Last weekend, Amazon informed its third-party sellers (which account for more than half of its unit sales) that they are no longer allowed to use FedEx’s Ground delivery service for Prime shipments. In its email announcement, Amazon noted that its reason is a decline in the delivery network’s performance and that it won’t lift the ban until performance improves.
The immediate impact: While the vast majority (approximately 90%*) of third-party units on Amazon are fulfilled through Fulfillment by Amazon (FBA), the remaining 10% will be forced to select FedEx Express or other carriers to complete the remainder of their shipments. Considering the timing (right in the middle of holiday crunch time), this could prove to be difficult and costly for sellers.
The longer-term impact: This decision will not only hurt sellers and anger FedEx but could also be quite damaging to Amazon. Why? Amazon is a monopsony, and this action could infringe on antitrust claims. The FTC is already doubling down on the tech titans (with antitrust probes into Facebook and Google), and Amazon’s recent decision could add fuel to the fire.
In this case, the FTC’s Prompt Delivery Rule (dating to 2001!) could come into play. Most eCommerce companies haven’t considered what could be a potentially massive liability, mainly because no one knows about it and it’s not enforced. The law says if you make a promise to a customer about delivery, you must proactively let them know if the package will be delayed. If you delay twice, you need to proactively refund the customer. In an interview for Barron’s, FedEx noted that Amazon’s decision may compromise the ability for sellers to meet customer demands, meaning unexpected package delays and broken promises to customers.
FedEx, UPS, and USPS are actually still bigger (for now) than Amazon’s logistics and fulfillment services. Amazon touts its fast delivery services, which include Prime Now and (thanks to recent huge investments) an impressive next-day-delivery program. However, Forrester Analytics’ latest Consumer Technographics® data revealed that while 47% percent of US online adults consider free shipping influential in determining the retailer they purchase from online, only 7% feel the same about expedited free shipping. While customers love to get free shipping, they are perfectly happy waiting longer, as long as it is cheaper.
Events like this beg the question: Is it time laws around fast delivery promises are actually enforced?
For more information on the delivery and fulfillment landscape in the US, check out my recent research:
- Free, Fast Delivery Is An Oxymoron — Here Are Six Disruptions To Test Instead
- The US Last-Mile Landscape Today
- PS — Look out for my upcoming research on tech titans such as Amazon and their impact on commerce companies in early 2020.
* indicates Forrester estimate