Navigating Amazon's Move into Freight
Amazon's quiet but successful launch of a full-service freight brokerage has a number of implications for supply chain professionals—some obvious and some not so clear.
It appears Amazon is initially looking for further optimizations and efficiencies related to its last-mile business, which is the bogeyman of online-to-home orders. Additionally, the Amazon network is most efficient with parcels, so driving greater liquidity along those lines will yield better short- to mid-term results for the mothership.
Will the company continue to invest in brick and mortar in addition to its brokerage? Probably.
Amazon has been building out the largest third-party logistics provider in the world for some time now, so the move to brokerage shouldn't be a surprise. Parcel and full truckload will be where the company plays for some time.
But can Amazon Brokerage be a valued partner to supply chain professionals? Here are three things to think about to prepare for Amazon's next big move.
1. Vertical integration. Amazon optimizes for itself. Amazon's business focuses on expanding at all costs in an effort to gain data. The insights gleaned from its data go back into optimizing and tailoring the business for its own efficiency needs. This means Amazon is looking out only for itself and raises the question of how much it will prioritize customers' needs in this new space.
Start by asking your Amazon rep to explain how your shipments are going to move. Will your shipment be sent with a third-party carrier, or only with an Amazon-dedicated fleet? Does your shipment move hubless, or only through multiple distribution centers along the way? These types of questions will reveal what is at the forefront of Amazon's optimization strategy.
2. Advantages of spot market competition. People think there are new savings opportunities waiting for them since Amazon is willing to forego margin compared to traditional models. In the freight industry, however, this may not prove to be a competitive advantage. Smart brokers in this space operate off of the spot market, not on contract. For supply chain professionals, that means Amazon does not derive greater advantage in their model.
That's the challenge and beauty of a spot market—it's egalitarian, and everyone operates under the same set of rules. Whether it's a one-man brokerage working from home or an industry behemoth, everyone's got the same shot on goal. Assuming the above is a fact for Amazon (and everyone else), ask your Amazon sales rep what percentage of its freight is done via contracted rates versus the spot market. That will shed some light on Amazon's true pricing strategy.
3. New customers, new challenges. Amazon specializes in parcel and last-mile service. Can it handle a pallet-based economy? Moreover, can it succeed in the B2B marketplace when its customers are mid- and enterprise-level businesses that come to the table with their own requirements, demands, and needs?
What happens when inevitable channel conflict comes into play? Will enterprise businesses use Amazon to ship to Walmart and will Walmart accept this change willingly? There should be a lot of healthy skepticism around the inevitable channel conflicts awaiting Amazon down the line.
As you consider using Amazon to move freight, it is important to understand if it will be able to drive the same level of B2B expectations that freight shippers need. What is Amazon's process for shipment notifications, appointment setting, and delivery confirmations?
It comes down to this: Is Amazon looking to deliver you a better freight experience, or simply drive more volume through its own freight network?