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Why UPS and FedEx shouldn't fear an Amazon delivery service

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Amazon said to be testing its own delivery service with expansion planned for 2018

Amazon.com (AMZN) is testing another home delivery service, this time with third-party merchants that use its online platform, which could intensify competition with longtime partners FedEx (FDX) and United Parcel Service (UPS), says a Bloomberg report.

Bloomberg said the new Seller Flex program lets Amazon take over the decision making about how those items will be delivered to customers, whether by UPS, FedEx, or by its own couriers through Amazon Logistics (look for "AMZL" on the Amazon shipping label). The new service would function similar to UPS and FedEx.

"Seller Flex would also give Seattle-based Amazon more visibility into the warehousing and delivery operations of its merchant partners, potentially helping it make full use of their product inventory, storage space and proximity to customers while still guaranteeing quick delivery".

Seller Flex reportedly started in India about two years ago and the online retailer is slowly marketing it to USA merchants and plans to expand nationally.

"Amazon's final-mile efforts reflect a logical extension of its model as it builds network density", Benjamin Hartford, a Robert W. Baird analyst, said in a note. Amazon is now experimenting with its own shipping service on the west coast, before moving to expand it nationwide.

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In March, FedEx CEO Fred Smith was quoted as saying a move like that wouldn't be a huge disruptor for his company given that 85 percent of its business is business to business rather than e-commerce.

Whether this is bad news for UPS and FedEx remains to be seen. And they will still need FedEx and UPS to deliver for them.

FedEx spokesman Jess Bunn told CNNMoney that the company had no specific comment about the Amazon reports, but he added that "there continues to be reporting related to our networks and the transportation industry that demonstrates a clear misunderstanding of the scale, infrastructure and complexity involved in running a global transportation network".

Amazon doesn't always offer the cheapest price for goods.

But it's also giving investors in FedEx and UPS the jitters because those two national delivery companies now handle those deliveries.

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