Amazon’s entry into online freight matching is being met with skepticism and unease by much of the logistics industry, according to a market research report from the FreightWaves Freight Intel Group.
The report, Amazon and the Logistics Industry, builds on the news FreightWaves broke on Amazon’s beta version of its online freight matching platform, freight.amazon.com. The platform allows shippers to view instant quotes based on zip-to-zip searches on lanes in New Jersey, New York and Pennsylvania.
The report’s survey found that eight of 10 carriers and freight brokers think Amazon’s entry into digital freight brokerage is ‘negative’ for their market segments. Carriers, by a two-to-one margin, are more apt to view this development as ‘very negative’ than freight brokers. On the other hand, seven of 10 shippers think it is a ‘positive,’ though this view is tempered as only one in five believe it is a ‘very positive’ development.
The market reaction to FreightWaves breaking this news was fast and furious. Within one business day after publication, transportation and logistics stocks experienced a sell-off that wiped out over $2.3 billion in equity value from the sector. This sell-off was led by C.H. Robinson, which lost $920 million in market capitalization.
In researching Amazon and the Logistics Industry, which is live on the SONAR platform, the FreightWaves Freight Intel Group surveyed 811 logistics professionals from carriers, freight brokers and shippers to garner their sentiment on how Amazon may impact the freight markets. The topics covered include: prospects for shipper adoption and why; types of freight brokers that are most at risk; and whether Amazon can really improve efficiencies and asset utilization in the freight markets.
Carriers and brokers are also concerned that Amazon’s size and scale could allow it to push down freight rates. As one broker who took part in the survey stated, ”As long as carriers get access to all of their freight as well, it has to be a volume play. Amazon will need to pay ‘market rates’ just like other 3PLs. At the end of the day, I believe Amazon will compress the average margin for brokers, but they will not eliminate them from the market.”
An analysis of the rates available from Amazon’s online platform, freight.amazon.com, supports this respondent’s thesis. Shipper quotes collected for 30 lanes indicate carriers shouldn’t be as worried as brokers when it comes to Amazon’s rates. On average, Amazon’s quotes to shippers were within 50 basis points of DAT spot rates.
This indicates Amazon is most likely not charging a normal freight broker margin to shippers. This conclusion is based on two factors. The first is that charging shippers a flat rate while offering carriers rates well below spot is not a sustainable business model. The shipper and carriers Amazon would be left with would be “price takers” with little loyalty and a high turnover rate. The second and most likely reason is that Amazon is scaling up its carrier network for capacity as it grows its e-commerce business and gears up for one-day shipping for its Prime members.
As with many other Amazon ventures into new industries, the market reaction to its online freight platform was swift and severe. Stock market sell-offs like the one in late April when FreightWaves broke this news have become routine when Amazon enters, or reportedly enters a new industry.
These past situations are also examined in-depth in Amazon and the Logistics Industry. One of the most notable examples is Amazon’s acquisition of Whole Foods, which shaved at least $50 billion in equity from the grocery retail sector in a single day.
As an added value of FreightWaves SONAR, the Freightwaves Freight Intel Group publishes in-depth research on “everything freight and logistics,” as Senior Research Analyst and team member Seth Holm described the Group’s mission. “We will be doing deep dives into topics that are most important to our industry, the inner workings of key topics and where the market is going,” Holm said. “This will include new technology and companies that are changing how the freight markets operate.”
The FreightWaves Freight Intel Group is comprised of a number of FreightWaves’ Market Experts and research staff. The Group is producing white papers and research on topics of interest to those in the freight, transportation, logistics and supply chain ecosystems. As topics dictate, they will be supplemented by academic and industry experts with specific knowledge and/or expertise.
Amazon and the Logistics Industry report, as well as all other reports written by the FreightWaves Freight Intel Group, are live on the SONAR platform. SONAR subscribers or others interested in FreightWaves’ research should contact Kevin Hill at khill@freightwaves.com.