Online-retail giant Amazon.com Inc. reportedly is building its own shipping business in a brazen challenge to America’s freight titans in a bid to constrain rising shipping costs.
Amazon’s ultimate goal, the Wall Street Journal reported, “is to one day haul and deliver packages for itself as well as other retailers and consumers—potentially upending the traditional relationship between seller and sender.”
The Seattle e-commerce company’s plans to build a massive delivery network also sets up a clash with shipping partners United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service.
Executives at the freight giants are skeptical, and so are analysts and logistics experts. They say it would be difficult and costly to build a domestic delivery network to rival the big three: UPS, FedEx and USPS.
Amazon’s push into the shipping sector “reflects a willingness among today’s powerful tech companies to defy the traditional constraints of business and leap into new ones,” the Journal explained.
“The company, which started out as an online bookseller, has gained credibility as a producer of TV programs and big-screen movies. Amazon Web Services, which provides data servers to big companies, is now its fastest-growing division with at least $10 billion in sales expected this year,” WSJ.com reported.
“Shipping costs as a percentage of sales have risen every year since 2009. Last year, Amazon spent $11.5 billion on shipping, or 10.8% of sales, compared with 7.5% in 2010. Total revenue for the year was $107 billion,” the Journal reported.
“The company could save $1.1 billion annually if it stopped using UPS and FedEx, according to Citigroup Inc. analysts. Keeping packages under its own control just over longer distances could save Amazon around $3 or more on a typical delivery, the analysts say. The average cost to ship a package via UPS or FedEx is $7.81, they estimate.”
To be sure, Amazon is busy with other plans of attack against its rivals. In an attempt to get even more consumers hooked on Amazon ahead of the holidays, music is the latest lure, Bloomberg reported.
Amazon is working on a stand-alone music-streaming service and will release more details in the coming weeks, according to a person with knowledge of the matter. With a price tag reported to be about $5 a month, the new service would be cheaper than competing streaming deals from the likes of Spotify and Apple Music, meaning Amazon will probably lose money on the monthly fee for the service.
Meanwhile, Amazon continues to increase its lead over major retailers like Wal-Mart Stores Inc. and search engines as the starting point for online shopping as the busy holiday season approaches.
More than half of U.S. online consumers begin their product searches on Amazon.com Inc.’s website or mobile app, Bloomberg reported, citing a new survey.
Fifty-five percent of those surveyed go to Amazon first when searching for products, an increase from 44 percent a year earlier, according to a Labor Day weekend poll of 2,000 people released by the Internet marketing firm BloomReach Inc.
The second annual survey showed search engines, such as Google and Yahoo, and retailers losing ground to Amazon. Search engines were the starting point for 28 percent of those surveyed, declining from 34 percent a year earlier. Specific retailers were the starting point for 16 percent, down from 21 percent.
“Amazon has become the reference point for shoppers,” said Jason Seeba, head of marketing for BloomReach. “Shoppers will go to Amazon first to find a product and check prices.”
(Newsmax wire services contributed to this report).
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