Business Times of Edmond, Oklahoma January 2020 - Page 28

BUSINESS MATTERS
NICK MASSEY
A stute I nvestor
Will Your Delivery Person be History?
B
ack in the days when I was racing cars,
I became well acquainted with my
local UPS delivery guy. Racing is hard
on cars and parts, and something is always
breaking or getting wrecked. So you tend to
order a lot of parts. An old racing joke used
to be that when it was winter time and you
missed the feeling of racing, you could throw
yourself down the stairs to get all bruised up,
then empt y out your wallet, and then sit on
the front porch pretending to wait for the
UPS truck. Then the feeling of racing
came back.
Amazon kicked off the internet shopping
boom in the 90s when it started shipping
books. These days, you can click a button and
get almost anything delivered to your door.
Amazon sold $164 billion worth of stuff on
its website this year.
Amazon didn’t disrupt shopping alone.
America’s two largest delivery companies,
UPS and FedEx, moved all that stuff from
sellers to buyers. It won’t surprise you
to learn the online shopping boom has
been wonderful for their businesses. Their
revenues have almost tripled since 2000, to a
combined $140 billion. So surely their stocks
have handed out big gains. Right? Nope. UPS
and FedEx stocks have basically been flat for
years.
Have you heard of “Prime Air?” These are
Amazon cargo planes and you might have
seen them in some airports where the cargo
planes go. No company in the world spends
more on shipping than Amazon. It spent $27
billion on shipping last year! And it’s one of
UPS’s largest customers, making up roughly
10% of its sales.
Over the past couple of years, Amazon has
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January 2020 | The Business Times
been working on a project that should terrify
UPS and FedEx. It has quietly blanketed
America with its own delivery web. Today,
Amazon operates almost 400 distribution
warehouses in the U.S. alone. Many span
millions of square feet. Inside, swarms of
“Pegasus” robots whizz around carrying stacks
of items.
And did you know Amazon has built
up a 20,000 strong fleet of delivery vans? It
also owns 60 cargo planes like the ones I
described above. Amazon’s growing “logistics
wing” now ships 1 in every 5 deliveries in the
US. And 60% of Amazon parcels are now
delivered by Amazon drivers.
As I mentioned, UPS only gets around
10% of its sales from Amazon, while FedEx
counts on Amazon for less than 2% of its
business. So many folks conclude Amazon’s
creation of its own delivery service won’t hurt
these companies too much. These people
don’t know their Amazon history.
Back in 2000, Amazon was on its way to
dominating online shopping. As its website
exploded in popularit y, so too did its need
for computing power. So it started renting
giant warehouses and packing them full of
supercomputers. Its stated intention was to
“supplement” its internal need for computing
power. Today that has morphed into Amazon
Web Services (AWS), the world’s largest cloud
computing business, which is basically selling
computing power to other companies.
What got my attention recently was when
Amazon said its growing delivery arm will
“supplement” existing delivery methods.
Of course, Amazon will first take care of its
own delivery needs. But I’ll bet that Amazon
will soon start selling its delivery services to
others, just like it did with its cloud business.
In fact, Amazon now calls UPS and FedEx
competitors in its annual report.
Amazon recently launched its new
“Shipping with Amazon” service. In short,
Amazon’s drivers will now pick up packages
from “third-part y sellers” who sell stuff on
Amazon. It will then deliver that stuff to
buyers, cutting out the need for delivery
services like FedEx or UPS. What are the
chances Amazon opens up “Shipping with
Amazon” to everyone in a year or two? Hmm.
Just sayin’.
It’s bad enough that the most disruptive
company in history is invading UPS and
FedEx’s turf. It’s even worse that many of
America’s most powerful companies are
following suit. The world’s largest retailer,
Walmart, now runs more than 6,000 of its
own delivery trucks. It has spent over $2.5
billion on its “logistics wing” in the past two
years. Home improvement superstore Home
Depot is investing billions into delivering its
own products, too.
UPS and FedEx have a big problem in that
they are the ultimate “middlemen.” As we all
know, middlemen can always be cut out. I’m
not suggesting that you should buy, sell or
hold any of these companies. You’ll need to
decide that for yourself. But there is a trend
here that you should think about and pay
attention to.
NICK MASSEY is President of Massey
Financial Services in Edmond, Okla. Nick can
be reached at www.nickmassey.com. Investment
advice offered through Householder Group Estate
and Retirement Specialists, a registered investment
advisor.