Amazon will develop and monetise a global logistics network
Amazon have already taken a slice out of the UK delivery market diverting packages away from traditional couriers and putting them through their own Amazon Logistics network. In the UK, over 7% by volume of parcels delivered are now handled by Amazon – almost as many as Yodel, who with Hermes and Royal Mail are the only UK carriers bigger than Amazon.
Amazon Logistics as we know it only handle local in-country deliveries to consumers however and Amazon have goals much more far reaching than simply handling the final mile. They are building out a global logistics network with the ultimate aim of enabling manufacturers as far away as China to have goods picked up at the factory and delivered all the way, via Amazon fulfilment centres around the world, direct to the consumer. This ‘Global Supply Chain by Amazon‘ is already in the process with different parts such as ships and planes being put together to complete the network.
With Amazon’s relentless aim to lower their cost structure leading to lower prices, cutting out the middle men includes not only retailers but also wholesalers and distributors. If Amazon handle the entire delivery chain from the factory to the consumer then they can drive down costs but this poses a threat to merchants who act as traders – it’s time to consider becoming a manufacturer or at least a private label to protect yourself from the competition.
Monetising their logistics network is something we’ve yet to see Amazon doing at scale but it would appear inevitable. Amazon are already using their logistics network to collect parcels from a select number of merchants and delivering them to Prime Customers. The next logical step will be to open up their logistics network to carry parcels for other retailers and businesses.
We’ve seen Amazon monetise various parts of their business – they built a retail operation and then opened it up to enable other merchants to use their retail platform which became a marketplace. Amazon needed a server infrastructure to run their business on and opened this up to become Amazon Web Service and rent storage space and processing power to anyone that needs cloud computing. Amazon built a network of warehouses to store their inventory and then opened up these warehouses to their merchant partners under the FBA program. Why wouldn’t Amazon open up their logistics network to monetise this also?
For Amazon, sharing their resources and renting them out isn’t purely about the money, although investors certainly appreciate that some of the most profitable parts of Amazon are the services they rent out. The driver for Amazon is always their relentless drive to scale and add value and Amazon’s customer obsession to offer value. Amazon can grow their services, including logistics, much faster and achieve greater coverage with better service if they have volume and opening up their services adds volume faster than Amazon could grow on their own.
It won’t be a desire to monetise their global logistics network that prompts Amazon to open up their carrier services both domestically and internationally – it will be their goal for efficiency and to drive costs down.
Source: Tamebay, “The Future of Amazon and Ecommerce: Amazon Logistics“. (https://tamebay.com/2018/05/the-future-of-amazon-and-ecommerce-amazon-logistics.html). Chris Dawson, May 17, 2018.
Image source: Fortune