Amazon's CFO highlighted the power of it perfecting its own delivery capabilities, and it's a clear warning shot to UPS and FedEx (AMZN)

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Amazon CFO Brian Olsavsky has made it clear that the retail giant is perfecting its in-house logistics capabilities to do more than just make up for when FedEx and UPS aren't able to deliver.
Amazon Air and other in-house logistics networks are quickly expanding.
It's a good way to manage the company's massive delivery expenditure.

Amazon is quickly building its own logistics capacity — with the near-term potential for 100 cargo jets, a burgeoning in-house last-mile service, and ocean freighters aplenty.

And it's not just for when FedEx and UPS, the world's top package shippers, can't make the space, Morgan Stanley analysts wrote to investors on Monday. During Amazon's most recent earnings call, the Seattle-based retail giant was more revealing than ever on its strategy to build up logistics.

In 2018, Amazon expanded two-day shipping availability to "almost anywhere" in the US with its additional Amazon Air capacity. Free one-day shipping is now accessible for the "majority of Prime members in the US." Three more Amazon Air gateways are underway in Ohio, Illinois, and Texas.

Amazon CFO Brian Olsavsky told analysts on Thursday that the retail giant will "continue to expand our Amazon logistics and our delivery capability" in 2019.

Olsavsky highlighted that in-house deliveries were cheaper.

"(W)e have great third-party partners as well in the transportation space," Olsavsky said. "What we like about our ability to participate in transportation is that a lot of times we can do it at the same costs or better and we like the cost profile of it, too."

Amazon prefers its own delivery service over what UPS or FedEx can offer

Olsavsky then said Amazon is simply better at moving those packages than the world's largest package shippers.

"We can also invest selectively because we have more perfect information," Olsavsky said. "We know where our demand is, we know where we're moving things between warehouses and sort centers.

"And by not involving third parties all the time, we found that we can extend our order cut-offs and we've done that over the last few years," he added. "So that's also another helpful side benefit for consumers when we are doing our own logistics — excuse me, transportation, final delivery."

To Morgan Stanley's roster of freight transportation analysts, that doesn't indicate a mere interest in plugging delivery holes when FedEx and UPS aren't available to move packages.

And, also of note, Amazon's logistics strategy doesn't consist of simply replicating UPS and FedEx. Olsavsky indicated that their delivery network is a reimagining of the transportation juggernaut's systems.

"While reiterating that Amazon has great third-party partners in the logistics space, management clarified that often Amazon can do it internally at the same cost or better, and that rather than replicate a UPS/FDX vast network, they are instead choosing to invest selectively in areas where they know the demand is," Morgan Stanley analysts wrote.

Such prudent investment is wise as Amazon's delivery costs worldwide jump by billions. Year over year, Amazon's worldwide shipping costs jumped by 23% in Q4 2018 — from $7.4 billion to more than $9 billion.

"With Amazon's Logistics cost continuing to grow, we believe its internal logistics network can be a key source of cost savings and improved customer service," Morgan Stanley analysts said.

Do you have any insights or ideas on Amazon's logistics strategy? Contact the reporter at rpremack@businessinsider.com.

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