A small company, thrilled to get its products listed on Amazon, might face an unpleasant and unexpected surprise following its first sale: surcharges imposed by the big shipping companies to get the purchases to consumers in their homes. But the giant retailer may be coming to the rescue, by establishing its own delivery service to pick up products from the manufacturers’ production facilities and ensure their timely delivery to end consumers.
Both FedEx and UPS add surcharges, based on various factors that affect their operating costs. A residential surcharge reflects the added effort they need to devote to getting packages to individual homes, rather than delivering a pallet of items to a business or office building. Fuel surcharges come into effect when gas prices rise. And both companies have charged extra for holiday deliveries, noting the greatly increased volume of packages that they must handle in that time period.
For businesses seeking to ship to Amazon’s customers—many of which are relatively small and not particularly wealthy—the varying shipping charges can be extremely burdensome. They also make it difficult to forecast costs and revenues accurately. In response, Amazon has sought to establish a delivery service that uses standard rates for all deliveries. From the start, Amazon has delivered mainly to residential addresses, so it already accounts for those costs, without needing to impose any surcharge. By leasing dedicated airplanes and trucks, as well as collaborating with small, local delivery firms for last-mile operations, Amazon is able to offer shipping rates that average about 10 percent less than those charged by UPS and FedEx.
The expanded operations also benefit Amazon. It would prefer to reduce its heavy dependence on the U.S. Postal Service, especially in light of the rising postal rates and the recent political trends that threaten the agreement it has in place with the federal agency. It also does not want to move that dependence to UPS or FedEx, especially if it can provide the service better and more efficiently—and in turn achieve yet another source of revenue for itself.

Discussion Questions:

1. Why would shippers use Amazon Shipping rather than FedEx or UPS?

Source: Paul Ziobro, The Wall Street Journal, January 23, 2019