As the clock counts down to Christmas, workers at United Parcel
Service Inc. are busy hustling packages along loading docks and
conveyor belts at its Louisville, Ky., hub—part of a costly,
intricate system built in part to cater to Amazon.com Inc., its
biggest customer.
But the symbiotic relationship between the two giants has come
under increasing strain, according to interviews with more than a
dozen current and former UPS and Amazon executives.
Rising package volumes and costs have Amazon seeking alternative
delivery routes—shifting the online retailer's role from key ally
to a potentially disruptive competitor.
Amazon has held talks with air-cargo companies to lease
airplanes and build its own freight operation. The company is
already using its own trucks, drivers and a fleet of couriers for
the final and most-expensive leg of an order's trip.
It has been making its own deliveries in certain high-density
regions and relying more heavily on the U.S. Postal Service.
Eventually, it hopes to get drones to drop packages into
backyards.
Such steps are part of a much broader plan at Amazon, which
counts shipping costs as one of its fastest-growing expenses,
totaling 11.7% of revenue in the third quarter, up from 10.4% a
year ago. The goal is to reduce its reliance on carriers like UPS,
according to people familiar with the matter.
"Amazon's interest is not in doing what may be good for UPS,"
said Satish Jindel, a parcel-industry analyst with SJ Consulting
Inc. "Their interest is in getting control over logistics."
Amazon declined to comment. A spokesman for UPS said "we will
continue to work closely with Amazon and all our customers to help
them solve their growth and customer service challenges."
There is more than loyalty at stake for Atlanta-based UPS. This
year, its Amazon account exceeds $1 billion, say former Amazon and
UPS executives. That is roughly a fivefold increase since 2005,
according to an estimate by a former executive with direct
knowledge of the company's spending.
While UPS investors generally view growing volumes as a sign of
health, the company's cost-per-package has actually risen since
more than a decade ago, putting margins under pressure.
The average cost to handle a parcel was about $8 last year, up
from roughly $6.50 in 2000, according to the company. Much of the
increase was attributed to a growth in e-commerce, as UPS has
invested more than $11 billion over the past five years to upgrade
and expand its network.
It hasn't helped relations that Amazon was a factor in UPS's
last two back-to-back Christmas snafus—each of which cost UPS an
unexpected $200 million. Two years ago, Amazon overwhelmed UPS with
hundreds of trailers of last-minute Christmas orders. It later got
UPS to help underwrite millions in customer refunds.
Last year, UPS increased capital spending by 10% to be ready for
a prolonged holiday surge that never came.
This year, the company is expecting record volumes and has
already seen parts of its network strained from a surge of online
holiday spending over the days before and after Thanksgiving.
On UPS's earnings call in October, an analyst pushed management
to address possible tension in the companies' relationship.
"How do you make sure that you're guarding against the potential
outcome where your customers might increasingly become
competitors?" asked Alexander Vecchio with Morgan Stanley.
Alan Gershenhorn, UPS's chief commercial officer, said it would
be "very difficult to match."
The customer-as-competitor dynamic is upending various business
models. Pay-TV providers like Comcast Corp. and Dish Network Corp.,
for example, could feel the pain as HBO bypasses them to reach
consumers. Ditto for retailers like Macy's Inc. as Esté e Lauder
sells direct to online shoppers.
At Amazon, plans to handle more of its own parcels have
accelerated over the past two years, according to current and
former executives. Amazon also fears that UPS's hub-and-spoke
system—moving a package from shipper to sorting hub to brown van to
your home—is growing obsolete, according to the executives. So the
retailer is building regional distribution and package sorting
centers, while adding thousands of truck trailers. It is even
trying delivery by newspaper carriers.
For a long time, UPS and Amazon were a harmonious pair. The two
had worked together for years, even as FedEx Corp. also shipped for
Amazon. In 2013, FedEx refused to lower prices enough to meet
Amazon's demands on a big chunk of its business with the retailer,
according to people familiar with the negotiations. Amazon asked
UPS to take on much of it instead. The company agreed, although
some UPS executives questioned whether to assume the low-margin
business.
When Amazon launched Prime unlimited two-day shipping in 2005,
UPS went all in, giving the retailer discounts of as much as 70%
for the new business.
Lately, though, the companies' relationship has been strained. A
few years ago, UPS shared some of its routing data with Amazon,
according to an executive. When Amazon requested additional data,
UPS—by then wary of the retailer's intentions—refused, that
executive added.
Amazon has poached more than 40 UPS supervisors, managers and
executives in the last three years, according to an analysis of
LinkedIn data. In September, Kniffen Kelly, a 16-year veteran
working on engineering UPS's transportation networks, left to
become Amazon's director of sort center engineering.
UPS and Amazon have also been engaged in a rare public debate
over low postal rates. In government filings, UPS has argued that
the U.S. Postal Service calculates some pricing incorrectly; Amazon
defends the model.
For all its efforts, it is still unclear whether Amazon can
outrun its delivery partner—or if it might ever be able to break
away from UPS. Building a logistics network is costly, and the
retailer may never have the necessary infrastructure, industry
analysts say.
Some customers have already complained about missed or late
deliveries from Amazon's in-house service, known as Amazon
Logistics.
David Konigsberg said a camera he ordered this month seemed to
vanish. "Amazon said the package I ordered had left the carrier
facility, but it never came to me," said Mr. Konigsberg, a
27-year-old software developer in Alexandria, Va. "It's a good
thing I didn't need it right away."
Write to Laura Stevens at laura.stevens@wsj.com and Greg
Bensinger at greg.bensinger@wsj.com
(END) Dow Jones Newswires
December 22, 2015 22:05 ET (03:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
United Parcel Service (NYSE:UPS)
Graphique Historique de l'Action
De Juin 2024 à Juil 2024
United Parcel Service (NYSE:UPS)
Graphique Historique de l'Action
De Juil 2023 à Juil 2024