Amazon's Ocean Freight Quid Pro Quo Not Yet Resonating With Merchants, Forwarding Executive Says
Amazon.com, Inc. (NASDAQ: AMZN) is offering to take near-complete control of customers' ocean shipping from China to the U.S. in return for the merchants accepting lower selling prices for their goods, according to a leading freight forwarder that operates on the trade lane.
However, Ryan Petersen, founder and CEO of San Francisco-based Flexport, said businesses are not lining up to use the service out of concern the Seattle-based e-tailer will use the information that is required to process goods at U.S. ports of entry to gain valuable insight into their customers' supply chains. Armed with data that includes the names of every supplier and the prices paid for goods, Amazon could acquire the intelligence needed to develop competing products, according to Petersen.
Amazon's plan is to deliver goods "freight on board," meaning it assumes the shipping costs from the time the products are loaded aboard a vessel in China to when they reach one of the Fulfillment by Amazon (FBA) facilities in the U.S. Most goods are stored at an FBA location for a brief time before they are picked, packed and shipped to the end-customer. Under the initiative, which was rolled out under-the-radar, the merchant would be freed from the costs and the difficulties of the international distribution process, and would charge a lower selling price than if the merchant had to pay for shipping.
According to Petersen, the merchants are not actually buying ocean freight services from Amazon. Instead, they are just getting paid less for their products while Amazon takes care of the shipping
Petersen and his company became visible in early 2017 when he disclosed in a blog post that Amazon's Chinese operations had been authorized by the U.S. Federal Maritime Commission (FMC) to operate as an ocean freight forwarder. Amazon's operating license shows the trade name "Amazon China," though the official name on the FMC registry is "Beijing Century JOYO Courier Service Co. Ltd."
At the start of 2019, Amazon began marketing its ocean services to U.S. businesses in China; before that, it was available just to Chinese merchants. An Amazon spokesperson said the arrangement described by Petersen is voluntary and is not a requirement to enter into an ocean relationship with the company
Petersen said that Amazon has courted many of Flexport's customers, but that "none have accepted because people are not comfortable sharing all the secrets of their international supply chain with a company notorious for cloning products and selling them under their 400+ house brands."
Amazon's current share of the U.S.-China ocean freight market is inconsequential. However, those who've tracked the arc of Amazon's supply chain offerings recognize that each step is part of a larger, multi-year strategy to drive out all provider incumbents and leave it as the only intermediary between a producer (or a seller) and consumers.
For years Amazon has been constructing a transport and logistics network to move goods sold on its website, more than half of which come from merchants who use the FBA service. The seismic change will occur should Amazon begin marketing its logistics offerings as a separate service to all shippers, not just those who sell goods on its site.
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