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I kind of had the impression the purpose of their delivery service was to help negotiate better rates from USP/FedEx. Is that what happened?

LyndsySimon 7y ago
I have good contacts within FedEx, and as I understand it the general consensus there is that while losing the Amazon contract hurt, UPS is doing it so cheaply there's no way they're even close to breaking even on it. What's more, it's a substantial part of their network volume - so when Amazon pulls their business to go it alone, UPS is going to end up cash poor and having to deal with aging infrastructure and inflated costs from overcapacity.
- justicezyx 7y ago
  The sentences appear confusing. > UPS is doing it so cheaply there's no way they're even close to breaking even on it. You are saying "Amazon" has no way to be even close to breaking even? > What's more, it's a substantial part of their network volume Are you referring "it" is a substantial part of "Amazon"'s network volume?
  - KaoruAoiShiho 7y ago
    The sentence is not unclear, it refers to UPS and not Amazon.
- crazygringo 7y ago
  > UPS is doing it so cheaply there's no way they're even close to breaking even on it That doesn't make sense to me... why would UPS sign a contract with Amazon that it wouldn't make money on? I can see accepting a relatively low profit, but not negative. Even as some kind of strategic defensive move. There's no winning scenario for them to lose money on delivering packages for Amazon.
  - monocasa 7y ago
    They're saying that Amazon isn't close to breaking even on their delivery service because UPS was doing it so cheaply.
  - LyndsySimon 7y ago
    FedEx and UPS live and die by volume. The more packages they move in total, the cheaper it is to move each individual package. They can then make their profit in sales to companies and individuals with far less volume and pricing leverage than Amazon. For the sake of argument, let’s say that Amazon makes up 50% of UPS’s business, and those packages are shipped by UPS at a 10% loss. If the other 50% of their business averages a 20% profit, then they’re averaging a 10% profit across the board. Without the Amazon packages, let’s say UPS can cut their operating costs by 25%. Now they’re shipping 50% as many packages, though, so the per-package operating cost has increased by about ~33%. Those customers that were generating 20% profit when the network was larger are now a losing proposition. UPS then faces the choice of downsizing their operation or raising prices. Both of those options are about equally bad when you consider that their competitors are not impacted by the loss of Amazon’s business (well, to be totally correct, their competitors have already absorbed the disruption to their operations when Amazon pulled their business to move it to UPS in the first place). To be clear, I’m not saying the above numbers are correct - or even close to being representative. I’m merely illustrating why it makes sense for transportation companies to take large-volume customers even at a loss.
    - teejmya 7y ago
      Excellent thought exercise, thank you for your insight.
    - crazygringo 7y ago
      That is an absolutely fascinating analysis that never would have occurred to me. That makes perfect sense. Thanks so much for explaining!
- masonic 7y ago
  FedEx likewise "lost" the StubHub contract to UPS, but they didn't lose much of anything. They've mostly eliminated physical shipments anyway.
Rebelgecko 7y ago
I don't know about intent, bit in terms of scale IIRC Amazon Logistics is already bigger than FedEx and creeping up on UPS
skylanh 7y ago
They've commited to ordering 100k electric vans from Rivian: "Amazon CEO Jeff Bezos said the company has placed an order for 100,000 electric delivery vans from Michigan-based startup Rivian. The announcement came during an event on Thursday in Washington, DC where Bezos unveiled Amazon’s sweeping plan to tackle climate change." https://www.theverge.com/2019/9/19/20873947/amazon-electric-delivery-van-rivian-jeff-bezos-order https://www.theverge.com/2019/9/19/20873947/amazon-electric-... This was part of their investment into Rivian: "In February 2019, Amazon announced it would be leading an investment round of $700 million into Rivian." https://en.wikipedia.org/wiki/Rivian https://en.wikipedia.org/wiki/Rivian

LyndsySimon 7y ago

I have good contacts within FedEx, and as I understand it the general consensus there is that while losing the Amazon contract hurt, UPS is doing it so cheaply there's no way they're even close to breaking even on it. What's more, it's a substantial part of their network volume - so when Amazon pulls their business to go it alone, UPS is going to end up cash poor and having to deal with aging infrastructure and inflated costs from overcapacity.

justicezyx 7y ago
The sentences appear confusing. > UPS is doing it so cheaply there's no way they're even close to breaking even on it. You are saying "Amazon" has no way to be even close to breaking even? > What's more, it's a substantial part of their network volume Are you referring "it" is a substantial part of "Amazon"'s network volume?
- KaoruAoiShiho 7y ago
  The sentence is not unclear, it refers to UPS and not Amazon.
crazygringo 7y ago
> UPS is doing it so cheaply there's no way they're even close to breaking even on it That doesn't make sense to me... why would UPS sign a contract with Amazon that it wouldn't make money on? I can see accepting a relatively low profit, but not negative. Even as some kind of strategic defensive move. There's no winning scenario for them to lose money on delivering packages for Amazon.
- monocasa 7y ago
  They're saying that Amazon isn't close to breaking even on their delivery service because UPS was doing it so cheaply.
- LyndsySimon 7y ago
  FedEx and UPS live and die by volume. The more packages they move in total, the cheaper it is to move each individual package. They can then make their profit in sales to companies and individuals with far less volume and pricing leverage than Amazon. For the sake of argument, let’s say that Amazon makes up 50% of UPS’s business, and those packages are shipped by UPS at a 10% loss. If the other 50% of their business averages a 20% profit, then they’re averaging a 10% profit across the board. Without the Amazon packages, let’s say UPS can cut their operating costs by 25%. Now they’re shipping 50% as many packages, though, so the per-package operating cost has increased by about ~33%. Those customers that were generating 20% profit when the network was larger are now a losing proposition. UPS then faces the choice of downsizing their operation or raising prices. Both of those options are about equally bad when you consider that their competitors are not impacted by the loss of Amazon’s business (well, to be totally correct, their competitors have already absorbed the disruption to their operations when Amazon pulled their business to move it to UPS in the first place). To be clear, I’m not saying the above numbers are correct - or even close to being representative. I’m merely illustrating why it makes sense for transportation companies to take large-volume customers even at a loss.
  - teejmya 7y ago
    Excellent thought exercise, thank you for your insight.
  - crazygringo 7y ago
    That is an absolutely fascinating analysis that never would have occurred to me. That makes perfect sense. Thanks so much for explaining!
masonic 7y ago
FedEx likewise "lost" the StubHub contract to UPS, but they didn't lose much of anything. They've mostly eliminated physical shipments anyway.

Rebelgecko 7y ago

I don't know about intent, bit in terms of scale IIRC Amazon Logistics is already bigger than FedEx and creeping up on UPS

skylanh 7y ago

They've commited to ordering 100k electric vans from Rivian: "Amazon CEO Jeff Bezos said the company has placed an order for 100,000 electric delivery vans from Michigan-based startup Rivian. The announcement came during an event on Thursday in Washington, DC where Bezos unveiled Amazon’s sweeping plan to tackle climate change." https://www.theverge.com/2019/9/19/20873947/amazon-electric-delivery-van-rivian-jeff-bezos-order https://www.theverge.com/2019/9/19/20873947/amazon-electric-... This was part of their investment into Rivian: "In February 2019, Amazon announced it would be leading an investment round of $700 million into Rivian." https://en.wikipedia.org/wiki/Rivian https://en.wikipedia.org/wiki/Rivian