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FedEx Said Amazon Needs Tens of Billions of Dollars and Years to Compete With The Company's Network

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(Credit: Matt Cardy/Getty Images) SWANSEA, WALES - NOVEMBER 26: Lorries deliver and collect loads at the Amazon Swansea fulfilment centre as it prepares for what is expected to be their busiest Christmas on record on November 26, 2010 in Swansea, Wales. The 800,000 sq ft fulfilment centre, the largest of Amazon's six in the UK and one of the biggest in the world, is gearing up for 'Cyber Monday', which this year is Monday December 6, and is predicted to be the busiest online shopping day of the year. In 2009, Cyber Monday saw 2 million orders received at a rate of 23 orders per second.
Amazon Warehouse Employees Prepare For Their Busiest Time Of Year
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8:35 AM 2016

Amazon has been dedicating its resources to get into the logistics sector and create a global delivery and logistics business, competing with existing established companies including FedEx. However, FedEx has downplayed any threat posed by Amazon as the carrier company believes it would costs Amazon too much time and money to replicate its current extensive network.

FedEx Executive VP Mike Glenn told analysts that the company doesn't feel threatened by Amazon's plan with logistics. Glenn shared his views, as reported by Yahoo News, "While recent stories and reports of a new entity competing with the three major carriers in the United States grab headlines, the reality is it would be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing network like FedEx."

Amazon is quite serious with its efforts in logistics. The company showed its move with its deal with the Air Transport Services Group to lease 20 Boeing 767s that would fly to handle shipments. The deal, made last week, enclosed that the planes would fly between a hub in Ohio and airports close to Amazon fulfillment centers across the country. Previously, Amazon operates drones to handle products delivery. 

In the efforts to reduce its dependence on other carriers, Amazon has planned its own logistical infrastructure, including last-mile delivery. The company achieves that both through individuals operating under its Uber-like Flex program and contractor businesses. According to The Motley Fool, Amazon's shipping costs represented 12.5 percent of its Q4 sales, totaling about $4.2 billion.

Analysts believed that Amazon is tightening up its supply chain to reduce costs as well as ensuring reliable delivery. However, as analysts with RBC Capital Markets told Seattle Times, a full-blown operation would likely take Amazon years to complete, thus giving time for rivals, both FedEx and UPS, time to react. RBC also stated that no single customer represents more than 3 percent of FedEx's revenue. The estimation revealed that Amazon accounts for about $1.5 billion of FedEx's revenue in the U.S. and $3 billion of UPS' U.S. revenue.

Even so, Mike Glenn reassured that FedEx's partnership with Amazon remains strong. "Amazon is a valuable customer that we've worked with for many years, we expect to work with them for many years to come," Glenn noted.

FedEx responded to Amazon's plan to launch a business in logistics partly as a way to tightening up its supply chain and reduce costs. FedEx believes that it would take any new player years and at least tens of billions to replicate the company's existing network. 

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