Amazon’s Move Into Supply Chain Services Hits UPS and Others

One of the time-tested strategies at Amazon (AMZN) is to develop internal solutions and, once they’ve matured, open their use to outside customers. We’ve seen this with Amazon Web Services, Amazon’s advertising business, and now with its world-class freight, logistics, and supply chain capabilities, the backbone of its Prime delivery service.

We are reading that Amazon will open its portfolio of freight, distribution, fulfillment, and parcel shipping capabilities to healthcare, automotive, manufacturing, and retail businesses, expanding from just third-party sources. Included in that solution set are Amazon’s two-to-five-day delivery timelines, as well as inventory forecasting capabilities. Named customers that are already utilizing Amazon Supply Chain Services, or ASCS for short, include Procter & Gamble (PG) , 3M (MMM) , Land’s End (LE), and American Eagle Outfitters (AEO) .

The move is a logical one given the investments the company has made over the years, spanning its network of warehouses, cargo planes, and freight as well as delivery trucks. We see it as Amazon looking to drive capacity utilization levels higher across that network of services, monetizing that capacity in the process. We also see it as a nice competitive move against the likes of United Parcel Services (UPS) and even the U.S. Postal Service.

What we do not have, as yet, is a sense of size for this business or margins, which makes it, for now, difficult to assess its impact to Amazon’s bottom line. However, while we wait for more on all this, we’ll share that, generally speaking, greater utilization rates tend to be a boon for margins.

At the time of publication, TheStreet Pro Portfolio was long AMZN.