Can Amazon Really Go End-to-End In Ocean Freight?
Back in 2016, when Amazon received a license to operate as an NVOCC between China and the U.S., the entire freight forwarding industry wondered what this would mean for traditional supply chain management professionals.
Despite having the option to sell ocean freight, Amazon largely moved into last-mile delivery in the years since, competing with delivery services like UPS and FedEx for its massive small-parcel volume, and leaving first- and middle-mile logistics companies relatively undisturbed.
It made sense, especially given the financial burden behind Amazon’s delivery offerings: shipping costs continue to rise annually, topping $20 billion, and Amazon attributed high costs to, among other things, delivery center responsibilities and transportation costs. Bringing the last-mile in-house is a cost-saving strategy.
But Amazon hasn’t forgotten about its NVO license, and in the past month, speculation about Amazon eventually growing into a 3PL service provider has ramped up. Here’s how Eric Johnson, Senior Technology Editor at The Journal of Commerce, put it:
Through its non-vessel-operating common carrier (NVO), launched in 2016, Amazon is certainly exerting greater control over its internal supply chain, but, more grandly, it might also be building a supply chain platform it could market as a distinct service, even selling to shippers outside of its marketplace network.
So, does Amazon have plans to become an active NVO? It’s actually likelier that their freight plans aren’t that narrow.
Amazon as a Full-Service Provider
Amazon is well-positioned to become an end-to-end service provider, hosted through a portal and on a platform that already has a built-in user base.
If Shipping with Amazon, the pickup and drop-off initiative announced last year, was a play for the last-mile, and Amazon’s fulfillment and housing centers have been acting as middle-mile ports for years now, Amazon’s NVOCC license completes their full supply chain reach by adding an Amazon-run option for early-mile transportation. Like Maersk and its push to become an end-to-end supply chain service provider, Amazon already has components in each link. The next logical step is to cover the entirety of a delivery transaction through a dedicated platform.
Amazon’s network of on-platform merchants is robust and obviously has incentive to use Amazon as a shipping partner. But the real question for Amazon to solve is: can they attract buyers to use their services if those buyers aren’t Amazon merchants?
The Branded Platform Problem
We’ve written before about how carriers are developing dedicated freight trade platforms. These platforms are open to “partnering freight forwarders and NVOCC’s,” but it’s unclear if partners will get to use their preferred carrier. It’s unlikely that they’ll have a choice beyond the platform’s developing carrier.
Amazon could face a similar issue as a 3PL. If their end-to-end platform targets manufacturers, shippers, and merchants, users will likely have to use Amazon’s forwarding and NVO services exclusively. If you’re not already integrated with Amazon’s seller offerings, what is the incentive to switch over to Amazon 3PL services?
Amazon’s Ace in the hole: Pricing
Ultimately, Amazon won’t make deep inroads into the full-service logistics world because of a dedicated platform, a wire-to-wire portal, or even ease of use. Their greatest value-add to ocean freight will be pricing.
We know Amazon can control procurement costs for its own goods because of its massive buying power. But if they can transfer the value they get from bulk purchases to freight forwarding customers as well, Amazon can become an ocean freight powerhouse who offers value to customers on or off their e-commerce platform equally. Regardless of whether driving down prices is healthy for the shipping industry, Amazon has the reach and volume to win a race to the bottom.
If that happens, then both the logistics and e-commerce worlds will change dramatically. The two are intricately intertwined, and Amazon could use full-service logistics to further incentivize merchants to sell with Amazon.
Think of it this way: Amazon could use an end-to-end supply chain management platform as a lead funnel for their merchant services. They’d be happy to foot the cost of unbeatable ocean freight pricing if it essentially guaranteed more entrants to its e-commerce network.
It’s not such a far-fetched possibility: Amazon has been using shipping as a sales tool for years already. Now, they might be bringing that strategy from last-mile logistics over to the ocean freight industry.
Try CoLoadX for free today.By: CoLoadX on March 8, 2019, 12:57 p.m.