Amazon has its own last mile delivery trucks now. Amazon is starting its own delivery business. Amazon has a new fleet of planes. Amazon is investing in drones. Amazon is building a logistics hub in Kentucky. Amazon is a major threat to FedEx and USPS. Amazon is building the Death Star. Amazon hates Ewoks.
Every week we see some version of this story. The news stories always focus on a key detail that seems to spell the end for other logistics companies. What these stories fail to do is step back and look at the macroeconomics of the logistics market in the United States.
Here is how we think about Amazon as a player in the logistics space: a rising tide lifts all boats.
First, Why Should You Trust Us?
We put our money where our mouth is.
We are actual FedEx Ground contractors. We have experience in home delivery, ground, and linehaul across the US. We manage a fleet of over 275 trucks and a staff of over 200 employees.
We do more than broker FedEx routes for sale or talk about logistics, we live and breathe this business everyday with our employees. Which is why we can say with confidence that the majority of the reporting on Amazon delivery misses the larger picture.
Amazon Packages Comprise An Incredibly Small Percentage of FedEx Ground Packages
Less than 3% of all FedEx Ground deliveries are Amazon packages. Over 97% of the revenue FedEx Ground contractors bring into their business each year has nothing to do with Amazon.
Further, Amazon is not at a point where they can deliver all of their packages. As of early 2019, they were only delivering about a quarter of their own packages. It will take years—decades maybe—for Amazon build up the logistics capacity of major players such as FedEx and UPS.
Also remember that FedEx is known for its specialty in incompatible packages. The FedEx Ground network excels at delivering items like trampolines, couches, and sets of tires. Is Amazon eager to build this sort of capabilities? It’s not clear, but we know they are far off from having them.
Note: we do know that UPS carries more than three times the number of Amazon packages than FedEx—over 10% of their deliveries are Amazon packages. UPS will have a larger gap to fill if/when Amazon brings 100% of their deliveries in-house, but they still hold a sizable non-Amazon market share.
E-Commerce Market Has Years of Growth Ahead
If that’s not enough to convince you not to worry about a FedEx Ground investment, then consider this: the retail market is still in the early stages of transitioning from big box retail to e-commerce.
E-commerce accounted for only 3.5% of Total Retail Sales in Q4 of 2008. Ten years on, in 2018, e-commerce was 9.9% of Total Retail Sales. There is plenty of room for this segment of the market to continue to grow!
We expect the e-commerce expansion to continue for another decade or more. The resulting volume will be so substantial that we predict there will be enough business for current logistics players to sustain themselves and thrive.
There is More to the Economy Than Amazon
To date, Amazon’s primary logistics interest is in delivering more Amazon packages. They have not shown any interest in opening up a logistics network for packages unrelated to their core business.
There is much more to our US economy and e-commerce market than Amazon! We are going to have millions of packages criss-crossing this country every year unrelated to the Amazon business.
That being said, we believe Amazon helps accelerate e-commerce trends that are often good for other logistics companies. What started as books now touches every area of daily life including groceries and prescriptions.
These expansions are healthy for the market as a whole!
If you want to learn more about a FedEx Ground route investment, connect with our team for one-on-one support.
Also, consider attending one of our upcoming events where we talk about these investments in detail.