Are FedEx and UPS the Next USPS?

Today, Bloomberg published a thoughtful piece about Amazon’s direct investments in delivery infrastructure, acquiring Boeing jets, production facilities, and trucks under the headline “Will Amazon Kill FedEx?

The headline may be provocative. But it’s not preposterous.

As I wrote in The Washington Post last year, the tech-enabled macro forces of greater ecommerce deliveries (enabled by the internet) and fewer postal mailings (enabled by email and messaging) have created enormous risks and opportunities for the incumbent parcel delivery companies. My article focused largely on the way the United States Postal Service (USPS) missed an opportunity to embrace these changes (and its monopoly power) to become a delivery disruptor…and instead descended deeper into its decline.

Could FedEx and UPS really be the next USPS? While both companies have been well run and have broad businesses outside of supporting just Amazon, the ecommerce giant shipped over a billion packages last year and is the largest shipper in the U.S. So moves by Amazon could put them at risk.

If Amazon insources all of its shipping volume, it will not only drive its costs lower (extending its ecommerce advantage), but it could then subsidize those lower costs by selling “delivery as a service” to third parties, putting it in direct competition with FedEx and UPS.

Unlike the incumbents, Amazon does not need to make money on the act of shipping, they can make it up on their ecommerce business, which means it’s plausible Amazon could lead and win a cost-driven shipping war, outflanking the incumbents and becoming the world’s leader.

Amazon has a history of doing just that: a decade ago, the company knew that it would have to make enormous investments in tech infrastructure to support its ecommerce business, so it made what was considered an unconventional bet and launched Amazon Web Services, selling “computing as a service” to other companies. Critics asked, “what’s that have to do with ecommerce?”

As Forbes’ Alex Konrad reported in an in-depth review of the cloud computing category, there is nothing unconventional about Amazon’s Cloud Computing bet now. Tech companies like Google and Microsoft are playing catch up to Amazon in a race that some estimate will be a trillion dollar market, as large as the global smartphone industry. Amazon has leveraged that cloud computing capacity not just to give it a cost advantage over its competition, but to become a profitable business in its own right, generating $7.9M billion last year.

Perhaps Amazon’s jumping ahead of FedEx and UPS may sound fanciful now. But if I were managing those companies, I’d be protecting my flank while trying to out innovate, given Amazon’s tremendous shipping volume, expertise in logistics, proven ability to create ancillary businesses, and maniacal focus on winning.

Where does that leave the embattled USPS? Maybe one day the Post Office will outsource delivery to Amazon, maintaining its role as the custodian of the mailbox, but leaving the business of delivery to the logistics masters at Amazon. If they did, I’ll bet we’d finally see innovation in our mailboxes, not just our email boxes.

About

Tige Savage

Tige Savage co-founded Revolution LLC with Steve Case and co-leads Revolution Ventures, which invests in and helps build innovative and impactful companies.

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