Winter is coming, logistics world.
Last week brought the news that Amazon.com Inc. had ordered 20,000 delivery vans from Mercedes-Benz. CNN reports that this deal is a big leap from the Seattle-based e-commerce company’s first order of 5,000 vans. Amazon will lease these to third-party partners, who will operate them for last-mile delivery — basically, getting packages from a shipping hub to your house.
This is yet another step in Amazon’s plans to build its own delivery service, and it’s worth watching to see how it will affect United Parcel Service Inc. Amazon also is allowing allow people to use their personal vehicles for delivery in some cities.
Around this time last year, I wrote about how Amazon’s plan for a shipping hub in Cincinnati could affect UPS operations in Louisville. UPS’s largest air sorting hub, Worldport, as well as significant ground and Supply Chain Solutions are in Louisville.
Amazon, for its part, operates large distribution centers in Jeffersonville and Shepherdsville.
Typically, each of these companies does a lot of hiring to staff these operations during the holiday season — hence my “Game of Thrones” reference above.
The news about Amazon’s delivery van purchase got me thinking about how important that company is to UPS.
Being diversified is one of UPS’s strengths. It said in its annual report that no single customer accounts for more than 10 percent of its consolidated revenue. But in the “risk factors” section of its annual report, it acknowledges that “changes in our relationships with our significant customers, including the loss or reduction in business from one or more of them, could have an adverse impact on us.”
The company doesn’t name Amazon specifically. But it says some of its large customers might account for a relatively significant portion of revenue growth and — in talking about risk to its own business — even speculates that these customers could take their volume elsewhere, demand lower prices or develop their own shipping and distribution capabilities.
“If these factors drove some of our large customers to cancel all or a portion of their business relationships with us, it could materially impact the growth in our business and the ability to meet our current and long-term financial forecasts,” the report says.
It’s important to note that this risk factor is one of several that UPS list in its annual report. And risk factors like this are commonly listed by public companies in disclosure documents.
Also, 20,000 shipping vans is modest, as Market Realist points out. It notes that UPS has 119,000 vehicles and FedEx has 160,000 vehicles that do last-mile delivery.
Still, the report says, “although Amazon says its new delivery program isn’t about replacing UPS and FedEx, the company may end up relying less on those logistics companies.”