Amazon diving into ocean freight market
Strategy allows company to offer manufacturers soup-to-nuts service
SAN FRANCISCO – Quietly and below the radar, Amazon has been ramping up its ocean shipping service, sending close to 4.7 million cartons of consumers goods from China to the United States over the past year, records show.
This marks a significant move into what many believe is the company’s overall strategy of eventually controlling much of its transportation network, from trucks to airplanes and now to ships.
As of the beginning of 2018, Amazon’s freight shipping arm has shipped over 5,300 shipping containers from China to the United States. Those containers mark Amazon’s push into the fragmented and convoluted ocean freight market, allowing it to offer companies manufacturing in China a soup-to-nuts service that eliminates almost all other middlemen on the way to the U.S. consumer.
“This makes them the only e-commerce company that is able to do the whole transaction from end-to-end. Amazon now has a closed ecosystem,” said Steve Ferreira, CEO of Ocean Audit, a company that utilizes data and machine learning to find ocean freight refunds for the Fortune 500. His research first uncovered the increase, based on data from shipping data- bases, including Distribution Publications, Inc. and ImportGenius.com.
It’s a major advantage for Amazon and its founder and CEO Jeff Bezos, say experts.
“Nobody else has even come close to approaching this. There is no Walmart ocean freight,” said Michael Zakkour, executive vice president for global digital commerce with Tompkins International, a supply chain consulting company.
The containers, under the name Amazon Logistics or its wholly owned subsidiary Beijing Century Joyo Courier Service Co., are sent from ports in China to either the Port of Long Beach in California or the Port of Seattle in Washington state and from there to Amazon distribution centers.
Amazon provides either simply the trans-Pacific portion of the trip or endto-end service for companies that want it. That can include pick-up at the factory door in China, shipment across the Pacific to a U.S. port, and trucking to Amazon fulfillment centers in the United States. Amazon Logistics and Beijing Joyo have published rates in their publicly accessible tariffs that describe the types of services and fees that their clients can utilize.
“That gives Chinese goods a seamless path from the factory floor all the way to the front steps of an American buyer’s porch,” said Cathy Roberson, founder of Logistics Trends & Insights in Atlanta.
The program was initially available only to Chinese sellers and manufacturers. However, Amazon confirmed Friday to USA TODAY that the program opened to U.S. sellers beginning in the fourth quarter of 2018.
While 5,300 containers is still a small portion of the river of freight Amazon and companies that sell on Amazon bring from China to the United States each year, it signals what many expect to be a massive shift in the global ecommerce landscape as Amazon expands up its capabilities in a fragmented and frequently difficult-to-navigate market.
Today, goods produced in China that are sold on Amazon come via multiple different paths. Some are mailed in small packages from China straight to the customer via the post office. Some come via container on ships and are
delivered to the seller’s warehouse for distribution. Others are shipped across the ocean using the Chinese factory’s shipping contracts and go straight to Amazon fulfillment centers.
Soup to nuts
The move is one that many analysts have been warning of since Amazon first got the U.S. license that allows it to lease and resell space on ships carrying freight between China and the United States in 2016, said Roberson.
“This has been the goal, they’ve wanted to control the entire supply chain,” she said.
Keeping goods within a single supply chain reduces the number of handoffs and damage, and provides uninterrupted visibility – a huge plus for sellers. It also allows Amazon to make money off the process.
Shipping is only the latest push for the company. Over several years, Amazon has been leasing truck trailers and cargo jets to build out its U.S.-based fleet and air freight capabilities.
The fact that Amazon is offering door-to-door shipping services for customers in China is a big deal because it means Amazon has gained a level of expertise in another channel and category it can scale, said Brittain Ladd, formerly a senior manager with Amazon Global Logistics and now a retail and supply chain consultant.
He said Amazon likely hasn’t made any public announcements about this simply because it doesn’t want to call attention to the fact that it’s moving into yet another area it eventually plans to dominate.
“Make no mistake, Amazon wants to take command and control over as much of its logistics as possible,” Ladd said.
For the public, the biggest news is that Amazon is slowly changing the structure of retail.
“Small Chinese factories can now sell to American consumers with no one else than Amazon between them. That means that Amazon is accelerating globalization straight into the American households,” said data analyst Philip Blumenthal of Freightos, a logistics marketplace.
What Amazon is doing
Amazon has been testing the waters of ocean shipping for at least three years. In 2016 its Chinese affiliate, Amazon China, was granted a license from the U.S. Federal Maritime Commission to become an ocean freight forwarder for shipments between China and the United States.
Despite having acquired the license – a long and relatively tortuous process – Amazon didn’t immediately make use of it. In 2017, it began shipping small numbers of 40-foot shipping containers from southern China to ports in California and from there to Amazon fulfillment centers in California and Indiana under the name of a Chinese freight forwarder.
Amazon is now acting as a freight forwarder under its own name. The first shipment in which Amazon’s subsidiary was the shipper of record didn’t appear until Nov. 21, 2017, Ferreira said. A freight forwarder, also known by the somewhat daunting name of a “nonvessel operating common carrier” or NVOCC, is a company that buys space on ships and organizes shipments to fill that space.
NVOCC’s don’t own ships themselves but instead lease space from steamship lines and sell that space to their customers. So just as Amazon leases rather than buys cargo jets, it now is also leasing space on ships.
It is an enormous market. Roberson estimates the global freight forwarding market at around $220 billion, including air and ocean freight.
“They’ve eliminated transportation costs from their supply chain. It’s brilliant. They’ve made money on the ocean, they’ve made money on the trucking in China, in the U.S. they’ve made money on the fulfillment,” Ferreira said.
“This has been the goal, they’ve wanted to control the entire supply chain.”
Cathy Roberson Founder of Logistics Trends & Insights