This might seem like an outlandish
claim, but Amazon’s foray into the logistics business has the scent
of a Mafioso move. And I mean that in a good way.
Cut out the middleman and take a
bigger share of the profits.
Amazon has been steadily building
its logistics and transportation presence for a few years now as it
seeks to lessen its reliance on UPS and other delivery partners.
It already operates a fleet of
trucks. In December it was reported to be in talks to lease a fleet
of Boeing 767 freighters. And the Wall Street Journal found
that Amazon has poached as many as 40 supervisors, managers, and
executives from UPS in the last three years.
Let’s get one thing
straight—Amazon does not mess around. It has the clout, the cash,
and most importantly, the conviction to pursue initiatives that would
seem wildly ambitious, if not outright reckless for most other
companies.
The question should be this: What is
Amazon management’s ultimate aim? Do they seek to build the world’s
most robust internal logistics and freight transportation network?
Are they merely supplementing the capacity and service of their
existing logistics partners? Or, are they trying to do to logistics
what they’ve done in nearly every other industry they’ve touched,
from bookstores to web services? That is, become a massive reseller
of transportation capacity and logistics services.
I must admit that I initially failed
to read Amazon’s designs as anything broader than a desire to
ensure a certain amount of capacity, and to keep UPS and other
partners honest. That is, until I read a blog post from Ryan
Petersen, the upstart founder and chief executive officer of
technology-oriented freight forwarder Flexport.
“It can’t be a fun sight for the
folks at UPS and FedEx to see Jeff Bezos coming after their business
with a fleet of jets,” he wrote. “Not only do these companies
appear to be losing one of their biggest customers, but they may also
have to face a company with a track record for reselling access to
its infrastructure. It’s easy to imagine Amazon offering a parcel
service to other businesses, just as it’s done with its Amazon Web
Services products. When it does, we can be sure it will aim to be the
low cost provider with the relentless focus on improving customer
experiences that has made Amazon such a powerful force in all the
other markets where it plays.”
Petersen went on to suggest that
Amazon’s focus as a transportation reseller would have to be
domestic, because becoming an international logistics player would
mean that its customers would be divulging critical information about
their shipments (such as the name of the supplier, the purchase
price, and the number of units) to Amazon the logistics provider.
“If Amazon were managing the air
freight for these shipments, it would have access to all of this
sensitive data, data it could use to buy goods directly from the
source for less,” he wrote. “Given that Amazon competes in just
about every category of consumer goods, it’s hard to imagine
companies handing over such sensitive details to a company with a
reputation for ruthless competition.”
The transportation and logistics
group at the investment bank Stifel has taken note as well of this
desire to keep transportation and logistics providers on their toes.
“To keep all the outside service
vendors honest, Amazon is always experimenting with cutting edge
approaches which may enable itself to provide critical elements of
the supply chain, sans any help from outside partners,” Stifel said
in an early January note.
The note mentioned not only the
leased aircraft, but also Amazon’s own U.S. West Coast fleet of
delivery vehicles to deliver food and parcels and its Uber-like
Amazon Flex system that allows anyone owning a car and passing a
background check to deliver packages locally for the company in
certain cities.
“One alternative theory envisions
Amazon opening up its logistics network to more than just the small
retailers that already harness it,” Stifel said. “Competitors
might follow the tried and proven old axiom—‘If you can’t beat
‘em, join ‘em’. With the incremental volume provided by other
retailers, desiring to replicate Amazon’s delivery network, the
company could further drive its costs of delivery per unit down and
essentially make the majority of its profits in its logistics
business rather than its retail business.”
Again, this theory assumes Amazon is
pursuing a competitive position against the parcel and domestic
networks of UPS and FedEx, not necessarily the forwarders and 3PLs
that arrange and execute international shipments.
Or is the aim more simply to
demoralize the rest of the e-commerce space?
“The company seems to be barring
no expense to put in place a network that will be extremely difficult
for other e-commerce retailers or logistics companies to replicate,”
Stifel said, noting that Amazon is “seemingly not constrained by
any pressure to consistently make money.”
The ramifications are, of course,
huge. Amazon’s growing transportation and logistics footprint has
the power to affect logistics companies, carriers, retailers, and
even the technology providers to all those industries. No one should
be under any false illusions anymore—Amazon has the appetite for
almost any fight. And this is a fight it can’t refuse.
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