Amazon’s Freight Push Rattles Logistics Sector
Date: Tuesday, April 30, 2019
Source: The Wall Street Journal
E-commerce giant is expanding logistics operations as it tries to curb shipping costs
Amazon.com Inc. is pushing deeper into logistics as it tries to tamp down transportation costs ahead of a pricey push into one-day shipping, raising potential concerns for freight operators that may end up competing for business with the e-commerce giant that many count as a significant customer.
The online retailer has opened an online freight brokerage platform to connect shippers with available trucks, offering service in five Eastern states. That makes Amazon the latest business to bring significant new financial backing to industrial shipping with plans to digitize the inefficient, sometimes cumbersome business of booking freight transport.
Tech-focused brokerage startups like Convoy and Transfix Inc. drew more than $611 million in funding between 2011 and 2018, according to logistics consulting firm Armstrong & Associates Inc., while trucking and logistics companies are spending heavily to ramp uptheir own digital freight marketplaces. Uber Freight’s online load-matching platform generated $359 million in gross freight bookings last year, according to a securities filing by parent Uber Technologies Inc.
Amazon is offering beta service for truckload shipments in Connecticut, Maryland, New Jersey, New York and Pennsylvania through its Amazon Logistics arm. It also provides instant rate quotes through an online portal, freight.amazon.com, saying users can “tap into the scale of Amazon as we extend our carrier network to give you best-in-class service at great rates.”
Shippers have been able to book loads through the website since 2018, the company said.
“We work with many line-haul service providers in our transportation network and have long utilized them to carry loads for Amazon,” an Amazon spokeswoman said. “This service, intended to better utilize our freight network, has been around in various forms for quite some time.”
Opening up the platform gives Amazon more leverage with carriers on negotiating rates, said Armstrong & Associates President Evan Armstrong. “You get synergies by allowing shippers to come on to your platform, and you increase your network scale and your purchasing power with trucking companies,” he said.
Analysts and industry experts said the move, previously reported Friday by trucking data and news provider FreightWaves, poses risks to freight brokers and truckload carriers. Share prices for most truckload and brokerage companies that serve the market declined Monday and Tuesday. Shares in C.H. Robinson Worldwide Inc., the largest freight broker in North America, have declined more than 10% in the past week.
Amazon’s published rates appeared to be 4% to 5% below those on the trucking spot market, where companies book last-minute transportation, Citi analyst Christian Wetherbee said in a Monday research note. “Marginal discounts on certain lanes is common practice,” he said, adding that at a 4% to 5% discount to spot rates “Amazon could very well be making money on this offering.”
Sanford C. Bernstein & Co. analyst David Vernon said in a research note that traditional freight companies face a bigger competitive threat, however, if Amazon acts as a “not-for-profit truck brokerage,” offering money-losing rates for capacity it buys on the spot market, rather than using the platform to sell excess capacity “it has bought to run its supply chain.”
“Past entrants to the brokerage space have used discounting to achieve market share and Amazon is likely to do the same,” Cowen Inc. analyst Jason Seidl said in a Monday research note.
In recent months, Amazon has been scaling back its use of third-party logistics providers as it takes greater control over how it moves shipments through its distribution networks. Amazon pulled about $600 million in business from XPO Logistics Inc. in the fourth quarter, with the company’s brokerage unit taking the biggest hit, according to a person familiar with the matter.
Amazon spent $7.32 billion on shipping world-wide in the first quarter of 2019, according to company financial reports. That was 21% more than the same quarter a year ago, far below the 38% increase between the first quarters of 2017 and 2018.
“Amazon has so much growth, and so much supply chain talent…they can go direct, deal with intermodal and ocean carriers, and ultimately build their own brokerage and work with the carrier community,” Frank McGuigan, chief executive of transportation management firm Transplace, which also provides freight brokerage services, said in a March interview.
Amazon remains a customer, although Mr. McGuigan said Transplace tries to ensure it isn’t overly reliant on any one customer. Given the large volumes Amazon ships during peak season, the online retailer has “to go out and get support from the marketplace,” Mr. McGuigan said. “Our job is to help them where we can help them, but also to minimize our exposure.”