If you had anything delivered from Amazon this weekend, you may have noticed a rent-a-van parked in front of your residence. SwanLeap Brand Evangelist Ben Weger, had back-to-back Amazon deliveries, one out of a Uhaul and another out of a Home Depot box van. Turns out, Amazon is having issues with fulfillment networks.
With record shipment volumes at an all-time high, carriers and truck drivers alike are in positions to demand premium rates and reject orders on a whim. Spot market prices are up 29% according to Cowen and carriers have been neglecting contracts in favor of higher-paying loads. In the middle of this record-setting uptick, Amazon has chosen to keep its pay scale low.
But Amazon, with its stringent delivery requirements, depends on owner-operators to fill out its delivery network. With owner-operators turning to the spot market in order to make more money, Amazon is asking for help from some of the biggest trucking companies in the USA.
According to Business Insider, Amazon is looking for new partners to expand its delivery network. This includes reaching out to large, publicly-traded trucking companies for assistance in delivery.
An Amazon spokesperson told Business Insider that the company works with carriers of all sizes to make up its delivery network, adding that Amazon offers contract flexibility for carriers that balances Amazon’s fulfillment demands with the carriers’ ability to grow their business. Amazon’s offer to the large trucking company’s is much larger, in terms of pricing and demand, than historic offers.
Like many retailers in the ecommerce space, Amazon is looking to bolster its network in order to replenish inventory lost in the early days of the pandemic when overseas manufacturers and ocean carriers stopped with no notice. There’s also the forecasted demand for an unprecedented holiday rush that may begin as early as October. These two factors have created something of a perfect storm for trucking companies as demand for capacity continues to increase. Essentially, every retailer needs increased capacity at the same time, creating a massive demand boom.
But Amazon has been known to burn other trucking companies as it moves more freight to its own fleet. One need look no further than last year when XPO Logistics lost $600 Million in expected revenue after Amazon pivoted to its own carriers. Amazon’s network consists of 13,000 drivers which is more than 150% from its 2018 network. And these numbers don’t include Amazon’s final mile network which is also feeling the strain of increased demand.
The conditions of today’s freight marketplace put immense pressure on major retailers, but Amazon’s entire supply chain strategy is being upended from this sudden boom. Amazon’s CEO Jeff Bezos has his eyes on an Amazon carrier network that delivers not only Amazon packages, but also other packages. But Bezos’ plans to do this involves Amazon’s own trucking network, administered through Amazon’s own brokerage app, Amazon Relay. Most of the carriers in this network are owner-operators.
Amazon isn’t the only one employing their own truck drivers and partnering with publicly traded companies. Walmart’s own network employs 9,000 of its own drivers at a starting salary of $90,000. Walmart also partners with Schneider, the fifth-largest trucking company in the US. The preference toward smaller trucking companies or owner-operators helps Amazon maintain flexibility. Not only are owner-operators cheaper for Amazon, but they are also able to shift to new lanes easily as Amazon opens new distribution centers.
Amazon is entering the broker space, but truckers are hesitant to agree to carry the non-Amazon loads due to low prices for loads. A 2019 FreightWaves report places Amazon’s rates at 18.4% lower than those posted by major broker board DAT. With capacity wars just beginning to heat up, Amazon may have to choose between flexibility and price.