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As Shipping Costs Grow, Amazon (AMZN) Moves to Distance Itself from UPS (UPS)

December 23, 2015 7:28 AM EST

United Parcel Service (NYSE: UPS) shares are on watch amid reports that Amazon.com (Nasdaq: AMZN) is easing its reliance on the company for timely package deliveries.

The WSJ, citing multiple sources, said rising volumes and costs has Amazon seeking alternatives to UPS. Amazon is already using its own trucks and will lease airplanes to help speed operations while keeping costs down. The company has also turned to the USPS to assist in the final leg of a delivery, which is generally the most expensive part of a packages journey.

Shipping costs for Amazon rose to 11.7 percent of revenue last quarter, up from 10.4 percent in Q314.

Despite an increase in volume, which is generally seen as a good thing, overall costs to handle packages has went up in the last 15 years. The cost to handle a parcel was $6.50 in 2000 and that moved up to $8 in 2014.

For this year's holiday shopping season, things for UPS seem to be going well. That compares to 2013, which a late surge in Amazon shipments caught UPS off guard, while the company increased capital spending by 10 percent in 2014 to prepare for a similar pop that never appeared. Overall, each of the events were said to cost UPS $200 million.

Along with trucks and airplanes, Amazon has been testing pilot programs to pay consumers for package delivery, while it also is working to perfect drone deliveries.

UPS said on a recent conference call that it would be "tough to match" trying to meet lower costs that its customers might experience as they become competitors.

Shares of UPS and Amazon are both higher in early trading. FedEx (NYSE: FDX) will also be a name to keep an eye on as Amazon and other retailers look at lower-cost shipping alternatives.



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