UPDATE: UPS, FedEx stocks fall as Amazon moves further into delivery space

10/06/17 08:54 AM EDT

By Tomi Kilgore, MarketWatch

Shares of UPS and FedEx head for a third-straight loss following record closes

Shares of United Parcel Service Inc. and FedEx Corp. fell Thursday, but pared earlier losses, after a Bloomberg report that Amazon.com Inc. was testing a new delivery service that could encroach further into the package delivery giants' business-to-consumer markets.

UPS's stock (UPS) was down as much as 2.1% in morning trade, before recovering to trade 0.9% lower in afternoon trade. The decline put the stock on track for a third-straight loss since Monday's record close of $120.79.

FedEx shares (FDX) slipped 0.2%, after being down as much as 1.6% earlier, and were also on course for a third-straight loss from Monday's record high.

Amazon is testing a new delivery service, as it aims to make more products available for free two-day delivery, and to relieve overcrowding in its own warehouses, Bloomberg reported (https://www.bloomberg.com/news/articles/2017-10-05/amazon-is-said-to-test-own-delivery-service-to-rival-fedex-ups), citing two people familiar with the plan. The service began two years ago in India, and is currently being tested in West Coast states, with a broader rollout planned in 2018, the report said.

Amazon's stock (AMZN) rose 1.4% in midday trade.

Don't miss: Amazon's aggressive warehouse and shipping strategy is paying off (http://www.marketwatch.com/story/amazon-has-taken-convenience-to-a-new-level-and-its-hurting-offline-rivals-2017-01-09).

As part of the service, Amazon will oversee the pickup of packages from warehouses of third-party merchants and the delivery of those packages to consumers, the report said. While UPS and FedEx could still be used in the service, Amazon will decide how a package is sent, rather than leaving it up to the seller.

Amazon, which effectively confirmed the program, said its current delivery partners also includes the U.S. Postal Service (USPS).

"We are using the same carrier partners to offer this program that we've used for years, including UPS, USPS and FedEx," Amazon spokesperson Kelly Cheeseman wrote in an email to MarketWatch.

UPS said in its most recent annual report (https://www.sec.gov/Archives/edgar/data/1090727/000109072717000011/ups-12312016x10k.htm) filed with the Securities and Exchange Commission that business-to-consumer shipments represented "more than 48%" of total U.S. domestic package volume. While its revenue exposure to Amazon isn't detailed, the company said "no single customer accounts for 10% or more of our consolidated revenue."

"Amazon is a valued customer," UPS said in statement sent to MarketWatch. "We support all our customers with industry-leading e-commerce solutions and expect to expand these relationships further in the future."

Don't miss: Amazon partners with Atlas Air Worldwide for cargo services (http://www.marketwatch.com/story/amazon-partners-with-atlas-air-worldwide-for-cargo-services-2016-05-05-101032656).

In FedEx's latest annual report (https://www.sec.gov/Archives/edgar/data/1048911/000095012317006152/fdx-10k_20170531.htm), the company said the residential e-commerce market is the fastest-growing, but the revenue is "much smaller" than its business-to-business revenue. Meanwhile, the company specifically named Amazon as a potential competitor in the risk factors.

"We don't comment on speculative news stories but there continues to be reporting related to our networks and the transportation industry that demonstrates a clear misunderstanding of the scale, infrastructure and complexity involved in running a global transportation network," said Patrick Fitzgerald, senior vice president of integrated marketing and communications at FedEx. "FedEx and other transportation providers are innovating as it relates to new services for e-commerce residential deliveries, but that is only one piece of the capabilities that we provide."

UPS's stock has climbed 6.6% over the past three months, while FedEx shares have tacked on 1.2%. In comparison, the Dow Jones Transportation Average has advanced 2.5% over the same time, while the Dow Jones Industrial Average has rallied 6.0%.

Although Amazon's intent may be to reduce delivery mishaps during peak shopping times rather than compete with its delivery partners, the new service could still negatively affect its delivery and retail partners in the medium term.

See also: UPS installs delivery beacons to better rival Amazon (http://www.marketwatch.com/story/ups-installs-delivery-beacons-to-better-rival-amazon-2017-04-17).

Read more: UPS, FedEx could be hit hard by Wal-Mart's click-and-collect discount plan, analyst says (http://www.marketwatch.com/story/ups-fedex-could-be-hit-hard-by-wal-marts-click-and-collect-discount-plan-analyst-says-2017-04-13).

"Having control of the logistics gives Amazon a tighter grip on the consumer experience. Now, they do not need to rely on merchants and on logistics providers to fulfill a consumer promise (no more holiday fiascos!)," wrote Ricardo Rubi, a partner at sales, marketing and pricing consultancy Simon-Kucher, in emailed comments to MarketWatch. "Of course, this would give Amazon a lot more leverage during negotiations with retail partners."

Amazon shares have edged up 0.8% over the past three months, while the SPDR S&P Retail exchange-traded fund (XRT) has gained 3.8%.

-Tomi Kilgore; 415-439-6400; AskNewswires@dowjones.com

 

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10-06-17 0854ET

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