Amazon begins testing in-house delivery service
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Amazon begins testing in-house delivery service

Online retail giant Amazon is testing its own delivery service, in a move that will no doubt spook longtime partners FedEx and UPS. The company hopes to make more of its products available for free two-day delivery, relieving overcrowding in its warehouses and keeping it one step ahead of the competition. According to people familiar with the plan – who have asked not to be named – Amazon has slowly been marketing this service to American merchants in preparation for a national expansion. The service began two years earlier in India, meaning that Amazon already has significant experience running similar operations.

Amazon’s share price is up by 30% so far this year

 amazon graph 061017

Source: Yahoo Finance

The confidential U.S. pilot program is known, in-house, as “project Seller Flex”. It ill see Amazon’s own delivery service pick up goods from third-party sellers active on its platform and deliver them straight to the customer. At the moment, this is work undertaken by services like FedEx and UPS – and Amazon may still use these services in the future. However, where the company has previously allowed sellers to dictate delivery options, it will now set them itself. Ultimately, this should ensure a more regulated – and better – service for buyers.

There are some obvious benefits to this approach for Amazon: it gives the company more flexibility and control over the last stage of the transaction, letting it save money through volume discounts and the freeing up of warehouse space. The impact on FedEx and UPS is less beneficial: shares of both companies were down by more than 2% following the news.

Disclosure
Dominion holds Amazon in its Global Trends Ecommerce Fund.


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