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Updated 26 Jul 2017


Decrypting why and how Amazon is expanding its logistics capabilities

Amazon’s investment into its logistics and distribution model is going to shake things up for transporters. You can learn from the eCommerce leviathan’s approach. 


Nicole Crampton, 13 April 2017  Share  0 comments  Print


All the answers to your unique business lifestage questions

Amazon is expanding its international transport and logistics reach to meet a growing customer expectation for cost-effective, on-time delivery. Zvi Schreiber, CEO of Freightos, says that a subsidiary of Amazon has already registered as an ocean shipping provider with the US government. Amazon is also strengthening its distribution chain with its first air-freight hub in northern Kentucky. 

Related: Amazon Go points to future of retail for bricks-and-mortar businesses


THE NEWS

Amazon has invested USD1.49 billion on its first air-freight hub to strengthen its distribution capabilities and incorporate more of its supply chain. The move is to decrease its dependence on third-party logistics companies and improve the Amazon overall customer experience. Are you an Amazon logistics partner? Have you calculated how this internal logistics shift might affect your bottom line?


Here are three ways Amazon’s move into transport and logistics might impact your freight-moving business:

1. You’ll make fewer deliveries

Considering how many businesses are involved in the distribution of Amazon products, internationally and nationally within each country, this move will impact many transport and logistics businesses.

“Sellers will no longer book with DHL, UPS or Fedex, but will book directly with Amazon,” says this leaked Amazon document reviewed by Bloomberg.

“The ease and transparency of this move will be revolutionary and sellers will flock to Fulfillment by Amazon given the competitive pricing.” Not only will Amazon now be able to reach international and local audiences, but they will also be able to do this at a cost-effective price making it the competition to beat.

2. You might have to compete on price

When Amazon eventually takes full control over its own distribution channels, there will be a number of transporters without work in your sector that are no longer servicing the online retailer.

“A report to Amazon's senior management team proposed an aggressive global expansion of the company's Fulfilment by Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company's website," Bloomberg reports. "The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London.”

Since you’ve been forewarned about this disruption, you can plan ahead and look at pricing models that remain cost-effective and attractive for Amazon and its retailing partners. Use your intrinsic knowledge of the South African transporter sector to develop a plan that allows you to compete on price, without completely eroding your profitability.

Related: Is the future of Amazon a store staffed with 3 people?

3. You’ll see an increase in local competition

Not only will Amazon impact the international transport and logistics industry, but it will also impact local companies as it begins to buy sections of national businesses to expand its logistics footprint.

“Amazon opted to purchase 75% of French package delivery company Colis Prive, which puts it in direct competition with Fedex and UPS in that country. Many believe Amazon will use this acquisition to better understand the parcel delivery business - and look for opportunities to innovate well beyond France,” explains columnist Marc Wulfraat, MWPVL International.

If you think you won’t feel the effects at all, keep in mind that “This is classic Amazon fashion,” says Colin Sebastian, an analyst at Robert W. Baird & Co. He predicts that this global logistics operation could become a USD400 billion business for Amazon.

“They take baby steps along a long path, which allows some companies that could be disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks the market.”

This puts you in an interesting position moving forward. Do you look to compete with Amazon, or do you ensure that your logistics systems and processes are in place so that the retailer buys your company? If you decide to sell to Amazon, and want to remain a part of the business, why not look at how a buy-out contract suits your company? You can remain at the helm of the business while working with Amazon to build an even stronger logistics service. 


KEY TAKEAWAYS

  • If Amazon internalises its full distribution chain, it could leave numerous transport and logistics businesses with less work.
  • These transport and logistics businesses will then start competing for customers with your business.
  • If you thought this transition wouldn’t impact you, Amazon is buying into local distributors to carry their inventory. You might be able to sell you company to Amazon if you offer the capabilities the retailer is looking for.
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About the author


Nicole Crampton


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