In a call with analysts, a company exec says it would be daunting and expensive for any company to replicate FedEx’s existing network.
FedEx on Wednesday downplayed any threat posed by Amazon.com to its business, saying it costs too much time and money to replicate a transportation network to rival FedEx’s own.
While moves by Amazon to lease jets and buy trucks grab headlines, “the reality is it would be a daunting task requiring tens of billions of dollars of capital (and) years to build sufficient scale and density to replicate existing networks like FedEx,” T. Michael Glenn, FedEx’s executive vice president for market development and corporate communications said in a call with analysts.
The comments come amid clear signs that Amazon’s wide-ranging experiments with logistics are reaching critical mass, as it ponders how to control rapidly rising shipping costs while meeting ever- shrinking windows for delivery.
It’s all the more important to Amazon as the company’s growth places a heavier load on its logistics providers, which have struggled to keep pace in recent holiday seasons.
Most Read Stories
- The results are in: Here's where the new Dick's Drive-In will be
- Prosecutor reviewing sex-abuse allegations against ‘Deadliest Catch’ star Sig Hansen
- Elon Musk’s SpaceX on brink of `Wright Brothers moment’ with reused rocket
- Best way to slow aging? Exercise, but not just any kind
- Richard Branson celebrates Virgin Atlantic’s entry to Seattle market, tears into Alaska Air
The latest and most significant sign in Amazon’s plans was its deal last week with Air Transport Services Group to lease 20 Boeing 767s that would fly between a hub in Ohio and airports close to Amazon fulfillment centers across the country.
Amazon is also delving into last-mile delivery, both through individuals operating under the Uber-like Flex program and through contractor businesses.
Analysts with RBC Capital Markets said in a note released Tuesday that Amazon is tightening up its supply chain in ways similar to those embraced by Wal-Mart in the 1980s, with the objective of reducing costs and ensuring reliable delivery.
RBC says Amazon has been pursuing a dual strategy. First, it’s building a line-haul transportation network — trucks, airplanes and freight forwarding linking its fulfillment centers. It’s also deploying a limited parcel-delivery service that would create a long-term risk for both FedEx and UPS.
The RBC analysts say, however, a full-blown operation “would likely take years to complete,” giving both FedEx and UPS time to react.
Glenn’s comments reinforce that notion. He said Amazon’s moves are not unlike those made previously by other large retailers, which have “their own transportation capabilities, primarily to enable movement and positioning of inventory across their store and fulfillment locations.”
Moreover, he said that no single customer represents more than 3 percent of FedEx’s revenue. RBC estimates that Amazon accounts for about $1.5 billion of FedEx’s revenue in the U.S., and $3 billion of UPS’ U.S. revenue.
“Amazon is a valuable customer that we’ve worked with for many years, we expect to work with them for many years to come,” Glenn said, according to a FactSet transcript of the event.
Amazon’s Chief Financial Officer Brian Olsavsky said last January in an earnings call that the company was adding more of its own logistics in order to supplement its existing partners, which were not able to handle all of Amazon’s growing capacity. “That’s not meant to replace them,” Olsavsky said.
Some analysts, such as Baird’s Colin Sebastian, have pointed out that over time Amazon could develop enough expertise in transportation to offer the service to other companies. After all, Amazon already offers logistics handling for third-party sellers.
And a decade ago it began offering the technology it had been using to expand its retail business to the wider world in the form of Amazon Web Services, which is now a huge moneymaker for the company.
FedEx on Wednesday reported adjusted earnings of $2.51 per share on $12.7 billion in revenue for its third quarter in fiscal 2016, which ended Feb. 29. That period included the peak holiday season. The earnings figures, which exclude legal and acquisition costs, beat Wall Street estimates of $2.34 per share. The company cited stronger-than-expected shipping demand driven by e-commerce.