FedEx (FDX) and UPS (UPS) have spent the past few decades building tremendous businesses. With their IT infrastructures as well as networks of trucks, jets and warehouses, it seems unfathomable that they could be challenged. But as seen with companies like Kodak or Nokia, dominant players can easily become fodder for creative destruction.
Various companies have tried to unseat FDX and UPS, but for the most part, they have all gotten crushed. Just look at DHL — Deutsche Post sunk billions into the company to try to become a player in the lucrative U.S. express-delivery market. But in 2008, DHL had no choice but to shut down the operation.
If anything, the market has become even more important since then, especially with the continued growth in ecommerce. After all, the unexpected surge in orders for the holiday season was too much for FDX to handle, and some of its customers didn’t have presents under their Christmas trees. It was a huge embarrassment for the company.
So it should be no surprise that Amazon (AMZN) is working furiously on alternatives. Granted, its much-touted drone delivery concept looks more like brilliant PR stunt, not a real solution. But keep in mind that the company has been rolling out a service for same-day delivery of groceries — called Prime Fresh — in markets like Seattle, San Francisco and Los Angeles. In light of the FDX holiday fiasco, it’s a good bet that the company is putting even more resources behind this program.
But that won’t be the only problem facing FedEx and UPS. The other ominous threat is the emergence of ride-sharing services, especially Uber. These allow a person — via a smartphone — to “hail” a car for a ride. The drivers use their own vehicles (which are tracked in real-time on the app) and get a piece of the fee, which is connected to the customer’s credit card. It’s a super convenient, capital-light approach to the traditional taxi business.
Why couldn’t this be used for delivery of products too? Uber has already been testing this out with having drivers send ice cream, Christmas trees and roses to customers.
According to Uber CEO and founder Travis Kalanick: “We’re in the business of delivering cars in five minutes. And once you can deliver cars in five minutes, there’s a lot of things you can deliver in five minutes.”
Something else: Uber recently changed its tag line from “Everyone’s private driver” to “Where lifestyle meets logistics.”
No doubt, growth has been red hot for the company. Revenues are ramping at about 18% on a month-over-month basis. And yes, Uber has had little trouble raising capital. In all, it has taken in a haul of $307 million from tier-1 funders like Google Ventures (GOOG), Benchmark Capital, and TPG Growth. Oh, and Amazon’s Jeff Bezos is also a shareholder.
Of course, FedEx and UPS are no slouches when it comes to crushing rivals. So expect a big-time fight against disrupters like Amazon and Uber. The fact is that FedEx and UPS have tremendous platforms and resources. They can also easily buy up a ride-sharing operator like Lyft, Hailo or Sidecar. But the action should be sooner than later — otherwise, FedEx and UPS may feel some pain over the next few years.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
