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Supply Chain News: Amazon Competing for Logistics on Many Fronts


Global Logistics, Direct Parcel Carriage, eCommerce Fulfillment


Feb. 6, 2019
SCDigest Editorial Staff

Despite repeated denials that it was building various logistics capabilities - including global logistics and small parcel delivery – a series of recent reports from various media sources say otherwise.

Despite denials of its aims in global logistics after a report from Bloomberg in 2016, USAToday recently reported that Amazon shipped nearly 5 million cartons from China to the US in 2018, and that it is building an end-to-end capability to act as an integrated freight forwarder and connect Chinese manufacturers to end customers in first US and then Europe. (See After Three Years of Secrecy, Amazon Starting to Ramp Up Global Logistics Services.)

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Amazon could be even more aggressive, Armstrong adds, perhaps even extending its 3PL services beyond its own marketplace to multiple industries.

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While for now those growing capabilities are being applied only for goods being sold on, there is speculation those services could be offered generally to Chinese manufacturers and US importers, which could roil the existing market.

Next, despite repeated denials it was entering the parcel delivery business in any meaningful way, early in 2018 Amazon announced its Delivery Service Partners (DSP) program, in which local entrepreneurs lease as many as 40 Amazon branded delivery vans and run routes delivering Amazon orders in their markets, This rapidly growing program clearly is taking some final mile deliveries away from the US Post Office (which delivers the greatest number of Amazon orders), FedEx and UPS.

Then just a few weeks ago, the Wall Street Journal reported that Amazon was using lower or non-existent fees usually assessed by FedEx and UPS for fuel usage, residential deliver, peak season delivery (UPS only), and others to entice its Marketplace sellers (which sell through but often handle their own shipping) to ship through Amazon instead.

UPS and FedEx have both largely dismissed Amazon as a threat, however, noting the tens of billions of dollars of investment each has made and continues to make in their networks.

The carriers also say that as big as Amazon is, it still represents a small part of their total parcel deliveries.

A new report from the analysts at Armstrong & Associates (Amazon Logistics Market Estimates, Benchmarking, and Predictions), as summarized in Heavy Duty Trucking magazine, estimates that Amazon shipments for its own orders and its 3PL service Fulfillment by Amazon account for 6.5% of total UPS revenue and 4.7% of FedEx revenue.

However, FedEx at least disputes the Armstrong estimate, telling HDT that in fact perhaps surprisingly Amazon is not FedEx's largest customer, and that the share of total FedEx revenue connected to Amazon was less than 1.3% of total FedEx revenue in 2018.

Given that FedEx is of course a public company with strict reporting requirements, we have to assume the number it reported was correct.

But Amazon is clearly growing its parcel and other freight transport capabilities and volumes. Amazon is reported to now have fleet of 4,000 to as many as 7500 trailers to transport merchandise to or between fulfillment centers.

The Armstrong report notes Amazon does not own tractors, but instead for branding and other purposes provides trailers with the Amazon logo to common carriers, 3PLs and others to move Amazon goods.

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Armstrong expects the Amazon van pool for the Delivery Service Partners program to reach a sizable 20,000 vans by the end of the year.

Amazon may not only gain lower costs from doing its own parcel deliveries, the capability also allows Amazon to expand delivery days and hours, and offer new services, such as the recently announced program to have its drivers put deliveries inside a consumer's garage.

Amazon would likely pick off the best, most delivery-dense routes for its DSP partners, overcoming in the areas perhaps the network advantages enjoyed by UPS and FedEx overall.

Of course, for many years Amazon has offered its Fulfillment by Amazon (FBA) service, in which it acts as a 3PL, storing, picking and shipping goods for merchants on its site.

HDT says ecommerce makes up 7% of US 3PL revenue, and further that Armstrong estimates Amazon is acting like a 3PL for 12% of all business-to-consumer ecommerce shipments currently. Further, third-party sellers on Amazon's marketplace represent more than half of all units sold through Amazon, but only about half of those sellers use the company's FBA program.

That would seem to offer large opportunities to grow its share of fulfillment services for those companies, or to take ownership of marketplace sellers' parcel shipping, either directly on its own trucks or just by bringing parcels into its network, where its scale might result in lower costs than those sellers shipping on their own.

Armstrong says that it expects this trend to continue, as third-party sales on Amazon's marketplace continue to accelerate (including partnerships with big brands like Nike).

The company could be even more aggressive, Armstrong adds, perhaps even extending its 3PL services beyond its own marketplace to multiple industries – a strategy that could involve Amazon acquiring of an existing 3PL.

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