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Amazon’s Quest to Compete with Delivery Services

As delivery costs have continued to skyrocket, some companies such as Amazon, have been developing internal delivery options to compete with major delivery carries such as UPS and FedEx.1 In particular, “Amazon’s shipping costs have accelerated in recent years as sales on its site surge.”2 The primary cause of the increase in costs is “driven mainly by customer’s appetite for faster deliveries.”3 As a result, Amazon is under “tremendous pressure” to cut delivery costs and to speed up the delivery process to satisfy customers.4 Publicly though, Amazon executives have stated that the delivery business is just a way to manage busy seasons, such as Christmas.5 However, “interviews with nearly two dozen current and former Amazon managers and business partners indicate that the retailer has grander ambitions than it has publicly acknowledged.6 According to these sources it appears that Amazon intends to deliver using its own resources.7 This could result in savings of up to $1.1 billion annually.8 Amazon intends to provide a more customer friendly delivery process, such as more delivery times that include hours that other carries do not offer.9

As Amazon prepares its competition against FedEx and UPS, what is the immediate outlook of their quest? In this blog post I will examine the current and future state of affairs for Amazon’s delivery plans and some of the impacts on the delivery business industry. I will highlight Amazon’s recent use of drone shipping.

To help develop their delivery business, Amazon has sought to bolster management by naming Uber Technologies Inc. executive Tim Collins as a vice president of global logistics.10 Amazon has also “recruited dozens of UPS and FedEx executives and hundreds of other UPS workers in recent years.”11 Amazon is also “buying long-haul truck trailers to ship by ground, building delivery drones to conquer the sky and looking to manage shipping by sea.”((Id.))

Recently, Amazon has turned its focus to air delivery via drones.12 Earlier this month, Amazon made its first commercial delivery using a drone.13 According to this initiative, known as Prime Air, “is designed to safely get packages to customers in 30 minutes or less using unmanned aerial systems.” Amazon: PrimeAir, (last visited Feb. 3, 2017).)) Of course, challenges still exist through compliance with rules set by the Federal Aviation Administration (FAA) and other international civil aviation authorities.14 For example, drones must fly under 400 feet.15. Safety also highlights and important issue and drones will be built with “sophisticated ‘sense and avoid’ technology.16 The first commercial delivery was completed in the UK and Amazon intends to “gather data to continue improving the safety and reliability” of the drone operation.17

Amazon also faces safety concerns in the form of third parties hacking the drones during delivery.18 Amazon has indicated that these drones “can be targets of a ‘malicious person’ using a wireless signal jammer and it indicates there could be ‘a variety of adverse effects including the UAV crashing.’”19 The company has received a patent for anti-hacking technology that it hopes will prevent such attacks.20

Still, in order to realize substantial benefits from drone delivery of goods sold over the internet, both the technology the regulations must “reach a level of maturity that would allow for flights beyond visual line of sight (BVLOS), therefore increasing the number of potential customers from a few thousand in the vicinity of existing distribution centers to millions in farther away areas.”21 Flights that will go beyond visual line of sight will not be feasible unless proper detection technology is developed,22 however the FAA is working with Amazon and other commercial drone operators to develop a potential regulatory waiver one the technology has been tested and approved.23

Other implications of drone usage and overall delivery business development could come through damages to relationships with UPS and FedEx as Amazon adds nearly $1 billion to UPS’s revenue.24 Amazon also allows UPS and FedEx to “be more cost effective by allowing drivers to drop off more packages in the same areas.”25 These carriers could respond negatively by ending volume discounts that it grants to Amazon.26 Overall though, many executives, analysts, and logistics experts do not believe that Amazon could develop a delivery network to successfully compete with the major U.S. delivery businesses.27

  1. Greg Bensinger & Laura Stevens, Amazon’s Newest Ambition: Competing Directly with UPS and FedEx, Wall St. J. (Sept. 27, 2016), 

  2. Id

  3. Juan Plaza, Looking at the Impact of Amazon’s First Commercial Delivery Using a Drone, Commercial UAV News (2016), 

  4. Id

  5. Bensinger & Stevens, supra note 1. 

  6. Id. 

  7. Id

  8. Id

  9. Id

  10. Id

  11. Id

  12. Plaza, supra note 3. 

  13. Id

  14. Plaza, supra note 3. 

  15. Id

  16. Amazon: Prime Air, supra note 15. 

  17. Id

  18. Jeff Daniels, Amazon gets US patent for ‘countermeasures’ to protect drone delivery, CNBC (Dec. 21, 2016), 

  19. Id

  20. Id

  21. Plaza, supra note 3. 

  22. Id

  23. Kenneth P. Quinn et al., Amazon and Google Push for Drone Delivery Services to Take Flight, Pillsbury UAS Blog (Oct. 6, 2016), 

  24. Bensinger & Stevens, supra note 1. 

  25. Id

  26. Id

  27. Id

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Thomas Chmielnik