Amazon wants to make more products available for two-day delivery, so it's launching a FedEx competitor

Bad news for FedEx and UPS—Amazon is coming to eat their lunch.

Amazon is testing a new delivery service with the intention of making more products available for free two-day delivery, according to a Bloomberg report. The service would also help take pressure off of overcrowding issues at its warehouses.

The plan would put Amazon in direct competition with its longtime partners UPS and FedEx, which currently manage most of the two-day deliveries made by Amazon Prime members. Following the revelation this morning, UPS shares were down 2.3 percent and FedEx shares were down 2 percent in premarket trading.

The delivery service would give Amazon critical control over the final stages of order sorting and delivery. Amazon would reportedly pickup packages from warehouses of third-party merchants, then deliver them to people's homes. This is currently a process performed by UPS and FedEx.

The service has been in the works for a long time. Amazon has been testing a pilot program for the delivery service in India for two years, according to Bloomberg, and the online retailer is already marketing the delivery service to US merchants under the name "Seller Flex" ahead of its planned national expansion.

The new Amazon delivery service is already available in some West Coast areas, and the company reportedly has a broader rollout planned in 2018.

The move makes a lot of sense when you stop to think about it: Amazon would ultimately handle more of the deliveries and control one of the most important processes in an Amazon Prime purchase: the last mile of delivery to customer's homes. It would also make it easier for the online retailer to discount large orders and avoid warehouse congestion by being able to store goods in a different facility.

The move would also make its already-popular two-day delivery feature even more powerful, adding a variety of products that consumers buy. It's a win across the board.

The company has been moving in the direction for a while now. Amazon introduced Seller Fulfilled Prime last year, which allows merchants who don't store products in Amazon warehouses to still have products listed for two-day delivery. The merchants were required to meet certain delivery requirements set by Amazon, and most of them have been using UPS and FedEx to meet those goals. The new service would give Amazon control over these deliveries.

The news really shouldn't surprise anyone. Amazon has long been working to shorten delivery times and reduce costs of deliveries. The company built sortation centers around the country to optimize deliveries, but has still relied on the US Postal Service and others for the final mile of delivery. Now, it appears that Amazon could finally control this critical last leg of the delivery process.