Will Shipping Problems Ruin Amazon's Holiday?

The demand for shipping services in the United States has surged as more people turn to e-commerce to shop. The most visible sign of this is the decision by United Parcel Service Inc. (NYSE: UPS) to limit the delivery of packages sent by Gap and Nike. The limits may extend to other retailers. The news begs the question of whether America’s largest e-commerce company, Inc. (NASDAQ: AMZN), faces similar challenges.

The UPS problem could have been anticipated. The National Retail Federation forecast that online shopping would surge to a record in 2020.

Arguably, if the huge delivery system of UPS has been taxed, Amazon’s large and complex delivery infrastructure could falter as well. While it has added a fleet of its own airplanes, they only total 70. It will be years before it can compete directly with FedEx and UPS.

Amazon has provided UPS, the U.S. Postal Service and FedEx with a tremendous amount of business over the years. However, what was once a cordial relationship has changed. Amazon clearly wants to create a system to disintermediate them as much as possible. If UPS shuts off Gap and Nike, Amazon might be next.

Without recourse, where does Amazon turn? Mid-December is when e-commerce shipments peak, so the next two to three weeks are crucial to its fourth-quarter revenue. Nearly as important is its reputation with customers for a timely delivery.

Amazon expects fourth-quarter revenue to run between $112 billion and $121 billion, an increase of 28% and 38% over the same period of last year. About two-thirds of that should come from its North American e-commerce operations.

Amazon will set a record for demand this quarter. The UPS news raises the issue of whether it can deliver.