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3PLs not worried about competition from Amazon…yet

Between Amazon’s rapid growth and unpredictability, third-party logistics providers say it is definitely a looming concern as to whether the e-commerce giant will be a threat to their business in the future.

E-commerce giant Amazon appears to be gaining ground in many aspects, between boosting net sales and continuously increasing its network of fulfillment centers, expanding into air transport, and even buying Whole Foods earlier this year, making it interesting to see just what the company will do next.

Amazon appears to always be one step ahead of the game, and just last week, it unveiled a new service, dubbed Amazon Key, which will enable in-home delivery for Prime members at no extra cost. The service will allow customers to have their packages delivered inside their home without having to be there. Amazon Key will be available Nov. 8 in 37 cities across the United States, and the company plans to roll out more locations over time.

Back in 2016, Amazon entered into agreements with two airlines – Atlas Air and Air Transport Service Group – to lease 40 dedicated cargo airplanes, and just this January, the company revealed its plans to build a new air cargo hub at the Cincinnati/Northern Kentucky Airport (CVG) in Hebron, Ky. to support its dedicated fleet of Prime Air cargo planes.

A spokesperson for CVG told American Shipper on Friday officials at the airport are still unsure when Amazon would break ground on that air cargo hub.

Airfreight demand growth, in general, has been outpacing capacity growth throughout 2017, and with Amazon’s growth in net sales, it is likely Amazon is in need of its own dedicated fleet to support shipments for its customers.

In the third quarter of 2017, Amazon’s net sales soared 33.7 percent year-over-year to $43.7 billion, while net income inched up 1.6 percent to $256 million, the company reported.

Amazon had 541,900 employees (full-time and part-time) during the quarter, up from 306,800 employees in the third quarter of last year.

In addition, the company expects to create more than 120,000 seasonal jobs in its U.S. network of fulfillment centers, sortation centers and customer service sites.

Between Amazon’s rapid growth and unpredictability, it is definitely a looming concern as to whether it will be a threat to third-party logistics companies (3PLs) in the future, and if so, when and to what extent.

Frank Guenzerodt, President & CEO of Dachser USA Air & Sea Logistics Inc. said during the 3PL Value Creation Chicago Summit last week that in the short- to medium-term, he does not expect Amazon to be a threat to 3PLs, but in the long-term, in 10-15 years, he believes Amazon will begin to take market share from its own service providers.

“I don’t believe that Amazon will become a serious competitor for ocean container moves in the short- to mid-term. International ocean transportation still has many regulations which can not easily be automated,” he said. “In some countries, it still involves ‘paper’ processes. International shippers are also seeking more value than just pure point to point transportation. However, in the long-term, they could take some market share.”

Meanwhile, Chris O’Brien, chief commercial officer at C.H. Robinson Worldwide, said at the summit that he does not view Amazon as a competitor today, but that it is probably uncertain going forward. O’Brien said if he had to guess where Amazon would go next, it would be value-added warehousing and fulfillment for others but noted that in typical fashion, Amazon really hasn’t said a word about such plans.

Richard Piontek, chairman of eCapital and president of Capital Partners Services, said during the summit he thinks that on the fulfillment and distribution side, Amazon is definitely a competitor for 3PLs, considering how large the company’s fulfillment center network is. He said that on the transportation side, he does not yet have an opinion on Amazon as a direct threat to 3PLs.

Piontek said he believes the largest threat Amazon poses is that the company thinks completely differently than a lot of businesses and 3PLs.

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“They focus solely on the customer and improving service and responsiveness, and level of ease of use and the whole experience, so they look at things differently than an operator, 3PL or warehouse-based distribution company,” Piontek said. “They operate strictly in the mind of ‘what’s going to make this the most customer-friendly easiest to do business with solution,’ so I think they actually challenge the 3PL business to be better.”

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