Tuesday, May 10, 2016

AMAZON'S SUPPLY CHAIN TAKEOVER

Misses the point. What Amazon is doing should scare retailers as they compress time and improve order immediacy.


Commentary: Can anyone stop Amazon’s supply chain takeover?

Freight forwarders and air cargo companies must move quickly to improve business models and implement sophisticated analytics, according to Michael Bentley of Revenue Analytics.

   Amazon’s global takeover has taken a different direction, and just about everyone in the shipping and logistics industry is watching – and worrying.
   On the high seas, the Seattle-based conglomerate has been granted a license for ocean container shipping from the U.S. government and a similar license from the Chinese Ministry of Commerce. Meanwhile, in the skies, Amazon has signed a deal with Air Transport Services Group to lease 20 Boeing 767 aircraft to transport merchandise around the U.S. as part of the online retailer’s efforts to reduce high shipping expenses.
   Amazon’s aggressive moves by sea and air undoubtedly spell bad news for freight forwarders, who will almost certainly see a decline in revenue, and could find themselves out of business.
   This fresh competition comes amid a well-documented decline in revenue for shippers in the past several years. In 2014, revenue decreased three percent compared to 2013, following a five percent decline from 2012. As of 2015, industry revenue remains more than 16 percent below its 2008 peak of $200 billion.
   No wonder freight forwarders are scrambling to figure out what they can do to combat Amazon’s latest gambit. The company’s entry into freight forwarding brings both additional capacity and another rival to compete against.
   Air cargo companies have had fewer apparent issues, with both UPS and FedEx reporting strong growth in 2015. However, the purchase of aircraft by Amazon is only the tip of the iceberg for Amazon’s expansion plans. As the company explores the most efficient route from factory to doorstep, it will be looking for additional ways to cut out the middleman.
   Yet there is hope for freight forwarders and air cargo companies. Even with Amazon’s abundant resources, the company will have a steep learning curve as it tests out different pricing strategies. Although Amazon quickly dominated the B2C retail market in the U.S., learning to adapt to the freight and air cargo business models will be a more challenging endeavor. It is notoriously difficult to operate efficiently in an industry that must deal with everything from maintenance and insurance to the complicated logistics of profitably loading goods on ships and planes.
   These factors will unquestionably prove to be a challenge for Amazon.
   The best strategy for air cargo and freight companies is to focus on the following areas:
   Utilizing Predictive Analytics - Shipping companies will need to start thinking more strategically about where to place their bets. Leveraging predictive analytics will help them understand which industries/customer segments to focus their sales efforts as Amazon’s growth leaves up for grabs only a percentage of the demand that existed before. They will need to use advanced analytics to determine what their business development strategy should be and how they should price themselves to maintain and grow profitable market share.
   Developing Segmented Pricing Strategies - Too many in the industry rely on a one-size fits all approach to pricing, but those that leverage their unique business models and vast amounts of historical data can segment products and customers based on demand and willingness to pay. These firms can use that information to create differentiated pricing strategies and dynamically adjust prices accordingly, maximizing revenue and profit.
   Seizing Opportunities - The industry would also be wise to explore what commodities Amazon does not ship. While Amazon’s entrance in the industry will surely reduce the consumer good market for freight forwarders, opportunity will remain in the agriculture, automotive, building supplies and heavy machinery space. Shippers should focus on capturing share in those segments. Only by establishing a position of strength in those remaining markets will these companies survive, thrive and drive organic revenue growth.
   However, companies exploring this space for the first time will have an even bigger uphill climb. One way to stand out in this mass of competition will be by implementing pricing and Revenue Management strategies based on data and analytics. Historically, freight forwarders have taken a tactical approach on a project-by-project basis. Given Amazon’s expected impact in the market, it’s clear that those that continue to follow this approach will be squeezed out of business.
   Amazon’s entry into freight forwarding and air cargo will clearly set a high bar for companies to reach. While some will surely fall by the wayside, companies that leverage predictive analytics, segmentation, and explore areas of the market with room for expansion will not only survive, but also will succeed while driving organic revenue growth.