Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
That Amazon.com Inc. is transforming the way commerce is conducted has become obvious even to the casual observer. But if Satish Jindel, who is hardly a casual observer, is correct about where the Seattle-based e-commerce giant is headed, it hasn't gotten started yet.
Given Amazon's relentless pace of innovation, there will likely be no finish line. But at the company's present rate of development, it will become the world's ultimate retail monster, with its only rival being the Chinese firm Alibaba.com, which dominates its own market using similar strategies and execution, Jindel reckoned.
In a 50-page study accompanied by more than 25 charts and tables, a summary of which was made available to DC Velocity, SJ Consulting Group Inc., a transport and logistics consultancy founded by Jindel, said that Amazon's goal is to be the primary conduit between manufacturers and customers. Everyone in the middle will be forced to work with Amazon or disappear, and producers will have no choice but to do business only with Amazon because there will be few, if any, alternatives available, according to Jindel.
Traditional retailers such as Bentonville, Ark.-based Wal-Mart Stores Inc., Richfield, Minn.-based Best Buy Co. Inc., and Minneapolis-based Target Corp. will survive only if they build models similar to Amazon's, which at this stage seems highly unlikely, Jindel said. In fact, while Amazon's strategy stands to badly hurt Wal-Mart's bricks-and-mortar profit margins, Wal-Mart's e-commerce channel will not threaten Amazon's position, Jindel said. Wal-Mart generated about $355 billion in total sales last year, nearly four times as much as Amazon.
Retailing practices will change forever as a result, SJ forecast. Free shipping will become a universal service; retailers that don't offer it will be unable to compete, according to the report. Amazon, which currently charges a $99 annual fee for two-day deliveries under its "Prime" service, will eventually offer two-tier pricing for delivery services, Jindel said. One will be a "Gold Prime" membership costing $199 to $249 a year that covers next-day deliveries, the other a platinum membership for $399 a year that includes same-day deliveries. Jindel said the pricing scheme will take effect only after Amazon builds out its distribution infrastructure, which is a work in progress. However, it will be a template that all retailers will need to follow to recover their shipping costs and remain relevant to the demands of modern-day consumers, according to the report.
Jindel said Amazon plans to leverage its massive procurement power to force logistics companies to either work with it on an exclusive basis or be pushed out of business. Amazon will rely on specialists for the blocking and tackling, but it will become so deeply embedded in its partners' operations that it will be able to buy services at wholesale prices instead of at retail cost, and will become the exclusive partner of the providers it chooses through its massive and growing volume base, Jindel said.
Without identifying any company by name, SJ warned in the report that the established parcel giants will be severely punished for failing to adjust their networks as fast as Amazon to the rapidly changing needs of e-commerce, namely in speed of delivery, fulfillment strategy and execution, and customer experience. Though not cited in the report's summary, Jindel said after the ATSG deal was announced that Atlanta-based UPS Inc. could face the biggest hit, because two-day deliveries from Amazon's warehouses and DCs to consumers accounted for two-thirds of the $2.1 billion in revenue UPS generated from Amazon last year.
Jindel said Amazon has the capability to build an "asset light" ground-delivery model—one that effectively controls the capacity without owning the equipment—similar to what the former Roadway Package System Inc. did in the 1980s and 1990s to pose the first meaningful challenge to UPS' near monopoly of the U.S. ground parcel market. Memphis-based FedEx Corp. acquired RPS' parent in 1998, rebranded RPS as FedEx Ground, and turned it into a $14-billion-a-year business that is today solidly profitable.
To put Amazon's shipping growth in perspective, it transported more than 1 billion parcels of its own goods last year, more than FedEx Ground's entire fiscal year 2012 annual volume. If current trends continue, Amazon by 2019 could be shipping as many parcels per year as FedEx Ground, SJ forecast.
Amazon will continue to invest heavily in transport services. It spent $11.5 billion in outbound shipping in 2015, and SJ forecasts that number to rise to $16.4 billion in 2016, $22.34 billion in 2017, and $29.6 billion in 2018.
Unless a better mousetrap comes along, Alibaba remains Amazon's sole long-term threat, Jindel said. In a bid to build logistics capabilities to establish itself as the sole middleman in all e-commerce transactions, Alibaba owns a 48-percent stake in Cainiao.com, a logistics consortium founded in 2013 to support deliveries across China and worldwide. According to a mid-March story in the publication Techcrunch, Alibaba, through Cainiao, operates 128 warehouses and 180,000 express-delivery stations in China, offering same-day delivery in seven Chinese cities and next-day delivery in an additional 90. On November 11, 2014, the date of the popular "Singles Day" in China, Cainiao handled 278 million packages, according to the story. Other reports said Cainiao will spend billions of dollars through the rest of this decade and into the next in order to deliver goods anywhere.
Cognizant of the threat, Amazon will do what it can to limit Alibaba's ability to help manufacturers sell directly to consumers, Jindel said in his summary. One tailwind for Amazon is that while it has established a decent footprint in China, Alibaba is unlikely to make a dent in Amazon's U.S. dominance. "That train has left the station," he said in a phone interview.
SJ's report is not the first tome to examine Amazon's fulfillment strategy and its implications for the retail supply chain. But it stands out for several reasons. Jindel is a seasoned and highly regarded consultant with a reputation for producing thoughtful reports bereft of any eyeball-luring sizzle. Moreover, Jindel has been a long-time Amazon skeptic. While consistently lauding the company for executing a highly effective model, he has for years been dubious about its profit-generating potential. Jindel held to that position as Amazon's stock marched from $8 a share some 14 years ago to today's closing price of $683.50 a share. The takeaways from his firm's research have made Jindel rethink his views, he acknowledged.
What may go unnoticed is that, despite its burgeoning size, Amazon controls just a fraction of the total U.S. retail market, Jindel said. According to SJ estimates, e-commerce accounts for about 12 percent of all retail sales, and Amazon has a roughly 30-percent share of the e-commerce market. Thus, Amazon has roughly 5 to 6 percent of the overall market, and there is a lot of share opportunity still available to it, Jindel noted.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.