Amazon is famous for pioneering e-commerce and disrupting the retail industry. The company will do the same for the logistics sector, and traditional LSP’s better start preparing themselves before it is too late.
The history of Amazon tells us that the company explores all possible avenues based upon what is possible for it to achieve. What is possible is defined principally by the company’s technology, and this is the source of its growth into new markets; from retail into consumer electronics (Kindle), fulfilment and IaaS.
In each of these cases, the company began the operation to support its core retail business, before its executive management decided that it could sell each to outside customers as standalone businesses.
So it is with logistics. Unsatisfied with growing expenditure and sometimes poor performance (see Christmas 2013), Amazon has spent the last few years investing more into its own logistics to ensure customers are better serviced and costs are reined in. Since 2013, Amazon has been taking care of last mile deliveries in selected locations, and has begun to expand such deliveries to areas where it makes economic sense. The company still subcontracts the work, and will continue to rely on other partners for most deliveries, but customers are receiving more and more packages labelled “AMZL”. This is not to mention the company’s experiment in crowd-sourced delivery through Amazon Flex, which could represent the ultimate future of this operation.
Furthermore, the company purchased “thousands” of truck trailers in December 2015, in a move that perhaps shows how the company plans to increase its control over line hauls between its fulfilment centres. The company will continue to contract out the handling of such shipments, but now has a better handle on capacity.
In a complementary move that has been alleged by a multitude of sources now, it seems as though Amazon is getting involved in air freight through ACMI and CMI leasing agreements (Aircraft, Crew, Maintenance and Insurance). Though the company has not officially announced that it is getting involved in air freight directly, media reports allege that the company is set to purchase up to 60 aircraft for use in CMI agreements in the United States. Similarly, in Europe, the company is reputedly partnering with DB Schenker who have leased a Boeing 737 to fly between airports in the UK, Germany and Poland, each within the vicinity of a major Amazon fulfilment centre.
The upside of both the road and air operations is that the company will be able to redirect inventory within the fulfilment centre network when shortages occur at any point, and may save significant amounts of time and money in doing so. In the long run, the company could sell excess space on its aircraft to other businesses, and it is certainly complementary to the existing ‘fulfilled by Amazon’ service.
Not finished there, news broke in January 2016 that Amazon China has registered with the US Federal Maritime Commission to operate as a freight forwarder in the United States. Again, this will support the company’s fulfilment business, and demonstrates that it could, theoretically at least, provide ocean freight for other companies. It should be noted that registration is just Amazon’s first step on the way to becoming a freight forwarder, but the intent is clearly there. Moreover, at a time when freight forwarding is being disrupted by a number of tech start-ups, Amazon would appear well placed to enter the market with both the requisite capabilities and financial clout to succeed.
Though several of these operations are either in their infancy, or have not yet begun, it is clear that the foundations of a major logistics business have been laid. Amazon will leverage its advantages in IT to maximise the efficiency of these operations, and though they are currently focused on serving in-house needs, it may not be long before the company opens its logistics services up to the market.
One thing is for sure; Amazon is now a logistics company. Get used to it!
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GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)