[280516.EN.BIZ] Amazon Freighters Too Few To Affect UPS, FedEx Profits, Says Moody's

A REPORT from credit ratings agency Moody's says Amazon's freighter operation is likely to have little impact on the margins of UPS and FedEx pointing out that its 40 Boeing 767 freighters will give the e-commerce firm a fleet with an aggregate payload capacity equal to roughly one fifth of that of FedEx and one fourth of that of UPS.

The fleet will allow the parcel giant to move at least 20 per cent and as much as 30 per cent of its volumes, the London's Air Cargo News reported.

On the integrator side of the equation, UPS is the most exposed to Amazon, accounting for seven per cent of UPS' North American volumes and around three per cent for FedEx.

Assuming a 20 per cent discount per parcel on reported average pricing, Amazon likely spends around US$2.2 billion with UPS and thus accounts for about 3.7 per cent of UPS's annual revenue, compared with about $665 million and 1.6 per cent for FedEx.

But Moody's said while the two companies will "feel some pain" when the Amazon operation gets underway, the e-commerce firm is among its least profitable customers.

"Amazon's plans to lease freighter aircraft for a supplementary delivery network will reduce revenue and average daily volumes at UPS and FedEx," said Moody's senior credit officer Jonathan Root

"But replacing Amazon volumes with growing business from other, higher-yielding customers provides them with the opportunity to offset reductions from Amazon and improve their margins as e-commerce grows."

However, it wasn't all good news for the integrators as it was not yet known how far Amazon's plans extended. Furthermore, Amazon's plans could spur rival retailers to follow its lead and reduce their reliance on parcel carriers in order to shorten delivery times.

Source : HKSG.