February 21, 2016

Amazon's $400 Billion Opportunity To Disrupt the Global Supply Chain with one click international shipping

Amazon is considering creating its own fleet of air freight shippers to compete head-to-head with UPS, FedEx, and the USPS. A new report suggests that Amazon's logistics ambitions could be even grander than anyone realized.

Internal company documents obtained by Bloomberg suggest that Amazon senior management reviewed a proposal to create a global logistics and fulfillment infrastructure as far back as 2013. The internal proposal, dubbed Operation Dragon Boat, illustrates a worldwide delivery system that transports goods produced by third-party suppliers from places like India and China all the way to a hypothetical home in Atlanta. This idea spans the entire shipping life cycle from the first mile to the much detested "last mile."

The initiative would yield a new business line for Amazon, known as "Global Supply Chain by Amazon," seeking to capitalize on the estimated $1 trillion in annual global cross-border e-commerce sales expected by 2020. Amazon could launch Global Supply Chain by Amazon as soon as later this year, claims Bloomberg.

The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London. The project, called Dragon Boat, is proceeding, according to a person familiar with the initiative, who asked not to be identified because the information isn’t public. The ambitious strategy promises to turn FedEx and UPS into Amazon rivals, but also will pit the Seattle giant against Chinese counterpart Alibaba Group Holding Ltd. Both companies are vying for dominance of the rapidly growing cross-border e-commerce market, which by 2020 is expected to swell into a $1 trillion industry serving 900 million shoppers, according to a June report from Accenture and AliResearch, Alibaba’s research arm.

The new business will locate Amazon at the center of a logistics industry that involves not just shippers like FedEx and UPS but also legions of middlemen who handle cargo and paperwork associated with transnational trade. Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates. Merchants will be able to book cargo space online or via mobile devices, creating what Amazon described as a “one click-ship for seamless international trade and shipping.”

A successful move into and execution of Global Supply Chain by Amazon could create an entirely new $400 billion business for the world's largest e-commerce site, claims Robert W. Baird analyst Colin Sebastian. For context, Amazon's 2015 sales amounted to $107 billion, the first time it surpassed $100 billion.

1. like it did with AWS and third-party listings on its website, creating a new revenue source that deals with a key cost of Amazon's own e-commerce operations could serve as an effective subsidy for Amazon and its shareholders.

2. This could lower its expenses, which in turn would lead to lower costs and a better customer experience for its customers, which would further drive sales.

This virtuous cycle is known as Amazon's Flywheel .




Even if Amazon is playing possum with its eventual ambitions in either direction, the threat that it might disrupt its current supply chain partners could serve as massive leverage as Amazon negotiates its shipping contracts with UPS and FedEx.




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