Forwarders’ fears
If the Dragon Boat project made the industry sit up and take notice of Amazon’s ambitions, another revelation in January struck fear in the hearts of logistics firms everywhere. A San Francisco-based logistics company called Flexport posted on its blog that a Chinese subsidiary, called Amazon China, had registered in the U.S. as a non-vessel operating common carrier (NVOCC), which enabled the company to provide ocean freight services between China and the U.S. and offer it to other companies. In other words, it turned Amazon into a freight forwarder.
While the designation was specifically for seafreight forwarding via the Federal Maritime Commission, the NVOCC may also allow Amazon China – officially known as Beijing Century JOYO Courier Service Co. Ltd – to purchase and sell air cargo space to other companies as well.
Ryan Petersen, the Flexport CEO who broke the story, wrote that the NVOCC was a “smart and long-overdue move for the company,” which will make it easier for its customers to move goods into the company’s logistics network and FBA warehouses. It will also provide Chinese merchants access to Amazon’s huge American customer base.
The same, however, would not be true for U.S.-based shippers. “American companies will simply not be willing to turn over sensitive supply chain data to a major competitor and channel partner,” Petersen wrote. “Amazon’s reputation for ruthless competition and its desire to dominate every market on planet earth will make it difficult to convince U.S. companies to move their international freight onto this new platform when it launches.”
Petersen also pointed out that, as the freight forwarder, Amazon would by privy to the name of the supplier and the wholesale price paid by the importer – data that are far too sensitive to entrust with a company that is both a competitor and a primary distribution channel. “It would be too easy for Amazon to use that data against them, either as an anchor in price negotiations, or worse, to purchase directly from the supplier, cutting the U.S. merchant out altogether,” he added.
But Amazon is hardly unique on this front. Aytac Akgul, a business development manager with MTS Logistics in New York, noted that Walmart has been doing the same thing for years. “However, Walmart didn’t start their business through e-commerce first,” he said. “In that sense, Amazon’s move in the shipping industry will be an example to its competitors.”
Amazon wanted to change its delivery strategy, Akgul said. “They are dealing with the local warehouses here in U.S.,” which are still a significant cost in the shipping industry. Amazon is trying to cut down more on complex arrangements between warehouses, buyers and shipping companies, by taking control of the freight under its contracts. “They also want to ship the cargo from China under Amazon’s bill of lading,” he added.
Also, Amazon can require the consumer product companies to ship their goods through its website, so that their volumes appear under Amazon’s contract, thereby adding to Amazon’s volumes. “This is how Walmart has built up its ocean volumes and obtained the lowest ocean freight costs,” Akgul said.