Amazon looking to build its own shipping company

Amazon is looking to take on the likes of UPS and FedEx, as they have been quietly planning to launch a shipping company of their own. According to the Wall Street Journal, the service will be called “Shipping with Amazon” and will be initially rolled out in Los Angeles in the next few weeks. Shipping with Amazon will perform all of the actions of a shipping company, with Amazon picking up packages from businesses and shipping them out to customers. Amazon already has one of the most complex and well developed shipping infrastructures, which will be crucial in building Shipping with Amazon.

SWA will start small, only serving third-party merchants that already sell on Amazon. Shipping and delivery will be used for the majority, if the location is outside of the retailers reach, then other shipping companies like USPS will be used for the last portion of the delivery. Amazon hopes that in the future, this will grow into a full fledged business that will compete with other large shipping companies. Amazon thinks that they will be able to provide a cheaper alternative for business customers with a more desirable pricing structure, but details have yet to emerge.

UPS and FedEx have both seen exponential growth thanks to the success of Amazon, and with that power comes the ability to upend Amazon’s cost structure. Shipping is currently a $21 billion dollar expense for Amazon, and they are listed as one of the biggest shipping clients in the US. These expenses include sorting packages, maintaining a delivery center, transportation costs, and a variety of other aspects. Shipping has risen steadily each year since 2015 at about a rate of $4-6 billion. Amazon expects their shipping costs to continue to rise with the increased use of customers utilizing the service.

In a regulatory filing submitted by Amazon to the Securities and Exchange Commission, they say “We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience.”

News of Amazon starting a shipping company first came to light in 2016, but it was still in the early stages of planning. Since then, Amazon has implemented several new ways to maintain greater control over their shipments. They now operate cargo planes, ocean freight liners, local lockers that can store customers packages, and even a new smart home device that allows Amazon couriers into homes to make deliveries instead of leaving packages outside your door, called the Amazon Key System.

Last year, more than 5 billion items shipped with the wildly popular Prime service. In order to keep up with the heavy demand, Amazon has invested in a new air cargo hub in Kentucky, 40 Prime Air cargo plans, and 4,000 truck trailers. They are even experimenting with same-day local delivery using drones. An Amazon spokesperson told reporters that “we’re always innovating and experimenting on behalf of customers and the businesses that sell and grow on Amazon to create faster lower-cost delivery choices.”