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Amazon in the Parcel Delivery Business- Really?

Hot off the presses, Amazon has announced that they will be launching a delivery service for businesses which will compete directly with FedEx and UPS.  If anyone is surprised by this news, they must have been sleeping under a rock for the past several years.  For some time now,  Amazon has been delivering many of its own packages as a prelude to jumping into the parcel delivery business for commercial and residential customers

The new service called Shipping With Amazon, or SWA, will start delivery operations in Los Angeles in the coming weeks providing delivery services in coordination with several merchants who sell their goods through the Amazon marketplace.  After this initial phase, Amazon will roll the program out to other cities which are expected to be added later on in 2018.  The expanded services will involve picking up and delivering packages for businesses that do not do business with Amazon, thereby directly competing with both FedEx and UPS.

And, it should also come as no surprise that SWA intends to undercut UPS and FedEx on price in an effort to compete head on with the current FedEx/UPS duopoly, something shippers have been salivating for over the past 20 years or so.  SWA however did not offer any specifics on pricing in this current announcement.

Amazon has been building this delivery network in bits and pieces for years now, including pilot testing SWA in London, expanding into the ocean freight business as an NVOCC, building a network of their own drivers who have the ability to make “in-home” deliveries, leasing some 40 aircraft and establishing a new cargo hub to ensure successful delivery operations.

For their part, (at least publicly), both FedEx and UPS do not appear to be overly concerned at this point.  Both companies have many battle scars from years of continually building and strengthening global networks and they both fully understand the financial resources required to be invested to be successful in this very competitive business.  However, we suspect down deep UPS and FedEx fully understand that Amazon, (SWA) certainly has the will and we believe the financial resources to actually be a competitive force in the parcel delivery marketplace.

One does have to wonder however, with Amazon’s current growth into cloud computing services, a Hollywood studio, grocery retail and home delivery services and now their desire to build a strong alternative for their employees medical costs with JP Morgan Chase and Berkshire Hathaway, are they spreading themselves too thin to accomplish all of these initiatives?  Only time will tell, however if the past is any indication of the future, when Jeff Bezos and Company put their minds to something they usually are successful and we believe they will be successful with their new SWA business.

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Wal-Mart Takes on Amazon

All it took was a $3.3 Billion deal for Wal-Mart to enter into a head on match with Amazon to see who can win the online shopping Giant of the Year award.  Wal-Mart signed the deal last week to purchase Jet.com to help kick start their e-commerce business operations.  The deal is the largest ever purchase of a US e-Commerce start up according to the Wall Street Journal.

The deal is a clear sign that Wal-Mart sees the growth of on-line sales as a way to boost Wal-Mart’s business now and well into the future.  The new Wal-Mart e-Commerce business unit will be led by Marc Lore, Jet.com’s 46 year old founder.  He will be responsible for both the Wal-Mart and Jet.com business units.  Wal-Mart’s former top on-line executive, Neil Ashe will be leaving the company.

So what does this big investment do for Wal-Mart, glad you asked:

  1. The acquisition marks a significant shift in how Wal-Mart approaches e-commerce which they launched 15 years ago
  2. Wal-Mart has spent billions to build up its on-line distribution network, opening 7 large scale distribution centers in the US
  3. Wal-Mart has always looked at e-Commerce as a secondary business to their big store retail operations, obviously that thinking is changing quickly
  4. Wal-Mart has a long way to ARRIVE AT Amazon’s sales numbers.  Last year Wal-Mart had $14 Billion in e-Commerce sales or 3% of their total annual revenue
  5. Amazon on the other hand had sales last year of $107 Billion including its Web Service Business
  6. Jet has been claiming that it would offer shoppers lower prices than Amazon, a fact that remains to be seen
  7. This acquisition for Wal-Mart will add some 400,000 shoppers monthly and is expected to generate over $1 Billion in sales annually
  8. Wal-Mart will gain access to a larger group of young, wealthy, urban shoppers, a group that up until now has not been on Wal-Mart’s radar screen
  9. In recent months Wal-Mart has added a number of products it sells on line, but continues to lag behind e-Commerce sales growth
  10. Wal-Mart.com now has in excess of 11 million products and is growing rapidly by giving third-party sellers access to their site and encouraging their vendors to up-load product information about their products on Wal-Mart.com

This is truly a “Big Deal” for Wal-Mart and for e-Commerce sales.  While there is a lot of integration that will need to be handled quickly and precisely, we are sure that this new Wal-Mart acquisition will be a boon for business and for the on-line shopping community.

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The Survey Says!

Several recent surveys confirm what we all know, and that is there is a consistent up-tick in on-line shopping.  Several articles published in a recent issue of Internet Retailer Magazine, indicates that “more people are shopping online, more frequently”.  To prove this point the median year over year online sales growth among the Top 1000 retailers was 10.5% last year.  Also noted is the fact that more consumers are flocking to Amazon.com because of their massive selection, competitive prices and Prime Membership Program benefits.

Earlier this year Internet Retailer queried 500 US adult online shoppers to get a better sense of their purchasing preferences.  Some interesting facts in addition to the continued growth of online shopping, more folks are shopping on mobile devices and are expecting “Free Shipping.”  63% of the survey respondents indicated they made more than half of their purchases on the Amazon site.

Other interesting survey facts:

  • 60% of survey respondents indicated they, or a member of their household were Amazon Prime members
  • 89% of the folks stated that they thought online shopping was safe
  • 32% said they would pay the shipping costs if required
  • 49% stated that at time of checkout, if their orders did not qualify for free shipping, they simply ordered more to meet the free shipping threshold
  • 54% said they ordered products online, but opted to pick up the merchandise at the store

So with web sales increasing 15.1% in the first quarter of 2016 and totaling $86.3 billion in the same quarter of 2016, it’s clear that this is a trend that will continue to grow.

An interesting observation which comes from this survey and other online buying statistics is the obvious need for all retailers to continually and consistently improve the online buying experience of their customers.  Having said that, we question whether some retailers really understand what their customer expectations really are.  All retailers would be wise to follow the “Amazon Effect” to better understand why so many folks flock to the Amazon.com website to purchase products as they are obviously the “leader of the pack.”

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If You Can’t Beat them, Join Them

In a recent interview with Walter Mossberg at the Code Conference in Rancho Palos Verdes, CA., Jeff Bezos, CEO of Amazon stated that it is not Amazon’s intention to “destroy UPS” by entering into the logistics business as a service provider.  He stated that their goal is to simply supplement the delivery capabilities of USPS and UPS, but to do so “heavily.”  He also alluded to the fact that “better prices on transportation would be acceptable to us.”  Perhaps it’s less about what Mr. Bezos said and more about what he didn’t say.

In the interview, Mr. Bezos stated that Amazon is actually growing their business” with the USPS and UPS, but many industry experts have stated that they’re not quite sure that is Amazon’s long term plan.  In fact, as we have reported previously, Amazon is investing heavily in building its own global transportation network.  This initiative clearly is an effort to enter the business as a major player who will compete head on with UPS, USPS and FedEx for that matter for delivery customers.

Reading the tea leaves, Amazon obviously is not happy with the rates they are currently paying their service providers.  If they were, would they be making these huge investments in their own delivery network? Does Mr. Bezos think there are huge profits to be gained by entering into the delivery business?  No one knows for sure, but we suspect they really do feel they are overpaying for shipping and can provide the service themselves at much lower costs.  Could it be the level of service they receive from UPS and USPS that is driving these decisions, perhaps, however again no one knows for sure.

When we look at Amazon, with their tremendous buying power, they should and probably do have extremely competitive rates.  We’re fairly sure UPS and USPS would agree and yet Amazon is obviously dissatisfied with these costs.  Having said that, if Amazon is not happy with the rates they are paying with their enormous buying power, how do the rest of UPS, FedEx and USPS’ shippers feel about the rates they are paying?  We suspect they too are not real happy with them.  The reality is no shipper ever feels they’re getting the best rates possible.  In fact, one shipper we recently spoke to recently sent out an RFP to several global and regional parcel carriers in an effort to test the marketplace in a cost reduction initiative.  They were shocked when their major parcel service provider returned the RFP with rates and charges that were much higher than the current contract.  The good news is that the competing carriers viewed this as a “door opening opportunity” and quoted rates much less than the incumbent carrier, so it looks like a routing change is in the offing.

Shippers that do not benchmark the rates they are paying on a regular basis with qualified service providers within specific modes of transportation, are only kidding themselves.  It’s also important for shippers to not only benchmark their rates but to “Target Price” their rates based on the actual services they are using to make sure the rates they are paying for those services are targeted to their business’ actual shipping characteristics.

And the good news is that if a shipper does not have the expertise in-house to benchmark and target price their rates and service offerings, there are transportation and logistics consultants that have tremendous resources to provide this information to significantly drive down their shipping costs.  Let us know if we can help your company “find the money it never knew was missing.”

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What We Can Learn From Amazon: Challenging The Status Quo

Lately almost every week we hear news about Amazon and their growth in the logistics and transportation business; not necessarily as a user of those services, but rather as a new service provider of those services.  First we heard about Amazon Logistics Services which some claim just might be the “future of logistics” as claimed by Zvi Schreiber, the CEO of Freightos, a logistics startup company which brings international shipments on line for forwarders and shippers.  Then Amazon through their subsidiary company, Beijing Century Joyo Courier Services, filed for authority with the U.S. Government to operate as a Non-Vessel Owning Common Carrier.  What’s next?

Well next Amazon is planning to open a Parcel Locker Service across Europe.  These lockers would allow consumers to pick up their own orders and the service would provide additional delivery options that will help to reduce delivery costs for Amazon’s customers.  The locker concept however is not a new one for Amazon as it already operates these lockers in Britain and the United States.  This move is part of a larger initiative by Amazon to provide additional delivery options in an effort to help it reduce its own transportation and logistics freight bill.

Then just the other day we heard about Amazon’s efforts to expand what it calls “On-Demand” Delivery Services.  Amazon is apparently quietly seeking drivers for this service without making any public announcements about it.  It is the latest sign that Amazon, the world’s largest e-commerce business, is keenly interested in controlling its own deliveries.  It is obviously also looking to offer these services to the general shipping public as a new alternative as well.  This is now another arrow in Amazon’s quiver helping them to provide a variety of delivery service options, but perhaps more importantly, to help them reduce their annual transportation spend.  That spend, by the way is estimated to be northward of $5 Billion net spend annually.  Let’s also not forget about Amazon’s plans to lease its own fleet of jets and to use Drone technology to deliver packages to its customers at their front door.

Amazon is clearly challenging the status quo with these very aggressive delivery network plans.  And, as everyone knows when Jeff Bezos, Amazon’s CEO puts his mind to something it usually works out just the way he has planned.  So with all this news, a couple of questions come to mind, if your UPS, FedEx, DHL or any other domestic or international service provider for that matter, what are you going to do to maintain and grow your market share when Amazon is up and running at full speed?  What should their plans be to “step outside the box” before it’s too late?  We suspect we will be hearing some noise real soon from Amazon’s current transportation and logistics service providers about their “unique” plans for the future, at least we hope so.

All of these new innovations also got us to thinking about the folks that use these transportation and logistics services day in and day out.  What are they doing, or should they be doing to challenge their own status quo?

As a shipper, whether your company is a manufacturer, distributor, retailer or service company; whether you’re a small business a mid-sized business, or a mega business for that matter, each and every year you’re being challenged by your senior management to control your shipping costs while at the same time finding ways to enhance the delivery services you offer to your customers.  So, what if anything can you do?  We’re glad you asked as we have a few suggestions that might be helpful.

  • For starters, if your company utilizes the same transportation service providers year after year perhaps it is time to “test the waters” to see if you really have the “best service/least cost” service provider on your team.   Don’t get us wrong, we are all for maintaining strong strategic alliances with all transportation and logistics service providers for the long term, however you must also be an educated consumer by speaking with your service partner’s competitors on a regular basis just to see what they may have to offer.
  • Are you constantly analyzing alternate mode selection as an option for your company’s shipping needs?  In other words, can your parcel shipments be consolidated into LTL shipments?  Can your LTL shipments be consolidated into Truckload or volume LTL shipments?  Can your volume LTL shipments be consolidated into truckload shipments, perhaps with stop-offs for multiple deliveries?  And finally, what about using intermodal transportation in lieu of over the road shipping options?
  • When was the last time you had your freight rates benchmarked by an independent, non-biased, third party to ensure you are in fact paying the least possible costs for the services being provided?  What, you’ve never had your rates benchmarked?  We suggest you do that at least every couple of years to make sure your company is not overpaying for freight.
  • Does your company have contracts with its transportation and logistics service providers?  Why contracts?  The main reason is that contracts are bi-lateral agreements, which means neither the shipper nor the service provider can make changes to the agreement provisions without written agreement of both parties.  Under typical pricing agreements, (non-contracts) the service providers are free to change their rates whenever and as often as they care to.  Want a real life example?  Here’s one.  Now that fuel costs have dropped significantly, many carriers’ Fuel Surcharge tables do not provide for a Fuel Surcharge when the average price of a gallon of diesel fuel falls below $2.00 per gallon.  Some carriers have now changed their Fuel Surcharge tables to include a Fuel Surcharge for fuel costs which are below the $2.00 per gallon threshold, and they can do that without the shipper’s approval.
  • Does your company have a comprehensive Parcel Carrier freight invoice audit program in place?  Does your company utilize a Third Party Audit firm to perform those audits? One that has the technology and know-how to track every package shipped both domestically and internationally to seek out credits for late delivered packages, as well as uncover all invoicing errors.  If this process is not outsourced and your company is auditing in-house, your company is not receiving the most comprehensive audit results available.
  • Does your company utilize an independent Third Party Pre-Audit and Payment company to audit and pay its freight bills?  If you do, you have made a very wise business decision.  These firms typically charge a minimal fee for each invoice audited and processed for payment which is far below industry estimates of $7.00 to $15.00 per invoice to process these invoices through internal company accounts payable departments.  In addition these firms provide a tremendous amount of added value through their reporting capabilities, far in excess of what internal accounts payable departments can provide.
  • Does your company also utilize a Post Audit firm to audit the initial auditor?  If not your company could be missing out on recovery of overcharges that might have been missed in the pre-audit process.  Post audit services are provided on a contingency fee basis so if the post audit firm does not uncover any overcharges there is absolutely no cost for the audit service.  Don’t pass up this opportunity to dot every “I” and cross every “T”.  One global manufacturing company we know found out that they had been duplicate paying the same invoices through different global corporate entities resulting in recoveries of over $9 Million in duplicate payments.  Now if that doesn’t support the need for post auditing services, nothing will.

These are just a few suggestions for shippers to think about as a way of “stepping outside the box” and looking for ways to “challenge the status quo.”  It should also serve as a challenge to every business to make sure they are continually looking at ways to improve their shipping processes and reducing their transportation and logistics costs which is a never ending challenge.  Got any additional thoughts you’d like to share, we’d love to hear them as well.

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Amazon Had Blockbuster 2015 Sales With Record Breaking Holiday Season

No one is questioning Amazon’s dominance this Holiday season, as it made record breaking sales. According to the New York Times, Amazon ploughed through 2015 with astounding sales figures. Here are some of the estimates:

  • Approximately 51 cents of every dollar spent online went to Amazon.
  • Of the $94 billion in industry growth, Amazon took in $22 billion, almost one quarter of the total.
  • Amazon shipped 200 million more items through its Prime subscription service this Holiday season (11/1-12/19) compared to last year’s Holiday shopping season.
  • 4% of all retail purchases made this year occur through Amazon (this is an estimate only).

But don’t let Amazon’s rising share price fool you.  Gaining a mass amount of market share comes at a cost. In this case, the company is not actually profiting a lot. “The company earned just $79 million on $24.5 billion in total revenue in the quarter,” according to the article.

Its web services business is the “Star” from a profitability standpoint and that is likely helping fuel its cash cow i.e. Retail.  Certainly its strategy of providing excellent pricing (often ‘heavy discounting’) and an ever improving service and delivery distribution system is providing mass appeal.

In the long run, how will Amazon remain profitable or increase their profits? Will its “Prime” service be enough? Will tapping new market segments be enough to create new momentum well into the future?

We will just have to wait and see what they innovate next.

Orig Article: http://www.nytimes.com/2015/12/31/technology/in-online-race-its-amazon-and-also-rans.html?WT.mc_id=SmartBriefs-Newsletter&WT.mc_ev=click

 

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