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FinanceLast MileNews

Ben Gordon: Amazon earnings miss highlights competition in last mile

On October 24, Amazon (NYSE: AMZN) reported its financial results for the third quarter, which included a revenue beat and an earnings miss, the company’s first in two years. The e-commerce giant’s massive investments in transforming its two-day Prime network to one-day delivery were to blame, and in the earnings release, chief executive officer Jeff Bezos called out and explained Amazon’s commitment to one-day delivery.

“We are ramping up to make our 25th holiday season the best ever for Prime customers – with millions of products available for free one-day delivery,” Bezos said in a statement. “Customers love the transition of Prime from two days to one day – they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers.”

FreightWaves spoke to Ben Gordon, founder and managing partner of West Palm Beach, Florida-based Cambridge Capital, a private equity firm focusing on supply chain, about the significance of one-day Prime and the last mile space more broadly.

“It’s no secret that Amazon missed earnings, but management also expressed confidence that the investment in last mile will pay off, which is probably true,” Gordon said. “By many metrics, Amazon is already the largest company in global logistics, and it is focused on meeting customer demand for a shorter and shorter fulfillment cycle. Amazon, which has always been willing to make short-term sacrifices for long-term gain, is doing it once again in last mile.”

Cambridge Capital has made several investments in the last mile space, including XPO Logistics (NYSE: XPO), Bringg and DeliveryCircle. Each of those companies attacked the last mile problem – i.e., satisfying customer demand while achieving sustainable unit economics – from a different angle, Gordon explained. XPO is a large, multinational consolidator and provider of last mile services; Bringg is a pure software solution that powers inbound logistics for retailers and consumer packaged goods companies as well as last mile; DeliveryCircle is a tech-enabled third-party logistics provider (3PL) for last mile.

In-sourced logistics networks like Amazon’s Prime network are yet another strategy, and then there are numerous non-institutional last-mile delivery providers owned by founders, families and individuals.

“If e-commerce continues to grow at 18-20% [annually], there’s an opportunity to build one or several fortunes in last-mile by meeting customer needs, and there are several ways to do that,” Gordon said.

The expedited and same-day last-mile door has been left open to a wide range of competitors because the two large parcel delivery companies operating in the United States, UPS (NYSE: UPS) and FedEx (NYSE: FDX) do not have networks optimized for same-day delivery. UPS and FedEx use vast centralized sortation facilities – just outside of the Louisville and Memphis airports, respectively – to ingest, deconsolidate and reconsolidate shipments that will then be delivered across the country. 

That network design makes sense if the company has the luxury of time, Gordon said, but flying packages back and forth across the country to centralized hubs does not usually make sense for same-day deliveries, which demand small, local facilities with a high throughput. 

The unsuitability of legacy parcel networks for expedited, same-day delivery means that the technology-based last-mile space is still in the second or third inning, Gordon estimated.

That’s where Cambridge Capital sensed an opportunity to become a leading partner for entrepreneurs and founders in logistics and supply chain, deploying growth capital as well as executing leveraged buyouts. Gordon said that the origins of the firm lay in his own background as an entrepreneur – he founded a software-as-a-service-based transportation management system called 3PLex, raised $28 million, and eventually sold the business to Maersk. Although 3PLex counted blue-chip institutions like Morgan Stanley and Goldman Sachs among its investors, Gordon said that the company would have benefited from advisors who were supply chain experts.

“I met a lot of smart ‘deal’ professionals, but what I found was that most people in the deal world didn’t understand what we did and didn’t understand logistics, transportation and supply chain,” Gordon said. “It’s understandable because most deal professionals were either generalists or specialized in technology, medical or something else.”

Gordon founded Cambridge Capital to fill that gap and provide founders in supply chain with expertise as well as money – his partners have deep operational experience at firms like Kuehne + Nagel, UPS, XPO, GENCO, American Airlines and Ryder. Cambridge does not just offer its portfolio companies a sounding board – though Gordon knows entrepreneurs put a high value on conversations with people who have been in their shoes – but also leverages its team’s industry relationships for commercial benefit, to help startups scale faster.

“What do founders care about? Money? But everyone has money,” Gordon said. “Our intent was to build a business that could provide the resources that would help entrepreneurs.”

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.

6 Comments

  1. .

    Quote:
    ““I met a lot of smart ‘deal’ professionals, but what I found was that most people in the deal world didn’t understand what we did and didn’t understand logistics, transportation and supply chain,” Gordon said. ”

    BINGO !!! However , I beg to differ somewhat . If “they” were so smart then they would understand and improve LOGIC-stics , LOL !

    And that’s why Jeff Bezos is ahead of the game in “LOGIC-stics ” , hence he’s “smart” & LOGICAL and he most likely saw that their was a ton of money to be made by cutting out the middlemen . Halle-freaking-lujah !

    You wouldn’t believe how many transport companies don’t know what they’re doing in that department , and it decreases their revenue & profits tremendously . It also drives drivers away . Then they complain that they lack drivers , LOL !

    I spoke with another BIG carrier today and the lack of coordination and structure concerning their transportation services is truly unbelievable . AND they are desperate for drivers ! I kept hinting to them without insulting them how it should be done ! I’m now watching for the day that they will downsize or perhaps go bust . It’s unfortunate because they are attempting to attract drivers with pretty good benefits . And still , they can’t attract them .

    I just started looking up Jeff Bezos yesterday , and looking at what he studied and where he worked before starting Amazon . And I realized that what he did with Amazon on a smaller scale resembles my ideas concerning what should be done through a “Truck Driver Alliance Co-Op” . Jeff Bezos the “pioneer” proved the “concept” works ! And he became the first publicly reported centi billionaire in the process ! He and his wife worked for a hedge fund( D. E. Shaw & Co) that quote: ” is known for developing complicated mathematical models and sophisticated computer programs to exploit anomalies in the market” .

    Isn’t that what Jeff Bezos is doing through Amazon in regards to LOGIC-stics(logistics) etc ??? He’s NUMBER 1 !!! And Amazon is amazing in regards to customer service !

    Unfortunately this also confirms what I have been saying about truck drivers sleeping at the helm ! Jeff Bezos has disrupted the industry and is showing the industry HOW IT SHOULD BE DONE ! He set the “bar” in regards to LOGIC-stics ! Look at how fast Amazon has been growing !

    And Amazon is peanuts compared to what a “Truck Driver Alliance Co-Op” could achieve !

    In my humble opinion ………..
    .

    1. Hi – I’m glad you liked the article! I agree that most smart deal professionals don’t understand supply chain. And I agree that Jeff Bezos is well ahead of the game.

      I’m interested to hear more about your idea for a “truck driver alliance co-op.” What would that look like in your view?

      1. Hello Mr.Gordon

        It’s a pleasure to make your acquaintance . In response to your curiosity , in a nutshell , The “truck Driver Alliance” would be a consortium among truck drivers to establish a conglomerate involving many subsidiaries which would collaborate with government .

        At first a mastermind group of no more than 11 individuals would be formed to set the foundation and design the “plan” along with the strategy to carry out that plan .

        The “mastermind visionary group” is the first key . The ultimate goal is to implement strategies which would increase truck driver wealth ,quality of life , along with their and public safety .

        The Alliance would commence self funding collectively once the Alliance achieved gathering approximately thirty thousand members .

        At first the Alliance would concentrate on gathering and increasing membership from two counties, the USA & Canada . Then Mexico and so on and so forth . Each state in the USA along with each province in Canada would have their own branch with a committee among its members working in collaboration with other branches in different states and provinces .

        As membership increases so will the “intelligence”(collection of information) of the Alliance . The collective “data” will be an “edge” over Wall Street among others , the Alliance will use for monetary gains which will benefit all members in unimaginable proportions .

        This in and of itself will draw forth truck driver desire to join the Alliance . Member financial gains will be the “carrot” that will have a snowball effect on the Alliance . The more members the Alliance attracts , the more powerful the members(Alliance) become .

        This will also position the Alliance to take market share away from competitors in the trucking industry “etc”, which are “bleeding” truck drivers . ie: Certain CEO’s are making millions/billions off of the backs of truck drivers while truck drivers are making peanuts .

        Therefore why not just simply align , structure , and benefit through a web of collective “Truck Driver” minds ? That being said , I’m not suggesting that the Alliance wouldn’t hire non truck drivers to help run the operation , such as legal counsel , investment advisors ,traders , computer scientists , Quants ,etc , etc , etc ..

        In my humble opinion ………

        Cordially ,
        Noble1(NobleOne)

  2. CORRECTION : I should have said : Jeff Bezos’s now “ex-wife” .

    Anyways , DO YOU GET THE POINT ? (wink)

  3. Allow me to be a little more precise concerning :
    Quote:
    “I spoke with another BIG carrier today and the lack of coordination and structure concerning their transportation services is truly unbelievable . AND they are desperate for drivers ! I kept hinting to them without insulting them how it should be done ! I’m now watching for the day that they will downsize or perhaps go bust . It’s unfortunate because they are attempting to attract drivers with pretty good benefits . And still , they can’t attract them . ”

    Carrier has a yard at point A and a yard at point B . There is 350 miles between the two . If all goes well , it takes approximately 13 hours to drive back and forth(round trip) on the highway between point A & B and back to point A .

    However , the “Carrier” wants the driver to do LTL(deliveries) once arrived at point B . Instead , the carrier should have the “driver” from point A do a trailer switch at point B and head back to point A with another trailer . Then repeat .

    At Point B the trailer should be dropped in the yard and LTL(deliveries) in that city should be done by local drivers PAID BY THE HOUR ! This would be more efficient and HWY driver(paid by the mile) would be moving more loads rather than losing time and being underpaid by the mile & hocus pocus drop & pick up underpaid wages !

    Also a Day Cab semi can maneuver more easily it tight city roads and city company(shipper/receiver) tight yards . I’ve been sent numerous times to companies with a hwy sleeper truck with a 53 + foot trailer in yards that were built for 48 feet trailer ,max, and day cab tractors .This puts a lot of pressure on the steering components of a hwy tractor which leads to more wear and tear .

    Same for trailer returned to city yard at point A . Hire city drivers for LTL(deliveries) which are easier to obtain due to the fact that they will be going home every day compared to Hwy drivers .

    This lack of LOGICAL organization for efficiency is costing the “Carrier” major losses due to having a hard time obtaining drivers which leads to moving less loads/freight aside from wear & tear on the trucks and trailer tires .

    And ,Highway autonomous(driverless) trucks are being created to replace highway drivers . The Carrier will still have to hire local drivers to deliver the load once the hwy truck arrives near the “city” .

    Another story about dispatchers .

    Hauling vehicles with a stinger trailer which is longer than your typical 53 foot trailer , addresses are given to drop vehicles among which some are in residential areas due to client purchase at auctions . However, once near the residential area , truck driver realizes it’s a no truck area and residential area roads are extremely tight for a semi .

    What the heck is going on in said dispatchers minds ?

    This is kindergarten stuff and these said carriers and their dispatchers can’t figure that 1+1 = 2 ???

    Another major carrier having a hard time finding drivers wants them to drive maximum hours and then go home to start over the next day . Their route equals to maximum driving hours + regulators breaks and inspection . So once the driver arrives at the yard at the end of their shift they have 8 hours left before their next shift begins .

    That driver has to complete paper work then head home . Do you reasonably think that driver will sleep 8 hours before starting the next day shift ??? Oh but according to the ELD that driver is legal ! WTF ?

    These nitwit major carriers are burning out their drivers !

    After a while just looking at their driver recruitment ads you can see that they don’t know what they’re doing . Meanwhile these clown are worth BILLIONS ! So despite having ELD regulations there is still a major flaw and that FLAW is found between the ears of major carriers and regulators !

    In my humble opinion …………..

  4. Quote:
    ” Jeff Bezos called out and explained Amazon’s commitment to one-day delivery.”

    That “commitment” should not include tricking people into signing up for it !

    Quote:
    “Amazon told to stop tricking UK users into signing up for Prime” / google it !

    “Think Amazon is a little too eager to sign you up for Prime? You’re not alone. The UK ad industry’s Advertising Standards Authority has ruled that an Amazon promo for Prime was “likely to mislead” and could have tricked users into subscribing to the service.”

    Attempting to down play the situation based on an cop out argument such as , ‘it’s just a “handful” of complaints’ , may eventually lead to a change in public opinion concerning Amazon’s credibility . You don’t want that to happen ! Therefore take responsibility and clear up any ambiguity on the “site” BEFORE people start losing confidence in the brand !

    In my humble opinion ………

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