Here's Why GXO Logistics Shares Slumped (Hint: It's Amazon Related)
Key Points
Amazon is moving into the logistics market in a big way, including large enterprise customers.
GXO's more complex contract logistics offerings are unlikely to be impacted.
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The launch of Amazon.com's (NASDAQ: AMZN) Amazon Supply Chain Services (ASCS) has sent shockwaves through the transportation sector, including companies like UPS and GXO Logistics (NYSE: GXO), with the latter's shares declining by almost 13% by 1:30 p.m today.
What happened to GXO Logistics
Amazon's announcement of ASCS reads across as a direct threat to GXO Logistics. In a nutshell, Amazon is offering its existing logistics network to external customers. This includes its "freight, distribution, fulfillment, and parcel shipping capabilities to businesses of all types and sizes."
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The operative phrase here is "all types and sizes." If UPS is particularly threatened by ASCS encroaching on the small- and medium-sized business market, then GXO Logistics is threatened by ASCS entering the large-enterprise market. Indeed, the press release stated that large enterprises such as 3M, Procter & Gamble, and American Eagle were already using Amazon's freight and shipping services.
These types of enterprise customers are exactly those that GXO courts with multi-year contract logistics contracts, as they (customers) look to outsource logistics capability.
Where next for GXO Logistics
While Amazon's ASCS will threaten aspects of GXO's business, it's unlikely to impact the more complex workflows that it carries out for customers. In addition, there's still a long-term growth opportunity, as many companies haven't yet outsourced logistics. It's possible that Amazon's move draws attention to the possibilities of outsourcing and might even benefit GXO.
Image source: Getty Images.
By coincidence, GXO reports its first-quarter earnings after the closing bell tomorrow and will hold an earnings call on Wednesday morning. The call will likely be full of questions from Wall Street analysts about the matter. Something to look out for.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M, Amazon, and United Parcel Service. The Motley Fool recommends American Eagle Outfitters and GXO Logistics. The Motley Fool has a disclosure policy.
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