Amazon and the evolution of freight transportation

You don't need to be a hockey fan to understand the immortal words of Wayne Gretzky, who said, "Skate to where the puck is going, not where it has been." While this notorious quote has been famously overused, rehashed and distorted, exemplary businesspeople know its meaning. Success often depends upon staying ahead of the competition by figuring out where the market is moving. While most forwarders seem to understand the concept, we are now learning what it will take to stay in the game from Amazon, a company that until recently had not been in the freight transport arena. [caption id="attachment_93852" align="alignright" width="300"] Brandon Fried, Executive Director of the U.S. Airforwarders Association[/caption] With almost 100 ships loitering outside Southern California ports awaiting berths for up to 45 days, Amazon is taking matters into its own hands. The online retailer is avoiding congested ports by chartering private cargo vessels to carry its goods, expediting products from Asia to North America. To better manage maritime shipping operations, the company has built its own ocean containers for its chartered vessels and throughout its U.S. highway distribution network. As a result, the company does not need to return its containers to the maritime port, eliminating a step other companies have to account for. These niche strategies are just a few of the bold actions taken by Amazon that may change the game for retailers and their freight forwarders. When Amazon was started by Jeff Bezos in the early 1990s, he chose its name because it referred to an “exotic and different place.” Like Gretzky, Bezos knew where the puck was going, and, with an initial 20 products to sell, the online visibility provided by the nascent internet would eventually allow exposure to all 50 states and 45 countries. After extensive forays into book sales and entertainment, the company has maintained its position as the most dominant internet retailer in the United States. Despite previous and ongoing distribution alliances with integrated carriers, and even the U.S. Postal Service, Amazon realized it needed more support. To satisfy customer fulfillment commitments and control costs more effectively, the company needed to rely less on delivery entities and more on its own transportation alternatives. Today, approximately 85 aircraft fly 165 flights from 21 airports for Amazon, delivering almost 30% of its orders daily, with more expansion expected. Though it is a giant in the space, Amazon is not immune to the strain of market obstacles shared by other retailers. The company has seen a 14% increase in out-of-stock items and an average product price increase of 25% over the past year. In addition, promised delivery commitments are sometimes unachievable, and recruiting quality workers in the current labor market has been a challenge. When the online retailer began operating as a freight forwarder through a Chinese subsidiary in 2017, the company was suddenly capable of handling more than 10,000 containers per month. Seemingly overnight, Amazon was ranked one of the trans-Pacific market’s top five freight transportation providers. These continued bold moves accelerated the company’s meteoric ascent and dominance in the transportation market. This was further solidified late last year when the company announced that it expects to exceed individual package volumes of FedEx and UPS in 2022. Freight transportation providers are taking note of Amazon’s market growth, and it has caused many to see the giant as a competitor — not to themselves but more to the integrated carriers that depend upon the small parcel market. However, forwarders are learning that the industry rulebook is changing, and players are responding accordingly. Throughout the past 18 months, freight forwarders have come up with creative solutions to ensure they can stay competitive and fulfill customer commitments. The industry has managed more than 100,000 dedicated air charter flights to move customer shipments amid belly cargo capacity constraints, and now many are beginning to charter ships to circumvent extreme maritime bottlenecks. Across the board, major players have seen this period as a time of digital transformation, and subsequently increased technology investments to provide shipment visibility and ease of use. The landscape of competition from within the industry is changing, and maybe even distorting the playing field. We saw a prime example recently when two major ocean carriers , which previously were dependable wholesale transportation resources, announced their entrance into the airfreight market with capacity to sell directly to forwarder customers. The impact of this move, the repercussions of Amazon’s entry into transportation, and uncertainty caused by the recent pandemic have created an incredibly challenging business environment being faced by companies through the supply chain. As we try to see where the puck is going and move accordingly, a few previously learned lessons are essential for forwarders to remember: Forwarding is and will always be a contact sport for which close customer interaction will be required; Shippers depend upon our creativity and flexibility in providing a consultative approach to solving complex logistical challenges; and Any asset providers today, even Amazon, may become a competitor tomorrow. However, they will always need cargo to fill their planes and ships and will likely trust forwarders to fill space. Understanding this is as important as knowing where the market, like the hockey puck, will be in the future, allowing vital players like forwarders to stay in the game.

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