Amazon's Global Supply Chain Amazon is implementing a multiyear plan to develop a global shipping and logistics business, competing directly with UPS (www.ups.com), FedEx (www.fedex.com), and Chinese ecommerce leader Alibaba (www.alibaba.com). This plan includes leasing planes, developing and registering an ocean freight-forwarding business, and developing a parcel-delivery business. Amazon is globally expanding its Fulfillment by Amazon (FBA) service, which provides storage, packing, and shipping for independent merchants who sell products through Amazon.com. Amazon's global logistics platform will be called Global Supply Chain by Amazon. Internally, Amazon calls this project Dragon Boat. Amazon's intention is to put itself at the center of a logistics industry that currently involves shippers such as FedEx and UPS as well as thousands of freight forwarders who handle international cargo and the associated paperwork. Amazon plans to collect inventory from thousands of merchants around the world and purchase space on trucks, planes, trains, and ships at reduced rates. Amazon argues that its logistics business will open cross-border commerce to smaller merchants who otherwise would not have the time or money to manage the complexities of international commerce. In turn, Amazon shoppers will have access to many more products from merchants around the world. Amazon's interest in developing a global logistics platform dates from 2012, when the ecommerce giant first allowed Chinese suppliers to sell goods in Amazon's online marketplace. By July 2018, more than 60 percent of Chinese e-commerce retailers sold on Amazon platforms. Sellers can ship products either directly to customers or to Amazon, which then packs and delivers the products on their behalf. As noted above, Amazon's plan includes developing an ocean freight-forwarding business, an air-cargo business, and a parcel-delivery business. Let's look at each of these options in order. Freight Forwarding Business Any parcel weighing more than 330 pounds qualifies as freight and can require several vehicles owned by different companies to deliver it across land, sea, or air from its source (e.g., a factory) to its destination (e.g., a retail store). Shipping these parcels internationally is difficult and time consuming, particularly for small- and medium-sized companies that tend to sell on Amazon. Large brands and manufacturers have the necessary size to directly arrange and negotiate favorable rates for shipments. Other firms must use freight forwarders. Freight forwarding is opaque and very inefficient. Many freight forwarders still conduct their business via phone, e-mail, paper manifests, or fax machine. Online portals where manufacturers can track their shipments are largely unknown. Freight forwarders perform many functions. They negotiate the best shipping rates and the most efficient use of multiple modes of transport, including trucks, trains, planes, and ships. They prepare all of the accompanying paperwork, including customs documentation. When a problem arises, such as when a container is delayed at a port, freight forwarders are expected to have the necessary relationships with port personnel to get the container moving again. Amazon's entry into the freight forwarding business is in its early stages. For instance, between October 2016 and January 2017, Amazon arranged for the shipping of at least 150 containers of goods from China to the United States. The containers were a very tiny part of the millions of containers that sail between the two countries each year. However, they were an early freightforwarding test for Amazon. According to Amazon's logistics website (www.logistics.amazon.com), the retailer claims it can perform freight pickups, warehousing, and transportation and delivery of goods, as well as handle import and export services. To become a freight forwarder between the United States and China, Amazon had to obtain two licenses to act as a wholesaler for ocean container shipping, one from the United States Federal Maritime Commission and the other from China. The retailer received both licenses by February 2016. Amazon faces stiff competition in the freight forwarding business. For example, freight forwarding start-up Flexport (www.flexport.com) has indexed all of the available freight carriers into a searchable database, which shippers can use for free to organize and track shipments. Flexport simultaneously operates its own freight forwarding service that provides shippers with the shortest and least expensive option. Flexport uses analytics to optimize its recommendations based on the large amount of data it collects from shippers who utilize its free software. By analyzing all of the routes, rates, speeds, and customs compliance data of shipments booked through its software, Flexport can identify the most efficient method to ship goods internationally. In 2017, Flexport moved freight worth more than $1.5 billion to or from 64 countries for more than 700 clients. Air Cargo Business Cargo planes are one of the latest tools that Amazon is using to control and improve delivery. Other efforts include a mobile app for delivery drivers and increased trucking capacity. The company has a worldwide network of approximately 150 fulfillment centers and 20 sorting centers that handle online orders. Amazon's air cargo business is called Amazon Air. By July 2018, Amazon had 20 of its 33 cargo planes operating out of the Cincinnati/Northern Kentucky International airport, with the rest operating point-to-point routes across the United States. The retailer is building a new $1.5 billion air hub, which will be fully operational in 2021, near the airport to support its fleet of planes. At the end of 2018, Amazon had 50 planes and in June, 2019 ordered 15 more cargo planes. The retailer's goal is to move inventory more efficiently around the United States so its customers can receive their orders quickly. The company currently operates 11 warehouses in Kentucky, where inventory is stored, packed, and shipped to its customers. Parcel Delivery Business In 2016, Amazon purchased the 75 percent of French package delivery company Colis Priv that it did not already own. The purchase put Amazon in direct competition with FedEx and UPS in France. Industry analysts believe that Amazon is using this acquisition to better understand the parcel delivery business. In fact, Amazon appears to be interested in creating an end-to-end customer experience by selling and delivering goods. The company is experimenting with a new delivery service, called Seller Flex, which is an on-demand local delivery service that Amazon initiated in India in 2015. Two years later, it introduced Seller Flex on a trial basis in several U.S. West Coast states. Amazon deployed Seller Flex more broadly in 2018. In early 2018, Amazon launched a program called Shipping with Amazon (SWA) in Los Angeles, in which the retailer picked up and shipped packages to customers. The service began with third-party sellers on Amazon but could eventually open to other businesses. In June 2018, Amazon launched its Delivery Service Partner (DSP) program, which encouraged entrepreneurs to start small Amazon delivery companies. Each entrepreneur manages 40 to 100 employees who use 20 to 40 Amazon-branded vans to deliver packages, using Amazon's logistics systems to facilitate the process. This program directly competes with major parcel delivery companies such as UPS and FedEx. Integrating the three business Amazon is using information technology (IT) to integrate all areas of its global logistics business. For example, determining the most cost-effective shipping rate is essentially a question of data collection and analytics. Amazon performs both of these processes very effectively. Using Amazon's IT, merchants will be able to book cargo space online, creating what Amazon calls one-click-ship for seamless international trade and shippingthat is, merchants will be able to claim cargo space online with a single click. Essentially, Amazon has the ability to develop a one-stop, one-click shipping portal that would vastly simplify the process for manufacturers while making it easier for them to track shipments. Eventually, Amazon could offer the service to any manufacturer, even those who do not sell on its platforms. More efficient logistics would also help Amazon to reduce various transaction costs, including booking fees and government filings. Amazon faces international competition from Alibaba. Like Amazon, Alibaba is striving to dominate international electronic commerce. That market will exceed $1 trillion and 900 million shoppers by 2020, according to a report by consulting firm Accenture and AliResearch (www.aliresearch.com), Alibaba's research group. As one example, Alibaba's OneTouch service has been helping Chinese manufacturers arrange air freight and customer clearances since 2010. Furthermore, in January 2017, Alibaba began booking space for its suppliers on Maersk container ships, joining an increasing number of ecommerce companies that are trying to bring greater efficiency and transparency to the business of arranging cargo shipments. Executives at FedEx (www.fedex.com) and UPS (www.ups.com) as well as logistics industry analysts are skeptical about Amazon's plans. They contend that it will be extremely difficult and expensive to build an international delivery network to rival FedEx and UPS. (In just one example, FedEx has 659 planes, UPS has 260, and Amazon has about 40.) FedEx states that it is spending more than $5 billion annually on expansion and upgrades to its services, and UPS claims it is spending more than $2.5 billion in similar areas. Combined, the two companies have a total of roughly 4,000 hubs and other facilities to sort tens of millions of packages per day. They also operate almost 1,000 planes and 200,000 vehicles to deliver packages to doors. Even with increasing investments, it appears likely that Amazon will have to rely on UPS, FedEx, and the U.S. Postal Service for years. Furthermore, UPS, FedEx, and freight forwarder DSV say that they have the logistics technologies that enable them to have a competitive advantage over Amazon. It remains to be seen if Amazon can scale up its global logistics operations enough to compete with these two giants. Questions 1. Perform a strengths, weaknesses, opportunities, and threats (SWOT) analysis of Amazon's entry into the global logistics business. 2. What are the disadvantages to Amazon of entering the global logistics business? 3. You are the CEO of FedEx or UPS. What strategies would you implement to compete with Amazon? Provide specific examples to support your answer...