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Amazon to replicate Indian model with own delivery service in US

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06 October 2017

Amazon.com Inc is experimenting with a new delivery service intended to make more products available for free two-day delivery and relieve overcrowding in its warehouses.

This will push the online retailer deeper into functions handled by longtime partners United Parcel Service Inc and FedEx Corp.

Amazon is trying out the new delivery programme called 'Seller Flex' where the company will pick up packages from third-party sellers selling on its platform and deliver the products to consumers, according to a Bloomberg News report.

Shares of UPS fell more than 0.7 per cent Thursday, while FedEx dropped as much as 1.6 per cent before closing 0.1 per cent higher, CNBC reports.

Amazon clarified that the offering will continue to use some of its current delivery partners, but didn't comment on whether it will increase its own deliveries directly to customers.

"We are using the same carrier partners to offer this programme that we've used for years, including UPS, USPS and FedEx," Amazon said in a statement.

Amazon's delivery service began two years ago in India, and it has been slowly marketing it to US merchants in preparation for a national expansion, said Bloomberg's sources, who asked not to be identified because the US pilot project is confidential.

The service began on a trial basis this year in West Coast states with a broader rollout planned in 2018, the people said.

Amazon will oversee pickup of packages from warehouses of third-party merchants selling goods on Amazon.com and their delivery to customers' homes - work that is now often handled by UPS and FedEx. Amazon could still use these couriers for delivery, but the company will decide how a package is sent instead of leaving it up to the seller.

Handling more of its deliveries would give Amazon greater flexibility and control over the last mile to shoppers' doorsteps, let it save money through volume discounts, and help avoid congestion in its warehouses by keeping merchandise in the outside sellers' own facilities.

''Amazon's final-mile efforts reflect a logical extension of its model as it builds network density,'' Benjamin Hartford, a Robert W Baird analyst, said in a note. FedEx and UPS shares were likely to come under pressure, however, since investors could be concerned about another ''data point of Amazon's encroachment on the broader logistics space,'' he said.

''Amazon is a valued UPS customer,'' said Steve Gaut, a UPS spokesman. ''We support all our customers with industry-leading ecommerce solutions and expect to expand these relationships further in the future.'' FedEx said it wouldn't comment on Amazon's plans but pointed out the ''scale, infrastructure and complexity'' involved in running a global transportation network.

Last year, Amazon introduced Seller Fulfilled Prime, which lets merchants who don't stow items in Amazon warehouses still have their products listed with the Prime badge, meaning they'll be delivered within two days. The merchants had to demonstrate they could meet Amazon's delivery pledge, and many used UPS and FedEx for deliveries. The new service gives Amazon control over those deliveries instead, even if it continues to use third-party couriers.

Seller Flex would also give Seattle-based Amazon more visibility into the warehousing and delivery operations of its merchant partners, potentially helping it make full use of their product inventory, storage space and proximity to customers while still guaranteeing quick delivery.

A rush of last-minute holiday orders in 2013 forced Amazon to issue refunds to shoppers who didn't get gifts in time, highlighting the perils of being overly dependent on partners for a main part of its business pledge - quick, reliable delivery.

Taking over some responsibility for delivery enables Amazon to protect that edge as rivals like Wal-Mart Stores Inc enhance their own delivery operations, Bloomberg points out.





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