FexEx Investors Shouldn’t Worry About Amazon. Look at Walmart. - Barron's

Bearish FedEx investors worry that Amazon’s logistics ambitions pose an existential threat to existing parcel shippers. What is more likely, however, is Amazon.com will simply bring some of its shipping volume in house as the e-commerce giant continues to grow.

That’s what’s happened when another retail giant, Walmart (ticker: WMT), appeared to be a threat to a different segment of the shipping industry: Trucking.

“With scale comes the luxury of insourcing spend,” Baird transportation analyst Ben Hartford told Barron’s. “We saw it with Walmart in the 1990s.”

Today, Walmart owns one of the largest private fleets of trucks in the U.S., built over many years. Walmart’s internal growth may have skimmed sales from the private-trucking industry, but the industry survived. And according to company filings, Walmart still uses third-party logistics players to move some of its freight.

What’s more, Walmart’s fleet of 6,000 trucks (and 8,500 drivers) might seem impressive, but that is only a fraction of total trucking capacity in America. There are more 3.6 million so-called class 8 heavy-duty trucks registered in the U.S., according to the American Trucking Associations.

That may surprise investors, given Walmart’s scale. The company generates more than $500 billion in sales globally and more than $330 billion sales in the U.S., again an impressive number. But total U.S. retail spending—excluding food, cars and gasoline—amounts to about $3 trillion each year, according to the U.S. Census Bureau. Walmart’s market share works out to roughly 10%.

The Census Bureau also estimates that online sales are in the range of $500 billion annually. That gives Amazon (AMZN) a market share of roughly 33%, including third-party online sales placed through Amazon’s website. That is another impressive number, but just as in the case of Walmart, there are other parcel-shipping businesses and other online retailers to serve. The last point may be why FedEx (FDX) decided recently to end its U.S. express-shipping relationship with Amazon, saying Amazon represented only 1.3% of total FedEx sales. FedEx said it is focused on serving the rest of the e-commerce market.

To be sure, Amazon’s logistics ambitions can’t be ignored. Jeff Bezos’ company has targeted small and medium-size businesses in an attempt to win third-party shipping business—business that doesn’t involve Amazon sales. Still, some within the shipping industry aren’t convinced that Amazon’s long-term plan is to build a giant logistics network to rival those in place at FedX and United Parcel Service (UPS).

“I don’t believe Amazon Logistics has any intension of being a third competitor in the marketplace,” Glenn Gooding, president of iDrive Logistics, said. iDrive is a consulting company that helps small businesses price and secure parcel-delivery services. “Their endgame is more capacity for [the Amazon Prime] channel.”

Every year at peak shipping times, around the holidays, the growing e-commerce system struggles to keep up. Gooding thinks Amazon’s investments are about providing more capacity to deal with the peak demands and not to create another new business unit.

“Any logical business person would like to defray cost when building out a network,” Gooding said. He understands why Amazon bids for third-party business, but calls Amazon proposals he has seen uncompetitive.

When asked about Amazon Logistics, a spokeswoman said in an email, “We’re always working to develop new, innovative ways to support small and medium businesses including shipping programs that help these businesses get packages to their customers quickly and reliably.”

Barron’s is certain Amazon wants to deliver packages quickly. We just don’t believe that fact will kill the parcel-shipping industry. Just as Walmart didn’t kill the trucking sector. It is said that history doesn’t repeat, but it rhymes. There are differences between the emergence of big-box retail and the emergence of online shopping. Still, we like the chances of both FedEx and UPS to survive far into the future.

Trucking stocks, for reference, have returned about 10% a year on average for the past 10 years, worse than the 15% average annual return of the Dow Jones Industrial Average. That’s not great, but again, the sector is still here.

It is difficult to get stock data for the entire industry back to the 1990s, but one trucker, Heartland Express (HTLD), has a long, continuous history. Its stock returned 18% a year, on average, in the 1990s, in line with the average annual return of the Dow.

Write to Al Root at allen.root@dowjones.com

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