Speculation on just how deep Amazon is planning to go in logistics has gained momentum over the past few months and weeks, and has been fired up even more by new reports of a secret strategy for a full-scale supply chain expansion.
Does the giant online retailer really have designs on developing its own global delivery business and compete directly with current service providers such as FedEx Express and UPS? Certainly Amazon appears to be quite content to keep competitors, market analysts and even customers guessing on just where its logistics strategy is headed.
Before Christmas, US media reports claimed Amazon was trialling its own flights out of Wilmington Air Park in Ohio and was negotiating to lease 20 B767 freighters – the cornerstone of a project to develop its own cargo operation to avoid delays from the integrators who have struggled to keep up with the rapid growth of e-commerce.
At the start of this year, CEP-Research reported that Amazon had chartered a B737 before Christmas which carried out six-times weekly flights between mainland Europe and the UK. But it was unclear whether this was a move to test out its own air operation or simply the provision of extra capacity in the run-up to the festive break.
Asked whether Amazon had plans to look after its own air logistics in Europe, a UK-based company spokesperson quoted a brief statement which said: “Within our European fulfilment network, we use various carriers with a range of transport methods for distributing and delivering items. This includes air.”
Further speculation about Amazon's logistics expansion came last month with the news that during 2015 it had registered its Chinese subsidiary, Beijing Century Joyo Courier Service, as a freight forwarder with China's transport ministry, obtaining a license to ship cargo out of the country. Beijing Century Joyo Courier Service made a similar application with the U.S. Federal Maritime Commission (CFMC) last November, the trade names ‘Amazon China’, ‘Amazon.cn’ and ‘Amazon Global Logistics China’ being listed on its license.
Amazon is also believed to have filed an application with the Shanghai Shipping Exchange to serve as a shipping broker for 12 trade routes, including Shanghai to Los Angeles and Shanghai to Hamburg, Germany.
However, there has been very little official comment from Amazon on where its logistics intentions lie. At a recent Amazon earnings call CFO Brian Olsavsky appeared to play down the significance of the reports that the company was planning to operate its own fleet of aircraft. He explained that Amazon was not planning to replace delivery partners but merely supplement the capacity provided by them during peak periods for shipments such as Christmas.
But Bloomberg News has brought to light a 2013 report to Amazon’s senior management team which reveals that the Amazon logistics ambitions appear to be far weightier. It says the report proposes "an aggressive global expansion of the company’s Fulfillment By Amazon (FBA) service," which provides storage, packing and shipping for independent merchants selling products on the company’s website.
"The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London. The project, called Dragon Boat, is proceeding, according to a person familiar with the initiative, who asked not to be identified because the information isn’t public," Bloomberg underlines.
It continues: "The ambitious strategy promises to turn FedEx and UPS into Amazon rivals, but also will pit the Seattle giant against Chinese counterpart Alibaba Group. Both companies are vying for dominance of the rapidly growing cross-border e-commerce market, which by 2020 is expected to swell into a $1 trillion industry serving 900 million shoppers, according to a June report from Accenture and AliResearch, Alibaba’s research arm."
Amazon’s plan would culminate with the launch of a new venture called “Global Supply Chain by Amazon,” as soon as this year (2016), Bloomberg adds, quoting the report.
"The new business will locate Amazon at the centre of a logistics industry that involves not just shippers like FedEx and UPS but also legions of middlemen who handle cargo and paperwork associated with transnational trade. Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates. Merchants will be able to book cargo space online or via mobile devices, creating what Amazon described as a “one click-ship for seamless international trade and shipping.
“Sellers will no longer book with DHL, UPS or FedEx but will book directly with Amazon,” the 2013 report said. “The ease and transparency of this disintermediation will be revolutionary and sellers will flock to FBA given the competitive pricing.”
It is open to question whether this 2013 report has been adopted as company strategy but what has become clear over the past few months is that Amazon is seeking to exert more control over its logistics in developing a greater downstream presence generally.
If it requires additional capacity during peak periods it won't hesitate to secure this off its own bat as the pre-Christmas air ops in the US and Europe and the adding thousands of trucks to its fleet in the US last November amply demonstrated.
In Europe, Amazon is planning to set up a Germany-wide network of local delivery centres and create its own operation for services such as same-day deliveries in major cities in what must be a worrying development to current partners such as DHL, Hermes and DPD. This is similar to what the company already offers in the UK and could be rolled out in other major European markets if it proves successful.
In France, Amazon has ruffled the feathers of delivery firms being poised to gain ownership of a nationwide network with the full takeover of Colis Privé, the main B2C competitor to La Poste, giving it a platform for more control over the final-mile customer experience.
Doubtless Amazon will drive further changes to the logistics-package delivery landscape in 2016 and beyond.
