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.”