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S&P Global Ratings: Amazon's potential shipping foray may have long-term impact

Amazon.com Inc.'s reported foray into delivery and logistics will probably not hit UPS Inc. and FedEx Corp. immediately, but the move might have longer-term impact for the industry, analysts at S&P Global Ratings said in a presentation on Feb. 22.

Amazon will debut a service in Los Angeles called "Shipping with Amazon," The Wall Street Journal reported on Feb. 9. For now, the pilot program is small, although it could signal a larger investment into delivery and logistics, the analysts said in a note released Feb. 22. Amazon could not be reached for comment on its plans for the shipping industry.

"We do not see this limited test as a near-term threat to either company," the analysts said in the note. "However, we believe that the long-term implications are less clear and could evolve into a more serious challenge if it undermines market pricing or materially changes the bargaining position of Amazon relative to the established package carriers."

There are a few factors that should temper Amazon's entrance into the transportation space, said Philip Baggaley, managing director and corporate transportation sector lead for S&P Global Ratings. Transportation involves heavy investments into equipment, facilities and information technology, and Amazon is unlikely to build the kind of scale would lure business away from rivals FedEx and UPS in the near-term. On top of that, retail rivals will probably avoid giving business to the e-commerce giant, Baggaley said.

"It will have relatively little to offer outside parties anytime in the foreseeable future," he said during the presentation.

But looking further ahead, the impact on express package providers could be more significant. Amazon could offer its excess space on its own transportation assets, charging lower rates and reducing its net spending on deliveries. With its own transportation business, Amazon would also be able to ship a larger portion of its own orders, putting the e-commerce giant in a better position to bargain with UPS and FedEx.

"Potentially, Amazon could even offer to hold back on challenging its transportation providers in their core business as a quid pro quo for more favorable contract terms," the analysts said in their note.

Amazon has compelling reasons and the capital to go further into the express package industry. Not only does Amazon have "substantial capacity," the e-commerce giant also has rich data sets that could be a natural asset in the logistics industry, Robert Schulz, managing director and corporate retail sector lead for S&P Global Ratings said in the presentation.

"It makes sense for them to think about the delivery model," he said.

Baggaley said a more robust delivery system could also be an advantage for Amazon during high-volume shopping periods.

"We believe that one of the reasons why Amazon chose to invest its own assets is that package companies were unwilling to meet the retailer's peak holiday needs on their own," he said.

S&P Global Market Intelligence and S&P Global Ratings are both owned by S&P Global Inc.