Analysis: New e-commerce strategies threaten UPS, FedEx

Sun Jul 14, 2013 9:05am EDT
 
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By Alistair Barr

SAN FRANCISCO (Reuters) - UPS and FedEx might be worried about international shipments to slowing economies like China, but perhaps they should be more concerned about what's going on in their own back yards.

Major U.S. retailers are experimenting with new e-commerce strategies that could dent demand for package delivery services, particularly demand for shipments over long distances, according to analysts and industry executives.

Amazon.com Inc is building its distribution warehouses closer to customers to save millions of dollars in shipping costs. The world's largest online retailer is also increasingly using its own delivery trucks, cutting UPS and FedEx out of some parts of its fulfillment network.

Meanwhile, major brick-and-mortar retailers such as Wal-Mart Stores Inc, Best Buy Co Inc and Gap Inc are shipping more online orders from stores close to shoppers, rather than from warehouses hundreds of miles away.

"UPS and FedEx are not only watching this, they are likely concerned about it," said Lou Tapper, an executive at third-party logistics company Longistics, who worked at FedEx for 18 years. "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."

United Parcel Service Inc, the world's largest package delivery company, on Friday cut its earnings forecasts, blaming overcapacity in the global air freight market, customers trading down to slower but cheaper shipping services, and a slowing U.S. industrial economy.

The move came after FedEx Corp said in June that it was raising shipping rates and cutting jobs and costs, as excess capacity in the air freight market had more than offset increased shipments.

Both package delivery companies set their fees according to zones that correspond to the distance a package has to travel.   Continued...

 
A Federal Express truck is parked next to a UPS truck as both drivers make deliveries in downtown San Diego, California March 5, 2013. REUTERS/Mike Blake