The e-commerce giant’s new service – Shipping with Amazon (SWA) – will collect packages from business and ship them to consumers, The Wall Street Journal reported.
The company is understood to be launching SWA in the coming weeks, initially in Los Angeles with third party merchants that sell goods though its website.
It will then extend the service to more cities as early as this year.
Amazon is said to be planning to offer more competitive pricing to FedEx and UPS.
The news sent shares in FedEx and UPS sharply lower in US pre-market trade on Friday.
UPS insisted that it remained a partner of Amazon.
“UPS continues to support Amazon and many other customers and we don't make comments about their business strategies or decisions regarding their utilization of UPS services," a spokesperson for the company told CNBC in an emailed statement.