How to Best Understand Amazon Transportation Services

Executive Summary

  • Amazon Transportation Services is yet another market Amazon is about to disrupt.
  • There are important implications for the movement of Amazon into this market.

Introduction: What the Amazon Transportation Service is About

The Amazon Transportation Service is causing significant changes in the supply chain market. We project will cause even more changes in the future. You will learn what these changes are and why Amazon is entering this market.

What is the Amazon Transportation Service?

Amazon has for a long time been at the forefront of logistics with its Amazon Fulfillment Services has moved into a new space. They have called this trucking division Amazon Transportation Services.

The first indication that most people may have observed of Amazon getting into transportation has been observing that local delivery began to be from vans with the Amazon logo on the side rather than the logo of one of the parcel delivery companies.

Amazon is promoting small entities to take the role of what amounts to a franchisee as part of the Amazon Transportation Service. 

But while this is the most visible sign, there is much more going on behind the scenes with Amazon Transportation Service.

Overall, the question that is naturally raised is what will be the future impact of Amazon Transportation Services on trucking.

How Amazon Transportation Services will Change Trucking

Amazon Transportation Services has its trucks, but it does not intend to own a 100% private fleet. In fact, up to this point, the tractors and trailers that Amazon Transportation Services does own are used exclusively to move freight between Amazon locations. Trucking from Amazon locations to the parcel carriers is where Amazon uses outside trucking companies.

Amazon is leveraging its technology prowess and has already introduced an app that matches truck drivers with shippers, in a way allowing for the circumvention of the big trucking companies. This is in all frankness something that the trucking industry has been relatively slow in developing, even though the benefits are quite obvious.

Once again, the benefits of Uber for trucks would be a significant change for the trucking business and owner operator trucking.

Amazon Transportation Services and Parcel Delivery

As I pointed out the most visible sign that Amazon shifted into transportation has been the use, of Amazon vans for parcel delivery. Amazon is not only delivering with vans but how has an air cargo fleet which will move volume away from parcel delivery companies that we have come to associate with Amazon packages. It is doubtful that Amazon’s cargo fleet is meant to carry non-Amazon parcels. But this move does signal a reduction of UPS and FedEx’s business from Amazon.

Although little discussed, the increase in online shopping, which was spearheaded by Amazon is transferring some of the driving that was done by consumers to parcel post companies.

What is agreed by transportation experts is that Amazon is extremely well-positioned to move into transportation. They maintain the following killer combinations:

  1. Amazon as the Freight Source: They have an enormous amount of freight. Meaning they don’t need to seek outside business to have a very large transportation infrastructure.
  2. Technology Advantage: With their web technologies they can access any number of owner operators with some load board, similar to but most likely far more advanced than the Landstar Load Board. This would eliminate any broker fees and would allow Amazon Transportation Services to access flex capacity.
  3. Connecting to the Amazon Fulfillment Services: Amazon already maintains a highly successful logistics organization in Amazon Fulfillment Services. Amazon Transportation Services is a natural extension of this competency.

Why is Amazon Diving into Transportation?

In most cases entering a business is performed to gain profits. However, trucking is not a particularly profitable industry. On the other hand, Amazon has such a low cost of capital due to the strength of its stock price, that it is fairly easy for Amazon to expand in any direction it sees fit.

This move appears to be driven by three primary factors:

  • To Provide Amazon with More Control Over its Transportation: With a dedicated or private fleet of some percentage of its transportation, it can reduce coordination costs.
  • To Guarantee Access to Transportation: Trucking volumes are steadily increasing. According to the ATA, the total miles driven will increase by 38% from 2012 and 2023. The total volume will increase by 26%. Amazon’s trucking statistics will increase far more than this over this period.
  • To Reduce the Shipping Expense, it Incurs: Amazon takes close to a billion dollars in shipping cost losses a year on shipments that are covered under free shipping. Think of all the customers that have Amazon Prime.
  • Adjusting for Amazon’s Supply Network Changes: Amazon has reconfigured its supply network due to many intensive supply network design analyses. What these analyses showed is that Amazon needed smaller DCs within a reasonable proximity to population centers (i.e., customers). This prepositioning of stock would allow it to fulfill very quickly at low transportation costs. As was stated previously, the tractor-trailers that Amazon now owns, have been dedicated to moving from the larger regional DCs to these fulfillment centers.

Conclusion

Amazon will probably need to feel its way a bit as it moves into transportation. Do they continue only to serve to transport captive Amazon freight or do they change in the future? Do they continue to use their private fleet in such a limited way, or do they grow?

Amazon brings innovation to every are of business they expand into. When Amazon developed Amazon Web Services, they quickly became the most innovative entry in the space, pushing aside companies like IBM that had many more years of experience than them in the related area of data center management. It would be surprising if Amazon did not have a profound impact on transportation services. While not profitable during its existence, Amazon has managed to have great efficiency with extremely high revenues per employee compared to other retailers.

If Amazon were to ship the non-Amazon cargo, they would be in the catbird seat with their ability to create special-purpose applications that would allow customers to track and trace and otherwise interact with Amazon Transportation Services.

As with Uber, the Amazon app adds directions and other relevant information in addition to the load matching functionality. Amazon Transportation Services will have large-scale impacts on trucking ranging from truck brokers to large and small trucking companies.

References

According to the DOT, trucking represents around 2/3rds of all transportation in the US.

https://d3a8hw3k243rpe.cloudfront.net/static-assets/Download_Brochure.pdf

I cover supply planning in the following book.

Supply Planning Book

SUPPLY

Supply Planning with MRP, DRP and APS Software

Showing the Pathway for Improvement

Supply planning software, and by extension supply planning itself, could be used much more efficiently than it currently is. Why aren’t things better?

Providing an Overall Understanding of Supply Planning in Software

Unlike most books about software, this book showcases more than one vendor. Focusing an entire book on a single software application is beneficial for those that want to use the application in question solely. However, this book is designed for people that want to understand supply planning in systems.

  • What methods fall into APS?
  • How do the different methods work and how do they differ in how they generate output?
  • What is the sequence of supply planning runs?

These types of questions are answered for readers in this book.

This book explains the primary methods that are used for supply planning, the supply planning parameters that control the planning output as well as how they relate to one another.

Who is This Book For?

This book as a practical primer for anyone looking to perform a supply planning software selection, any person beginning a supply planning project, or anyone who just wants to understand supply planning software simply better.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: Where Supply Planning Fits Within the Supply Chain Planning Footprint
  • Chapter 3: MRP Explained
  • Chapter 4: DRP Explained
  • Chapter 5: APS Supply Planning Methods
  • Chapter 6: APS for Deployment
  • Chapter 7: Constraint-based Planning
  • Chapter 8: Reorder Point Planning
  • Chapter 9: Planning Parameters
  • Chapter 10: How MRP, DRP, and APS Relate to One Another
  • Chapter 11: Supply Planning Visibility and Master Data Management
  • Chapter 12: Understanding the Difference Between Production Versus Simulation