By Paul Ziobro | @pziobro
Amazon.com Inc., recently expanded its nascent home-delivery service, called Amazon Shipping, beyond test markets in London and Los Angeles. The online retailer is offering to pick up shipments from merchants’ warehouses and deliver them directly to shoppers, The Wall Street Journal has previously reported.
The end-to-end service is part of Amazon’s quest to built up its own delivery network and handle more of the millions of items sold through its site.
To woo shippers, the retailer is promising to cut out many fees that the traditional carriers use to pad their revenues, like extra charges to deliver packages to homes, during the peak holiday season or on weekends, according to an email sent last week to shippers in the New York area and reviewed by the Journal.
“If it’s a guaranteed service with none of those surcharges, they’re going to undercut the residential delivery market,” said John Haber, chief executive of the supply-chain consultancy Spend Management Experts.
An Amazon spokesperson said the company is “always working to develop new, innovative ways to support the small and medium businesses who sell on Amazon, including testing shipping programs that help these businesses get packages to their customers quickly and reliably.”
Such fees can add up. The residential surcharge at FedEx is $3.60 per parcel and $3.80 at UPS. That alone can account for more than 40% of the average ground delivery charge, which was $8.81 at FedEx and $8.71, according to the most recent public data.
The two carriers also impose fuel surcharges, which fluctuate with market prices. The current weekly surcharge for a domestic ground delivery is 6.75% at FedEx and 7% at UPS. UPS also imposed surcharges on deliveries during the peak holiday shopping season each of the past two years.
Mr. Haber said fees can add up to more than 30% of the shipping cost in many cases. One merchant who reviewed Amazon’s shipping rates said they were about 10% lower than UPS and FedEx on average.
Large carriers use the fees to cover the added costs of building out their networks to handle the surge in e-commerce packages. Residential delivery, for instance, can have higher costs than delivering to businesses, where multiple items can be dropped off. Fuel surcharges also provide transparency into one of the costs baked into deliveries and can fluctuate.
Since Amazon’s service is designed to deliver packages to homes, not businesses, the costs of residential delivery are factored in, eliminating the need for a surcharge. The company wants to handle more of its own deliveries to keep up with its growth and loosen its reliance on the U.S. Postal Service and other carriers, whose rates continue to rise. FedEx and UPS typically raise rates an average of about 5% annually.
Amazon’s shipping pact with the Postal Service, which delivers most of the retailer’s packages to homes, also has come under attack from President Trump for straining the agency’s operations and not generating enough profits.
In addition to leasing airplanes and trucks, Amazon is recruiting small businesses to carry more of its deliveries during the last leg of a package’s journey to the consumer’s door. It has a program that lets entrepreneurs sign on to lease about 20 to 40 Amazon Prime-branded vans.
FedEx and UPS have in the past played down the ambitions of Amazon, which is a significant customer to both, in the delivery field. They have noted that it would take billions of dollars and years of expertise to build out a full competitor with the breadth of coverage that either carrier offers globally.
A UPS spokesman declined to comment on Amazon’s moves. “UPS has a healthy and growing small-package business,” the spokesman said “capable of transferring goods competitively from dock to doorstep anywhere in the world.”
A FedEx spokeswoman also declined to comment on Amazon’s strategy. “We are confident in our position as a global transportation trailblazer, and optimistic about the future,” the spokeswoman said.
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Amazon is promising other features that position it as more user-friendly than traditional carriers. According to its marketing pitch to shippers, Amazon will offer rates that are easier to understand than the pricing systems that UPS and FedEx use and any delivery mistakes won’t impact seller ratings.