Should Amazon Take Over its Delivery?

After United Parcel Service’s delivery fiasco over Christmas, reporters are speculating that Amazon may fire the delivery service in the future. A portion of online shoppers across the U.S. said their packages were not delivered by Christmas, even though they ordered their gifts by the dates that Amazon (NASDAQ: AMZN), Walmart.com (NYSE: WMT), and other retailers said they needed to order by to have them shipped in time.  Some retailers promised Christmas delivery for shoppers who ordered as late as 11 p.m. on December 23. As a result, there was a 37 percent spike in orders placed the weekend before Christmas – more packages than UPS was expecting – and the delivery service acknowledged that it messed up and could not handle the volume of packages. Both FedEx and UPS said bad weather also played a part in delayed Christmas deliveries. Now, some are predicting that Amazon will take over its own delivery in the future, so it doesn’t have upset customers over delivery flops as big as this year’s problem. “You can bet they don’t want a repeat of this widespread fiasco. Rather than depend on a handful of third-party delivery services that they can’t completely control, the nation’s largest online retailers are already looking for alternatives,” Klint Finley wrote in WIRED. I scoffed at this ludicrous idea – we are talking about millions of packages shipped from Amazon distribution centers daily that third-party shippers are already set up to handle – until I noticed that the Federal Aviation Administration (FAA) seems to be taking Amazon’s drone idea seriously. Earlier this week, the FAA said that six states – Alaska, Nevada, New York, North Dakota, Texas and Virginia – will develop test sites for commercial drones. "These test sites will give us valuable information about how best to ensure the safe introduction of this advanced technology into our nation's skies," Transportation Secretary Anthony Foxx said in a statement. When Amazon first unveiled its own plan to deliver packages via commercial drones with much fanfare right before Cyber Monday, I chalked up the news to a massive publicity stunt. The drones, or “octocopters” will be able to transport packages five pounds or less within a 10-mile radius of an Amazon fulfillment center, according to CEO Jeff Bezos. “It will work, and it will happen, and it’s gonna be a lot of fun. I know this looks like science fiction; it’s not,” Bezos said in the “60 Minutes” interview. Granted, final regulatory approval and commercial adoption of drones is still a long way off. However, it is great to see the government at least working toward its goal of having commercial drone regulations in place by 2015. Amazon has also taken delivery into its own hands with its AmazonFresh grocery delivery service in three U.S. cities. However, pundits cannot seriously compare this limited delivery test with the development of a global delivery service on the scale of what Amazon would require to deliver its packages. UPS, FedEx, USPS, DHL, and other carriers have been in the delivery business for years, and have the infrastructure set up to handle the volume of packages that travel around the U.S. There is no doubt these delivery services will be set up better next year to handle the demands of e-commerce retailers and last-minute holiday shoppers. Meanwhile, we believe Amazon will primarily focus on stepping up its fulfillment and warehouse systems – including installing more robotics to fulfill orders – instead of breaking ground in an area of operation that is not its specialty. What do you think? Share your thoughts in the comments.

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