Amazon has been renting out a large part of its gray blocks to other companies for years: the cloud services of Amazon Web Services (AWS) are by far the most profitable part of the conglomerate. The American company now hopes to copy that success with its other division of gray blocks: distribution centers.
This week, the company announced that it will open its logistics network to other companies. They can then use Amazon’s distribution centers, freight transport and delivery services. This means Amazon will compete directly with companies such as FedEx, UPS and DHL. Freight carriers such as Maersk and GXO could also be affected by this, analysts told Reuters.
A number of customers already use the service. For example, Procter & Gamble uses Amazon’s network to transport raw materials for products such as Pampers, Oral-B, Ariel and Swiffer to its factories. Amazon also collects the products there for further distribution. Clothing brand American Eagle has orders from its own online store delivered to customers by Amazon.
Many logistics companies saw their stock prices fall after the announcement early this week, although that loss has now been recovered. How big is this threat from Amazon to them?
Established player
It is not the first time that an announcement that Amazon wants to conquer a new market has caused share prices to fall in that sector. When the online store group took over supermarket chain Whole Foods in 2017, many other supermarkets on the stock exchange took a hit. It was feared that Amazon, following its success in selling all kinds of products through its online store, would now also become dominant in the grocery market.
Very little came of that. Whole Foods is still a relatively small player, and Amazon’s other grocery efforts – cashierless convenience stores and supermarkets under its own name – have been discontinued.
There is an important difference between supermarkets and the logistics sector: Amazon is already an established player in the latter. It has its own fleet of more than 100 cargo planes, 24,000 containers and 80,000 trucks. It transports more than 13 billion products via that network every year. The fleet of vans that make doorstep deliveries in the United States is according to the Wall Street Journal greater than that of UPS, FedEx and postal service USPS.
Moreover, Amazon is already used to providing those services to external parties. A large portion of the products on the company’s online stores are sold by partners. In many cases, they have completely outsourced order processing and delivery to Amazon. The tech company even offers to collect items from factories in production countries, import them and store them in a logical location, so that they can be delivered to the customer as quickly as possible after sale.
Market power
According to Amazon, sellers who use this sell up to 20 percent more. That immediately illustrates how Amazon can also use this as a tool of power. The company can ensure that customers see products processed through Amazon more quickly, thus putting pressure on sellers to use its logistics services.
Amazon has been accused of using data from third-party sellers to then compete with them
Additionally, Amazon has been accused several times of using third-party sellers’ data to then compete with them. If Amazon saw that a certain product was selling a lot, it would then make its own copy of that product. The question is therefore how many producers are willing to give Amazon an insight into where they get their raw materials through logistics.
Not everyone will have a choice. American Eagle is now cited by Amazon as a satisfied customer. But it was precisely that clothing company that still called itself “the anti-Amazon” in 2022. At the time, it launched a branch through which it offered its own logistics to other companies. “This will give us and other retailers the opportunity to compete with Amazons,” CEO Jay Schottenstein said at the time. It didn’t catch on. At the beginning of this year, American Eagle pulled the plug.
