Supply chain · 18 January 2016

Amazon adds shipping to burgeoning global supply chain

Amazon freight forwarding
Amazon looks set to move into shipping – despite it being a largely unprofitable industry

Ecommerce giant Amazon could soon be buying and selling space on ships, following the award of a freight forwarding licence to its Chinese subsidiary Beijing Century Joyo Courier Service Co.

The move follows an expansion into logistics in 2015 which led experts to predict that the world’s largest online retailer is looking to compete with shipping networks including UPS and FedEx.

The ecommerce giant currently operates ten large fulfilment centres in the UK, as well as 24 smaller satellite sites. Deliveries from the sites are currently carried out by local independent courier companies. But Amazon announced in December the purchase of thousands of branded lorries to transport good between US warehouses, evidence of a move towards taking more control over the supply chain.

The Evening Standard reported in the same month that the company had recently expanded into air freight in Europe, chartering a Boeing 737 to fly between the UK and its 190,000 square metre fulfilment warehouse in Poland. “Amazon is pretty fed up with the third-party carriers being a bottleneck to their growth,” Colin Sebastian, an analyst at Robert W Baird, told the newspaper.

Worldwide, the number of small businesses doing cross-border trade using Fulfilment by Amazon (FBA) – which allows vendors to send products to Amazon centres and allow the retail giant to forward them on to buyers, including those Prime users who pay annually for unlimited free delivery – doubled in 2015.

Small online retailers based in Europe can currently ship to customers throughout the EU using FBA – and Amazon’s recent moves into sea and air transport raise the possibility of this being expanded worldwide.

However, concern been raised about the sustainability of Amazon’s logistics expansion. The company is estimated to lose some $1bn a year through providing free delivery to Prime customers – while industry experts have pointed out that shipping is an industry which currently suffers from low margins.

Peter Tirschwell, a senior director at IHS Maritime, told the Financial Times that selling shipping space was “not a growth business, and not a profitable business”.

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ABOUT THE EXPERT

Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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