By 24/7 Staff / www.supplychain247.com / February 9th, 2016
Amazon's ambition to build a global shipping and logistics business to compete directly with UPS and Fedex seems to be much bigger than what most people thought, according to leaked documents discovered by Bloomberg.
Despite Amazon’s dismissal of the speculation that the company plans to compete directly with UPS and Fedex, Bloomberg says it has seen documents that show the Web retailer plans to do exactly that.
Bloomberg says Amazon has a plan, which it calls “Dragon Boat,” that entails expanding the global reach of Fulfillment By Amazon, the unit that oversees storage, packing and shipping for third-party merchants who sell products through Amazon’s site.
Dragon Boat will also place Amazon in a position to take on Alibaba, the Chinese e-commerce powerhouse.
The companies are increasingly competing against one another internationally.
The document describes Dragon Boat as 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.”
“Sellers will no longer book with DHL, UPS or Fedex but will book directly with Amazon” Bloomberg
The 2013 report to Amazon’s senior management team was an outline for “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.” Bloomberg stated.
An unnamed source told Bloomberg that the Dragon Boat operation is “proceeding.”
It’s important to note that Amazon’s net shipping costs reached an all-time high, $1.85 billion, during the fourth quarter of 2015 and surpassed $5 billion for the full year. This was a record expense and may be another motivation for the e-commerce giant to build its own shipping and delivering business.
Geekwire dug into Amazon’s annual 10-K filing with the Securities & Exchange Commission last week, and found a widening gap between what Amazon charges customers for shipping and what the company pays to send those items through outside carriers. Despite generating an all-time high of $2.33 billion in shipping revenue (fees collected from customers) Amazon’s gross shipping costs (the total amount paid to UPS, FedEx and others) also reached a new high of $4.17 billion.
During its most recent earnings, Amazon CFO Brian Olsavsky seemed to play down rumors of a full fledged logistics business, saying the initiatives were intended to"supplement” its existing partners, not to “replace” them.
But some analysts didn’t seem to buy into Olsavsky’s comment. Colin Sebastian of Baird Capital believes Amazon is gearing up to create an in-house logistics department that would allow it to take full control of its fulfillment process, and bypass current shipping partners like UPS and FedEx.
“Amazon may be the only company with the fulfillment/distribution sophistication and scale to compete effectively with incumbent service providers (UPS, FedEx),” Sebastian wrote in a recent article.
Photo: Mandarin House
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