Why UPS Shipping Costs Could Further Pressure Amazon

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Just over a month ago FedEx Corp. (NYSE: FDX) announced that it was introducing “dimensional weight pricing” for packages, and United Parcel Service Inc. (NYSE: UPS) said Tuesday morning that it would shift to dimensional weight pricing beginning on December 29. Under the new pricing scheme the size of the package as well as its weight will be used to calculate the shipping cost.

At the time FedEx announced its change, we noted that UPS would almost certainly adopt the same plan, and that when it did so, the impact on Amazon.com Inc. (NASDAQ: AMZN) could be significant because Amazon ships so many of its goods with UPS.

UPS expects the new pricing arrangement to force shippers to pack goods in smaller boxes that will take up less room on the company’s delivery trucks, reducing UPS’s fuel usage, vehicle emissions and transportation costs.

Amazon will obviously get some kind of break on shipping costs simply based on the volume the company ships. But it will not be immune from the new scheme. So in addition to adding to the company’s shipping costs, dimensional weight pricing will also affect the packing lines, where the smallest possible box will have to found for every shipment. Whether that’s done by a person or a machine does not matter: it will take more time, and for Amazon time is real money.

Sales tax collections, higher shipping costs and a blizzard of new products all hack away at Amazon’s already thin-as-paper margins.

Amazon shares traded down about 0.4% Tuesday morning, at $326.09 in a 52-week range of $265.00 to $408.06.

UPS stock traded up 0.1%, at $101.28 in a 52-week range of $84.38 to $105.37.

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