It was bound to happen sooner or later.
Late last year, Amazon received a license from the U.S. government to act as a freight forwarder for ocean container shipping. That approval came on the heels of Amazon winning a similar license from the Chinese Ministry of Commerce.
Armed with licenses from both countries, the online retailer is now positioned to buy space on container ships at wholesale rates and resell at retail rates – which will allow the company to connect two of the world’s largest markets while cutting out competitors.
Then came another bold step, with Amazon signing a deal with Air Transport Services Group to lease 20 Boeing 767 aircraft to shuttle merchandise around the U.S. as part of the online retailer’s efforts to reduce its high shipping expenses.
As Partner Michael Bentley pointed out in a recent Supply Chain Management Review article, Amazon is not likely to roll into these industries with a whimper. Expect something more like a very disruptive bang.
But freight forwarders and air cargo companies are not down for the count. There are still strategies they can use to ensure they will be well-equipped to drive profitable revenue growth and remain competitive as they compete with the e-commerce goliath.
First and foremost, these companies should not try to imitate Amazon. The online retail giant has a notable track record of beating incumbents in every market it enters, and that’s largely because companies mistakenly try to copy their strategies.
Additionally, Amazon utilizes some of the most sophisticated analytics and technology available. Freight forwarders simply do not have the resources to compete at the same level and those who try may not be able to maintain a reasonable level of competition.
Besides its sophisticated analytics, Amazon has another distinct advantage: the incredible support of its shareholders has allowed for a business model that places profits second to the goal of growing market share first. There are no freight forwarders or air cargo companies that can say the same.
So, what can these companies do?
Given the ultra-competitive environment in the shipping industry, freight forwarders should focus on areas where they possess a strategic advantage in capturing and growing market share. The most obvious place to look is in commodities Amazon does not ship, such as agriculture, automotive, building supplies and heavy machinery.
While the consumer goods and retail space will surely decrease for freight forwarders, companies that focus on capturing share in these less competitive segments will establish a position of strength, leading to the potential to drive significant organic revenue growth outside of Amazon’s core segments.
Conversely, air cargo companies will have a stronger recourse for fighting Amazon. While UPS and FedEx both experienced strong growth in 2015, they should not become too complacent. Companies that currently dominate the air cargo industry will eventually be forced to lower costs to compete with Amazon, and those with reputations for delays and logistical problems will see shrinking revenue streams.
And there is still much more companies in these industries can do to rise above the fray and establish themselves in positions of strength. Stay tuned for my next blog where I explore where these companies have opportunities to ramp up their analytics.