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Uber is trying to eat everyone’s lunch.
Just as Amazon.com (NASDAQ: AMZN) has done over the last decade, Uber – the San Francisco-based ride-share startup – is expanding into new markets.
Recall that Amazon has been a nightmare for brick-and-mortar retailers and recently started gaining market share in other industries – including streaming video, payments with Amazon Pay, the cloud with Amazon Web Services, and a myriad of devices with the Fire phone, Kindle, Fire TV stick, etc.
Uber, meanwhile, has done a heck of a job disrupting the transportation industry. Shares of Medallion Financial (NASDAQ: TAXI), a lender to taxi operators, are off more than 40% over the last two years, in large part because of Uber’s rapidly growing ride-sharing model.
Well, Uber isn’t content on just taking over the taxi industry. Now it looks like Uber and Amazon are teaming up, indirectly, to take on the shipping industry.
On the Amazon side, the e-commerce giant is building a mobile app that will allow it to hire everyday individuals to deliver packages. On the surface, this is bad news for the major shippers, FedEx (NYSE: FDX) and UPS (NYSE: UPS).
Recall that in January, I pitted FedEx against UPS, noting that UPS is the best play given its size and superior network. Since then both stocks have been relatively flat. That could be, in part, given Amazon’s recent announcement.
Then there’s Uber, which could be looking into developing its own delivery service. Will it use its current network of drivers to deliver packages? That’s unclear, as it might choose to focus on larger cities and enlist bicyclists. In that case, it might be worse news for the United States Postal Service.
UPS and FedEx are spending billions of dollars each year to keep their fleet of trucks and planes modernized. For context, FedEx spent $3.5 billion on capital expenditures last year, while UPS spent $2.3 billion. Compare that to the $415 million in revenue that Uber is generating, while having $470 million in operating losses. Amazon made just $178 million in operating income last year.
So while technology has changed how we buy goods, the fundamentals of shipping remain – it requires a lot of infrastructure. Even with Amazon and Uber possibly getting in on the delivery market, both UPS and FedEx have huge networks, especially when compared to those two. And their networks span international markets.
Recall that back in 2009, DHL stopped delivery services in the U.S. because UPS and FedEx had an effective duopoly on the market.
Meanwhile, FedEx is looking to build its network overseas, with a bid for Dutch delivery company TNT Express (OTC: TNTEY) that would give it a strong presence in Europe. Yet UPS remains the largest player in the industry. FedEx moved 10.7 million parcels a day on average in 2014, while UPS moved 15.3 million.
UPS’s advantage really comes into play in the ground delivery market, where it delivered twice as many parcels in the U.S. last year than FedEx. The ground business, as opposed to air and express, is more profitable, which allows UPS to enjoy higher margins and returns on assets.
It will take a lot of work before UPS or FedEx sees an impact from Uber or Amazon. FedEx and UPS have weathered several economic downturns and they should weather this latest challenge as well.
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