Amazon Edging Ever Closer to the Shipping Indusrty


This article is reprinted from “Business Insider”, which points out that Amazon has its own considerable demand for freight services, and is closing the gaps in its logistics supply chain. Now that Amazon has moved into the trucking industry. Trucking is a highly fragmented and deeply conservative industry, just like shipping. Once Amazon has understood and “conquered” trucking, it will be a relatively small step to apply these techniques to the shipping industry.

Craig Jallal

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Amazon is secretly building an ‘Uber for trucking’ app, setting its sights on a massive $800 billion market

 Author = Eugene Kim, “Business Insider”, Dec. 15, 2016, 7:50 PM

 Amazon is building an app that matches truck drivers with shippers, a new service that would deepen its presence in the $800 billion trucking industry, a person with direct knowledge of the matter told Business Insider.

The app, scheduled to launch next summer, is designed to make it easier for truck drivers to find shippers that need goods moved, much in the way Uber connects drivers with riders. It would also eliminate the need for a third-party broker, which typically charges a commission of about 15% for doing the middleman work.

The app will offer real-time pricing and driving directions, as well as personalized features such as truck-stop recommendations and a suggested “tour” of loads to pick up and drop off. It could also have tracking and payment options to speed up the entire shipping process.

This is the latest in Amazon’s rumored plan to become a full-scale logistics company that controls the entire delivery cycle. Over the past year, Amazon has purchased thousands of trailer trucks and dozens of cargo planes while launching new “last mile” services like Amazon Flex that take packages straight to the end customer.

But the broader goal is to improve the “middle mile” logistics space, which is largely controlled by third-party brokers that charge a hefty fee for handling the paperwork and phone calls to arrange deliveries between shipping docks or warehouses. It would make shipping more efficient and cheaper not just for its customers but also for Amazon, which has been dealing with rising shipping costs lately.

The new service would put Amazon squarely in competition with numerous startups in this space, such as Convoy and Trucker Path, while putting a direct hit on incumbent players, including the publicly listed ones like C.H. Robinson and J.B. Hunt. Amazon is a customer of C.H. Robinson, while CEO Jeff Bezos is an investor in Convoy.

Amazon declined to comment.

‘Exciting and confidential’ initiative

The team for this project is scattered around Seattle, Minneapolis, and Amazon’s offices in India. The Minneapolis office in particular, is expected to have more than 100 engineers by next year working mostly on this project, according to Business Insider’s source.

In fact, one of the job postings for the Minneapolis office says Amazon is looking for a principal product manager to work on “an exciting and confidential initiative in middle-mile transportation organization.”

Another job posting for a software-development engineer in Minneapolis says Amazon’s Transportation Technology division is building software that optimizes the “time and cost of getting the packages delivered.”

It’s unclear why Minneapolis has become such an important part of this project. But the city is close to the headquarters for C.H. Robinson, Target, and Best Buy, possibly making it easy to hire people away from those companies.

RBC Capital Markets predicts Amazon’s package volume will surpass FedEx in three years and UPS in seven years.

$800 billion industry

The opportunity is huge for Amazon. Roughly 84% of all freight spending is on trucking, and the market is estimated to be worth $800 billion, according to the trucking startup Convoy.

Trucker Path, another startup in this space, says truck driving is the most common job in 29 US states, but it’s a market that’s been slow to adopt new technologies, as most of the trucking companies are small businesses and 90% of them own fewer than six trucks.

But unlike its competitors, Amazon has an advantage in not having to worry about demand from the shipper’s side. To make an “Uber for trucking” marketplace work, you need demand from both sides of the equation – shippers and drivers. But Amazon already has a giant shipping network and a rapidly growing package volume, so theoretically it shouldn’t be hard to find a load match for the drivers on its platform.

There are some regulatory problems that need to be addressed. For example, drivers are not allowed to press more than one button when making a call while driving. There are also strict limits on how long drivers can go without a break. Amazon may be considering adding Alexa’s voice controls and new auto-logging features to get around these issues.

Trucking has certainly been one of the hottest spaces in tech over the past few years, with big startups like Uber joining the race. Amazon is the new 800-pound gorilla that everyone will have to be aware of.

C.H Robinson’s stock went down roughly 2.5% after Business Insider reported Amazon’s plans:

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

 

 

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Liner Revolution Eats Its Own Children


Former Lloyd’s Shipping Economist contributor Andrew Craig-Bennett has written, in Splash24/7, one of the best thought pieces on the state of liner shipping. I have reproduced the article below, but it is worth following the link to the comments, too.

The liner revolution eats its children – Splash 24/7

What do you call a multi-billion-dollar global business in which the boards of directors of almost every large company in the trade, finding that they are losing money because they are making more of their product than they can sell at a profit, decide to make much, much, more of it?

Answer: liner shipping.

There are two possibilities: either the directors on those boards have the brainpower of jellyfish, or they thought they had a cunning plan.

The cunning plan was to cut their unit cost of manufacture of their product, carriage by sea for ISO containers, by building ever bigger ships and gaining economies of scale, to the point where competitors would just give up and get out of the business, at which point the last men standing, one of whom would be Danish, would jack the rates back up again and, combining their low unit cost with quasi-monopoly control, they would become immensely rich.

The cunning plan looked quite good to start with.

Ever since Temasek gave up on Neptune Orient Lines, and particularly since the Korea Development Bank threw in the towel and stopped propping up Hanjin, liner companies have been merging.

When businesses merge, it is said that the devil is always in the detail. The grinding of the gears that accompanies a merger makes the merging businesses less efficient for a while. Certainly this is true of those mergers which are brought about, not by the ability of the acquiring company to pay more for the target company than the target company’s shareholders think it is worth, but by what is politely known in East Asia as ‘administrative guidance’. These mergers never happen when times are good, only when times are dire, and they are accompanied by the gentle tinkling sounds of breaking rice bowls.

So far, so good for the cunning plan.

The liner shipping industry is experiencing the fate that some of us predicted for it when Directorate-General IV of the EU Commission hearkened unto the European Shippers’ Councils and decided that conferences were a bad thing. The upshot is likely to be that the world is left with perhaps half a dozen ‘full service’ containerlines, plus a number of regional trade liner companies sitting more or less comfortably in the niches that they have carved out for themselves.

This makes life particularly grim for the smaller fry; the multitudes of private and family companies, often highly geared, who are owners of tramp boxboats. Just a few years ago, these people thought they had found the golden ticket – all they had to do was to order bog standard boxboats, man them with warm bodies, and charter them to the big liner companies, who were no longer much interested in the dull business of running ships. Which was fine until the big liner companies built behemoths.

Today, the tramp containership owners are starting to discover what it was like to be an independent tanker owner in 1983… the year in which Elf Aquitaine scrapped the world’s second biggest ship, the ULCC Pierre Guillaumat – named after their chairman – at six years old. Who wants a panamaxboxboat, now?

Meanwhile, the next part of the cunning plan, seen by the staff of the big liner companies as ‘The Good Bit’, comes into play, as the surviving giant containerlinescan at last do what their staff have wanted to do for decades, and put the bite on the forwarders, by jacking up their rates and shutting them out.

But the problem with the cunning plan rears its ugly head. Owners of unwanted tramp boxboats can either scrap them, at tender ages, or do something else with them, just at the time when big forwarders, controlling worthwhile cargo volumes on certain routes, find themselves shut out.
The solution is obvious and not even difficult to put into effect– Non-Vessel Operating Common Carriers become Vessel Operating Common Carriers, by chartering ships, cheap, from the desperate tramp owners. The NVOCCs know all about the liner business; all they need to do is to hire a few operations people, appoint agents, and buy bunkers.

Presto! A whole new generation of liner shipping companies, carrying negligible debt or overhead, springs up like the dragon’s teeth and starts to out-compete the ‘legacy’ big shipping lines.

And thus the container revolution eats its children. Amongst the legacy liner companies, few are very old. They saw off the old guard of the conference carriers – even the boys in blue were once ‘tolerated outsiders’ – and soon they, in turn, will be swallowed up by, in effect, ‘virtual’ liner companies.

Who loses in this orgy of value destruction? At first glance, the banks, but the banks are bailed out by the taxpayers. Which is to say, gentle reader, that the people who lose are you and I.

 

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