Cooperate or compete: how should logistics providers cope with Amazon?

At present the global logistics industry shares an uneasy relationship with the likes of e-commerce giants Amazon and Alibaba. Many major express parcels networks, contract logistics, air carriers, freight forwarders and technology providers act simultaneously as both suppliers and competitors. Whilst some are wary of engaging, afraid of losing intellectual property or being used as a stepping stone to these e-commerce giants’ ultimate goal of building their own operations, others take a more pragmatic view driven by the need for short term volumes.

Most people in the industry now recognise that Amazon is no longer just an online retailer but instead a giant logistics company. Amazon, of course, is already an important warehouse provider and one of the largest users of distribution property in the world. Whilst a large proportion of its warehousing space is used for its own retail sales, its third party service ‘Fulfilled by Amazon’ (FBA) is increasingly important. In much the same way that Amazon Web Services, its market leading server subsidiary, was developed to support its own business but was then leveraged for third parties, FBA has developed into a revenue stream tapping external customers.

Much has already been written about Amazon’s entry into the freight forwarding sector. For over a year it has had permits to operate ocean forwarding services in the US and Chinese markets, allowing it to provide international freight consolidation for China’s small and medium-sized exporters. Levels are still tiny compared with the volumes shipped by retailers such as Wal-mart, but the significance of the move has not been lost on the market.

Air cargo is also in Amazon’s sights. Amazon has already acquired interests in two air cargo carriers, with further options available, and leased planes on 5 year deals to reposition inventory in the United States. This will give it much more flexibility in adapting its logistics network, allow it to deal with peaks of demand more cost-efficiently, and potentially, allow it to augment its own volumes with those of external customers.

Road freight, of course, is also part of Amazon’s strategy to build out its own transport network infrastructure. In the US it acquired thousands of trailers (although it does not have the licences to haul them) and it also announced that it was going to develop its own software to schedule and track its own shipments.

Of course it is not just Amazon with big plans to transform the world’s logistics markets. Its huge rival in China, Alibaba, has similar plans to create a global network. Its minority owned Cainiao Network delivered 12.2bn packages from Alibaba’s China retail marketplaces in 2016 and it has plans to reach international customers through a globalization strategy which involves partnering with companies such as Hermes, SingPost and USPS.

Interestingly, both Amazon and Alibaba have decided to side step the existing logistics giants, at least in important parts of their businesses. They are both big enough to ensure that volumes are sufficient to support their own networks. With the infrastructure in place they will be able to open these networks up to other shippers, at a rate that will be extremely competitive. Although certainly not the end of the road for the world’s major transport and logistics players, the likes of Amazon and Alibaba will mean that the market is set to become even more competitive at a time when many companies are already struggling to make reasonable returns.

Compete or co-operate? Either way it seems that the likes of Amazon will be calling the shots for many years to come.

The issues discussed in the briefing are dealt with in much more depth in Ti’s latest report Global e-Commerce Logistics 2017. The report includes profiles of Amazon and Alibaba as well as in depth market sizing and analysis. Click here to find out more..

Source: Transport Intelligence, March 21, 2017

Author: John Manners-Bell