Last week news emerged that Amazon Inc. ordered 20,000 delivery vans from Mercedes-Benz, which sparked the potential for UPS to encounter a new competitor. CNN reported this deal is a huge leap for the Seattle-based e-commerce company since its first order of 5,000 vans. Amazon intends to lease these delivery vans to third-party partners, who will operate them as last-mile delivery by receiving packages from a shipping hub and then delivering straight to your home.
Amazon’s new purchase is a step towards the company’s plans of creating its own delivery service and could emerge competition for the United Parcel Service Inc. Aside from the vans, Amazon also allows people to use their personal vehicles for delivery in several cities.
CNBC previously wrote about Amazon’s plans for a shipping hub in Cincinnati and noted the possible affects UPS may encounter during operations in Louisville. UPS’ largest air sorting hub, Worldport, is located in Louisville, as well and significant ground and Supple Chain Solutions. Amazon operates its large distribution centers in Jeffersonville and Shepherdsville.
The news regarding Amazon’s delivery van purchase notes how important the company is to UPS and brings many risks for UPS itself. UPS’ major strength is being widely diversified. In its annual report the company said that no single customer accounts for more than 10 percent of its consolidated revenue. Although, in the “risk factors” section of the 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.”
Though the company doesn’t specifically name Amazon, it says some of its big customers might account for a significant portion of revenue growth. When talking about risks within its own business, UPS notes that these customers could begin taking their business elsewhere which will demand lower prices or develop their own shipping and distribution capabilities.
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.”
“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.
UPS is not the only company to list risk factors similar to this in annual reports. In fact, similar risk factors are commonly listed by public companies in disclosure documents, according to CNBC. Market Realist also pointed out that 20,000 shipping vans is very small it comparison to other companies. UPS contains 119,000 vehicles total 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.”
