Economy

Amazon trialing new delivery system that makes FedEx and UPS obsolete

Amazon trialing new delivery system that makes FedEx and UPS obsolete

Using a third-party Amazon merchant can mean waiting longer for your product to arrive, though, but Amazon's new delivery service may fix that. It seems that Amazon has found another industry to terrorize, and even though the drop seen at FedEx and UPS might appear to be marginal, it could hurt if Amazon can get its delivery service off the ground.

Amazon is calling the project Seller Flex, according to Bloomberg, which cited a person familiar with the test. Earlier in the year, Amazon has already launched a trial for the service in West Coast states and had intentions to go nationwide in the coming years. Amazon had started its own delivery service two years ago in India.

Amazon's decision to act in this capacity could also help it continue to expand the reach and breadth of Prime without it having to worry about bringing more third-party merchant goods into its own fulfillment centers, while still giving it more centralized logistical control.

Amazon has invested heavily in its logistics network over the years and taken on losses to build it out.

Amazon's losses from shipping were $7.2 billion in 2016. This third-party delivery service is called Amazon Seller Flex.

Morningstar analyst Keith Schoonmaker downplayed Amazon's potential threat, saying the retailer constitutes a mid-single-digit proportion of earnings at UPS and low-single-digit at FedEx. And with its latest actions, the company is getting closer to becoming a real challenger in two industries: delivery and apparel. The service will give Amazon more control over its own business and as well providing top customer satisfaction with last minute deliveries.

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"At this time, it would not be cost effective for Amazon to completely replace UPS and FedEx", according to a recent note Cowen's John Blackledge.

The online giant is experimenting with a program that rivals services handled by longtime partners UPS and FedEx.

Third-party merchants have paid fees to store products at Amazon's warehouses.