It’s a strategy we wish we would have thought up. Turn your major operating costs into services that become revenue machines. Amazon has done that with everything from fulfillment to web services.
Just think about Kindle.
They successfully turned physical inventory into digital assets in order to eliminate COGs while turning a profit.
The next conquest for Jeff Bezos? Shipping and Logistics (according to Jeff Bezos).”
Let’s crunch the numbers.
In the first 2 quarters of 2020, Amazon spent around $40 Billion in shipping! For scale, note that FedEx’s entire 2019 revenue was $70 Billion.
The company made some internal moves with that money. After bringing ⅔ of their “middle-mile” delivery in-house by the end of 2019, Amazon bolstered it’s transportation arm, Amazon Transportation Services (ATS) in order to lessen dependence on 3rd party logistics firms such as C.H. Robinson and XPO Logistics. Keep in mind, ATS was established in 2015.
They added 69 US package sorting facilities, leased 80 cargo jets, and purchased 30,000 branded 53-foot trailers. While this capacity grab hasn’t freed Amazon from using 3PLs, it has made an impact. Recall XPO Logistics’ 2019 announcement that $600 million in revenue could be lost due to it’s “top customer” (*cough* Amazon *cough*) pulling back.
Central to the playbook is Amazon’s ability to offer services at below-market prices.
This is precisely the strategy ATS used in 2019 to attract new business on the East Coast. Not only that, Amazon has developed an Uber style program, enticing drivers to lease an Amazon truck, and a platform, called Relay, to match private haulers with loads.
With all this in place, ATS is expanding to nation-wide freight brokering. With an aggressive sales-team in place and all that infrastructure, it’s only a matter of time before they reach their goal of becoming one of the top 5 United States 3PLs. But a win is not a guarantee. The market for drivers is volatile, understaffed, and filled with frequent turnover. As frightening as Amazon’s move to freight might be, they will need to up their wages (currently below market) in order to attract drivers to their program.
For shippers the implications are largely unwritten.
The freight markets are always changing. Staying profitable requires visibility into every lane and every market (to include the spot market) so you can make the best decision for your business. For 3PLs and Brokers, the call to action remains the same: bring technology to the center of your offering.