This Amazon strategy should worry UPS, FedEx: Morgan Stanley

Amazon’s planned fleet of cargo planes could ground UPS and FedEx in a big way, a prominent Wall Street firm warned Tuesday.

Amazon has long relied on courier services to fulfill package deliveries to its customers. However, the e-commerce giant is developing “Amazon Air,” complete with plans for a fleet of 40 cargo planes and a $1.5 billion investment in a new air cargo hub in Kentucky.

Morgan Stanley analyst Ravi Shanker cautioned that U.S. markets are “missing the risk Amazon Air poses” to their businesses, noting that the hub will have capacity for up to 100 planes. The firm estimates that Amazon’s new capabilities will hurt UPS and FedEx’s revenue by 2 percent in 2018 and 10 percent by the year 2025.

"We expect this drag to intensify once Amazon Air has all 40 planes in the air (and potentially 100 planes if it runs its planned air hub at capacity) and as its utilization improves to UPS/FedEx levels," Shanker wrote in a research note.

FedEx shares fell by more than 6 percent. UPS shares sank more than 7 percent.

An enhanced Amazon Air fleet could save the company between $1 billion and $2 billion annually, according to Morgan Stanley.

This would not be the first time Amazon has disrupted an industry. The company purchased healthy grocery chain Whole Foods for over $13 billion in 2017 and has been aggressively rolling out new options for consumers. It also bought Pillpack, a 24/7 mail-order drug company, earlier this year to help offer consumers lower drug prices.

The declines occurred alongside a broader sell-off in U.S. markets. The Dow Jones Industrial Average lost nearly 800 points amid concerns about falling bond yields and the ongoing U.S.-China trade dispute.