Alibaba vs. Amazon: How e-commerce giants are reinventing forwarding

Amazon Airlines?

And what about those twenty 767-300 freighters that Amazon is rumored to be taking under its wing? While Alibaba has made it clear that it doesn’t want to operate aircraft, no one yet knows whether Amazon will create its own airline or have another carrier, such as ATSG, operate the aircraft.

By becoming its own airline, Amazon can take more control of its delivery process from end-to-end, and eliminating transaction costs from having to deal with an outside vendor, Petersen said. By some estimates, Amazon spends about $5 billion per year on logistics – about $1 billion of which is on UPS alone – so it might make sense to build out its logistics and transportation network and bring it all in-house.

However, a research report published in January by finance and investment group, Barclays Equity Research, questioned Amazon’s interest in running its own air network. “With only limited financial returns and plenty of existing air capacity during non-peak periods in the incumbent package networks, we question the need for Amazon to devote the significant capital required to operate a standalone time-definite air network,” the report said.

Amazon would be better off continuing the build-out of its fulfillment network, which is traditionally one of the retailer’s key pillars, the report stated. By the end of this year, Amazon is likely to operate in excess of 100 fulfillment centers in the U.S. alone – a number that will give “meaningful scope and enable inventory placement,” closer to more consumers in the big cities. “We genuinely believe the intention of Amazon is not necessarily to replace FedEx or UPS but rather drive faster and lower cost package delivery to consumers, albeit potentially with other carriers,” the study said.

Coming battles in 2016

With the recent revelations about Dragon Boat project and Cainiao’s head-spinning performance during Singles Day 2015, it appears that 2016 will have a lot more exciting news about the growth of these two e-commerce powerhouses – and not all of it may be about cargo. Amazon, in particular, has become quite an IT services and data-mining firm.

In the United States, Alibaba opened an office in Seattle last year – pointedly in Amazon’s backyard – and has also opened a cloud-computing data center in Silicon Valley, which is considered to be a serious rival to Amazon’s wildly successful cloud-computing operation. Alibaba also operates 11 Main, an online fashion shopping platform that caters to Americans.

Cainiao, perhaps in anticipation of greater network opportunities in the Americas, said it reached an agreement with the U.S. Postal Service to “collaborate on the development of enhanced shipping solutions for cross-border e-commerce. In addition to helping provide more efficient shipping channels into the U.S. for Chinese merchants and manufacturers, selling on Alibaba’s AliExpress Global Shopping website, the USPS will also work with Cainiao to expand its worldwide shipping capabilities, especially in South America.”

As the world watches to see how Alibaba vs. Amazon will turn out, both companies can take their time – years in fact – to perfect their delivery networks until they feel the need to launch them with the public, wrote Petersen at Flexport. Meanwhile, he said, FedEx and UPS know they’ll be losing a customer “worth as much as 10 percent of their total revenue, and potentially gaining as fearsome an adversary as we’ve seen in modern American business,” he added.

Rich Duprey, a financial analyst writing for the Motley Fool, said one of Amazon’s key advantages over the integrators is the deep reservoir of data on its customers and its ability to crunch those numbers to help drive down costs, which has allowed it to diversify. “To date, Amazon has announced its intention to add thousands of vehicles to its fleet of delivery trucks, dabbled in drone delivery, acquired a stake in a U.K. delivery service, acquired a French shipping service, and launched its air cargo network,” he wrote. “Now it’s taking to the seas.”

In some ways, Duprey added, Amazon is beginning to resemble old-fashioned conglomerates like General Electric. “Jeff Bezos may be biting off more than he can chew by registering to become a freight forwarder and setting up its own shipping and package handling business,” he wrote. “Number-crunching is one thing; running a massive, global shipping network in the air and on the seas is quite another.”

Whatever decision Amazon makes regarding its air network, Petersen urged the integrators to get serious. “UPS and FedEx need to go into full-on war-time mode,” he said. “Make no mistake, Jeff Bezos will one day use this fleet of jets to launch a direct frontal assault on their core parcel delivery business.” When that does happen, he added, Amazon will “focus relentlessly” on becoming the lowest-cost provider with the best customer experience.

“I can imagine few images scarier than Jeff Bezos coming after your market with a fleet of jets,” Petersen added. “It will be fun to watch.”

See more about Cainiao, by the numbers

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