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Amazon has continued its much anticipated foray into the freight and logistics sector – yesterday the US Federal Maritime Commission (FMC) awarded one of its Chinese subsidiaries an Ocean Transportation Intermediaries (OTI) licence that allows it to operate as a sea freight forwarder.
Registered in 2004 by Amazon founder Jeff Bezos as Beijing Century Joyo Courier Service Ltd, the FMC directory lists its trade name as Amazon China, and its status as a registered OTI means it can book container slots for both Chinese manufacturers exporting to the US, as well as US retail importers.
However, gaining the licence is only the first step maturing into a fully-fledged sea freight forwarder, and other forwarders said it could be some time before the company actually entered the market in terms of buying and selling slots on vessels.
Others argue that US retailers are unlikely to be tempted to use Amazon as a forwarder, given how much sensitive commercial data it will be privy to as an OTI.
In a highly insightful blog, Flexport chief executive Ryan Petersen said: “As the freight forwarder on a company’s shipments, Amazon would see both the name of the supplier and the wholesale price paid by the importer. For most of the more than 40,000 sellers currently earning over $1m a year selling products on Amazon, this data is too sensitive to entrust with a company that is both a primary distribution channel and a ruthless competitor.
“It would be too easy for Amazon to use that data against them, either as an anchor in price negotiations, or, worse, to purchase directly from the supplier, cutting the US merchant out,” he said.
But for Chinese manufacturers which benefit from getting their products to market as cheaply as possible, because it makes the prices more competitive to US consumers, Mr Petersen said it could be a game-changer.
“Amazon China can provide freight forwarding services to Chinese companies looking to move products directly into FBA warehouses, or perhaps even by cross-docking the goods for direct injection into Amazon’s courier network. Sharing the invoice price and supplier name is a non-issue for Chinese companies selling to Amazon or directly to its customers,” he added.
Sian Hopwood, senior vice-president B2B operations at supply chain software supplier Kewill agreed. “Delivering products direct from manufacturers to consumers is not a new concept but this is the first time we have seen this ‘drop shipping’ model on a global scale,” she said.
“Retailers wanting to regain market share must step up their efforts to ensure they are able to respond more flexibly and responsively to demand, importing stock as it is ordered rather than having to predict stockpiling requirements and risk warehousing unwanted items.
“By removing the middleman, retailers can reduce costs and provide customers with an always-on, always-available shopping experience which traditional models can’t sustain.”
She added: “One thing is certain, the retail environment is still in a state of flux with the rise of digital and mobile shopping. A key part of making this system work is visibility – if companies are to retain customer trust they will need to have supply chain management solutions in place to ensure shoppers know exactly what’s happening to their shipment.”
Creating its own distribution networks and controlling increasing parts of supply chains, is driven by the twin aims of reducing cost and being more responsive to end consumers, argues a report by analysts at Barclays Bank this week.
It says: “Over the years, one of the keys to Amazon’s success, and one of the key pillars of its strategy, has been to continually build out its distribution infrastructure. As it has been able to push more product closer to where individuals live, the cost to ship goods, on average, has come down – shipping as a percentage of revenue has moved up in the past few years, but that is more of a function of company strategy on shipping and the growth in Prime, we believe.
“This has allowed Amazon to compete at an advantage against almost every e-commerce alternative and to distance itself from brick and mortar retail as well. We expect them to continue to drive leverage in shipping as a core strategy.”
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Comment on this article
John RobertsJanuary 15, 2016 at 4:24 pm
This is a really exciting development. I wonder how many other retailers will follow suit.
Double DJanuary 15, 2016 at 5:15 pm
Graduated B-School last year, this flies in the face of what has been the conventional wisdom for ten years or so. Namely, focus entirely on your core competencies (e-commerce) and outsource all functions which don’t give you a competitive advantage (fulfillment, forwarding, logistics in general).
I think Amazon is grasping for profit centers here, and I don’t think they will find any in the brutal ocean-freight industry.
Logistics has never been Amazon’s core competency, they lose outrageous amounts of money on their 2-Day shipping. So I can’t see how stepping further into the industry will help them. IMO a long-term partnership with UPS/Fedex is the way to go.
Angela ThompsonJanuary 27, 2016 at 12:58 pm
You quote Sian Hopwood in your article, Sian is my daughter and consequently a female….not “he”. In these days of gender equality it is disappointing to see that business articles are presumed to be commented on by men. As a technologist I am only too well aware of the difficulties that women face in the world of business.
Alex LennaneJanuary 27, 2016 at 1:06 pm
I have now changed the article – our sincere apologies. As an Alex – and female – I am more aware than most of the issues you bring up, so I am very sorry it happened on our website.