The Scope Of Amazon's Whole Foods Deal: Carrier's Gain Is Parcel Deliverer's Loss

The clamor about Amazon.com, Inc. AMZN scooping in on Whole Foods Market, Inc. WFM has died down, although there is continuing news flow on the ramification of the news for the retail sector, especially food retailing, and other related sectors such as transportation.

Morgan Stanley in a note released last Friday discussed the impact of the deal on carriers and parcel delivery companies.

Analysts led by Sumit Sharma said they believe the Whole Foods deal is much more than a grocery or warehouse play for Amazon. The analysts are of the view that it marks the rollout of the company's omnichannel strategy.

Morgan Stanley thinks omnichannel is negative for legacy parcel companies such as FedEx Corporation FDX and United Parcel Service, Inc. UPS but positive for truckload carriers such as XPO Logistics Inc XPO.

Carriers To Benefit From Vehicular Traffic

The positive expectations for truckload carriers is due to the firm's belief that greater inventory turns would drive vehicular traffic at the cost of parcel delivery.

"We see new pockets of growth opportunities upstream (closer to suppliers and warehouses) as non AMZN/Wal-Mart Stores Inc WMT supply chain logistics providers rise in importance, and downstream with the emergence of a new class of last mile delivery providers," the firm said.

Morgan Stanley sees XPO Logistics as one of the best positioned as omnichannel grows. The firm raised its price target for the company from $60 to $75, citing favorable omnichannel and eCommerce exposure, potential for transformative M&A, and a large relative valuation gap. The firm has an Overweight rating on the shares.

Parcel Companies At Risk

Morgan Stanley opines that the reinstatement of the warehouse-to-store would take packages out of the hands of FedEx/UPS, handing business to a truck-load or less-than-truckload carriers. This would come about due to the drive to move closer to customer as part of a regular store inventory fill.

Although parcel companies can be involved in the B2B warehouse-to-store move, the firm believes these companies have less than 90 percent of the delivery market but only 1 percent of the trucking market. This would mean they can regain only one percent of the market share they lose, the firm said.

Additionally, the firm said the insourcing of logistics by e-commerce giants such as Amazon and Walmart could take the densest and fastest growing business out of their hands.

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