Goldman Sachs says Amazon's logistics network is hardly a threat to FedEx or UPS. It needs years of new construction and a whopping $122 billion just to catch up. (AMZN, FDX, UPS)

fedex ups air

  • Analysts and logistics insiders say Amazon’s
    investments into their own logistics network is
    priming them
    to take on UPS and FedEx as
    delivery providers.
  • A new report from Goldman Sachs says those estimates are
    premature, but still “definitely a concern.”
  • It would cost Amazon $122 billion for the retailer to catch up
    to UPS and FedEx and their air hubs, their aircraft, delivery
    vehicles, and other components of their logistics networks.
  • Visit Business
    Insider’s homepage for more stories
    .

Everyone from
UBS analysts
to
Morgan Stanley experts
to
former Amazon execs
has been sounding the alarm about Amazon
Logistics, which has quickly built up a fleet of 70 planes, 10,000
vehicles, and access to ocean and rail brokerage in a handful of
years. 

And, according to those insiders, Amazon is priming itself to
launch a third-party logistics service that could edge out UPS and
FedEx in the same way the company dominated cloud computing with
Amazon Web Services. 

“Even Amazon, as big as they are and growing as fast as they
are, will not be able to fill up this network on day one,” Morgan
Stanley analyst Ravi Shanker
previously told Business Insider
. “So similar to what they did
with AWS, we think it’s very logical for them to improve the
utilization of their network and lower their own costs by opening
up to third parties.”

Read more:
Amazon took over the $176 billion market for cloud computing. Now
it’s using the same playbook in logistics.

But a new report from Goldman Sachs is urging everyone to hit
the brakes. Amazon’s network is still too small to compete with
FedEx or UPS. UPS, FedEx, and Amazon all had no comment. 

“(B)ased on expansive FedEx and UPS networks, it would appear
that currently Amazon’s limited network size probably does not have
the scope or global flexibility to offer time-definite capability
to reach just about everywhere,” the Goldman Sachs transportation
analyst team wrote in a July 10 report.

It’s also still not big enough for Amazon to totally in-house
its massive amount of package deliveries, Goldman Sachs said.

During the 2018 holiday season alone,
the retailer shipped one
billion packages.

For Amazon just to catch up to UPS and FedEx, the company would
need to invest a staggering $122 billion into its network. 

One of the most time-consuming parts of Amazon’s investment
would be in building out air hubs. The retailer is building a $1.5
billion air hub
at Cincinnati/Northern Kentucky International Airport
,
scheduled to open in 2021.

Read more:
Amazon’s CFO highlighted the power of it perfecting its own
delivery capabilities, and it’s a clear warning shot to UPS and
FedEx

But UPS and FedEx already have, respectively, 13 and 11 hubs.
Catching up to that sortation and air cargo muscle would cost
Amazon some $15 billion and years of construction.

Amazon also has only 215 principal and additional operating
facilities compared to FedEx’s 1,214 and UPS’s 1,038 facilities.
Matching the logistics giants’ might in that area would cost Amazon
$46.6 billion.

There’s also a variety of specialized services that FedEx and
UPS provide that Amazon lacks. UPS, for instance, has logistics
solutions for a
slew of complex industries
: high-security defense, complicated
automotive manufacturing, and health care — even processes like
liquid-nitrogen dry-vapor shipping of medicine.

“It’s two different businesses,” Helane Becker, the Cowen
managing director and senior research analyst, previously told
Business Insider. “What FedEx and UPS does is not the same thing
that Amazon is doing.”

Still, Goldman Sachs analysts wrote that UPS and FedEx shouldn’t
be totally complacent — as they’re likely to lose more and more
business as Amazon continues to in-house. “Amazon is definitely a
concern for the incumbent express companies as Amazon has brought
more of its transportation service requirements in-house
(distribution facilities and aircraft),” they wrote.

Here’s the full chart from Goldman Sachs on where and how much
Amazon would need to invest to catch up to UPS and FedEx:

amazon ups fedex Goldman Sachs

SEE ALSO: The
pilots who fly your Amazon packages say working conditions are
unsafe, and it’s a medical risk


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Goldman Sachs says Amazon's logistics network is hardly a threat to FedEx or UPS. It needs years of new construction and a whopping 2 billion just to catch up. (AMZN, FDX, UPS)