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From SCDigest's On-Target E-Magazine

- Oct. 26, 2015 -


Supply Chain News: Analysts at Baird Say We May See Amazon Transportation and Logistics Soon, as it Continues to Open DCs at Frantic Pace

Opportunity is There, Baird Says, for Numerous Amazon 3PL Services, While Company DC Count Up 21 in Last Year to 173


SCDigest Editorial Staff of course has utterly disrupted the traditional retail landscape, continuing to grow at 20-plus percent rates quarter after quarter, and will soon be the second largest retailer in the US behind giant Walmart.

Will Amazon soon turn its attention more fully to building out a delivery network that will not only take its business away from UPS, FedEx and the United States Post Office, but actually compete with them?

SCDigest Says:

Baird in fact believes that Amazon not only has opportunities for taking on its own last mile delivery service, but a broad range of 3PL services.
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That's quite likely, according to a new research note by the Wall Street analysts at Baird.

Amazon has "unique advantages" as a delivery provider, Baird says, adding that a move more fully into logistics outsourcing services would allow Amazon to tap into a market of some $400-450 billion dollars.

The idea of Amazon becoming a delivery service like UPS has been around for some time. On 2014, for example, SCDigest reported that Amazon was piloting use of its own private fleet for parcel delivering in three markets: New York City, Los Angeles, and San Francisco, after an earlier pilot in the UK. The delivery vans used contract drivers, and Amazon was said to have also built its own parcel tracking system, similar to those used by UPS and FedEx. (See Amazon Rolling Out Its Own Fleet of Trucks.)

Of course, Amazon is already delivering groceries in its own trucks under its Amazon Fresh service available now in a few markets, and has been testing everything from bicycle couriers to an Uber-like approach (Amazon Flex) in terms of managing its own last mile deliveries.

But Baird believes Amazon is likely to get more serious about this opportunity.

"We believe Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global providers, and with an investor base that is historically tolerant of large-scale investment and low margin revenues," Baird writes.

Baird adds that "Our assessment of Amazon's broadening fulfillment ecosystem, internal domain expertise, and early initiatives with Prime Now to offer third-party delivery suggests there is evidence Amazon may ultimately pursue more comprehensive third-party services. Similar to the gradual rollout of AWS [Amazon's Cloud IT services], we would expect Amazon to introduce competitive transportation and logistics services on an incremental basis, with a long-term focus."

Baird even suggested a name for the new service: Amazon Transportation and Logistics (ATL),

It posits that in addition to perhaps achieving savings in its own shipping costs by in effect taking out UPS or FedEx's margins, other customer of the service would range from SMBs to enterprise businesses that lack financial resources, expertise, or technology horsepower to manage fulfillment/logistics internally, and with an offering that raises the competitive bar versus incumbent service providers.

SCDigest would add that there would be two obvious and another potential set of customers: (1) Taking direct control of Amazon's own product deliveries; (2) Adding in deliveries for its "Fulfilled by Amazon" (FBA) third party logistics service, which mostly today involves pick and pack services for non-Amazon etailers; (3) Other etailers as an alternative to USP/FedEx/USPS.

"AWS was borne out of Amazon's proficiency in managing highly volatile computing workloads for its retail business; FBA was created to help drive more reliable fulfillment and customer service for physical products sold on (and off) Amazon; and in a similar vein, we believe Amazon can leverage the vast and expanding technology and fulfillment infrastructure supporting their own network of distribution, local sortation and data centers to offer logistical and delivery services to third parties," Baird adds.

(Distribution/Materials Handling Story Continues Below )


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Baird in fact believes that Amazon not only has opportunities for taking on its own last mile delivery service, but a broad range of 3PL services, as illustrated in the graphic below.


Amazon Continues to Build DCs at Rapid Pace

It seems to SCDigest that the more distribution facilities that Amazon opens up, the more viable its own delivery service becomes. And those openings continues at a rapid pace.

In fact, has added 21 new logistics facilities globally in the past 12 months, according to new data by the e-commerce software maker ChannelAdvisor last week. That is up 14% from last year, bringing the total to an amazing 173 facilities worldwide.

Of the 173 facilities, 104 are in the North America region, with the rest spread across Europe and Asia. The 173 logistics facilities include the large fulfillment centers; sortation centers, where packages get presorted for shipping; and Prime Now hubs, generally in urban areas to store one-hour delivery items.

Of course, this continued massive build out is a key reason that Amazon just can't seem to turn a profit despite very high sales growth.

Do you see Amazon being a force in delivery and third party logistics services? Why or why not? Let us know your thoughts at the Feedback button below (email) or in the Feedback section. Anonymity will be provided upon request.

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