Tag Archives: ups

IS UPS Gearing Up For Fight With Amazon.com?

UPS ( UPS ) has acquired a stake in same-day delivery startup called Deliv, shifting it into competition with e-tail giant Amazon.com ( AMZN ). Palo Alto-based Deliv delivers products from brick-and-mortar retailers to shoppers at their nearby homes — attempting to figure out an efficient solution to the most expensive part of delivery: the last mile. The $28 million of announced funding brings Deliv’s total haul to $40.5 million from funders such as Upfront Ventures, RPM Ventures and mall operators such as General Growth Properties ( GGP ) and Simon Property Group ( SPG ). The Wall Street Journal reported that its valuation was unavailable. Deliv has struck deals with Alphabet ( GOOGL ) subsidiary Google for its Express delivery service, among other clients including several startups. “Same-day is absolutely the new standard. That’s exactly what’s happening in the market. Look what Amazon is doing,” Deliv CEO Daphne Carmeli told IBD. As part of the funding arrangement, UPS will gain a seat on the Deliv board — an opportunity to gather intelligence about a business and market it doesn’t operate in. Currently UPS only offers same-day delivery for high-margin sectors such as health care. Next-day delivery is available for evening pickups — customers generally place orders online in the evening when returning from work. “I struggle to understand what it is that I need in less than a few hours,” Rimas Kapeskas, head of UPS’s Strategic Enterprise Fund, told the Wall Street Journal . UPS is specifically interested in Deliv’s software that connects it directly with a retailer’s website. UPS and Amazon have an uneasy relationship. At the moment Amazon.com is UPS’s largest customer but as the e-tailer’s delivery costs continue to soar, the company has begun to seek alternatives and is widely rumored to be building its own freight operation. Amazon.com offers free two-day shipping and other perks via it’s loyalty program Amazon Prime. The e-tailer offers same-day delivery service via its Prime Now app. On the company’s Q4 earnings call, executives characterized the speedy delivery options as very difficult and expensive but said customers love it. To support its various shipping options Amazon has entered the ocean freight shipping business , is rumored to be flying several flights a day from an airfield in Ohio to locations near its fulfillment centers, has bought a fleet of truck trailers, and is leasing a number of Boeing 767 cargo aircraft. But, it’s still unclear who is going to crack the code on same-day delivery. It’s a complex and expensive business with low margins. Others, such as San Jose-based eBay ( EBAY ) tried  to launch in the U.S. but ultimately ended the pilot program. CEO Devin Wenig said at the time the company had “mixed results” for the delivery service.

Amazon Primes Pump, Hikes Minimum Free Shipping For Non-Subscribers

Amazon.com ( AMZN ) shipping got more expensive Monday, as the company announced  it was raising its free shipping minimum 40% to $49. The move, of course, only pertains to non-subscribers of its Amazon Prime loyalty program, since those subscribers get free shipping on any order. Amazon’s latest move is likely intended to drive more Prime subscription growth and also cut down on shipping costs. Amazon stock rose 4.6% to 559.50 on the stock market today , moving back above its 200-day moving average for the first time since plunging below that mark on Feb. 3. Rival Wal-Mart ( WMT ) has a $50 threshold for free shipping. E-tail startup Jet.com uses $35 as its minimum, while  Target ( TGT ) has a $25 minimum. Wal-Mart stock rose 1.5% on Monday while Target edged up 0.2%. Amazon’s shipping costs have been ballooning as the company offers increasing rapid delivery times — including one-hour delivery in certain markets via Amazon Prime Now. Those costs rose 37% year-over-year in Q4, to $4.7 billion. Rumors continue to swirl about the firm’s long-term plans for its shipping program, as investors and analysts speculate that Amazon is interested in competing with established delivery companies such as UPS ( UPS ) and FedEx ( FDX ). Internal documents seen by Bloomberg seemingly support that theory. And, there have been reports of Amazon getting into the ocean freight business  — which one observers said could generate upward of $100 million in free cash flow — as well as leasing cargo jets and making a large purchase of trucks to haul packages between its fulfillment centers. The documents seen by Bloomberg suggest Amazon is gearing up to compete more with China e-com leader  Alibaba ( BABA ). Besides delivery costs, Amazon has spent billions of dollars on its fulfillment and sortation centers, the last step in the delivery process. Wells Fargo analyst Matt Nemer says Amazon.com captured 51% of all retail growth in Q4 2015 . Amazon’s Prime loyalty program offers free two-day shipping, as well as free streaming audio and video, among other perks. Analysts in general peg Amazon’s Prime customer count near 40 million, with some estimates coming in as high as 50 million. Prime members, on average, spend about twice as much on Amazon.com than regular shoppers. Prime members accounted for 57% of Amazon’s North American sales in Q4, and Prime members spend about 12% more every year, according to ITG Investment Research analyst Steve Weinstein. Nemer has told IBD that Prime is the biggest reason for Amazon’s growth, which during the past two quarters has exceeded 20%.

Is Amazon Ocean Shipping Worth Millions In Free Cash Flow?

With annual ocean shipping hauling in $350 billion a year in revenue, there is good reason why Amazon.com ( AMZN ) is interested in the business. E-commerce leader Amazon is planning to launch a global shipping and logistics operation that will compete directly with UPS ( UPS ) and FedEx ( FDX ), Bloomberg reported Tuesday, saying it had reviewed documents for the plan, called “Dragon Boat.” Bloomberg wrote that the new operations would expand Fulfillment By Amazon (FBA), which provides storage, packing and shipment of goods from third-party sellers. Such sellers make up a significant portion of its e-tail growth. An ocean shipping business alone could generate substantial returns — more than $100 million in free cash flow, Flexport CEO Ryan Petersen told IBD. That’s assuming the goods would be ingested into FBA’s supply chain — which aims to eventually squeeze out the middlemen, paperwork and headaches from logistics and delivery. The cost savings Amazon expects to see by owning the supply chain end to end, and the charges it could levy third-party sellers (or other merchants) would generate that free cash flow, generally defined as cash generated by operations minus capital expenditures. “It’s attractive for Chinese merchants to get into Fulfillment By Amazon centers right now,” Petersen told IBD. “Even with my conservative model, which would not make Amazon a large freight forwarder (though) less than a fraction of 1% of the overall ocean shipping business, it could easily earn more than $100 million in free cash flow.” Peterson says Amazon’s 90 or so fulfillment centers in the U.S. would easily be able to handle 450 containers every week. (The number of fulfillment centers is from Flexport’s data, Amazon does not disclose that). Based on current shipping costs, that would easily net Amazon $100 million in free cash flow, Petersen says. His estimate also assumes ocean shipping prices dig themselves out of the current slump. Rates are about half of what Petersen expects in the long run. San Francisco-based Flexport provides software and expertise that simplifies the international shipping process. Alibaba, Amazon Competition Grows The Bloomberg story said Amazon’s Dragon Boat program also will pit against its Chinese counterpart Alibaba ( BABA ) to gain share of cross-border e-commerce, which is expected to grow to $2 trillion by 2020. The world’s largest retailer , Wal-Mart ( WMT ), already does something similar when it takes possession of freight in China. But Wal-Mart doesn’t re-sell the freight shipping service, and Amazon might, according to analysts. Wal-Mart did not return requests for comment. Southington, Conn.-based Ocean Audit founder Steve Ferreira agrees with Petersen that ocean shipping could be lucrative for Amazon, and he says the company could well disrupt the shipping market. Ocean Audit specializes in detecting errors in ocean freight billing errors. The fact that Amazon last August filed initial paperwork for what might be the Chinese-side of Amazon’s ocean shipping division, Ferreira told IBD, suggests to him that the company is far along in developing its shipping operations. Amazon Would Be ‘Game Changer’ Ferreira calls Amazon’s potential entry into the ocean freight business a “stunning game changer.” He says the Seattle-based e-commerce firm could “theoretically enter the market and start moving goods at below the current market cost.” Amazon might well be gearing up to do just that. Ferreira says he believes Cong Pan , a Beijing-based Amazon attorney, is getting all the “paperwork” for Amazon Ocean set up. He says Beijing-based Amazon Vice President Brian Xue would run the ocean freight operation. Amazon did not return requests for comment. Amazon CEO Jeff Bezos has often repeated his mantra of putting customers before profits. Additional free cash flow could be used to lower the cost of Amazon’s goods or begin to offer essentially free parcel shipping for shoppers willing to wait, says Peterson. “If I had to read the mind of Jeff Bezos, he might not go after the free cash flow,” Petersen said. Baird analyst Colin Sebastian agrees with Petersen’s assessment. “I would caution that Amazon likes to use projects and other things to subsidize its core business,” Sebastian told IBD. “Amazon might not see any free cash flow because it would be absorbed into other businesses.” Sebastian says  he expects Amazon will move in stages into the transportation and logistics sector. “Amazon takes an incremental approach to new businesses, and they’re not going to create a competitor to DHL right away,” he said. But Sebastian says he sess enormous potential. “There’s a lot of potential disruption,” he said, “if Amazon plays its cards right.”