Digital Edition

Mar.7, 2016

Issue link:

Contents of this Issue


Page 117 of 119

TRADING PLACES 114 THE JOURNAL OF COMMERCE MARCH 7.2016 Peter Tirschwell AMAZON'S OCEAN PLAY A RECENT HEADLINE in the Finan- c ia l T i me s wa s eye - op en i ng , though really not surprising. The article, "Wal-Mart suffers worst sales performance in 35 years," reported how the mass retailer, the company that all but invented the modern supply chain, saw its revenue decline in 2015, its first annual decline since 1980. It wa sn't much, a drop of 0.7 percent to a still enormous $482 billion, but more revealing was that its e-commerce revenue slowed for the fifth straight quarter, to 8 percent in the October-Decem- ber 2015 period. That compares to Amazon's quarterly revenue growth of 26 percent off a much-larger base of e-commerce revenue. The "ever yday low pr ices" t h at bu i lt Wa l-M a r t t h roug h t he relent le s s el i m i n at ion of cost is proving no match against Amazon, with its nimble combina- tion of low overhead, convenience a nd incentive t hat def ines t he former Seat tle upstart. Just as Wal-Mart invented the modern supply chain, Amazon is reimagin- ing it, and we have to use our own imaginations just to keep up. The company that simultane- ously built the world's largest cloud computing business and became a digital entertainment giant has grown uncomfortable with tra- ditional freight transportation offerings, so it's dabbling in truck- ing, air freight and now ocean. Now a licensed non-vessel-oper- ating common carrier in the U.S. market, Amazon is keeping estab- lished forwarders awake at night contemplating the ambitions of a juggernaut, with great momentum that not only controls large volumes of its own freight and that of partner vendors — especially those based in China — but also has consistently been uninhibited in leveraging its strengths to enter and dominate new fields. Could ocean freight transporta- tion be the next industry Amazon disrupts? A call recently from a ner- vous private equity investor with a large stake in an established for- warder told me all I needed to know about the state of alarm among incumbent players about the pros- pect of competing against Amazon. The fear is that, just like cloud services or digital entertainment, Amazon doesn't enter into new busi- ness such as ocean transportation as a traditional competitor. Amazon Web Services was initially a way to market excess server capacity. Kindle offered a delivery mecha- nism for digital books, a natural extension of Amazon's original business selling hard copies. The Kindle and apps built to run on other devices such as iPads enabled delivery of other media — movies and now original series — that are in turn offered free as an induce - ment to loyal customers enrolled in Amazon Prime. It's all integrated. How does being an NVOCC in the trans-Pacific fit in? Ryan Peter- son, CEO of San Francisco-based logistics company Flexport ("The Freight Forwarder for the Inter - net Age"), which broke the story of Amazon becoming a registered ocean transport intermediary with the Federal Maritime Commission, believes the move is a tool primar- ily to provide greater access for Chinese sellers to Amazon's U.S. market. "Amazon's ocean freight ser- vices will be far more attractive to Chinese sellers than to American buyers," he wrote in January. Chi- nese suppliers would love direct access to Amazon's vast Ameri- can customer base. "But the idea of buying ocean freight is far less appealing for U.S. companies sell - ing on the Amazon Marketplace. As the freight forwarder on a com- pany's shipments, Amazon would see both the name of the supplier and the wholesale price paid by the importer. For most of the more than 40,000 sellers currently earning more than $1 million per year selling products on Amazon, this data is too sensitive to entrust with a company that is both a primary distribution channel and a ruthless competitor. 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." But if the business model is to integrate the transportation, sales and distribution of products into consumer markets on behalf of sellers, leveraging Amazon's user experience, it should be scal - able. The company operates online marketplaces in nine countries in addition to the U.S., including Japan, India, France, Germany, the U.K. and China. Amazon's pitch to sellers is simple: "When you register to sell in one of these Amazon market- places, you gain immediate access to customers who know and trust the Amazon buying experience. Expanding your sales to one or more Amazon marketplaces means you can benefit from the Amazon brand without shouldering the upfront costs of building business name recognition on your own in a new sales environment." Bolting on a transportation solu- tion from the origin would complete the cross-border, indeed. global sell- ing process. I can see how legacy forwarders would be worried. JOC Contact Peter Tirschwell at and follow him on Twitter: @petertirschwell.

Articles in this issue

Links on this page

Archives of this issue

view archives of Digital Edition - Mar.7, 2016