What Amazon Supply Chain Services Means for Logistics

Amazon's announcement is seen as an extension of the company’s core focus and strategy in final-mile delivery, according to one transportation analyst. (Michael Nagle/Bloomberg)

Amazon.com Inc.’s launch of a new supply chain service raised competition concerns for transportation providers, but experts caution the impact will be limited to select businesses.

Amazon Supply Chain Services provides a portfolio of freight, distribution, fulfillment and parcel shipping offerings to companies, regardless of whether they are partnered with the online retailer. Amazon originally developed the services to support itself and selling partners, but is now offering them more broadly to support businesses with third-party logistics needs.

“I do think it is a significant announcement,” said Dan Moore, senior transportation analyst at R.W. Baird & Co. Moore said Amazon’s scale makes the move noteworthy but emphasized that transportation logistics remains a vast and highly fragmented market that Amazon does not dominate the way it does retail.

Instead, Moore views this as an extension of the company’s core focus and strategy in final-mile delivery. He suspects that expanding the network to a broader target audience could increase density across that network footprint and reduce the cost to serve.

Amazon ranks No. 1 on the Transport Topics Top 100 list of the largest logistics companies in North America and No. 1 on the TT Top 50 list of the largest global freight companies.

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He anticipates select competition, but he doesn’t expect the transportation logistics landscape to be fundamentally altered. It’s unlikely to result in effects such as a surge in capacity or labor.

“Not all customers want Amazon to handle their transportation logistics,” Moore said.

Market Reaction

Many retailers view transportation logistics as a proprietary and even existential part of their business, limiting Amazon’s ability to broadly take market share. Moore said the rollout gives Amazon a way to expand its total addressable market by leveraging its existing network and incrementally increasing density.

Transportation sector share prices fell after the announcement. This notably affected large parcel carriers such as FedEx Corp. and UPS Inc., as well as logistics firms including Forward Air Corp. and GXO Logistics. The Dow Jones Transportation Average decreased 4.82% the day of the announcement to 19,605.

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A worker processes merchandise at an Amazon fulfillment center. (Michael Nagle/Bloomberg )

“It was a very wide aperture, and the market seemed to digest this news in a somewhat confusing manner, trying to interpret what this means from a competitive standpoint,” Moore said. “But I suspect, going forward, we’ll probably see a more narrow expression of that.”

UPS ranks No. 1 and FedEx No. 2 on the TT Top 100 list of the largest for-hire carriers in North America. UPS Supply Chain Solutions is No. 6 on the logistics TT100. The company also ranks No. 3 on the global freight TT50.

FedEx ranks No. 3 on the global freight TT50 and No. 40 on the logistics TT100. GXO ranks No. 3 on the logistics TT100. Forward Air/Omni Logistics ranks No. 33 on the logistics TT100 and No. 37 on the for-hire TT100.

GXO Logistics CEO Patrick Kelleher addressed the announcement when reporting first-quarter financial results. He is confident the retail giant’s decision doesn’t change its competitive position.

“This is a massive market,” Kelleher said. “Roughly 70% of the market, that being contract logistics, is insourced, which is a huge opportunity. … I would point out that we provide a fundamentally different offering. Amazon is selling access to its supply chain, whereas GXO builds custom solutions.”

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Kelleher 

Kelleher noted that distinction is especially meaningful to blue-chip customers. He stressed that the company is not a one-size-fits-all provider. Instead, it provides bespoke services that are operationally complex and relationship-driven. 

Kelleher also noted that this approach allows customers to have more control over their data instead of providing it to a competitor.

“Our capabilities extend way beyond retail into sectors like aerospace and defense, and industrial, just to name a few,” Kelleher said. “We’re really focused on delivering value.”

TD Cowen noted in a report that the announcement unleashed competitive fears. The investment banking company warned parcel giants could see impacts within non-commoditized retail verticals, as well as those that serve blue-chip businesses such as GXO. It also views the resulting trade-down as likely overdone, given that integration could be a differentiator.

“Amazon also highlights logistics capabilities in healthcare and automotive among others, which are verticals that both FDX and UPS also covet,” wrote Jason Seidl, managing director at TD Cowen. “We have previously highlighted that Amazon’s scale of logistics capex was a potential risk for the parcel giants bundling proposition.”

The report added that the impact should be mitigated by the parcel giants leaning into the high-complexity B2B mix. Seidl doesn’t expect truckload, rail and intermodal to see much of a material impact, while recent LTL activity could be a reaction to downstream fears.

Selective Impact Expected

“They’re drawing attention to it with this announcement because they have been testing those services and they have gotten some traction,” said Satish Jindel, a transportation and logistics consultant at SJ Consulting. “They want to attract others who fit within their transportation network. That’s the big picture I see in this.”

Jindel also views the market response to the announcement as an overreaction but one that was not surprising. He noted that the core of the business remains selling online merchandise to consumers and businesses. He doesn’t see the company being interested in expanding into areas beyond that, such as industrial manufacturing or raw materials.

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TT Top 100 Logistics Companies

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“There are two groups of companies that need to pay close attention,” Jindel said. “One is freight forwarders who are supporting retail customers, not auto assembly people … Then on the delivery side, UPS and FedEx need to be very cautious.”

Bank of America Global Research noted in a report that the announcement, alongside management not changing its expenditures outlook for the year, likely signals that the company has sufficient capacity to serve incremental 3PL demand. The report views the space as representing a large opportunity to grow revenue and market share. It also highlighted last-mile parcel, intermodal, freight forwarders, brokers and warehousing as the most impacted.

“Amazon framed ASCS as extending its internal cost and service advantages to third parties,” Bank of America analyst Ken Hoexter wrote in the report. “That said, we expect some caution from potential retail customers on growing reliance on Amazon and access to proprietary supply chain information, while the biggest operational challenge may be around peak demand times.”