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Is Amazon’s Entry Good or Bad for the 3PL Industry

When you talk to existing 3PLs about the incursion of Amazon into the logistics industry, many Australian companies are just scared or dismissive. We are not seeing it as such. We just assume that the company is a positive force, albeit disruptive, within the logistics industry.

Amazon’s continued growth in capabilities in logistics will make almost all 3PLs to be better aligned and more efficient towards meeting the requirements of end-consumers.

The Expanding Capabilities of Amazon in Logistics

Props to Reynolds Hutchins and Bill Cassidy on the Journal of Commerce for their round-up and well-researched articles about the capabilities of Amazon in logistics show that Amazon is reshaping logistics.

Here are some signals that show Amazon is very serious about becoming a logistics service provider. We can expect something along the same lines when Amazon enters the Australian market:

  • Amazon has been registered as a common and non-vessel carrier to manage the flow of products from China to the U.S.
  • It has leased twenty U.S. based cargo planes.
  • The company has bought thousands of trucks in the United States that are branded with its logos.
  • It has rapidly expanded sorting and fulfillment centers and its Amazon Fresh grocery and Amazon Prime Now centers across the United States.
  • Expanded its shipments to China via Shanghai’s free trading zone.
  • Expanded rapidly into the European market and built a fulfillment and delivery network across Europe.

One of the strongest indicators of intent is the investment. The extent of investment indicated by Amazon shows that the company views the development of its logistics services like a crucial factor that will determine success in future.

Some 3PLs Are Not Concerned About Amazon Being a Competitor

The Gartner Group recently published an article analyzing how Amazon is set to disrupt the last-mile and 3PL delivery segment. However, most 3PLs are somehow ignoring the signs while others are dismissing the company as a strong direct competitor.

During an investor call on March 2016, the CEO and founder of FedEx, Fred Smith, characterized Amazon’s idea of investing in logistics and air freight industry as “fantastical”. Smith has the view that Amazon may disrupt the 3PL business of the traditional carriers.

He added that the market in which FedEx operates, the technology, rich information in logistic systems, capabilities, route or stop densities, and facilities place FedEx, USPS, and UPS in a better chance of remaining the key carriers in the e-commerce shipment industry across the United States in the future.

There are other 3PLs that appreciate the logistics capabilities of Amazon but the question that remains is whether these capabilities will be sustained especially due to the firm’s inability to have reasonable profits from such services.

Some 3PLs are certainly frustrated by Amazon’s entrance and the expectation it has created among consumers that everything is deliverable within two days.

Many logistic service providers view the company as just a tangential threat which is not worthy of too much attention, although such 3PLs secretly wish Amazon wasn’t around.

Amazon Is a Competitor in the 3PL Industry

No mistake should be made and Amazon is now a competitor to many 3PLs. Amazon now has around 161 fulfillment centers in the U.S, with 17 more facilities planned, totaling to 69 million sq ft of space. Amazon’s fulfillment services are used by default among most companies that sell on Amazon.com.

In reality, Amazon is offering fulfillment services within 3PL facilities. The company is expected to buy inventory from CPG manufacturer as part of its plan to offer direct online services of fulfillment.

The company is expected to offer gated fulfillment operations within the manufacturer’s 3PL facility. This is surely competition.

Orders from consumers come into the website of the manufacturer, but the orders are sent directly to Amazon’s fulfillment center near DC and this is within the 3PL warehouse.

If you have taken a look at the company’s Dash Buttons, you will realize that these devices connected to Wi-Fi allow clients to order items by just pressing a button.

According to Amazon, the rate at which these buttons are being pressed across homes in the U.S is at a rate exceeding one per minute.

You just need to press the button and it will trigger delivery within two days from an Amazon’s warehouse. You should consider the implications this technique will have for 3PLs such as KANE that usually ship goods to supermarkets.

Products that are at the middle level can be easily sourced from Amazon’s stores by just touching a button.

Amazon’s Effect as a Positive Force That Is Bringing Change

Amazon can be seen as a disrupter. Any business requires disrupters, that is to mean a company or companies that will challenge the traditional models and ensure everyone else in the specific industry recalibrates.

Disrupters are needed in the 3PL service industry. In most instances, 3PLs serving manufacturers and retailers tend to lose the ultimate consumer’s sight. On the contrary, Amazon seems to only care about the consumer.

Frankly, Amazon doesn’t care much about other companies including channel partners who are affected negatively as they improve convenience and delivery speed on the service.

In the end, 3PLs shouldn’t really require Amazon or any other company to bring about some change. They have to disrupt themselves.

3PLs do a great job in disrupting work processes. Change and continuous improvements are also required at all levels to identify waste and challenge existing approaches. Such improvement programs are meant to change how work is done and they should also be applied when executing strategy.

Amazon’s role in prompting the 3PL business to disrupt itself is surely a positive force that is bringing change into the industry. If we just sit around and wonder what Amazon plans to do next, then we will deserve the fate that will befall us.

Breakthrough success can only come to 3PLs that are willing to challenge the existing work models and ask themselves what they should do next.

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