What Will the Pain Points Be as Amazon Supply Chain Services Launches?

Amazon made headlines on May 4 as it announced what could end up being a seismic shift in the way many retail businesses operate their supply chain operations — Amazon Supply Chain Services (ASCS).

Underscoring not only its past successes in capturing significant market share via the expansion of previously internal infrastructure — notably, cloud infrastructure in the form of Amazon Web Services (AWS) — but also in its immense network of established freight, distribution and fulfillment, and parcel shipping capabilities, Amazon suggested its ASCS logistics network could transform the retail sphere.

“Amazon is bringing the infrastructure, intelligence, and scale of its supply chain services—proven over decades—to businesses everywhere, much like Amazon Web Services did for cloud computing,” said Peter Larsen, VP of Amazon Supply Chain Services.

“Supply chain wasn’t just a function at Amazon—it was core to providing an exceptional shopping experience. Our differentiator. The reason we could offer fast, dependable delivery that nobody else could. And with the launch of ASCS, we’re confident we can give any other business access to the same cost efficiency, reliability, and speed that we’ve built for Amazon customers,” he added.

Amazon has a long history of working with third-party selling partners, having shipped more than 80 billion units over the past two decades via its Fulfillment by Amazon (FBA) program. The ASCS venture could be seen as a practical expansion of the FBA, as Amazon moved beyond simple fulfillment to make individual logistics services “available for retail, wholesale, and commercial businesses of all types” — and the results now give Amazon “the conviction to go further and offer these same services to any type of business.”

Amazon listed three categories of core offerings common to the ASCS enterprise:

• Freight: It’s no secret that Amazon is a world leader in freight, with a fleet of more than 80,000 trailers, 24,000 intermodal containers, and 100-plus aircraft in partnership with carriers. Amazon also has a menu of options when it comes to speed and services, including customs clearance, simplified booking, time-sensitive shipments, and shipment visibility from shipment to delivery.
• Distribution and fulfillment: Allowing client businesses to import and store inventory closer to sources of demand, Amazon promises that customer orders can be fulfilled within a single network (across sales channels). Further, advances forecasting capabilities and a unified inventory pool can simplify and streamline the entire fulfillment journey.
• Parcel shipping: Amazon has a great deal of practice in delivery, and promises predictable two-to-five-day delivery options with seven-day-a-week service. Flexible pickup options and easy label creation are just some of the further perks put forth.

Amazon cited 3M, American Eagle Outfitters, Lands’ End, and Procter & Gamble as the earliest heavy hitters to sign on, with promises of more to come.

UPS, FedEx, DHL Supply Chain, Maersk Logistics, and GXO Logistics in the Crosshairs via Amazon’s Move

As both Reuters and CNBC reported, the most obvious players who could feel a bit from Amazon’s new ASCS venture are heavily congregated in the same business.

Both FedEx and UPS suffered significant share price losses (around 10%, with prices rebounding slightly after) as news of Amazon Supply Chain Services broke, and DHL took a 7.3% hit. GXO was down about 13%, while Maersk weathered the news with little fluctuation in share price.

“Amazon’s expansion takes aim at the business-to-business shipping market, a prized high-margin segment for logistics firms where deliveries tend to be denser, more predictable and less expensive to serve than consumer shipments,” Reuters’ Deborah Mary Sophia and Shivansh Tiwary wrote.