Comments and Letters: The NVO in Amazon

   Beijing Century Joyo Courier Service Co., Ltd. filed for registration with the FMC on Nov. 9, 2015, and was registered officially on Nov. 13, according to Sandra Kusumoto and Clifford Johnson, director and deputy director of the Bureau of Certification and Licensing at the FMC, respectively. A 2004 filing with the U.S. Securities and Exchange Commission indicates that Beijing Century Joyo Courier was a subsidiary of Joyo.com, a Chinese Internet company that Amazon acquired that year in a transaction valued at $75 million.

   According to its tariff, available on the website of Distribution Publication Inc., Beijing Century Joyo Courier’s scope of operations is for cargo moving between the United States and “worldwide ports and points.” Its trade names include Amazon China, Amazon Global Logistics China and Amazon.cn, the successor to Joyo.com

   Amazon has kept its cards close to the vest about its intentions, but Ryan Petersen, chief executive officer of the San Francisco-based freight forwarder and NVO Flexport, wrote in a blog entry that “Amazon China now has the appropriate paperwork to provide ocean freight services for other companies. This is Amazon’s first step toward entering the $350 billion ocean freight market.” Petersen’s blog and Twitter posts about the Amazon unit set off a rash of stories in the business press within hours.

   News of the NVO registration had come on the heels of other reports about Amazon expanding into the transportation business. The Seattle Times reported in December that Amazon was in talks to lease Boeing jets to launch its own air cargo business, and in January it purchased the remaining 75 percent of the French package delivery company Colis Privé.

   Petersen called the registration with the FMC “a smart and long overdue move for the company. By offering ocean freight services, Fulfillment by Amazon (FBA) will make it easier for its customers to move goods into the company’s logistics network.”

   Carlos Rodriguez, a partner at the law firm Husch Blackwell, said the registration of Beijing Century Joyo Courier “may be the first step of others to come in obtaining a full U.S. operation” and that Amazon could create or acquire a licensed OTI to handle cargo once it arrives in the United States. Federal regulation (Title 46 Subpart A §515.3) states, “Registered NVOCCs must utilize only licensed ocean transportation intermediaries to provide NVOCC services in the United States. In the United States, only licensed OTIs may act as agents to provide OTI services for registered NVOCCs.” “Why would they want to give up the other part of the profit stream at the receiving end?” Rodriguez asked.

   Amazon could also become a licensed customs broker, though he said that is not necessary since companies sometimes chose to focus solely on transportation and pay brokerage.

   Petersen said, “Amazon’s ocean freight services will be far more attractive to Chinese sellers than to American buyers. Chinese suppliers would love direct access to Amazon’s vast American customer base. But the idea of buying ocean freight is far less appealing for U.S. companies selling on the Amazon Marketplace.”

   Amazon Marketplace is the service that Amazon offers to third parties to sell their merchandise though its website. Amazon’s 2014 annual report said “40 percent of our units are sold by more than two million third party sellers worldwide,” and promises to “further globalize Marketplace, we’re now helping sellers in each of our geographies—and in countries where we don’t have a presence—reach out to our customers in countries outside their home geographies. We hosted merchants from more than 100 different countries last year, and helped them connect with customers in 185 nations.”

   “They are going to offer their service to other companies, otherwise they don’t need the NVOCC registration,” Peterson said. “They can ship their own cargo any time and sign contracts directly with steamship lines. To have an NVOCC license, they have aspirations or there is some project, somewhere in the company, to offer that service to third parties.”

   Moving cargo for other companies could help Amazon drive down shipping costs further by becoming an even larger shipper.

   “Amazon has scale and I think the ocean carriers will see this as a great opportunity and will be happy to give Amazon good pricing,” Petersen said. “I think other forwarders who provide freight services to their end customers, especially the ones that are focused on small and medium size businesses, will be terrified and will not want to work with Amazon, because why should you come after this company that is coming after your market?”

   However, he suggested some American companies might be uncomfortable doing business with Beijing Century Joyo Courier. Amazon could build a so-called “Chinese wall” between the NVO and the rest of the company to protect sensitive information about sourcing and pricing. FedEx, UPS and myriad other shipping companies might have similar information, but “don’t have a store where they sell the same products,” he noted.

   “Amazon’s ocean freight offering could be a huge hit for Chinese merchants. But I predict that Amazon will fail to win traction with U.S. brands. American companies will simply not be willing to turn over such sensitive supply chain data to a major competitor and channel partner. Amazon’s reputation for ruthless competition and its desire to dominate every market on planet earth will make it difficult to convince U.S. companies to move their international freight onto this new platform when it launches,” Petersen wrote.

   But Edward D. Greenberg, general and transportation counsel for the National Customs Brokers and Forwarders Association of America, said the confidentiality of shipper data is protected by law. James Devine, chief executive officer of Distribution Publications, said it is not uncommon for manufacturing and trading companies, including many in the Far East, to set up their own NVOs to build volume and help lower their own ocean freight costs and as a service to affiliates or suppliers. “I think it is going to be far more appealing to an overseas company and what we are probably seeing is Amazon is looking to make it easier for foreign companies to sell through their platform. I see that as a threat to their merchant program,” Petersen said.

   In an interview, Petersen noted his own company, Flexport, is “built around technology… This Amazon thing is not threatening to us, it’s just interesting and kind of cool. We’re technologists so we like to see other technology companies getting into the space.”

   In his blog, Petersen speculated that the NVO filing “may be Amazon’s answer to Wish,” a mobile e-commerce app.

   Petersen wrote he thinks Amazon should do well because with ocean freight costs being low, “a considerable portion of logistics costs come through labor costs—particularly compliance and coordination of cargo handoffs between different players in the chain.

   “Automation, something no traditional freight forwarding company can do even

1 percent as well as Amazon can, becomes the key competitive advantage over

legacy freight forwarders,” he argued. “By using software to eliminate additional transaction costs associated with government filings, status updates, pricing, booking and more, Amazon will be able to cut their costs significantly. At the same time, fulfilling products directly from China to consumers in the U.S. will cut handling costs at U.S. warehouses.”