Amazon Gets Set to Disrupt the Freight Forwarding Market

Amazon Gets Set to Disrupt the Freight Forwarding Market

amazonAfter building an enviable fulfillment process and network, acquiring trailers to transport goods between fulfillment and sortation centers, dabbling in its own delivery services and dipping its toes in air cargo, Amazon is now eyeing the ocean freight forwarding market. 

Should other freight forwarders be concerned?

Freight forwarders are already facing a difficult market thanks to overcapacity, declining rates and a global economy that has remained in the doldrums for several years. However, as Amazon enters the NVOCC realm, there are bells going off in many freight forwarding offices.

Amazon is a monster e-commerce provider, an IT firm and a logistics provider. It is also a major customer of such delivery companies as FedEx, UPS and the USPS. In fact, according to some publications, Amazon is a $1 billion customer for UPS alone. $1 billion in transportation spend with UPS alone – that’s perhaps the main reason for building out its logistics and transportation network – costs are soaring – and so Amazon apparently has decided to bring it all in-house.

increase your airfreight revenuesDespite the precarious industry headwinds facing freight forwarders, Amazon’s NVOCC registry from the FMC depicts its Asian ambitions.  Amazon’s official name on the FMC’s NVOCC registry is Beijing Century JOYO Courier Service Co. Ltd. JOYO was a Chinese e-retailer acquired by Amazon in 2004 and also marked Amazon’s entry into China.

According to industry speculation, Amazon could provide freight forwarding services to Chinese companies looking to export products directly into its Fulfillment by Amazon (FBA) warehouses, or perhaps even “cross-dock” the goods to inject into Amazon’s US delivery network. In addition, Amazon could provide a service most other freight forwarders are unable to – limiting the number of cargo ‘handoffs’ within the supply chain as well as fully taking advantage of its strong IT capabilities to further automate the process.

Amazon will come up against stiff competition. Alibaba, China’s own monster e-commerce provider, IT firm and coordinator of logistics services, signed an agreement with China Shipping Group, its subsidiary, China Shipping Network Technology and sister company China Shipping Container Lines in 2014 to set up an integrated and cross-border logistics platform. The platform will allow for both China Shipping’s and Alibaba’s clients to use it for price inquiry, ordering, tracking and settlement.

The race is on between the world’s two largest e-commerce providers and logistics is where the competition will ultimately determine the winner and perhaps redefine a freight forwarding market in need of change.

The World Needed Another Article on Amazon’s Dominance?

We actually put this article together for a very different reason than to just comment on Amazon.  At Crescent Air Freight we are not only a freight forwarder and NVOCC, but we’re also a consolidator which means we do business with other freight companies.  Many of our industry customers are ocean freight forwarders, NVOCC’s and customs brokers who don’t have in house air freight capabilities.  In other cases we’ll work with freight forwarders who may be licensed for air freight shipping but simply don’t have access to the pricing that we do.  So in that respect, we see some significant value in what Amazon could bring to the logistics marketplace.

Here’s an example of how we cooperate with industry competitors and how Amazon could do the same:

unlock the airfreight business in your customer baseWe have an NVOCC client who has no air freight capability, but they have tremendous ocean freight volume from various U.S. exporters.  A small percentage of the business that their customers have requires air freight service, and our client was simply letting that traffic walk out the door as they were unable to service it themselves.  Crescent was able to put together a simple set of rate and booking procedures that effectively made us the outsourced air freight vendor for this client.  As a result they are now able to capture over $50,000 in annual net revenue from this activity alone.

Now imagine Amazon’s volume of container traffic from China to the United States alone.  By choosing to become an NVOCC instead of a BCO (Beneficial Cargo Owner), Amazon is clearly signaling that they intend to make money off the sale of ocean freight services.  So imagine, just as a consumer goes to the Amazon Marketplace and chooses from 10 different vendors of the Apple iPhone, your freight business can now get centralized access to 1 set of prices for containers from Shanghai to Long Beach (for example).  No more price fluctuations, no more bloated destination charges from multiple handling agents and warehouses, etc.  Just one simple price.  That’s the power of what Amazon’s entry can mean to the market for U.S. import logistics.

Freight forwarders will be mistaken to see this as competition.  Amazon has repeatedly shown that “coopetition” with small businesses and other vendors – including those who sell competing products – is integral to their business model.  We believe they’re going to harness their considerable buying power in the freight markets to do the same for container shipping from Asia to the United States.  And this is no small undertaking – Far East Asia supplies over 50% of U.S. imports!  Clearly Amazon sees vast potential to deliver savings and take a cut for itself.  So how is this not competition for forwarders?  Well, in simple buying & selling terms it has to be considered competition.  However, in terms of value added services, it’s actually going to be a benefit to freight forwarders and NVOCC’s.  Considering most forwarders, especially small to mid-sized ones, deliver unsurpassed service benefits to their clients that large forwarders and integrators don’t, the actual cost of freight is nowhere nearly as significant as one might think.  If you’re a small or mid-sized forwarder who continues to add value to your customer’s business, then Amazon is about to drive down costs and stabilize them for your benefit as well as for the benefit of your customers.  If you’re a freight forwarder who currently does not service China origin business, Amazon may just give you a chance to capture business you’ve been neglecting due to lack of access or in house capabilities in the way that we did for our NVOCC customer.

So we say, “Welcome Amazon”.  It’s going to be fun competing with you and growing with you.

grow your air freight business today

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