Amazon growing last-mile strength, planning to go toe-to-toe with integrators?

Hard-to-define "e-commerce traffic" can be palletized or containerized.

XPO Logistics’ largest customer, likely Amazon, led to missed targets for the 3PL. Might the integrators be next?

Major integrators FedEx and UPS have been adamant that they aren’t worried by Amazon’s growing freighter fleet and last-mile delivery network. However, after yesterday’s release of fourth-quarter and full-year 2018 results from US-based 3PL and major Amazon service provider XPO Logistics, perhaps integrators and other logistics providers in major markets served by Amazon should be a bit worried.

XPO Logistics reported a 4.6% year-over-year increase in revenue for the fourth quarter, to US$4.4 billion, while revenue for the full year was up 12.3% to $17.3 billion. However, given higher expenses y-o-y, profits fell substantially below targets for the quarter. Operating profit (EBIT) was flat y-o-y for 4Q, at $126 million, and net income was down 56.0% to $91 million. CEO Bradley Jacobs attributed missed targets for the quarter to “headwinds in France and the UK and a loss of profit in the postal injection business with our largest customer.”

Jacobs added that XPO had revised its expected EBITDA growth for 2019 to between 6% and 10%, also in anticipation of its largest customer “substantially downsizing its business portfolio with us starting in the first quarter.” Although the customer was not specified by XPO, a J.P. Morgan analyst concluded in an advisory note, “we believe the shipper that is paring down its parcel injection, brokerage, last mile, and logistics activity with XPO is Amazon.”

XPO is not the first logistics provider to feel the pinch of Amazon taking on more of its own delivery services. Deutsche Post-DHL Group’s Post-eCommerce-Parcel division struggled last year, and German newspaper Handelsblatt reported that Amazon taking over its own deliveries or turning to lower-cost competitors was behind much of that weakness. Since then, Amazon has only grown more aggressive in building out its own logistics network.

As reported by our sister publication Air Cargo World, in its 10-K filing with the Securities and Exchange Commission (SEC), Amazon included companies providing “transportation and logistics services” among its list of competitors for the first time. That filing followed news that Amazon would expand its Amazon Air fleet by at least ten additional freighters in an agreement with Air Transport Services Group (ATSG). If Amazon were to exercise all options in the new agreement with ATSG, its fleet would grow to sixty-seven 767 freighters, and through warrants for the purchase of a stage in ATSG shares, its ownership in ATSG could grow to 39.9%.

Alongside its growing air fleet – and ownership in ATSG – Amazon is also growing its interest in last-mile options. Bloomberg reported that Amazon led a $700 million equity investment in Rivian Automotive LLC, which makes electric pickups and SUVs, and has said it will begin commercial offerings of its vehicles in 2020. Were the company to eventually enter the delivery vehicle market, Amazon would be well-positioned to add the vehicles to its growing last-mile delivery network.

And what of the effect of all this growth on the integrators? Despite denials that Amazon is positioned to pose a threat to massive integrator networks built over decades by FedEx and UPS, FedEx at least is facing some inner turmoil with a number of leadership shake-ups since December. The most recent change was announced only yesterday – that Raj Subramaniam will take over as president and COO from David Bronczek on 1 March. How the new leadership will position itself in relation to customer-and-competitor Amazon remains to be seen.

Those interested in learning more about e-commerce and express networks are invited to join us at Cargo Facts Asia 2019, to be held 15-17 at the Langham Shanghai. For more information, or to register, visit www.cargofactsasia.comDiscounted early-bird registration ends 1 March.

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