"SWA represents a natural extension of third-party logistics services, particularly in markets where Amazon has the delivery density to offer a competitively-priced alternative to UPS and FedEx", Baird said in the note.
The initial phase of "Ship With Amazon", expected to launch in Los Angeles later this year, will focus exclusively on deliveries between sellers and Amazon's warehouses - but it could eventually be applied to Amazon's entire delivery process. Last year, Amazon released Amazon Key, an innovation that allows delivery drivers to access homes to set packages just inside the door, to help eliminate package theft.
"They can buy planes, trains and automobiles, but until they stop shipping so much air, I don't see Amazon improving internal shipping profitability", said Paula Rosenblum, managing partner at RSR Research.
"Amazon's rising costs to handle orders is also a effect of the popularity of its program that allows independent merchants - from big brands like Nike to a dad selling fidget spinners from his garage - to sell their products on Amazon.com and have the option to stow their inventory in Amazon's warehouses".
The Journal's online headline read: "Amazon to Launch Delivery Service That Would Vie With FedEx, UPS".
Longer term, the project could expand into a larger, full service delivery system that would circumvent Amazon's traditional last-mile shippers such as UPS and FedEx.
Amazon controls almost its entire sales process, save for logistics, which the e-commerce titan spent almost $20B on previous year.
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"If Amazon controls their customer's supply chain they could potentially charge less for the items on their platform, which could create a price war with Walmart and possibly Target", said John Haber, CEO of Spend Management Experts, an Atlanta-based supply chain management consulting firm.
After publishing the news, UPS shares fell by 1.42% and FedEx shares by 0.47%.
"There's plenty of growth to go around", said spokeman Steve Gaut.
The pilot project is going to be focused on delivery services for only one zip code in Los Angeles. This latest business expansion would see Amazon build on its existing shipping capabilities to eventually provide services for businesses not already regularly working with its website. Right now, if a third party seller from amazon.com ships directly to a customer, Amazon loses track of that package.
According to online statistics company Statista, Amazon's shipping revenue in 2016 was $8.98 billion while its outbound shipping costs were $16.17 billion. And the company is betting on drone deliveries to become the next big thing.