2015 was such an unpredictable and volatile year that making any kind of accurate predictions for the future is difficult at best.  After all, who could have predicted a 35% drop in oil prices last year to $37 per barrel?

Last year I discussed the forthcoming change in demographics which will have a profound impact on global supply chains over the next decade.  This year my predictions will focus on the Amazon impact and how this is changing the world as we know it today.

Wulfraat Says: Amazon has built an impenetrable moat that cannot be replicated by any other company. That's right, it's not even close. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

Last year Amazon quietly rolled out no less than 43 smaller urban facilities (Prime Now Hubs & Fresh Delivery Stations) in the United States with the goal to enable delivery to your doorstep in 60 minutes or less. Amazon also opened up 4 University bookstores and entered into the world of retail brick and mortar. Rest assured that this is just the tip of the iceberg as the company is only getting started on its national quick response assault. Amazon's main weakness is that it doesn't have any stores for people to shop at but they are quickly working on eliminating this barrier.

Spending $1 Billion on distribution infrastructure is small potatoes for Amazon. In 2016-2017 we estimate that the company will open 7.2 Million square feet of new fulfillment center space in the U.S. alone. By our estimates that's a cool $1.2 Billion of CapEx, never mind all the other top secret projects underway at the global level.

Amazon is now heavily investing in transportation, ultimately in our opinion, to enable complete independence from UPS and FedEx. The company has a major challenge to lower its shipping costs and to this end, they will continue to test alternative strategies to relying on the national parcel carriers. The recent news that planes will be leased to move packages to/from the former DHL sortation hub in Wilmington, OH should come as no surprise.

Stop and think about the implications of this because they are big. Any Amazon customer placing an order for any SKU that is not available within the closest fulfillment center can now have their order picked, packed and shipped from any of the other 63 fulfillment centers in the Amazon network and can receive delivery of that SKU within 24-48 hours. Amazon will simply move packages onto planes for shipment to the Wilmington sortation center where they will be sorted by fulfillment center and then shipped on the same planes as they return to their home airports. So when a Philadelphia customer orders a microwave oven that is stocked in Phoenix, that oven will be shipped by plane from Phoenix to Wilmington and then on to Allentown and then by ground to Philadelphia. All of this without the need for UPS or FedEx.

Needless to say the national carriers will need to come up with more ways to offset declining Amazon revenues by penalizing shippers with rate increases, particularly in the retail e-Commerce sector where volume spikes between November to December cause significant infrastructure demands for the national parcel carriers.

Some may debate that Amazon's lack of profits demonstrates that the company's business model is unsustainable. Only Amazon knows for sure if it can ultimately turn its retail business into a consistently profitable entity. But while people pontificate this subject, there is an incredible amount of devastation and turmoil taking place in the retail sector as competitors are spending fortunes to establish their e-Commerce platforms.

Make no mistake, this dynamic is not limited to the retail sector. I recently heard a story about a small home construction company that needed 25 overhead oven fans for a new housing project and their local wholesaler was out of stock. So they found what they needed on Amazon - at a lower price and with free shipping - and the fans arrived the very next day on a UPS truck. Imagine how this type of learning experience is happening all over the country and you can start to appreciate how Amazon may one day devastate the wholesale and industrial distribution sectors.

All this to say that if you thought that Amazon was a game changer in 2015, hold onto your hat. The company has built an impenetrable moat that cannot be replicated by any other company. That's right, it's not even close. And Amazon has a long way to go before they run out of growth opportunities. They still have yet to penetrate Northern Europe, The Middle East, Australia, South America and they have only scratched the surface of Asia.


Final Thoughts

With this in mind, I predict that speed to market and quick response will increasingly emerge as a paramount competitive weapon and that this phenomenon will be most pronounced for, but not limited to companies serving customers at the retail end of the supply chain.

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