Shares of UPS, FedEx fall after report Amazon to launch delivery service

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(Reuters) – United Parcel Service Inc and FedEx Corp shares fell 2 percent on Friday, after a report said Inc is preparing to launch a delivery service for businesses, which would directly compete with the U.S. package delivery companies.

The e-commerce company expects to roll out a new delivery service, dubbed “Shipping with Amazon” or SWA, in Los Angeles in coming weeks, the Wall Journal reported citing people familiar with the matter.

The service, which will entail Amazon picking up packages from businesses and shipping them to consumers, could expand to more cities as soon as this year, the report said.

The program is being piloted with Amazon’s third-party sellers, and could eventually be opened to other businesses too, the Journal said adding that Amazon was planning to undercut UPS and FedEx on pricing, although the exact rate structure was still unclear.

Shares of FedEx fell to $234.59, while UPS was at $106.80 on the New York Stock Exchange.

“The headline in today’s Wall Street Journal demonstrates a lack of basic understanding of the full scale of the global transportation industry,” said FedEx spokesman Patrick Fitzgerald.

UPS declined to comment about Amazon’s specific business strategies or Amazon’s decisions regarding the utilization of UPS services.

“There is tremendous opportunity in the business-to-customer market (i.e. Walmart to household deliveries) and more growth coming to the sector and UPS, irrespective of how other companies shift strategies,” UPS spokesman Glenn Zaccara said.

Amazon, which would have to invest $100 billion to compete with UPS and FedEx, according to some analysts, appears to be targeting the “last mile” deliveries to households fueled by online shopping, which has grown fast in recent years but is a lower margin business.

”To date (Amazon) hasn’t made a meaningful push into the true transportation asset ownership we believe is necessary to be a competitor. It appears to be a difficult task to compete in this market as an asset light parcel delivery carrier,” Citi analyst Christian Wetherbee said.

Amazon as a customer accounts for less than 10 percent of total revenue for UPS and 4 percent of revenue for FedEx, according to Wolfe research.

Amazon said on Friday it was “always innovating and experimenting on behalf of customers and the businesses that sell and grow on Amazon to create faster lower-cost delivery choices.”

Reporting by Eric Johnson in Seattle, and Ankit Ajmera and Sonam Rai in Bengaluru; Editing by Bernard Orr