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Smaller Shippers' Networks Could Threaten UPS and FedEx

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Networks of small regional shippers could be a serious threat to the dominance of UPS (NYSE: UPS) and FedEx (NYSE: FDX) in the shipping industry.

The Wall Street Journal reports some major shippers including Amazon.com (NASDAQ: AMZN), Avon Products (NYSE: AVP) and Walgreen Co (NYSE: WAG). are increasingly turning to smaller shippers such as Eastern Connection and Pitt Ohio LLC to handle lucrative ground deliveries.

The smaller shippers are stealing market share from UPS and FedEx by offering lower prices and faster service in some areas of the country.

Eastern Connection reportedly undercut UPS and FedEx by 20% to 40% for door-to-door, next day ground shipment from Boston to New York by using its own fleet of vans. Eastern can offer shipment to Ohio by handing off packages to Pitt Ohio LLC which offers a similar service in Ohio.

The smaller shippers are threat to UPS, because they're taking a large share of e-retail package shipments. Ground package shipments by online retailers are the biggest growth area in the delivery business.

The smaller shippers are also better placed to provide same-day and next-day delivery, which is considered to be the next frontier for online retail.

Amazon.com is one of the main customers for the smaller retailers. It is using them for its Prime two-day delivery service, which is sent out from regional distribution centers. Amazon.com and eBay (NASDAQ: EBAY) are also developing their own branded package delivery services.

The effect of this competition on UPS and FedEx share price is not clear yet.

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