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Tuesday, February 9, 2016
Amazon expands logistics reach in China
Amazon expands logistics reach in China
Amazon.com Inc is aggressively expanding its logistics operations in China as part of a broader effort to control the rising cost of shipping billions of packages.
[SAN FRANCISCO] Amazon.com Inc is aggressively expanding its logistics operations in China as part of a broader effort to control the rising cost of shipping billions of packages.
Its plans in China, outlined in filings there, include handling cargo and customs for goods headed to ports in Japan, Europe and the United States.
Some analysts say the move could help position Amazon to offer shipping services to other companies, eventually competing with the likes of United Parcel Service Inc and DHL Worldwide Express BV.
That would mirror the strategy of Amazon's cloud computing arm, Amazon Web Services, which is now the company's fastest growing unit. The service was launched to serve Amazon's own retail operations but now hosts data for other companies.
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Seattle-based Amazon faces increasing pressure from Wall Street to drive down shipping costs, which rose 37 per cent in the most recent quarter compared to the same period a year ago.
A spokeswoman for Amazon declined comment.
The company revealed its China plans in documents filed with regulators there.
Amazon registered its Chinese subsidiary, Beijing Century Joyo Courier Service, as a freight forwarder - a type of broker that does not own ships but handles customs and other documentation - with China's transport ministry last year, allowing it to export cargo out of the country.
Amazon's Chinese subsidiary also made a similar application with the US Federal Maritime Commission in November.
Amazon also filed an application with the Shanghai Shipping Exchange to serve as a shipping broker for 12 trade routes, including Shanghai to Los Angeles and Shanghai to Hamburg, Germany.
"These are major gateway ports," said John Manners-Bell, who heads Transport Intelligence, a logistics analysis firm. "They appear to be laying the foundation for a large forwarding operation." In documents Beijing Century Joyo submitted to the exchange, the company said it plans to charge customers between US$530 and US$2,530 to transport a 40-foot dry van container from Shanghai to Hamburg. The rate is comparable to those charged by other forwarders, and the wide range gives it flexibility to adjust its prices based on volume.
Forwarders typically negotiate rates with shipping lines and pass them on to the owners of cargo.
Last November, Beijing Century Joyo updated its Beijing business registration. The company offers a suite of logistics services such as domestic delivery and handling the import and export of goods.
Brian Xue, vice president of operations for Amazon in China, signed the government filings. Xue, who joined Amazon in 2014, has emerged as a champion for its logistics build-out in China.
Analysts expect Amazon to use its new freight forwarder license to make it easier for Chinese merchants and manufacturers to transport their goods to major hubs where Amazon has warehouses that ship goods to customers.
Amazon would handle paperwork and select the shipping line that will transport the goods and make sure there are trucks on the other end to take shipments to its fulfillment facilities. Merchants will deal only with Amazon rather than multiple companies for trucking, warehousing and shipping.
The license also would allow Amazon to cut shipping costs by bundling products from small and medium-sized companies to fill up containers, analysts said.
Amazon rival Alibaba Group Holding Ltd has been asserting greater control over its logistics network in China, spending billions on buying stakes in package delivery companies and launching a logistics arm that has been investing in warehouses.
Amazon directly imported about 10,000 20-foot containers into the US last year and received an additional 20,000 containers from merchants as part of the company's Fulfillment by Amazon programme, according to an analysis by Ocean Audit Inc, a freight auditing consultancy.
The program allows merchants to store their products in Amazon warehouses and makes them eligible for Prime, which promises consumers two-day shipping for US$99-a-year for goods from merchants who sign up for the program.
Some 90 per cent of the shipments originated in China, according to Ocean Audit.
It's not clear how many merchants have signed up to use Amazon's freight services. Amazon China announced a new, cross-border logistics service to cater to Chinese merchants last October, and ocean freight appears to be part of its offering.
But freight forwarders already handling Amazon's suppliers stand to lose business. Amazon could dictate that merchants use its forwarding service, said Cliff Sullivan, chairman of the Hong Kong Association of Freight Forwarding and Logistics. "We may get cut out," he said.
Amazon tried to tamp down concerns about its ambitions in the logistics industry on a recent earnings call, saying it did not plan to "replace" carriers like UPS but to handle more of its own deliveries at peak times.
But for the first time, the company noted in a recent filing with the US Securities and Exchange Commission that it views companies that provide "fulfillment and logistics services for themselves or third parties" as competitors.
The retailer operates more than 120 fulfillment centers worldwide that hold millions of products supplied by third party merchants and Amazon's own vendors and where warehouse workers pick and pack items for shipment.
Amazon rolled out thousands of its own trailers and launched an Uber-like delivery service last year to handle the so-called last mile of delivery, taking packages from distribution centers to customers' homes.
"At the very least, Amazon will begin handling their own freight," said Zvi Schreiber, the chief executive of Freightos, a start-up that provides an online marketplace linking forwarders and logistics vendors. "The next stage would be to offer the service to third party clients."
Some in the industry warn companies like Amazon against straying from their original business model. "They're moving into something that could be potentially very treacherous," said Andreas Krueger, head of ocean freight for DHL Global Forwarding in the Americas, speaking generally about new entrants into the logistics industry.
DHL Global Forwarding, one of the biggest players in air and ocean freight, handles customized logistics programs. "The worst that would happen is we get another competitor in our midst, but I'm not concerned," he said. "We've been in the business since 1815."