If its recent activities are anything to go by, Amazon is committed to building up its global warehousing and delivery business by investing further in its logistics network, including air freight capacity. In part 3 of FlyingTypers’ analysis of what this means for incumbent transport providers, we spoke to Cathy Roberson, Founder and Head Analyst for Logistics Trends & Insights.

FlyingTypers:   Amazon’s move into logistics has thrown many incumbents, including integrators, off balance—what do you think the retailers supply chain strategy is?
Cathy Roberson:   Amazon is moving into airfreight/forwarding to take control of its supply chain from manufacturers/sellers in China/Vietnam etc. to Amazon-branded trailers driven by 3rd party truck carriers to one of its fulfillment centers or sortation centers, and then ultimately to the consumer’s front door.

FT:   What does Amazon have to gain?
CR:   Amazon has already moved from being the “Earth’s Biggest Bookstore” in the 1990s to the “Earth’s Most Customer-Centric Company,” as it states in its annual report. By bringing its supply-chain management in-house, it is following its current strategy to be the earth’s most customer-centric company. In addition, its shipping costs continue to climb and trying to find needed capacity from its two biggest delivery partners, UPS and FedEx, has proven difficult, particularly during peak periods. Even FedEx noted this in its last quarterly update when Patrick Fitzgerald, FedEx Senior Vice President of Integrated Marketing and Communications, said: "We work closely with Amazon and have been aware for some time about their need for supplemental air capacity related to inventory management.”

FT:   Does this mean Amazon will eventually compete against FedEx and UPS?
CR:   No, not yet. Amazon needs to get its house in order first. Their customers come first but I wouldn’t be surprised if the company eventually sells space on its airplanes/trailers. I don’t think air freight rates will be impacted one way or another because of Amazon. It’s the same with its freight forwarding abilities. What’s interesting is Amazon’s investment of up to 19.9 percent of ownership of ATSG—how will this affect ATSG’s relationship with DHL, its largest customer?

FT:   What’s the next step?
CR:   I do expect Amazon to sign a similar air agreement in Europe, plus they are close to purchasing 100 percent of Colis Prive in France, pending regulatory approval that will give them a French ground fleet. They are already delivering in various German cities much to the chagrin of DHL, one of their German delivery partners. Last fall, Amazon acquired a large number of trailers to be used between fulfillment centers and sortation centers. Will they buy a trucking company to carry these trailers? No, I don’t think so, but they could possibly acquire a broker to help with scheduling and maintaining trucking relationships.

Susanne Pfaff works in Amazon’s distribution center in Bad Hersfeld, Germany. This past April 21 on German Logistics Day, Amazon allowed shippers and press some insight into the work environment at the big online retailer.

FT:   Should integrators be worried?
CR:   Definitely they should be worried; even though many are publically saying they’re not concerned, privately they are. Amazon is a large customer of UPS, FedEx, and DHL. They stand to lose volume as well as revenue if Amazon brings its entire supply chain in-house. Plus, by combining delivery with such services as Amazon’s FBA (Fulfillment by Amazon) and its AWS (Amazon Web Services), Amazon will attract more retail as well as B2B partners that may have otherwise used one of the integrators.

FT:   Could other transport buyers take similar steps?
CR:   Of course, but it’s doubtful. From a global perspective, we’re seeing a fantastic competition between Amazon and Alibaba—both acknowledging the importance of logistics for global e-commerce domination. Each approaches supply chains differently but both are controlling their supply chain in their own unique way.

FT:   Are there any implications for the shipping and ocean forwarding industry?
CR:   I seriously doubt Amazon will buy an ocean carrier. I think that’s one reason why we saw Amazon’s Chinese subsidiary obtain an ocean freight forwarding license instead. For the ocean freight market, this makes more sense. Freight forwarders are already facing a difficult market thanks to overcapacity, declining rates, and a global economy that has remained in the doldrums for several years. However, as Amazon enters the NVOCC realm, there are bells and whistles going off in many freight forwarding offices. Amazon could provide freight forwarding services to Chinese companies looking to export products directly into its Fulfillment by Amazon (FBA) warehouses, or perhaps even cross docking the goods to inject into Amazon’s U.S. delivery network. In addition, Amazon could provide a service most other freight forwarders are unable to provide, limiting the number of cargo ‘handoffs’ within the supply chain as well as fully taking advantage of its strong IT capabilities to further automate the process.

FT:   Will Amazon face competition from other supply chain disruptors?
CR:   Yes. Alibaba, China’s own monster e-commerce provider, IT firm, and coordinator of logistics services signed an agreement with China Shipping Group, its subsidiary, China Shipping Network Technology, and sister company China Shipping Container Lines in 2014 to set up an integrated and cross-border logistics platform. The platform will allow for both China Shipping’s and Alibaba’s clients to use it for price inquiry, ordering, tracking, and settlement.
     The race is on between the world’s two largest e-commerce providers, and logistics is where the competition will ultimately determine the winner and perhaps redefine a freight forwarding market in need of change.
SkyKing

Click To Read Part One

Click To Read Part Two