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 28 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.