Amazon Could Be Using This Shipping Giant Much Less
This story has been updated with comment from UPS.
Amazon has reportedly been seeking alternative ways to deliver its packages and is re-examining its relationship with carrier United Parcel Service.
The online retailer has been holding talks with air-cargo companies to lease airplanes, and is seeking to lower its costs and reliance on delivery partners like UPS ups , sources told The Wall Street Journal.
Already testing its own delivery network of trucks and venturing into package-delivering drones like Amazon Prime Air, the company could be viewing UPS as a future competitor instead of a present ally, The Journal added.
“Amazon’s interest is not in doing what may be good for UPS,” Satish Jindel, a parcel-industry analyst with SJ Consulting, told The Journal. “Their interest is in getting control over logistics.”
Shipping costs are one of Amazon’s amzn fastest-growing expenses, The Journal notes. In a check with their annual reports by The Journal, outbound shipping costs totaled 11.7% of revenue in the third quarter, up from 10.4% a year ago. In the chart below, the year-on-year growth of its shipping expenses are increasing at a rapid pace:
Any move to cut out third-party shipping companies like Federal Express fdx and UPS will have a significant hit on their bottom line. The Amazon account alone is worth around $1 billion to UPS, sources told The Journal. And according to DC Velocity, FedEx’s SmartPost product saw a 6% decrease in average daily volume due to a drop in usage from a major customer that the logistics trade publication believes to be Amazon.
This news also dovetails with recent reports that the retailer sees an opportunity to foster its own transportation network, and is already building out its own cargo operations.
A UPS spokesperson told Fortune it wouldn’t go into detail about Amazon’s business dealings with the company. “We will continue to help Amazon and all our customers solve their growth and customer service challenges. UPS will not share confidential details about Amazon business contracts,” the spokesperson said.