FedEx, UPS Stocks Tank On Amazon Delivery News

United Parcel Service and FedEx stocks were under pressure Thursday (Oct. 5) after reports surfaced that Amazon is testing its own delivery service to reduce congestion in its warehouses and offer more products for free two-day shopping.

First reported by Bloomberg, citing people familiar with the plan, the service is being called Seller Flex internally, which was initially launched by Amazon  in 2015 in India. The company has now started to offer the service to U.S. merchants as part of a slow rollout. According to the Bloomberg news report, the eCommerce giant has been testing the service on the West Coast this year and plans to expand to more states in 2018.

Under the program, Amazon will pick up third-party merchants’ packages from warehouses and handle delivery to customers, something that UPS and FedEx have been doing for Amazon. The company could still use UPS and FedEx, but with the new service, Amazon has more control over how third-party merchants handle shipping and packaging. Amazon will also be able to reduce overcrowding in warehouses by keeping products on the merchants’ premises, while also cutting costs.

Bloomberg noted that in 2016, the eCommerce giant rolled out a delivery service called Seller Fulfilled Prime, enabling merchants who don’t house items at warehouses owned by Amazon to still ship their products under Prime. The merchants must be able to show the company that they can meet two-day delivery times. The new service will likely replace that, giving Amazon more control.

Currently, many third-party merchants use Amazon’s warehouses to store their products, preferring to pay a fee to the e-tailer rather than keep it on their own premises. But as the holidays get closer, Amazon’s space resources often get stretched. For years now, Amazon has been looking to reduce its reliance on the two leading couriers, after shipping delays during the 2013 holiday rush resulted in widespread refunds getting issued to customers.