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Ben Gordon: Amazon earnings miss highlights competition in last mile

(Photo: Mercedes-Benz)

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.”

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.