Shortly after announcing plans to complement its online retail business – currently one of the world's largest – with a logistics offering, Amazon began aggressively investing in transport vehicles, hiring logistics executives, and acquiring small transport companies.
Established transport and logistics providers rapidly began considering their competitive countermoves. Should they compete directly with a business juggernaut on a winning streak? Or ally with it?
Logistics market experts from multinational logistics provider AsstrA-Associated Traffic AG looked into the case and have some insights to share.
E-tailers are looking for ways to take over the traditional logistics space with new, cheaper technologies. They are, however, still dependant on traditional logistics providers. Amazon, for example, relies on the services of 20 different transport and logistics companies to deliver more than 600 million packages a year, according to a Business Insider estimate from early 2017.
Experts forecast that Amazon's expansion into the logistics business will not necessarily crowd out the main shipping service providers. Last-mile deliveries, which are Amazon's focus, generally account for only a fraction of traditional logistics providers’ business. Logical responses to Amazon's retail-logistics combination include ignoring it and continuing business as usual or partnering with Amazon for long-distance parcel delivery and letting Amazon handle its own last-mile logistics. Amazon's competitors are likely to continue relying on well-established logistics solutions, in any event.
“In the logistics sphere, Amazon's focus is on last-mile delivery because their business model is based on controlling the relationship with the end-customer. We believe that Amazon will expand their last-mile deliveries while continuing to outsource other aspects of the logistics supply chain. Companies like AsstrA focus on the B2B segment and don't plan to enter B2C logistics. For this reason, we don't see established players in the large asset-intensive logistics space competing directly with Amazon. Instead, they will attempt to set up a mutually profitable partnership,” says Viacheslav Tureiko, Chief Business Development Officer at AsstrA.
Here, we consider potential partnership far more attractive than intense competition. Nevertheless, every logistics company should think globally – and a few steps in advance. Monopolization of the industry can lead to negative consequences for many players, including customers who may face higher prices.
In order to gain more profit from last-mile deliveries, companies need to organize themseves around making shorter drives with more parcels delivered. Delivering exclusively items sold through its retail wing, Amazon Logistics cannot achieve such levels of efficiency as could a partial loads provider delivering purchases aggregated from multiple retailers. Partial loads providers combine shipments from different retailers in one transport vehicle, such as a truck, a container, a wagon or an aircraft, where space is never empty on a return trip.
“We are able to excel as an Amazon partner by organizing key elements of their cargo logistics apart from the last mile. Working with other global brands and cargo flows from multiple sources allows us the flexibility and opportunities to consolidate high load volumes and drive down service costs. Amazon's single-source cargo flow reduces their ability to achieve savings earlier in the supply chain. Amazon therefore keeps expenses down by outsourcing transportation services prior to the last mile,” says Mr. Tureiko.
Another partnership possibility exists in the development of infrastructure and warehousing services. At least for now, Amazon does not own enough of either to meet its business needs.
On the other hand, some retailers and logistics providers may have good reasons to compete with Amazon. If the retail giant continues boosting its transportation capabilities, other retailers may stop selling through Amazon's platform lest the sensitive sales data prompt Amazon to slash delivery costs to a particular location and offer customers a lower total bill for the same product – and cause lopsided market conditions in the long run.
A little competition is often a good thing, of course. Incumbent last-mile logistics services providers can use their experience to improve service quality, pricing policies, and fast-delivery technology. At the end of the day, customers win and their satisfaction and loyalty will rise. All steps toward a dynamic, segmented, and competitive market will be taken first by businesses responding boldly to Amazon's move.
“It's also possible that Amazon could dive into the global 3PL logistics market and deliver orders for other retailers – but it would be complicated and risky. Their e-commerce competitors are unlikely to choose them for logistics. Also, the current leaders in last mile deliveries won't give up market share without a fight. It seems to make more sense for Amazon to concentrate on their primary business, where they are the biggest and strongest,” says Mr. Tureiko.
Amazon's foray into logistics could lead to a technological renaissance in the large asset-driven logistics sector, according to AsstrA experts. Traditional logistics companies successfully integrating innovations into their organizational and operational structures should not fear losing market share and top clients.