Amazon.com Inc.'s recent plan to team with partners who want to launch their own delivery businesses is Chairman and CEO Jeff Bezos' latest attempt to bridge the gap between the Seattle, Washington-based company's breathtaking volume growth—estimated at 20 percent per quarter—and the delivery infrastructure it requires to hit its ever-demanding service commitments.
The concept itself is not foreign to Amazon; it already uses local couriers as well as stopgap citizen drivers to fill a temporary delivery void under its "Flex" service. This new step expands and formalizes that existing concept, according to Mark S. Schoeman, president and CEO of The Colography Group, Inc., a consultancy.
James Thomson, a former top Amazon executive and now a partner at Buy Box Experts, a marketing firm that helps companies work with Amazon, lauded the move, saying it will efficiently funnel local delivery operations through one partner who can supply 20 to 40 drivers, rather than Amazon's having to deal individually with dozens of one-person operators in each market.
Thomson said the service that stands to benefit the most from the initiative is "Prime Now," which promises deliveries to Amazon "Prime" subscription members within 2 to 4 hours of ordering. Currently, a small percentage of Amazon's volumes move under Prime Now. However, Amazon sees the program as a "category killer," Thomson said.
Currently Memphis, Tennessee-based FedEx Corp. and Atlanta, Georgia-based UPS Inc. move most of Prime Now's traffic. However, Amazon isn't satisfied with the status quo, according to Thomson. The alternative, until now, was working with one-person operators, which Amazon found unwieldy, Thomson said. The new initiative will allow Amazon to quickly scale up the Prime Now network, Thomson said.
The Amazon program resembles the independent contractor structure currently used by FedEx to support its fast-growing ground parcel service, known as "FedEx Ground." In the 20 years since FedEx began domestic ground deliveries, the operation has transitioned from a relationship between the company and independent drivers to an "independent service provider" (ISP) model, where a third-party is layered between FedEx and the drivers. Because of multiyear contractual commitments exist between FedEx and its ISPs, it is doubtful that Amazon will be able to poach FedEx's partners, said Bascome Majors, transport analyst for Susquehanna Capital Partners, an investment firm.
One key difference is that FedEx does not provide the type of support to its contractors that Amazon has promised to its fledgling partners. Amazon said it will provide training, technology, discounts on fuel, insurance, leases of Amazon-branded equipment, and most importantly, a stable flow of packages. The individuals, in turn, would receive incents to hire thousands of drivers across the U.S. to augment Amazon's established delivery network.
Starting Gun Sounds
The initiative, which officially began last week and is available nationwide, focuses on last-mile delivery services, the segment showing the fastest growth, as well as strong profitability, due to the continued surge in e-commerce ordering and fulfillment. Commercial drivers' licenses will not be required as long as the vehicles in use fall under the 10,000-pound gross vehicle weight threshold. Gross vehicle weight is the sum of cargo, cab, and trailer. Those who sign up for the program can work with other delivery concerns as long as they don't use Amazon-branded trucks or wear company uniforms.
In the medium term, Amazon wants the new network as finely tuned as possible by the time the peak holiday delivery season rolls around.
Amazon said it is seeking partners who could manage 20 to 40 daily routes with between 40 to 100 employees. The payment structure consists of a fixed monthly fee based on the number of vehicles operated, a rate based on a route's length, and a per-package fee for each successfully delivered package. Based on Amazon's assumptions of a US$10,000 startup fee and annual revenue potential of US$1 to US$4.5 million, a partner could pocket between US$75,000 and US$300,000 a year.
Amazon said it has earmarked US$1 million in startup funding to military veterans, and it will offer US$10,000 reimbursements to qualified veterans.
Amazon said the program is aimed at supplementing the work of its existing delivery partners, not to replace them. Dave Clark, the company's senior vice president, worldwide operations, said in a statement that the company has "great partners" in FedEx, UPS, and the U.S. Postal Service (USPS), among others. Amazon has said its logistics buildout is designed to stay ahead of its internal growth and not take volumes away from its partners, whom it currently needs. Amazon, which currently moves 5 to 7 percent of its own traffic, is anxious to gain more control over its shipping both to meet customer requirements and to drive down its shipping costs, which continue to spiral upward as volumes surge.
However, Amazon's customers are its priorities, not its carriers. If operators in the new network can deliver goods cheaper than its established partners, it could shift existing business, and direct fresh volumes, to the newcomers. Should that happen, the pain could be felt most by USPS, which, according to consultancy MWPVL International, handled about 62 percent of Amazon's parcels last year. According to Majors of Susquehanna, USPS stands to lose about US$550 million in annual revenue should Amazon divert one-third of its last-mile packages now moving under the USPS' "Parcel Select" direct-to-residence service.
Majors estimated the Amazon operation is realistically capable of shipping about 400,000 packages a day.
The analyst said the threat of shipment diversion is likely to place a cap on rate increases for Parcel Select. At the same time, President Donald Trump has ratcheted up the rhetoric about USPS' unprofitability, arguing that it loses money on every package tendered by Amazon. The claim is widely believed to be untrue.
UPS and FedEx could be hurt as well because the last mile is a highly profitable part of each enterprise, said Thomson of Buy Box.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.