Is Amazon Hatching a Plan to One Up Its Partners? (AMZN)

The gloves are off. Rumors have been swirling that Amazon.com, Inc. (NASDAQ:AMZN) has been developing its own logistics network but the e-commerce titan has neither confirmed nor denied the existence of such project. Now there are clues that indeed, the online retailer is working to replace its delivery partners with its own delivery service.

Initially, Amazon made it seem like the secret project was not meant to replace its partners but instead, “complement” existing delivery associates. According to Amazon executives, the service is only meant to boost delivery during peak season.

However, this clearly is not the case at all, at least according to users who received their orders through Amazon’s own courier service. According to a report by the Wall Street Journal, more than two dozens of current and former Amazon managers and business partners say that Amazon is gearing up to compete directly with FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS).

The report noted that Amazon plans to develop a full-scale logistics and shipping network, one that’s not limited to delivering only the company’s own products but also ship merchandise from other retailers. In short, the online retailer isn’t just helping out its partners, it plans to replace them and become their rival.

The ultimate goal here – as some sources reveal – is to free the e-commerce titan from depending on its partners for deliveries as well as improving the traditional relationships between sellers and senders.

Amazon’s newest venture is downright ambitious and not a lot of analysts believe the company can pull it off. For one thing, logistics experts say building a domestic delivery network to rival major delivery services in the US is not only expensive, it’s also extremely difficult. This brings to mind Deutsche Post AG’s failed DHL Express in 2000, which costed the company tens of millions of dollars.

According to freight executives, FedEx spends more than $5 billion per year on service upgrades and expansion alone while UPS pours an excess of $2.5 billion. Both companies have developed their own logistics networks, which are linked worldwide, delivering millions of packages every single day.

For their part, FedEx execs are unfazed by Amazon’s latest venture, saying that the level of investment the company has provided for its facilities, sorting, aircraft, vehicles, and employees is not easy to replicate, hinting that Amazon is way over its head.

FedEx CFO Alan Graf added that any company that wants to go head to head with the popular delivery services is in for a long, daunting battle with the Memphis-based delivery conglomerate that’s been dominating the industry for over 40 years.

Meanwhile, Atlanta-based UPS played down Amazon’s attempts at being a full blown competitor in a conference call with analysts. According to Chief Commercial Officer Alan Gershenhorn, UPS’s network would be “very difficult to match.”

In a statement, Amazon reiterated its stance that the project was only meant to augment the service of its partners, not replace them altogether:

“We are very happy to have the delivery capacity our carrier partners can provide. They provide a high quality service, and our own delivery efforts are needed to supplement that capacity rather than replace it.”

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