Amazon prepares to enter Ocean Forwarding

Amazon appears to be extending its ambition in logistics beyond home delivery and towards international supply chains with a move into freight forwarding.

Press reports detail that the internet retailer’s China subsidiary has applied for an ocean freight forwarding licence from the US Federal Maritime Commission. The license has not been granted yet, however this is unlikely to be a major obstacle.

Although there is a substantial amount of speculation about the consequences of Amazon entering the market for freight forwarding, the logic behind the move appears consistent with the Seattle company’s general approach of strategic vertical integration of its logistics operations. It has already brought its last mile delivery operations in-house for markets such as the US, UK and Germany, a task which is far more demanding in terms of capital investment and management resources than creating either a sea or air forwarding capability.

The implicit thrust behind so much of Amazon’s strategy is a reach for economies of scale. Ownership of its vast network of warehousing and fulfilment centres is justified by the volumes of material it puts through them. Bearing in-mind that China is one of Amazon’s largest sources of goods it would appear unsurprising that this is the first place where it would seek to in-source its ocean freight management requirements. Possibly this may also apply to the suppliers from China who sell their products through Amazon.

Presumably Amazon will seek to consolidate its loads out of China, enabling it exploit economies of scale as the company so often seeks to do and thus drive down the prices it pays for freight. This may have implications for the ability of shipping lines to set prices for their services, however they already deal with freight forwarders with significant buying power so this may not be so transformative as it may initially sound.

Amazon is on a hugely ambitious journey to create an integrated retail logistics network on a global scale. For now, it has the capital to attempt this, but making such a thing profitable over the long-term may be a greater challenge.