The World According to Amazon

The World According to Amazon

PHOTO: Jonathan Weiss, Shutterstock Inc.

As many regular readers of this blog will know I’ve been keeping a very close eye on Amazon’s incursion into the logistics space and published regular articles on their progress. Over the next 2 to 3 years they will become the dominant logistics player in the global retail supply chain. It’s a journey many of us can learn from.

A Simple Playbook

Amazon is all about scale and low prices. It has been ever since the company was founded on July 5, 1994 as “Earth’s Biggest Bookstore”, with the tagline “1 million titles, consistently low prices”. It’s an ethos that drives every enterprise Amazon undertakes and underpins their simple playbook:

  1. Identify inefficiencies in order to drive prices lower
  2. Develop a technology solution in order to do so
  3. Scale the solution into a platform
  4. Offer that platform as a solution for third parties

And it’s a playbook they have faithfully followed in their entry into the logistics space. As of this writing they have inserted an Amazon solution into every part of a global retail supply chain, with the exception of rail transportation.

The Trigger Point

Amazon pioneered free shipping and ever decreasing delivery times which set a high bar for consumer expectations and provided a significant competitive advantage. In 2014 free shipping cost Amazon more than $4.2 billion – nearly 5% of net sales. The shipping delays caused by third-party couriers in the 2013 holiday season were a big blow to them. It triggered the decision to reduce their dependence on third-party delivery providers.

Shortly after that we saw the introduction of Amazon Flex, an “Uber like” courier delivery service, Amazon Prime big rigs started appearing on the highways and in December 2016 Amazon made its first commercial drone delivery in the UK.

Getting Their Feet Wet

But as I mentioned previously Amazon is all about scale. The global supply chain and freight forwarding was the next logical step. In late 2015 Amazon received freight forwarding licenses from both the US and the Chinese governments.

As reported in The Street:

“It’s a very smart move,” said Jaime Jimenez, CEO of iContainers, a startup trying to digitize the ocean freight industry. “They’re going to make it easier for Chinese suppliers to get stock to American customers.”

And Jimenez went on to explain

“The $350 billion ocean freight industry is completely outdated and a nightmare to deal with. If a merchant wants to ship a container from China to the US, they could spend up to 40 days emailing with various providers and carriers trying to figure out how much it would cost and how long it would take.”

This is all red meat for Amazon – identify inefficiencies to lower prices.

Taking to the Air

In addition in early 2016 they signed an agreement to lease 20 Boeing 767 freighter aircraft from Air Transport Services Group.

From a Supply Chain 24/7 article:

Dave Clark, Amazon senior vice president of worldwide operations and customer service, said, “Amazon is excited to supplement its existing network through this deal with ATSG to use these 20 aircraft to ensure air cargo capacity to support one and two day delivery for customers. ”

An Advanced Analytics Approach Is A Must

The ocean shipping and air cargo industries are now firmly in Amazons sights for disruption. Their technology driven approach to drive inefficiencies out of a system in pursuit of lower costs will produce casualties. We all know the current state of the container shipping industry. Hanjin’s bankruptcy is a clear statement that they need to get their house in order fast.

As Colin Sebastian, senior research analyst, RW Baird, noted in his Supply Chain 24/7 article

“Global logistics is a highly competitive market that we believe has yet to fully capitalize on the emergence of web – based technologies such as cloud computing, data centric analytics and optimization that can reduce inefficiencies throughout the supply chain. Amazon’s cloud technology expertise and increasingly complex fulfillment, logistics and delivery network seem to be obvious foundation to offer third-party services, with an incremental $400 billion-$450 billion market opportunity.”

Although the air cargo industry is in much better shape than the ocean shipping industry both need to rapidly invest in technology-based advanced analytics. This is a good first step but it’s not the only answer. My prediction is that the Amazon behemoth will eventually “own” the global supply chain for retail products. All that is left for the Air and Ocean carriers are goods and products that Amazon does not sell, i.e. commodities, industrial machinery, cars, agricultural products etc. The world according to Amazon will be here much sooner than you think.

If you’re interested in learning how shipping by rail might better meet your freight transportation needs call New Mexico Transloading at 505 – 908 – 1911. We’d be delighted to have a conversation with you.

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