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Amazon hit a hit in the logistics industry – Motley Fool



For years, rumors have been building intentions on intentions in logistics and delivery. The company has added performance and logistics services to its list of rivals in its 10-K report and has presented a program called Amazon Shipping, through which the company receives and delivers other freight forwarders. In his recent earnings, Chief Financial Officer Brian Olsawski has also begun to talk more about the company's ambitions in the field of logistics.

But the clearest sign of Amazon's potential impact in the industry comes from the latest logistics revenue report (NYSE: XPO) one of the world's largest suppliers of freight and logistics services and a leader in the supply of heavy goods such as furniture and appliances in the last mile. In its fourth quarter report, XPO significantly reduced its leadership for 2019, and its shares fell by double digits in the report. The culprit is "the impact of our biggest client, which significantly reduces our business portfolio," according to CEO Brad Jacobs. Jacobs continued to explain that XPO will lose $ 600 million a year from this customer, which cuts the business by two-thirds.

Although Jacobs has not named the client, it is widely believed to be the Amazon. Jacobs explained that the business his company had lost was the injection of postal items or the bringing of trucks in large quantities to the post office. He also explained that postal injection has low entry barriers and is therefore less secure than the company's heavy-load delivery business in the last mile. UPS (NYSE: UPS) declined by 2.9% and 1.3%, respectively. Both FedEx and UPS have tried to downplay Amazon's threat by saying that billions of dollars will be needed for Amazon to start competing with them. However, as the XPO slideshow does not require much to torque the stock price.

  Amazon

Image Source: Amazon.

Opportunity for the multi-trillion dollar

The global logistics market is expected to reach $ 15.5 trillion by 2023. While Amazon is obviously not targeting the entire market, it is not surprising that the company is targeting an industry that is huge and directly related to e-commerce.

The Wall Street Journal (subscription required) reveals how Amazon is trying to undermine FedEx and UPS by avoiding annoying fuel similar charges. The e-commerce giant also uses its own logistics services to deliver around 26% of its own orders, according to Wolfe Research, which shows that a significant logistics business has already been built because the company controls about half of US e-commerce sales both through its own retail and third-party markets. Amazon is the largest US Postal Service customer and is one of the largest for FedEx and UPS, so its initiatives are threatening not only to take a valuable client from the ship's giants but also to put pressure on prices in the industry as Amazon did habit in other sectors. To divert concerns about Amazon, FedEx recently published a statement saying the e-commerce giant is only 1.3% of its business. On the last call for Amazon's profit, Olsawski explained Amazon's ability to see, saying:

What we like in our ability to take part in transport is that we can do it many times at the same cost or better and we also like the price profile. We can also invest selectively because we have better information. We know where our demand is, we know where we move things between warehouses and sorting centers. And as we continually attract third parties, we have found that we can extend our interruptions to orders and have done so over the past few years.

Olsawski is touching the vast amounts of data Amazon uses to inform its own delivery service and adapt it to its own needs.

In many ways, Amazon Shipping's growing business looks like Amazon Web Services (AWS), the cloud computing company, originally designed as an own e-commerce service, the largest business cloud in the US through adoption. AWS posted an operating profit of $ 7.3 billion in 2018

While Amazon faces well-established competition in logistics, it can very much follow the same path as AWS, as the company can take lessons and data from providing logistics and delivery services for yourself and applying this knowledge to service its customers. Amazon has shown countless times before not to be afraid to challenge industry leaders even in areas where there is no previous experience.

XPO shares ended on Friday with 12.6%. This probably will not be the last time a logistics provider blames its woes on Amazon.

John Mackie, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the board of directors of The Motley Fool. Jeremy Bowman holds shares of Amazon and XPO Logistics. Motley Fool owns shares and recommends Amazon and FedEx. Motley Fool recommends XPO Logistics.


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