Amazon is said to test delivery service to rival FedEx, UPS

Amazon will oversee pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers' homes.
Amazon will oversee pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers' homes.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Amazon.com is experimenting with a new delivery service intended to make more products available for free two-day delivery and relieve overcrowding in its warehouses, according to two people familiar with the plan, which will push the online retailer deeper into functions handled by longtime partners United Parcel Service and FedEx.

The service began two years ago in India, and Amazon has been slowly marketing it to US merchants in preparation for a national expansion, said the people, who asked not to be identified because the US pilot project is confidential. Amazon is calling the project Seller Flex, one person said. The service began on a trial basis this year in West Coast states with a broader rollout planned in 2018, the people said. Amazon declined to comment.

Amazon will oversee pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers' homes, the people said - work that is now often handled by UPS and FedEx. Amazon could still use these couriers for delivery, but the company will decide how a package is sent instead of leaving it up to the seller.

Handling more deliveries itself would give Amazon greater flexibility and control over the last mile to shoppers' doorsteps, let it save money through volume discounts, and help avoid congestion in its own warehouses by keeping merchandise in the outside sellers' own facilities.

FedEx shares fell 2.4 per cent to US$216 (S$293.8) in early trading Thursday, while UPS dropped 2.2 per cent to US$116.4.

Last year, Amazon introduced Seller Fulfilled Prime, which lets merchants who don't stow items in Amazon warehouses still have their products listed with the Prime badge, meaning they'll be delivered within two days. The merchants had to demonstrate they could meet Amazon's delivery pledge, and many used UPS and FedEx for deliveries.

The new service gives Amazon control over those deliveries instead, even if it continues to use third-party couriers.

Amazon has started looking beyond its own warehouse network to give shoppers quick access to an abundant assortment of goods. Its Fulfillment by Amazon offering already lets merchants ship goods to Amazon warehouses around the US, where they can be stored, packed and shipped to customers. That centralized approach can create logjams, particularly during the busy holiday shopping season.

Seller Flex would also give Seattle-based Amazon more visibility into the warehousing and delivery operations of its merchant partners, potentially helping it make full use of their product inventory, storage space and proximity to customers while still guaranteeing quick delivery.