When e-commerce giant Amazon expands beyond online retail to infiltrate every link of the global logistics supply chain, how should traditional freight companies respond to this unprecedented challenge? Facing Amazon's growing logistics empire, mere imitation or passive defense clearly won't suffice. This analysis examines Amazon's strategic moves and provides actionable solutions for traditional freight companies to transform and compete.
Amazon's Logistics Ambition: From Backstage to Center Stage
In late 2015, Amazon obtained freight forwarding authorization from the U.S. government, gaining entry into ocean container shipping. This followed similar approvals from Chinese authorities. With these credentials, Amazon could purchase shipping capacity at wholesale rates and resell it at retail prices, connecting the world's two largest markets while bypassing traditional freight forwarders.
Soon after, Amazon leased 20 Boeing 767 aircraft from Air Transport Services Group (ATSG) for domestic U.S. cargo transport, aiming to reduce soaring shipping costs. These moves confirmed reports about Amazon's global expansion of its Fulfillment by Amazon (FBA) service—codenamed "Dragon Boat"—which provides storage, packaging, and shipping for third-party sellers on its platform.
By controlling air and ocean freight capacity, Amazon further reduced costs while decreasing reliance on third-party logistics providers. As the Hanjin Shipping bankruptcy demonstrated, traditional carriers face market contraction as Amazon enters their space. Like retail competitors before them, freight companies must now determine what they can learn from Amazon and how to reposition resources in the industry's most viable segments.
Industry Outlook: Survival Challenges in Turbulent Times
Following Amazon's ATSG agreement, freight forwarders and air cargo carriers rightly fear becoming the next disrupted sector. The shipping industry anticipates declining demand and intensified price competition. In 2015, the top five ocean freight forwarders were: Kuehne + Nagel, DHL, Sinotrans Limited, DB Schenker, and Pantos Logistics. These companies should heed how Amazon's e-commerce sales surpassed Walmart's, signaling the need for radical transformation.
The collapse of Hanjin Shipping—history's largest container shipping bankruptcy—demonstrates the risks. Though the full impact remains unclear, reduced competition creates opportunities for Amazon to dominate. In air cargo, established players like United Airlines (700+ aircraft), FedEx (600+), UPS (237), and DHL (120) currently dwarf Amazon's fleet. But they must monitor Amazon's investments and profitability closely.
Nevertheless, freight companies can adapt and even thrive in Amazon's shadow by implementing strategic countermeasures.
Strategic Responses: Three Paths to Survival
Traditional freight companies aren't powerless against Amazon's advance. Success requires recognizing core strengths and developing differentiated strategies.
1. Face Reality and Respond Proactively
Amazon's entry coincides with declining freight forwarder revenues. AlixPartners reports 2014 revenues fell 3% from 2013, following a 5% drop in 2012. By 2015, industry revenues remained 16% below 2008 peaks.
With existing pricing pressures and internal competition, some companies faced collapse even before Amazon's arrival. Current instability means Amazon will exacerbate challenges for unprepared firms. Those ignoring Amazon's move risk extinction as its analytical prowess reshapes markets.
While air cargo companies face less immediate pressure, proactive firms will compete better long-term due to stronger business models and revenue growth over the past decade. However, complacency is dangerous—Amazon's analytical and cost-cutting investments will challenge all players.
2. Avoid Imitation, Forge Unique Paths
As retailers learned, freight companies shouldn't mimic Amazon. The e-commerce giant consistently dominates markets because incumbents mistakenly copy its strategies. Amazon employs cutting-edge analytics and technology that freight forwarders can't match resource-wise.
Amazon will likely replicate its U.S. parcel model—purchasing greater capacity, using superior analytics for efficient deliveries, and securing better pricing through scale. Its shareholder-backed growth-over-profits approach gives another unique advantage no freight company can match.
Companies reacting defensively to preserve market share will fail long-term. They can't compete with Amazon's limitless resources and will lose money trying.
3. Focus on Strengths, Expand Markets
As Amazon's influence grows, freight forwarders must avoid destructive competition by focusing on strategically advantageous sectors Amazon ignores—agriculture, automotive, construction supplies, and heavy machinery. While consumer goods shipping will shrink, companies dominating these less-contested areas can drive organic growth outside Amazon's core.
First movers in these sectors face tough climbs. Amazon's analytical resources will squeeze firms clinging to outdated business models. Air cargo companies have stronger recourse—though UPS and FedEx enjoyed 2015 growth, they must eventually cut costs to compete with Amazon.
Both sectors must identify differentiation opportunities. Just as Amazon built retail expertise, freight companies must leverage unique value propositions to maintain or grow market share.
4. Enhance Analytics, Embrace Data-Driven Decisions
Amazon applies advanced analytics throughout its operations. When this rigor enters shipping, companies without similar strategies will find themselves consistently outmaneuvered. While freight firms shouldn't fully replicate Amazon, those lacking credible analytical support for commercial proposals will lose customers.
Freight forwarders should implement two key technologies:
- Behavioral Segmentation: Replace outdated industry solutions with business-specific models analyzing profitable products and customers, then adjust pricing accordingly.
- Price Sensitivity Analysis: Use transaction data to measure customer price sensitivity, enabling process improvements and optimal rate adjustments for profitable growth.
These customized solutions succeeded dramatically in U.S. retail, with one consumer goods company achieving 6.8% revenue growth (30% in select lines) through targeted approaches. Another ocean freight company used statistical analysis to develop pricing frameworks that boosted gross profits by 4.2% annually.
Such investments prove profitable growth remains possible in shipping. Companies identifying internal opportunities outperform those simply matching competitors' prices.
Conclusion: Survival Hinges on Transformation Speed
Amazon's entry into the $350 billion ocean freight market is just beginning. Even with advanced analytics, companies face ongoing challenges as Amazon pours resources into full vertical integration.
Amazon's growth leaves only fragments of former retail demand. Companies competing traditionally will face unsustainable pricing. Conversely, freight firms should explore untapped B2B sectors Amazon avoids. Focus here improves chances for market lock-in and growth, offsetting lost retail revenue.
While Amazon's air cargo presence remains nascent, carriers should anticipate price undercutting and complete transport integration offering end-to-end solutions. Shipping's existing price pressures will intensify with Amazon's entry. The best response involves analytical efforts to capture non-Amazon markets (autos, commodities, agriculture).
Only by establishing dominance in remaining markets can these companies survive—and potentially thrive. As Amazon expands further into retail supply chains, inaction ceases to be an option. This supply chain power struggle may catalyze an industry-wide Darwinian scenario where only the most analytically adept survive.