Amazon’s stance
Amazon.com, Inc. (NASDAQ:AMZN), previously, was against having to collect state taxes from its customers. This was because the company had a distinct competitive advantage by not collecting taxes: lower overall prices, better sales numbers.
Now Amazon.com, Inc. (NASDAQ:AMZN) and other online retailers will likely collect taxes from customers in all states. As a result, there could be a shift in how goods are sent to customers. Logistics is a component of the retail business that every company must deal with. Online entities must deal with this differently than the brick and mortar stores, however.
Amazon.com, Inc. (NASDAQ:AMZN) doesn’t need to avoid physical presence in states it used to stay away from because of the tax threat. That means it no longer has any reason not to build shipping infrastructure practically everywhere. It can erect warehouses wherever it wants to, ideally as close as possible to its customers. It also has been experimenting with storage lockers to get items in to customers’ hands faster.
Let us ship it for you
That’s not good for shipping companies. Amazon uses both United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX) extensively. Using these shipping providers is not cheap for Amazon.com, Inc. (NASDAQ:AMZN). If they want to save money on logistics, they might be better off doing it themselves.
That would cut the shippers out of the equation. United Parcel Service, Inc. (NYSE:UPS)’ earnings beat analysts estimates in the first quarter, and net income seems to be back in a big way. This after the company took a big fourth-quarter loss because of legacy costs related to pensions. While UPS is a stock to watch, investing in it is really more about value than growth at this stage of its business. Watch for what Amazon does in shipping. United Parcel Service, Inc. (NYSE:UPS) might not admit to it, but they get a lot of business from Amazon.
FedEx is also a shipper for Amazon.com, Inc. (NASDAQ:AMZN). This company might still have some room for growth. As we’re all aware, the U.S. Postal Service is experiencing major budget problems, leading them to do things like suspend Saturday service. But FedEx Corporation (NYSE:FDX) just got a big contract with the Postal Service to provide air cargo services.
Look for deals like this to continue to develop for FedEx as the Postal Service experiences more cutbacks. When comparing FedEx versus UPS as a growth investment, go for FedEx Corporation (NYSE:FDX).
Even if Amazon.com, Inc. (NASDAQ:AMZN) does go ahead and start doing some of its own logistics, look for both UPS and FedEx to provide some subsidiary services to the company. Amazon isn’t going to be able to cut these two companies completely out of the equation. But Amazon does want to cut logistics costs. Amazon Prime costs customers only $79 per year and gives them access to free two-day shipping. It’s a great deal for people, but can add up over time for Amazon, and the company knows that.
Will the sales tax bill pass through Congress?
The Marketplace Fairness Act passed recently in the Senate and will now make its way to the House for a vote. There’s no guarantee that it will pass there, given that the Republicans control the house and they are wary of any additional taxes. But, people are continuing to buy more products online, and it is, in effect, cutting states out of funding that they need for things like education and other services.
Should the bill pass, look for changes in the way companies like Amazon.com, Inc. (NASDAQ:AMZN) think about sending things to your door. Logistics aren’t the first thing that one thinks about when considering online sales tax levies, but it may have a bigger impact in the long-term than people first realize.
Daniel Cawrey has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, FedEx, and United Parcel Service. The Motley Fool owns shares of Amazon.com.
