Displaying items by tag: logistics
Amazon’s move towards one-day shipping is likely to be a big win for UPS and FedEx, but not in the way you think. A superficial glance might lead one to assume Amazon is going to increase one-day shipping contracts with the logistics providers, but that is not so. Amazon is building out its own network to do so. So how will it help FedEx and UPS’ beat-up stocks? The answer is that other ecommerce companies will need to increase their shipping speeds in order to better compete with Amazon, and in order to do so, they will be paying for a lot more one-day shipping through UPS and FedEx.
FINSUM: This is quite an interesting angle and one that makes a lot of sense. Walmart, Target, and many other big retailers will need to rely on UPS and FedEx to meet the one-day shipping challenge that will be required to stay competitive with Amazon.
Fedex and Amazon are in the middle of an ugly spot. Anyone paying attention over the last few years will be aware of the “frenemy” relationship between Amazon and logistics providers, as the company offers a lot of business but hammers margins and is stealing away business with its own shipping network. Well, Fedex finally said enough is enough and decided against renewing its ground shipping contract with Amazon. Therein lies opportunity, however, as it should offer UPS a lot more business.
FINSUM: This is a bold move by Fedex. We expect it will hit revenue slightly, but probably not wound profits too badly. It could give UPS and USPS a boost.
It has been several years in the making, but drone delivery appears as though it is about to become a reality. Google has just had its drone delivery project approved by the FAA, the first such approval. The caveat is that the approval is only for an area in rural Virginia. But still, it is a breakthrough for the growing and fiercely competitive drone industry. Amazon and others are vying for FAA approval as companies want to be the go-to provider of nation-wide drone delivery. The division of Alphabet running the drone program is called Wing Aviation.
FINSUM: UPS, FedEx, and USPS drivers should be nervous about this, but it is a major breakthrough that has been a long-time coming.
There has been a lot of speculation lately, including by FINSUM, that Amazon might buy FedEx. FedEx’s share price could be considered cheap, and it would be a bold and strategic move if Amazon is actually committed to building its logistics business. However, Barron’s is today arguing that Amazon will never buy FedEx. The reasons why are two-fold. The first is that the 10.7x p/e ratio is not actually very cheap, and secondly, because Amazon does not really need FedEx’s capabilities, which have less to do with last mile delivery than they do with “upstream sorting”.
FINSUM: The real question here is whether Amazon wants to build up a logistics business in its own right, not just internal capabilities to serve its ecommerce business. If it does, then it is a smart acquisition. However, it would likely face significant anti-trust hurdles.
That is an eye-opening thought, is it not? Some investors and analysts are arguing that in light of FedEx’s stock being so beat up, Amazon should swoop in and buy the company. Amazon has been building its logistics operations for years, but buying FedEx could give it a big boost if it wants to become a shipping giant. One analyst summarizes it this way, “FedEx is inexpensive at 10.6x and 6.5x forward price-to-earnings and enterprise value to earnings before interest, taxes, depreciation and amortization multiples, respectively … Amazon could make an accretive acquisition of the best global network for a fraction of the cost of building it themselves”.
FINSUM: As mind-boggling as Amazon owning FedEx sounds, this idea appears quite logical and plausible.