How Amazon is shipping for third parties to compete with FedEx and

Amazon is on a spending spree to grow its shipping business and isn’t content with only delivering products purchased on its own site. The company is now moving cargo for outside customers in its latest move to compete directly with FedEx and UPS.

“They want to be a new kind of U.S. Postal Service where everything can get everywhere, but also quickly,” said e-commerce consultant Chris McCabe, who was a seller performance investigator at Amazon from 2006 to 2012.

Amazon said in its first-quarter earnings report that capital expenditures were up a whopping 80% from a year earlier, helping it increase capacity of its in-house logistics network by 50% year over year. According to SJ Consulting Group, Amazon is now shipping 72% of its own packages, up from 46.6% in 2019. 

In 2014, Amazon started building its global transportation network from scratch. Seven years and 10 billion deliveries later, Amazon now has 400,000 drivers worldwide, 40,000 semi-trucks, 30,000 vans, and a fleet of more than 70 planes. Perhaps the biggest investment so far is the new $1.5 billion Amazon Air hub that opened in Kentucky in August.

For outside merchants, Amazon already offers a variety of shipping services. In the U.K., Amazon has a “logistics as a service” program — a business model that researchers from DePaul University predict Amazon will launch in the U.S. in the next 18 months, while Morgan Stanley predicted it could happen this year. According to one investigation, Amazon has already begun quietly transporting cargo on its planes for the U.S. Postal Service, although analysts say it won’t try to replicate the vast array of services offered by FedEx and UPS. 

“They’re not going to be just this blanket carrier that will deliver whatever package that you want them to, to whatever address,” said Dan Romanoff, who researches Amazon for Morningstar. “Amazon is sort of cherry-picking their routes. They want to run and sort the parcel sizes they want to deliver.”

Amazon’s algorithms also allow sellers to take advantage of LTL (less than load) truck space at discounted rates, while allowing Amazon to make money on otherwise wasted space. Amazon seller Keith Gregory just started using the program, called Amazon Freight. Gregory’s vitamin and supplement company, Highland Laboratories, is based in a 3,500-person town in Oregon and does about $4 million of annual sales on Amazon. Gregory says Amazon charges up to $1,700 less than FedEx or UPS Freight for some of his routes from Oregon to Southern California.

“For us being in a rural community, the fact that somebody is willing to cater to us, and they’re willing to accommodate pick-up schedules and not just say, ‘Okay, we’ll be there every day at 3:30,’ is also very attractive, too. So not just not just the rate piece, but the fact that they’re also willing to use their vast fleet of vehicles to help us with our logistics as well, which UPS and FedEx are not cooperative in that sense,” Gregory said.

Amazon also offers its…