FedEx and UPS Shares Fall Over Worries of Amazon Delivery Service

Shares of delivery companies such as FedEx and UPS are falling as investors become worried that the delivery service of Amazon.com is set to disrupt the entire industry.

Shares of FedEx and UPS feel 2.2% and 3.3% respectively in premarket trading in New York on Thursday. A report from Bloomberg News said that Amazon is testing a new delivery program known as “Seller Flex” in which the company picks up third-party seller packages being sold on its online platform and delivers them to the consumer.

The disruption that Amazon might cause has been downplayed by UPS in the past.

CEO David Abney at UPS said during a December 2016 interview that the company did not believe Amazon’s strategy was to do the delivery and it believes that because of the massive infrastructure UPS has in place and the investment it is making in technology giving them a strong mutual relationship with the online e-commerce giant.

However, the threat of Amazon turning the industry upside down had popped up periodically during conference calls held with analysts the past year for both FedEx and UPS.

On one such earnings call held by FedEx last March, CEO Fred Smith was asked about Amazon entering deeper into the delivery industry and he told analysts that his company might have less exposure to that risk than its biggest rival UPS.

He told analysts that the overwhelming majority of business at FedEx is from business to business as more than 85% of its business does not have anything to do with online sales or e-commerce.

Smith added that Amazon is a great company and they have revolutionized e-commerce, but the system at FedEx that is made up of thousands of different facilities and the ability of picking up, transporting and delivering in one or two days for any two addresses located in the U.S. has taken decades to establish, and our thought is the risk is not great that it will be disrupted.

The thought Smith has that there is less exposure at FedEx that at UPS is apparent when looking at the past five years, as FedEx has strong returns and UPS has trailed in the overall market.

Shares at Amazon have outperformed the delivery companies thus far in 2017, as the giant of e-commerce is up by 29% through the first nine months, while UPS is up 4% and FedEx up 19%.

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