An Amazon logo sits on a cardboard delivery box as an employee processes customer orders ahead of shipping at one of Amazon.com Inc.’s fulfillment centers. (Chris Ratcliffe/Bloomberg)
In business as in poker, it can pay to be unpredictable. And make no mistake, bluffing works well in situations where the stakes are high and the bluffer has a better stack than opponents. That said, bluffing only works when your opponents don’t suspect you’re doing it, so the more analysts speculate about whether Amazon has the chips to bluff or bully companies the size of UPS and FedEx FDX +0.38% into making costly errors, the less it’s likely to happen.
Amazon has been building out its logistics capacities at a scale indicative of a hedge strategy (it can sell its excess capacity by the piece or by the pound to whoever and whenever). Yet despite how fully hedged its bets may be, it remains vulnerable. Why? Because its hand is so powerful that played irresponsibly, it could force its opponents to collude and refuse to play. That’s the downside Amazon must guard against –and it’s real.
What if Amazon actually wants to rid itself of the pretense and make a win/win logistics deal with a trusted partner?
Last year, Amazon spent $11.5 billion on shipping, or 10.8% of sales. If Amazon were to handle fulfillment all by itself, according to the Wall Street Journal, Citigroup C +1.88% estimates a potential savings of $1.1 billion annually. Regardless of whether it’s UPS or FedEx, building-out last mile capabilities to a futuristic spec –on Amazon’s dime—is a prize not a curse.  Logistics is hard and last mile delivery is easily the most challenging, costly and least profitable part of the puzzle. If Amazon can find a like-minded partner to share that risk, someone who sees the long-term value of the investment, it would seem like a better path forward. So the question is, how much of that annual logistics savings is Amazon willing to share, for how long and with whom?
Oh, I suppose Amazon will do its share of posturing. But it would be a mistake for it to overplay its hand at this stage. It needs a high integrity deal with an established logistics partner who can share some risk and smooth out some of its seasonal demand curves. It needs a partner who understands, like Amazon, that the game they structure and the strength of their respective commitments to its rules, will ultimately determine the level of success. After all, this isn’t a zero sum game.