What's going on?
Analysts at investment bank Morgan Stanley delivered some bad news to shareholders of delivery companies FedEx and UPS on Tuesday – and both stocks got returned to sender.
What does this mean?
Although the US-China trade war’s already wreaking havoc on logistics and shipping companies’ global businesses, Morgan Stanley’s report warned of more turbulence to come.
Amazon Air – the ecommerce heavyweight’s air freight division – is planning to more than double its existing fleet of 40 planes flying its products around the US (tweet this). Once its new Kentucky air hub is complete, Amazon could have 100 delivery planes cruising at 40,000 feet. As two-thirds of Amazon’s planned routes overlap with UPS and FedEx (which generate 20% of their revenues from air freight), its DIY approach could lead to those companies losing 2% of their entire revenue this year – and 10% by 2025.
Why should I care?
For markets: Wilson!
Morgan Stanley, predicting lower profit at both companies, lowered its opinion of what shares of UPS and FedEx were worth – and investors cast away their stakes, causing the companies’ share prices to drop 7% and 6% on Tuesday. The investment bank estimates that taking more deliveries “in-house” is likely to save Amazon between $1 billion and $2 billion in 2019 – which could mean the world’s biggest company (on Monday, at least) raises its profit forecasts next year.
For you personally: Amazon’s gonna be (500 miles).
Whether it’s two-day or two-hour delivery, Amazon’s been a logistics pioneer. It’s raised the expectations of customers – forcing competitors to follow suit (and incur higher costs). By increasingly taking to the skies (including via drone), Amazon’s now raising the bar once again. If other logistics companies can’t match its services – and its prices – shopping anywhere else might not be as quick and cheap as having a delivery fulfilled by Amazon.