Shipping with Amazon
Amazon is an international e-commerce organization that has long been dealing with a wide range of consumer goods and services. The company initially began its operations by selling books and later extended to selling other consumer products. It is one of the most profitable companies in the globe as it has been utilizing key initiatives towards meeting the different needs of its customers who are the main contributing factor to its success and the gained profits to the organization. Even though Amazon makes significant profits, it usually experiences huge losses from time to time, which are associated with its establishment, improper implementations of strategies, product promotions, and costs emerging from the shipment of goods (logistics).
The huge loses that this company has been incurring forced it to find means on how to gain full control of its supply chain. Once the company reaches the position of managing its supply chain, it will be set in competition with the other organizations involved in the shipment of parcels, which include the Federal Express Corporation (FedEx) and United Parcel Service (UPS). In the process of ensuring full control over the supply chain, Amazon has expanded its ocean cargo forwarding, construct an air shipment center costing approximately 1.5 billion U.S dollars, developed a truck fleet, and established a parcel delivery network. The developments seem not to spell doom for the other carriers, not even in the short term. The organization gave third-party vendors fulfillment services, FBA (Fulfillment By Amazon), providing warehousing, collecting, packing, delivery, transportation, customer service, and return of sold goods via the firm’s website. Don't use plagiarised sources.Get your custom essay just from $11/page
Amazon’s current project, “Shipping With Amazon (SWA),” was an original service for businesses to offer delivery services to clients irrespective of whether they sell the items through the Amazon website. Amazon will then be competing with other traditional shipping carriers, which include Federal Express Corporation and Unitel Parcel Services. Tension seems to have increased, particularly between FedEx and Amazon, as FedEx revealed their withdrawal from its contract with Amazon. FedEx handled shipments of products by air while UPS handled shipments of products prime shipments within two days. The removal of FedEx’s contract seemed to have no significant losses neither to FedEx nor Amazon since the online retailer accounted for 1.3 percent of the total revenue of the carrier while the stock of FedEx went down with less than 1 percent. It then shows that Amazon would be a severe competitor in the area of product shipment. The United Parcel Service has received a boost from the shift of the online retailer to one-day shipping for its paying Prime customers. However, UPS seems to make progress in its activities. For instance, the carrier has started its e-fulfillment service for small businesses. All carrier companies such as FedEx are concerned much about maintaining their competition and safeguarding their bottom line.
The presence of Amazon in the shipping industry means expecting a significant change and whose impact is entirely based on the state of the businesses and the commodities shipped. The withdrawal of the FedEx contract is an indicator of a new race in the shipping sphere as Amazon slowly enters further in a field that has been dominated by traditional carriers. As time elapses, one will able to tell if the existing carriers will rise past the retailer’s challenge, or start to weaken. In order for the traditional carriers to remain in the competition, they have to look for strategies to maximize revenue and at the same time, minimize costs. In a competitive market, companies target to maximize sales in order to maximize revenue. The volume of sales determines leadership in the competitive market, as stated in Baumol’s theory of maximization of sales revenue.
The United States Postal service seemed to bear a significant percentage of the sales of Amazon. It handled approximately 61% of the parcel shipments, United Parcel Service holds about 20%, FedEx handles 8%, and the regional carriers handle 11% of the shipments. When the rates of delivery go up comprehensively to Amazon, the cost tends to be not insignificant. Therefore the company’s intent to take control of the delivery service would aid in cutting costs.
As Amazon has been the hub around which the talk of e-commerce has been directed, it requires minimizing the impact imposed by the carriers to its businesses. Through the expansion of its air fleet, the company will be enabled to contain increasing costs and relieve the other carrier organizations the capacity constraints they feel as Amazon expands. The expansion of the air fleet also puts Amazon in a position of being a rival to the other carriers through the development of its carrier service. However, Amazon needs the help of the traditional carriers currently to make its commitment to its prime customers for free. It has been noted that the United States express air delivery accounts for approximately 16% and 18% of revenues at UPS and FedEx, respectively. Therefore, Amazon tapping last-mile deliveries for it and taking air shipments in the U.S would broadly impact UPS and FedEx carrier organizations.
The two dominant carriers would not stop their delivery services of parcels. Still, the fact is that with the full operations of the “shipping with Amazon” services, the traditional carriers will be overshadowed as the competitor significant and well known globally. Amazon Air would large and focused rival than the present airlines competing in the industry. Amazon entry into the shipping industry is an advantage to buyers as it would lessen the pressures of the carriers. Still, on the other side, the potential of growing their services and revenue for the traditional carriers will be limited to a low pace.
Given the shares of FedEx down 36% and for United Parcel Service 26% in the previous year, it looks as though the market already priced much of the risk into stock. Through their valuations, people can assume that the rival is pulling its businesses away from them, which is not rational. When Amazon launches its delivery services, its drivers will pick up parcels from third-party sellers selling products to Amazon and delivers them to the buyers. It will then cut out the need for delivery services from the traditional carriers who are in contract with the company i.e., FedEx and UPS. It can be assumed that Amazon intends to do away with the two carrier companies, an assumption that is hard to prove, but the reality is that Amazon is profoundly getting involved in the shipment of parcels.
The entrance of Amazon in the market of delivery service would pose high risks to the existing carrier companies. Firstly, the number of companies that would be involved in shipping parcels will increase. It, therefore, means that the products that have been requested by customers will be delivered within the stipulated time, but the volume of delivery definitely will be expected to go down. Secondly, Amazon is a big company that has established itself worldwide. It is a well-known company that other firms request to sell their products through their website. The reason behind this idea is that Amazon operates several cargo planes and several trucks to deliver parcels around the country. In addition to this, it organizes to ship cargo from Chinese suppliers through the ocean. It then implies that this company will not lack parcels to deliver each day, whether from the company or even if from third-party sellers. The revenues of the traditional carrier organizations are expected to drop, especially for FedEx and UPS. Amazon starting its delivery services does not mean that it is independent. The reality is that it depends much on other outside firms to deliver parcels currently. Just the CEO Bezos confirmed that the giant still depends on its traditional carriers, especially UPS and Postal Service.
On the other hand, as the demand for the products increases, the delivery companies will be having the task of ensuring that the products reach to the respective customers within the estimated time. With the increased demand for the products, the more the sales, and therefore the more the packages will be delivered, thus raising the higher the revenue goes up. Each company in the shipping industry aims at maximizing revenue through ensuring that the sellers have vast volumes of sales. Therefore, it would mean that the company will have maximized its profits, which are the equilibrium point of the firm. In the short run, the competitive equilibrium for the firms in the shipping industry, the total amount of supplies is equal to the total amount demanded by the final consumers. The competing firms have different cost functions; therefore, the aggregate supply function would look as shown.
At first, Amazon may not gain the expected amounts of revenue due to the initial costs of putting up their project in full operation. It also means that the company has to employ additional staff and subordinate staff to ensure that delivery services are enjoyed by their customers conveniently. These are the short-run costs of the firm, also known as the variable costs. Since Amazon is a big company that makes enormous profits, it is likely to manage these costs over time, and therefore Amazon can succeed in attaining their desired long-run costs and set goals. It then implies that the other organizations in this industry will have a big task of competing with this giant in e-commerce.
Amazon’s delivery services have provided the organization a means of keeping with its expansion in the business sector, which is also good at times, such as holidays and when the carrier firms they are in the contract are flooded with products to deliver. Through operating its delivery services, Amazon may also offer a way of negotiating reasonable prices with other shipping firms and therefore maximize revenue through the large volumes of sales from third-party sellers.