A few days ago, news made the round that Amazon has registered with the FMC to provide ocean freight services. It is, more or less, ‘just’ another step in an ongoing move into increasing vertical integration whereever it is strategically valuable to Amazon. But there is one aspect that is worth highlighting.
Flexport broke the news and had good analysis on this:
Amazon China now has the appropriate paperwork to provide ocean freight services for other companies. This is Amazon’s first step toward entering the $350 billion ocean freight market.
This is a smart and long overdue move for the company. By offering ocean freight services, Fulfillment by Amazon (FBA) will make it easier for its customers to move goods into the company’s logistics network.
Here is the kicker:
Why does becoming an ocean freight forwarder make sense for Amazon China but not for Amazon itself?
Because Amazon’s ocean freight services will be far more attractive to Chinese sellers than to American buyers. Chinese suppliers would love direct access to Amazon’s vast American customer base.
This will open up the possibility for Amazon to bring the vast and growing Chinese manufacturer (big and small) ecosystem to Amazon’s marketplace. Don’t underestimate how attractive a one-stop-shop to the US market is for these manufacturers.
Global scale strategies like Amazon’s are increasingly going to matter. Think for example of on-demand streaming service Netflix in this context: At the beginning of the year, the streaming giant launched in 130 additional countries simultaneously. Think about when this ever has been possible. (Hint: never.)
The implications of the distribution dynamics of the Internet are profound. Netflix and Amazon (both “proud” members of the “FANG” group) are showing there the puck is going to be.
Flexport on the costs of shipping:
Ocean freight is cheap right now. As of January 2016, Flexport’s ocean freight customers were paying less than $1300 to ship a 40-foot container from Shenzhen to Los Angeles. More than 10,000 parcels can fit in a single container, so the price for the ocean freight leg could be as low as $0.14 per parcel. Here’s another way to think about that figure: Right now it costs under $10 to ship a flat screen television across the Pacific.
Amazon is expanding its Uber-like Package Delivery Service ‘Flex’ and is working at air freight services. The company also buys thousands of trucks in the US.
In December Amazon commented on its increasing logistics initatives towards Re/code:
A spokeswoman stressed that Amazon would continue to rely on existing trucking partners, which own and drive the tractor portion of the vehicles that will tow the Amazon trailers.
“The reality is we utilize a lot of great companies, but we do see the need for additional capacity,” she said.
Owning its own delivery network is the logical next step for an online retailer the size and ambition of Amazon. There is a lot of potential on the marketplace side as well. Which begs the question how fast and how far Amazon will build its network out and in the process open it up to marketplace sellers and maybe even other online retailers outside its marketplace.
More and more, Amazon’s future looks like the company becoming a (giant) infrastructure provider to online retail rather than ‘just’ being a mere online retailer. That is a very big pie.