Is Amazon’s new shipping service a threat to 3PLs and the transportation industry?
Amazon is a business powerhouse, and they’ve disrupted a number of direct and indirect industries in recent years. Their focus on the customer’s demands for speed and efficiency has heightened the competitive sphere in e-commerce and physical storefronts.
Dominating in a variety of online services, Amazon has changed the way businesses provide customer service. Their fulfillment services, Fulfillment By Amazon (FBA), have already proven significant success for third-party sellers on Amazon.
Now, rumor has it that Amazon is going to be offering transportation services that includes everything from fulfillment to last-mile delivery. Shipping With Amazon (SWA) is going to provide shipping and logistics services for Amazon and its third-party sellers. This is meant to compete with 3PLs like FedEx and UPS, and it’s likely going to impact the traditional transportation model.
But what are the real implications for SWA? What does this mean for the future of transportation?
The announcement of a shipping service shouldn’t come as a shock. Amazon spends upwards of $20 billion a year in shipping costs. Creating their own transport service will reduce expenses while allowing Amazon to maintain near-total control of their supply chain.
With their online marketplace, Amazon has needed to find a way to maintain consistency despite their thousands of online sellers Amazon especially wants to make the last mile more efficient for consumers. Amazon has thrived on their high-quality customer service and fast delivery options, especially with Prime customers. Hosting their own shipping gives them more direct control of the online customer experience.
Ultimately, SWA is a way for Amazon to maintain control and protect their brand reputation.
But what does this mean for the other 3PLs and transport companies?
With the announcement of Amazon’s shipping service, UPS and FedEx price share almost instantly took a dip. However, we predict this will normalize again when Amazon starts rolling out their services and the “unknown” of Amazon’s transport power is less mysterious.
Despite the mystery of the implementation of SWA, there are a number of predicted implications for which the industry should prepare.
Amazon is the biggest online retail giant. Their high volume of packages has given a significant amount of business to large and boutique 3PLs alike. UPS carries nearly 30% of Amazon’s packages, totaling nearly 182 million packages. When Amazon starts carrying those packages themselves, UPS and other 3PLs are going to see a severe revenue decline.
Not only are 3PLs losing business, but they’ll also need to lower prices in order to compete with the retail giant. Amazon is likely going to undermine current market prices (as they have in other industries), which will put pressure on current shipping companies.
This means customers will have to pay less for shipping, but it also means 3PLs are going to need to be more efficient to reduce costs and maintain margins.
Amazon is a major innovator, especially with regards to technology. They’ve already made huge advancements in warehousing and logistics, including robotic technology and artificial intelligence. Coming into the transportation world, traditional 3PLs will need to step up their game to compete with Amazon’s reputation for innovation.
SWA will likely spur a technology revolution where only the savviest 3PLs will succeed.
One upside of SWA is that it might help with the trucking capacity crisis. In order to launch SWA, Amazon will need to implement their own fleet of trucks. This will provide space in other 3PL trucks for other retailers who previously lost space to Amazon.
Smaller online retailers have often struggled to maintain top-notch service and shipping because of the ongoing trucking crisis. Amidst that crisis, giants like Amazon and Wal-Mart have always won out. Now, if Amazon implements their own shipping service, it could leave room with traditional 3PLs for small to mid-sized online business.
Amazon is a giant in the retail world, and they’ll likely become a giant in the shipping world over time. This could squash some competition, putting smaller and less innovative 3PLs out of business.
However, it’s also expected that Amazon will start acquiring some of the most innovative 3PLs. They’ll do this as a means of building their fleet quickly and efficiently without starting completely from scratch.
Smaller 3PLs should start preparing for a buyout or pushing for new advancements that allow them to compete with Amazon.
When they have a strong shipping service, Amazon will own nearly the entire supply chain for their e-commerce business. This is going to make third-party sellers more beholden to the company’s policy and culture.
In turn, this will make Amazon even more of a powerhouse, which will be hard to fight as an online retailer or 3PL. This is another step in the continuation of the Amazon empire. It’s not something to be scared of, but it’s something to prepare for.
Amazon’s shipping is making a splash, but it’s hard to predict how large the subsequent waves will be. Amazon doesn’t yet have the infrastructure, relationships, or experiences to compete, so they’re going to likely acquire smaller 3PLs to work their way up the chain.
However, we know that Amazon will create competition for other 3PLs. These innovation and tech advancements will likely be positive for the entire transportation industry, though. 3PLs will need to be more innovative and technological than ever in order to compete with the Amazon giant.
LTX Solutions is perfectly poised to innovate alongside this Amazon competition. Our cutting edge technology helps us optimize supply chain management from beginning to end. We’re building a secure, inventive stronghold in the midst of a forthcoming competitive boom.
Do you want to maximize your transportation technology and be at the forefront of the competition?
Then it’s time to contact LTX Solutions. We look forward to hearing from you to help you drive into the next generation of transportation.