Amazon looking to abandon UPS, FedEx in favor of its own delivery service

The online retailer could save billions by holding onto packages through delivery.

Amazon is already in the business of delivering packages to your door as quickly as possible, but now the company seems intent on cutting out shipping middlemen. A report by The Wall Street Journal claims that Amazon is building its own shipping service to replace FedEx and UPS, giving it more control over its packages and possibly allowing it to ship packages from other retailers.

Amazon has said its own delivery services would be meant to increase its capacity during busier times of the year, like the upcoming holiday season. However, "current and former Amazon managers and business partners" claim that the company's plans are bigger than that. The initiative dubbed "Consume the City" will eventually let Amazon "haul and deliver" its own packages and those of other retailers and consumers. That delivery network would also directly compete with the likes of UPS and FedEx.

It makes sense that Amazon would want to sell, ship, and deliver orders on its own. The report estimates that the company spent $11.5 billion on shipping just last year, amounting to 10.8 percent of sales. The shipping process is currently a bit convoluted: packages from Amazon warehouses get sent to one of two shipping routes, either FedEx or UPS, or to a sorting facility that lumps all packages with similar zip codes together. FedEx and UPS handle its shipments and deliver them to customers, while the packages at the sorting facilities either get delivered via USPS or by Amazon employees themselves. If Amazon were to have control over its shipments over longer distances, it's estimated that the company could save about $3 per package—about $1.1 billion annually.

But while the benefits for Amazon are obvious, it's an incredible challenge (not to mention a costly one) to build such a widespread delivery service. Analysts are skeptical, especially since Deutsche Post AG’s DHL Express failed back in the 2000s. And even if Amazon did succeed, it could damage its relationships with FedEx and UPS. Amazon not only contributes to FedEx and UPS revenue by using those services, but it also helps those companies maintain cost effectiveness because drivers can drop off numerous packages in the same area at one time.

But all the investments Amazon has made into its own shipping and delivery services over the past couple years prove that it's not necessarily worried about that. Amazon has recruited FedEx and UPS executives and recently brought back Uber Technologies Inc. executive Tim Collins to serve as vice president of global logistics. Before going to Uber, Collins worked for Amazon for 16 years, focusing on European operations. The company has also purchased long-haul trucks for ground deliveries, and in August it debuted the first fleet of Amazon Prime Boeing airplanes for long-distance shipping. Those resources will undoubtedly be put to use during the holiday season, but it could be years before we see a full-scale delivery system from the online retailer.