It seems Amazon is now “nuking” everybody. Last week it was nuking the fashion industry. This week, the armed ballistic missile is pointed at the global shipping industry. In a world of hyper-competition, its plan to launch a global shipping and logistics operation certainly indicates Amazon’s understanding of the power of vertical integration and owning one’s total value chain. Since speed, convenience and the lowest possible prices define the core strengths of Amazon’s business model, having ownership or control of all elements in its value chain is required to deliver those benefits.
While Amazon’s CFO downplayed reports of plane leasing and an ocean freight booking business as simple supplements to FedEx and UPS to better serve customers during peak shopping seasons, Bloomberg News uncovered a much more comprehensive and aggressive plan.
Dating back to 2013, Amazon’s Fulfillment By Amazon (FBA) service, which stores, packs and ships for the brands and retailers selling on its site, was given an injection of steroids. The strategy wizards developed a project named “Dragon Boat,” intended to aggressively expand Amazon’s global fulfillment capabilities. It framed a global delivery network controlling the flow of goods from factories in China and India, all the way to customers’ doorsteps in New York, Atlanta and London.
And, it doesn’t stop with Dragon Boat. It becomes the launch of a venture named “Global Supply Chain by Amazon,” put into motion this year. Envision Amazon as the hub of the logistics and distribution industries, disintermediating not only shippers like FedEx, UPS and DHL, but thousands of middlemen handling paperwork and cargo associated with transnational trade. Amazon described a “revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking.”
Amazon will buy space on planes, trucks and ships at reduced rates, based on the massive amount of inventory consolidated in shipping hubs in manufacturing nations like China, India and others. Essentially, Amazon is bypassing all the brokers who were in the middle, thus cutting those costs as well. Acquiring the space at lower wholesale rates also allows small merchants to participate. So merchants in China, for example, will tap on their smartphones ordering Amazon trucks to pick up products from their factories. Once the shipments reach their distribution ports, Amazon’s delivery system kicks in for nano-second delivery. They are describing it as “one click-ship for seamless international trade and shipping.”
The 2013 report said, “Sellers will no longer book with DHL, UPS or Fedex but will book directly with Amazon. The ease and transparency of this disintermediation will be revolutionary and sellers will flock to FBA given the competitive pricing.”
Amazon also has its aim on Alibaba, its massive Chinese competitor, since both are fighting for a dominant position in the cross-border, international e-commerce markets. Accenture and AliResearch (Alibaba’s research company), expect the total business to reach $1 trillion by 2020, serving 900 million shoppers.
The Amazon Playbook
Just as Amazon is moving into the fashion and branded apparel business — testing, learning and eventually intending to steal share of market from the very clients that pay them to trade on their site — they are quietly partnering with third-party shipping carriers to further build their global enterprise. Once they’ve mastered the shipping model and have achieved scale, they will kick them all out and run it on their own.
Another example of Amazon’s Pac-Man personality of gobbling up markets is their aggressive position in cloud services. This vital back office service started quietly as they developed it internally. Then it quickly expanded to the point at which the cloud is their fastest growing and most profitable business.
Colin Sebastian, an analyst at Robert W. Baird & Co, commented on the Global Supply Chain by Amazon, “This is classic Amazon fashion.” He said the global logistics operation could become a $400 billion business for Amazon. “They take baby steps along a long path, which allows some companies that could be disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks the market.”
So, the dirty little secret is that Amazon is not a marketplace. It’s angling to become a nation-state, and a highly developed one at that. One can hardly guess what their next target will be — maybe manufacturing all the goods they sell? After all, owning and controlling all of the delivery systems is just one short step to acquiring and owning the production, then… providing a totally integrated value chain. One hell of a vertical silo.
Today, another value chain function, tomorrow, the world.