Is Amazon Spooking UPS and FedEx?

October 30, 2015

When Jeff Bezos first conceptualized Amazon his long term goal was to create an “everything store.” He recognized the power of the internet in its early stages and harnessed it into a present-day billion dollar empire. Amazon, competing with the likes of foreign powerhouse Alibaba, currently offers more than 300 million products categorized into a plethora of departments ranging from electronics to groceries. To the naked eye, it would seem as if Bezos and Amazon have it all figured out. However, there is one sector that continues to haunt them.

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When it comes to shipping, Amazon faces costs that are downright scary! 

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Amazon's net shipping costs have increased more than 25% between 2010 and 2013. In the first nine months of 2014, they increased 39%. By the end of 2014, shipping costs exceeded a staggering $8.7 billion. These kind of numbers are sure to cause nightmares for Amazon executives. 

Amazon decided the time has come to take matters into its own hands.

The company has begun the process of assembling a high-level executive team to lead the push to develop its own transportation network, according to a person familiar with its strategy and planned execution. The person, who asked to remain anonymous, said Seattle-based Amazon will announce plans to launch its shipping infrastructure sometime in 2016, though no firm time period has been discussed.

(Source: http://bit.ly/1imMjbo)

If Amazon is able to successfully penetrate the transportation sector, the advancement will benefit both the company and its customers. For the company, it would mean a decrease in shipping costs and increase in shipping revenue. For customers, it would result in faster and less costly deliveries. 

Two parties that would not be on the benficial side of Amazon's move would be UPS and FedEx. UPS's quarterly revenue in 2015 dipped by 0.4% to $14.24 billion from $14.29 billion, compared with the same three months in 2014 (http://bit.ly/1M3EUd4.) A mere speed bump. A 10% drop, however, as a result of Amazon executing its own shipping may cause a considerable collision. The same can be assumed for FedEx.  

According to top executives, Amazon's objective is to guarantee delivery within a 90-minute to two-hour window. In order to execute such a task, data must move fast and efficient throughout the supply chain. The right information needs to be in the right place, at the right time. 

Traditional IT operations are outdated, and simply cannot keep up with e-commerce demands. If Amazon, or other e-tailers alike, wish to achieve their goals related to more timely and accurate deliveries, they must be willing to experiment with new data technology.

One strategy that many companies, including e-commerce giant Alibaba Group, are utilizing today is cloud-based data integration. Judy Tong, President of Alibaba's Logistics arm Cainiao, states, "The ultimate goal of Cainiao is to make it easy to deliver goods to anywhere, so that parcels delivered in China can arrive in 24 hours and parcels delivered cross-border can arrive in 72 hours instead of several days currently for China shipments and days or weeks for international orders." 

Transitioning to the cloud is not only cost-effective, but scalable. In other words, as demand increases, so does your capabilitity. 

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