Amazon New Delivery Initiative Similar to Grubhub Model

Anything to save a buck.

Amazon.com (AMZN) announced Thursday, June 28, a program it describes as "a new offering that helps entrepreneurs build their own companies delivering Amazon packages." Called Delivery Service Partners, Amazon will contract with small delivery business to deliver orders instead of with shipping carriers such as United Parcel Service Inc. (UPS) , FexEx Corp. (FDX) and U.S. Postal Service.

Although the new initiative is promoted as a way to help small businesses, it wil benefit the online retail giant by potentially having tasks handled for lower cost and without having to hire salaried employees.

"This is the same thing Grubhub (GRUB) is doing for delivery," D.A. Davidson & Co. analyst Tom Forte told The Street on Thursday. "If you look at the Amazon business model, the Achilles tendon is UPS and Fed Ex, to the extent those two companies increase rates even during a recession."

In 2017, Amazon's shipping costs were $21.7 billion, a 29% increase from 2016's $16.2 billion, which was a 33% increase from 2015's $11.5 billion.

While the Seattle-based retailer's new initiative will expand its fulfillment efforts, it's a long way before it can cut ties with the big shipping carriers.

"They need Fed Ex and UPS," Forte said. He says working with these small delivery businesses will help combat "inflationary pressure" from the carriers.

For those customers concerned that their packages are more likely to not arrive, Forte doesn't see that as an issue.

"Amazon has an enormous amount of goodwill with consumers and a history of making things right," he said. "Those two things will help them with this initiative to offset the business risk on relying on startups for an important function of Amazon."

Those small businesses who want to get in on the Amazon delivery business can visit the Delivery Service Partners site to learn more about the program and submit an application.

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