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Home » Blogs » Think Tank » Amazon's Latest Hat: A Freight Forwarder From China

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Logistics / Express/Small Shipments / Freight Forwarding/Customs Brokerage / Global Logistics / Logistics Outsourcing / Transportation & Distribution / Inventory Planning/ Optimization / Transportation Management / Supply Chain Visibility / Consumer Packaged Goods / Retail

Amazon's Latest Hat: A Freight Forwarder From China

May 9, 2016
Robert J. Bowman, SupplyChainBrain

You'd be hard-pressed to find one, especially in light of recent moves by Amazon to fill in the gaps in its logistics services portfolio. In addition to operating a vast network of fulfillment centers, the e-commerce powerhouse has acquired its own delivery trucks in support of the AmazonFresh service, secured a fleet of branded tractor-trailer units for longhaul moves across North America, and chartered planes to handle peak-season orders.

So it shouldn’t have come as a surprise when Amazon’s China arm registered with the U.S. Federal Maritime Commission late last year as an ocean freight forwarder. In retrospect, it seemed like an obvious piece of the puzzle to put into place. Why not seek direct control over the complex process of getting shipments from China into the hands of North American consumers?

Who stands to benefit from Amazon’s move the most? Siân Hopwood, senior vice president for B2B with e-commerce software vendor Kewill Inc., says the biggest impact will likely be on the Amazon Marketplace, the platform for third-party sellers. They could well be attracted by the prospect of being able to target and ship to consumers in a more direct fashion. A Chinese manufacturer, for example, could potentially lower its cost of serving the American market, especially when it comes to freight. In the process, it could bypass traditional retailers entirely.

Customers today care only about shipping cost and delivery time. Distant Chinese suppliers now have the opportunity to leapfrog over more proximate sellers, says Hopwood. They don’t have to bother with local partners who can beat them down on price and squeeze their margins considerably.

Third-party merchants might balk, on the other hand, at the prospect of giving Amazon information about wholesale pricing and the names of key suppliers. At a time when cybersecurity is a major concern, they could fear the exposure of that data to rival retailers.

Another possible motive for Amazon’s freight-forwarding registration is to offer its services as a third-party logistics provider, or non-vessel operating common carrier. In the case of the latter, Amazon’s market power would make it a formidable negotiating force when booking space with ocean carriers. Such a move would square with the company’s tendency to acquire a capability for in-house use, then offer it to others. Witness the success of Amazon Web Services as a repository for software applications and data in the cloud.

And don’t discount the competitive threat from Alibaba, China’s e-commerce behemoth that has become the world’s largest retail platform in terms of total trading volume. “Amazon very clearly identified that, and they cut if off,” says Hopwood, adding that Alibaba has yet to gain significant traction in Europe. “They took it to another level.” (At least for now: Don’t expect Alibaba to take Amazon’s recent competitive moves lying down.)

Hopwood says Amazon will need to address the risk of saddling itself with expensive logistics assets. In fact, the company finds itself moving in the opposite direction of most major manufacturers and retailers, who have chosen to outsource their logistics to established third parties. Yet none of those entities harbors dreams of serving companies outside its own organization. Or, for that matter, dominating the e-commerce space on a global scale.

How else could Amazon trip up? The price for failing to manage a customer’s logistics needs in a satisfactory manner can be huge. And buyers won’t tolerate service failures. The headaches associated with managing customer accounts for high-priority shipments, especially those moving by air, are “unbelievable,” says Hopwood.

Perishables are a particular challenge. “Amazon really needs to think about this,” she says. “If they want to bring the whole thing in house, they’re no longer [just] a marketplace. They are a logistics company.”

Traditional retailers have labored for years to implement drop-shipping programs that reduced the number of steps through which a package must pass before reaching the buyer. Under such arrangements, it’s crucial to be able to track orders from origin to the customer’s door, says Hopwood. That’s a sharp departure from the reliance on bulk shipments to a distribution center, where product might sit for long periods of time, or not be sold at all.

Amazon is, of course, on top of many of the most innovative methods associated with e-commerce, including expedited delivery and, more recently, the use of alternative pickup points for packages. “The last few years have been about next-day delivery,” says Hopwood. “This is the year we’re talking about delivery for convenience. It’s about getting my parcel to me wherever I may be.”

All of which necessitates that logistics providers be highly skilled in their efforts to satisfy the increasing demands for service by the consumer. Amazon, apparently, wants to play a greater role on that stage. It’s unlikely to topple the big parcel carriers in the process, but it should make things interesting. “From the customer’s point of view,” says Hopwood, “why not have such choices?”

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