Amazon’s Seller Flex has potential to change the way it does business with FedEx and UPS

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A new delivery service offering from Amazon, entitled Seller Flex, that received a lot of attention when various reports were published about it in early October could prove to be a major competitive advantage for the e-commerce bellwether in terms of how it negotiates rates with the parcel duopoly of FedEx and UPS, coupled with being able to pull data from warehouses to examine delivery times, performance standards, and costs for a transaction.

That is the thesis from James Thompson, a former Amazon executive and now a partner for Buy Box Experts, an Amazon consultancy firm, and author of the book, “The Amazon Marketplace Dilemma.”

At its core, SellerFlex is geared towards making more products available for free two-day delivery while helping to relieve overcrowded warehouses, according to a Bloomberg report, which added that this initiative will drive Amazon more deeply into services typically handled for the Seattle-based company by UPS and FedEx.

As for how that is handled, with Seller Flex, Amazon will oversee package pickups from the warehouses of third-party merchants selling goods through Amazon.com and delivery to customers’ homes. These tasks are currently handled for Amazon by UPS and FedEx. And while Amazon may still use UPS and FedEx for delivery, the report said that Amazon will decide how to send a package, as opposed to leaving that at the discretion of the seller. And among the benefits of handling more deliveries for Amazon, cited in the report, are things like providing greater flexibility and control over the last mile to consumer’s homes, saving money through volume discounts, and helping to avoid congestion in Amazon warehouses through keeping merchandise in outside sellers’ facilities.  Other noted benefits include how Seller Flex would provide Amazon with more flexibility into warehousing and delivery operations of merchant partners, with the potential of making full use of their product inventory, storage, space, and customer proximity with a quick delivery guarantee.

In a blog posting, Thompson explained that Seller Flex is a big deal for Amazon on multiple fronts: “Seller Flex provides Amazon with additional capacity to ensure that products can be shipped to customers inside their 2 day window. Amazon has a problem that they are not keen on discussing externally: their warehouses are full, which has historically presented a problem during the busy holiday season. Amazon has tried to negate this by scaling storage costs during the busy season and by limiting replenishment of products that go unsold by third party merchants, in an effort to optimize warehouse spacing.”

And as for what else Seller Flex offers Amazon, Thompson pointed to things like: providing Amazon the opportunity to embed itself into the operations of third-party sellers that are not keen on using Fulfillment by Amazon; providing Amazon the opportunity to create a wider assortment of products that are able to be shipped to customers in the ‘Prime’ window, while leveraging the larger assortment against its U.S.-based competition; and provide Amazon with the ability to further its world-class logistics operations and slowly decrease its reliance on 3PL partners, among others.

As for the impact of SellerFlex on FedEx and UPS, Thompson was straightforward in explaining that FedEx and UPS are the most obvious losers if Seller Flex succeeds.

“Amazon is arguably the largest customer that drives a large part of their revenues,” he wrote. “It provides Amazon with negotiation power to ensure that they get lower rates from these third party logistics businesses. FedEx and UPS will experience tension with Amazon as they begin to experience less products that are shipped via their services. Third party logistics services and warehouse operators are also losers as customers are going to experience Amazon doing the same operations for less money. Competing on price with Amazon is in general a bad idea as they are able to take losses where other business in general want to be profitable. As Amazon becomes more entrenched in these businesses that do not use FBA it is a matter of time before customers leave Third party logistics services and warehouse operators.”

There is a fair amount of the unknown when it comes to assessing the ultimate impact of Amazon’s Seller Flex offering. But one thing made clear by Thompson, as well as the myriad inroads Amazon continues to make on the logistics and distribution front, is that there is no bigger disruptor in the market than Amazon, no matter how you look at it. It has a wide-ranging playbook, with lots of variation, and Seller Flex has the potential to help Amazon put more points on the board. 

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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