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Is it even possible to have had a business conversation in the past 10 years without talking about Amazon? Certainly in logistics and supply chain, everyone agrees the Amazon Effect has changed things forever. Amazon’s modus operandi: building solutions first for itself and growing these into solutions for its customers. This idea, plus the knowledge of the spaces Amazon has filled in recent years, leads to the question of one clearly missing piece: When will Amazon begin offering its 3PL services for hire?
Amazon has already become the first e-commerce company to provide end-to-end logistics, between sellers in China and buyers in the U.S. In 2016, Amazon was granted the license to operate as a non-vessel operating common carrier, allowing it to handle early-mile transportation from China. This in addition to operating its own final-mile division establishes Amazon’s shipping infrastructure as a key feature for its customers, giving the benefit of a smooth process along the entire supply chain as well as cost savings.
In 2017, Amazon began brokering its freight for the first time. Keeping with its typical methods, in 2018 Amazon launched this service for its customers, although it didn’t garner attention until 2019. With rates 20%-30% below contract rates, Amazon started out essentially operating a freight brokering service without charging the brokerage fee. It appealed to customers early with its low rates while it grew its market share. The service is valuable to Amazon regardless of whether it’s turning a profit on brokering. It controls its own shipping costs and strengthens itself against the retailer competition.
Amazon has always focused on being a turn-key service provider. Amazon Web Services (AWS) is one broad example, a cloud platform for hosting and managing IT infrastructure. As a hosting provider, AWS offers more than 85 different services for running applications, storing data, and managing networking, computing and developing. Machine learning and SaaS products are a large part of its focus.
AWS CloudFormation is its service for managing infrastructure — networks, virtual machines, etc. — as code, in place of manual configurations. This eliminates the risk of errors from manually setting up each component. DevOps teams can create duplicate environments, such as test environments, quickly and easily, and this service has the benefit of being ideal for scaling.
Fulfillment By Amazon (FBA) is its 3PL service that provides e-commerce fulfillment with the support of Amazon’s infrastructure. This includes services of storage, picking, packing, shipping and customer service. With several supply chain resources packaged together as a service, the ease of adopting FBA is a major reason many businesses enter the online retail space.
However, Amazon’s customers might find disadvantages to using FBA. There are high fees for inventory storage and fulfillment. Amazon penalizes sellers that don’t move their product as quickly as others, and there are even storage restrictions during peak seasons such as Q4 2020, for those with low selling metrics. Packaging is Amazon-branded, or there is an additional cost for using generic boxes. Amazon prioritizes its brand name over any seller’s name recognition. FBA puts Amazon in competition with 3PLs while maintaining unique disadvantages for the customer. It conducts business as a retailer first and foremost. FBA’s service offerings are highly tailored to assist the Amazon seller with making logistics a competitive advantage as Amazon has done since the beginning of the company.
The fact that FBA’s 3PL services have always been coupled is the only difference between FBA and any other 3PL offering in the market today. The fact is, Amazon is so good at selling online and distributing to the customer, many retailers have adopted an “If you can’t be ’em, join ’em” approach to working with the e-commerce giant through its FBA offering. Amazon is thought to be the fourth-largest for-hire carrier in the U.S., behind the U.S. Postal Service, UPS and FedEx.
Amazon has the ability and fulfillment and distribution infrastructure to offer 3PL services for hire, independent of FBA, but it would take giving up some brand recognition compared to FBA. Considering Amazon’s proven strategy of entering a new space for itself and growing it into a service for customers, 3PL is not a stretch by any means; it’s a matter of when.