Amazon.com (NASDAQ: AMZN) and its shipping partners FedEx (NYSE: FDX) and UPS (NYSE: UPS) continue to downplay how much they compete with each other, even in the face of indisputable evidence that Amazon is trying to poach shipping business from third-party merchants on its platform. FedEx CEO Fred Smith said that FedEx doesn't see Amazon "as a peer competitor at this point in time" last year, for instance. Meanwhile, UPS CEO David Abney at long last admitted the competitive threat that Amazon poses in an interview with Business Insider last week.
However, Amazon for the first time ever has just indirectly acknowledged that those shipping partners are indeed competitors.
Image source: Amazon.
Amazon now competes in "transportation and logistics services"
Amazon filed its annual report 10-K with the SEC last week and noted intense competition in many of the markets where it competes. Some of the areas -- such as e-commerce, omnichannel retail, and digital content -- have long been mentioned in regulatory filings. But there was a new addition: "transportation and logistics services." The new language is similar to the company's 2017 10-K, in which it referenced "companies that provide fulfillment and logistics services for themselves or for third parties" in a list of "current and potential competitors."
Just last month, Amazon inked a new deal with Air Transport Services Group to lease an additional 10 aircraft as part of its growing in-house logistics network, dubbed Amazon Air. As part of that partnership, Amazon has warrants that give it the right to acquire a 33% stake in transportation provider, suggesting that Amazon may look to buy the company at some point in the future.
As Amazon continues to grow, so do its shipping costs, which jumped nearly 30% in 2018.
Data source: SEC filings.
Shipping remains one of Amazon's biggest line items, representing nearly 20% of cost of sales last year. Bringing more shipping in-house will help keep those expenses in check, although the company remains coy in how it officially describes its efforts. "We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better operating efficiencies," Amazon writes in its filings. Note that the company's reported shipping costs include when it acts as its own transportation service provider.
On the earnings call last week, CFO Brian Olsavsky continued to frame Amazon Air's expansion as a supplement to its current partners' capacity. "We have great [transportation] partners in place for our business and support globally," Olsavsky said. "What we do is add capacity where we feel we need to speed up service or ensure demand, particularly at peak."
That may be true in the short term, but the trajectory of Amazon's ongoing expansion should concern its shipping partners in the long term. The e-commerce specialist has a lot to gain here in the way of savings, and it's not going to stop anytime soon.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and FedEx. The Motley Fool has a disclosure policy.