This article by Zack Kanter at Techcrunch does a great job of laying out why Amazon is in such a defensible position and how its vertical integration strengthens that position. When reading this alongside news about Amazon’s Prime Air, the Dragon Boat project and the growth of Amazon Logistics in general, it’s clear to see the potential longer term threat to traditional freight forwarders.
Articles about Amazon’s logistics intentions generally focus on their plans to bring shipping in-house and bypass forwarders and last-mile delivery services for the Amazon traffic. After reading Kanter’s article though, I think it may be in their interest to also handle non-Amazon freight so that they take on the forwarders directly.
Amazon Web Services (AWS) started because Amazon was not able to get enough infrastructure to cope with their growth. They built their own platform which then became a very successful external product. AWS is vertical integration done differently. The external nature means it must stay competitive in terms of service, cost, reliability, etc. and it avoids the complacency and inefficiency that are typically seen as the downside of vertical integration. The AWS external customers make sure that Amazon gets the best possible service internally as well.
Fulfilment by Amazon (FBA) is another example. Amazon opened its own fulfilment channel to vendors and now offers multi-channel fulfilment where they ship non-Amazon orders through the FBA network. This ensures the FBA channel is competitive against other external fulfilment options while also improving their own channel for regular Amazon shipments.
There are many click-worthy articles about drone deliveries with Prime Air or using Prime Air to move freight between Amazon warehouses but what happens when Amazon wants to keep Prime Air competitive? Based on AWS, FBA and other products, the obvious answer is to bring more freight from external customers. Similarly, Dragon Boat articles describe it being used for shipping Amazon-bound products from China but it’s not much of a stretch for it to become a freight forwarder for other shippers. The difference is that this is a freight forwarder with a strong technology backbone, an in-house vested interest in good rates and service from carriers, a consumer-centric ‘demand chain’ approach and a willingness to lose money while it gets things working.
Taken together, these show interesting times ahead. How should freight forwarders respond to this? Ignoring it by focusing on those sectors where Amazon is not present is not a sustainable approach. Is it a better option to work with the shippers who see enough threat from Amazon in their regular business that they want to keep their distance when it comes to logistics as well? Should they work more closely with the carriers who are facing similar threats? Alternatively, should the approach be “if you can’t beat them, join them” where forwarders work with Amazon in the full knowledge that they will not get the prime (pun intended!) freight but at least they’ll get a share?
There is no easy way to address this but clearly now is the time to be working on it. What do you think? Is this a realistic view of the future and if yes, what should forwarders be doing to prepare for it?
I’d love to hear your thoughts on this. Please join the conversation and leave a comment below. Thank you!
At SupplyChainBridge, we work with companies going through this type of transformation. Bridging the gap between shippers and service providers, we create the collaboration that powers the best supply chains. Contact me at graham@supplychainbridge.com