Amazon’s delivery system
In the last few years, Amazon (AMZN) has invested billions of dollars to build its delivery system. These investments have sometimes raised questions whether Amazon was out to wrest market share from United Parcel Service (UPS) and FedEx (FDX) in the logistics industry.
Amazon’s delivery system investments have included building warehouses, acquiring delivery trucks and cargo planes, and setting up delivery centers at strategic locations such as airports. For example, Amazon is spending about $1.5 billion to build a large air cargo hub at Cincinnati/Northern Kentucky International Airport.
Fulfillment infrastructure buildout
These logistics investments have given rise to programs such as Fulfillment by Amazon (or FBA), which allows Amazon to pack and ship orders on behalf of third-party sellers on its marketplace.
Sellers pay to use the FBA program. Amazon has reported rapid adoption of the program among its vendor customers, saying that FBA usage during the most recent holiday season increased 70% and that more than 2.0 billion items were delivered through the service. FBA is helping Amazon improve loyalty among its third-party sellers, bolstering its positions against competitors such as eBay (EBAY).
Massive revenue pool
However, there is much larger revenue potential in Amazon’s logistics venture. In a note to investors cited by Newsweek, Baird Equity Research estimated there is an ~$400 billion market opportunity for Amazon’s Logistics segment, which includes delivery and freight forwarding.