offering. Sources reported in September 2016 the company was expanding its last-mile delivery services in major cities.