Ama­zon build­ing global de­liv­ery busi­ness to take on Alibaba

The Pak Banker - - COMPANIES/BOSS -

In re­cent weeks, spec­u­la­tion has mounted that Ama­ Inc. plans to launch a global ship­ping and lo­gis­tics op­er­a­tion that will com­pete with United Par­cel Ser­vice Inc. and FedEx Corp.

Asked about re­ports that the com­pany was leas­ing planes and had reg­is­tered an ocean freight book­ing busi­ness, Chief Fi­nan­cial Of­fi­cer Brian Ol­savsky down­played Ama­zon's am­bi­tions last month in an earn­ings call. He said the com­pany was sim­ply look­ing to sup­ple­ment its de­liv­ery part­ners -- not re­place them -- dur­ing peak pe­ri­ods like the Christ­mas shop­ping sea­son

Ama­zon doc­u­ments re­viewed by Bloomberg News re­veal a far bolder plan. A 2013 re­port to Ama­zon's se­nior man­age­ment team pro­posed an ag­gres­sive global ex­pan­sion of the com­pany's Ful­fill­ment By Ama­zon ser­vice, which pro­vides stor­age, pack­ing and ship­ping for in­de­pen­dent mer­chants sell­ing prod­ucts on the com­pany's web­site. The re­port en­vi­sioned a global de­liv­ery net­work that con­trols the flow of goods from fac­to­ries in China and In­dia to cus­tomer doorsteps in At­lanta, New York and Lon­don. The pro­ject, called Dragon Boat, is pro­ceed­ing, ac­cord­ing to a per­son fa­mil­iar with the ini­tia­tive, who asked not to be iden­ti­fied be­cause the in­for­ma­tion isn't pub­lic.

The am­bi­tious strat­egy prom­ises to turn FedEx and UPS into Ama­zon ri­vals, but also will pit the Seat­tle gi­ant against Chi­nese coun­ter­part Alibaba Group Hold­ing Ltd. Both com­pa­nies are vy­ing for dom­i­nance of the rapidly grow­ing cross­bor­der e-com­merce mar­ket, which by 2020 is ex­pected to swell into a $1 tril­lion in­dus­try serv­ing 900 mil­lion shop­pers, ac­cord­ing to a June re­port from Ac­cen­ture and AliRe­search, Alibaba's re­search arm.

Ama­zon's plan would cul­mi­nate with the launch of a new ven­ture called "Global Sup­ply Chain by Ama­zon," as soon as this year, the doc­u­ments said. The new busi­ness will lo­cate Ama­zon at the cen­ter of a lo­gis­tics in­dus­try that in­volves not just ship­pers like FedEx and UPS but also le­gions of mid­dle­men who han­dle cargo and pa­per­work as­so­ci­ated with transna­tional trade. Ama­zon wants to by­pass th­ese bro­kers, amass­ing in­ven­tory from thou­sands of mer­chants around the world and then buy­ing space on trucks, planes and ships at re­duced rates. Mer­chants will be able to book cargo space on­line or via mo­bile devices, cre­at­ing what Ama­zon de­scribed as a "one click-ship for seam­less in­ter­na­tional trade and ship­ping."

"Sellers will no longer book with DHL, UPS or Fedex but will book di­rectly with Ama­zon," the 2013 re­port said. "The ease and trans­parency of this dis­in­ter­me­di­a­tion will be revo­lu­tion­ary and sellers will flock to FBA given the com­pet­i­tive pric­ing." Ama­zon will part­ner with third-party car­ri­ers to build the global en­ter­prise and then grad­u­ally squeeze them out once the busi­ness reaches suf­fi­cient vol­ume and Ama­zon learns enough to run it on its own, the doc­u­ments said.

If the lo­gis­tics busi­ness takes hold, fi­nan­cial ser­vices could fol­low, with Ama­zon giv­ing loans to mer­chants, pro­cess­ing in­ter­na­tional pay­ments and con­sult­ing its net­work of sellers on cus­toms and tax mat­ters. The strat­egy echoes the com­pany's move into cloud ser­vices, which it de­vel­oped in­ter­nally and grad­u­ally ex­panded into a com­mer­cial en­ter­prise that's now Ama­zon's fastest-grow­ing and most prof­itable divi­sion. Ama­zon never made big procla­ma­tions about its cloud op­er­a­tions in the early days and in­stead mar­keted di­rectly to soft­ware de­vel­op­ers. Com­pa­nies like Hewlett Packard, Dell and Mi­crosoft largely ig­nored the threat and are now play­ing catch-up.

"This is clas­sic Ama­zon fash­ion," said Colin Se­bas­tian, an an­a­lyst at Robert W. Baird & Co., who says a global lo­gis­tics op­er­a­tion could be­come a $400 bil­lion busi­ness for Ama­zon. "They take baby steps along a long path, which al­lows some com­pa­nies that could be dis­rupted to re­main in a sense of de­nial. Ama­zon rarely takes one big step for­ward that shocks the mar­ket." Ama­zon laid out its lo­gis­tics strat­egy in 2013 af­ter pre­dict­ing an uptick in the flow of mer­chan­dise from Ama­zon sellers in one coun­try to buy­ers in an­other. In the ini­tial doc­u­ment -- a pro­posal to Ama­zon's se­nior ex­ec­u­tive team for plan­ning pur­poses -- the com­pany de­scribed a "revo­lu­tion­ary sys­tem that will au­to­mate the en­tire in­ter­na­tional sup­ply chain and elim­i­nate much of the legacy waste as­so­ci­ated with doc­u­ment han­dling and freight book­ing."

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.