The Canary in the Amazon Coalmine
Welcome to the 101st edition of The LogTech Letter. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I bunked (a combo of legitimately having zero time to put this together and also not wanting to give short shrift to such a momentous edition). Last week, I made the cast that we should trust, but verify even our most apparently reliable information sources. This week, I’m making the claim that Flexport’s arrival may end up being a good thing for forwarders.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@spglobal.com or on Twitter at @LogTechEric.
Today’s post is neither about Flexport, nor about Amazon, but it’s actually about both companies. I swear this will make sense, but first, read this post from Brittain Ladd that I included in last week’s newsletter. Take your time, I’ll wait.
As I read this post, and then participated in a quick discussion with Brittain on Matthew Lefler’s show last week…
…I began to think about something. Literally every founder in logistics technology tells me prospective investors who don’t innately know the space ask them the same question: “So how are you different from Flexport?” For some founders, that’s a self-selecting question (ie this founder is not for me). For others, it’s a chance to show the investors there are other sides to the space. But the universality of that question leads me to believe that big, non-specialist investors see Flexport as a sort of boogieman, the hurdle that must evaded in order for a new company to succeed.
But let’s look at this another way. It’s very possible that the emergence of Flexport has been a good thing for the market in a very specific way: it gave companies (other forwarders, asset-based third party providers, SaaS developers) years of notice about how to compete with a well-capitalized, ambitious digital upstart. And that has stood them in very good stead when it comes to the challenge Amazon places, and will place, on them going forward. As Ladd says in his post, Amazon is already a 3PL, in that it offers services to shippers who are neither direct suppliers to their business, nor sellers or buyers on their marketplace. True independent 3PL services. That horse has left the barn.
Here’s a basic example of how that could manifest itself today. Say Amazon’s NVO business (which buys capacity from ocean carriers and sells to it those unaffiliated shippers) has a guaranteed allocation of 100 containers from Shanghai to LA next week. It could conceivably fill 30 slots with its own imports (where Amazon is the “shipper”). It could fill another 30 slots with volume from its Amazon marketplace sellers, funneling that volume into its US fulfillment network on behalf of those sellers. It could then fill the remaining 40 slots as a pure NVO, selling only freight capacity.
But let’s expand it out and say Amazon can also sell consolidation services in China for those 40 NVO boxes. Let’s then say that those 40 boxes get pushed into its huge network of US fulfillment centers, where they could be broken down and fulfilled direct to homes or to retail outlets or even factories. The services Amazon provides to those independent shippers provide revenue above and beyond a fairly slim margin on freight. Now let’s say Amazon takes away its freight margin if a shipper buys those origin and destination services. That allows Amazon to retain the more lucrative supply chain management service revenue and lure customers with a highly competitive freight rate. Using the margin from those services, Amazon then significantly subsidizes freight rates for the 30 slots of Amazon marketplace seller volume, and completely subsidizes the freight costs (if not some of the origin/destination service costs) of its own “Amazon-as-a-shipper” import volume.
And that’s if Amazon remains only a non-asset-owning player in ocean. What if it buys ships cheap on the second-hand market and sets up a Matson-style trans-Pacific network with a dedicated terminal?
Okay, let’s get back to Flexport. Because Flexport has been such a prominent player in the logistics world for the better part of the last decade, it has essentially forced other players to consciously or subconsciously sharpen their tools over that period. The first time I got the sense this was what was happening was when a consulting group reached out to me around 2015 or 2016 to discuss whether “digital forwarders” would have any impact on large incumbent forwarders. It was clear at the time, and clearer in retrospect, that this was a larger forwarder having someone perform due diligence on what might a new threat.
I’m not addressing in this newsletter whether Flexport or other digital forwarders are doing something different - that’s a subject on its own. I’m merely addressing whether the perceived threat of Flexport instigated a movement by forwarders and the software vendors that cater to them to up their collective game. I think it’s pretty clear, at this point, that it did.
Case in point, in a 2018 JOC.com piece about Flexport, Jon Slangerup, then CEO of the third-party logistics provider (3PL) American Global Logistics said this about Flexport: “They are doing all of us an enormous service by elevating the perceived value of advanced technology. They’ve created this heightened sense of urgency about tech, which is great for us because it’s making shippers think through their supply chains and come to us.”
Which brings us back to Amazon. In a sense, Flexport’s arrival was the distant early warning signal the logistics industry didn’t even know it needed to gird itself for the future evolution of Amazon as a clear threat in the logistics services arena. It prompted introspection from existing large players, it spawned a whole cohort of software vendors focused on incumbent enablement, and it’s now sharpened the focus of small and mid-sized forwarders to compete on user experience, data, and analytics alongside their traditional arsenal of customer service and problem-solving ingenuity.
Countdown to Discount Pricing on TPMTech
Early bird pricing for the the second annual TPMTech, Feb. 23-24 in Long Beach, Calif., expires Oct. 2. Don’t miss out. We’ll be posting news on the program and keynotes in the coming weeks!
Neal Peart Lyrics of the Week:
It's so hard to stay together
Passing through revolving doors
We need someone to talk to
And someone to sweep the floors
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
Convoy is trying its hand at visibility, with a new product aiming to tie operational resolution to shipment delays, as well as providing insights into facility performance.
Singapore-based TMS and procurement software vendor Cargobase this week landed an investment from growth equity firms, including an arm of Lufthansa.
And here are some recent discussions, reports, and analysis I found interesting:
Dave Ross, chief strategy officer at Ascent Global Logistics, is back with another banger of a newsletter on being clear about what tech does and doesn’t do in logistics. Great passage here, especially:
Last week, I wrote about whether a new data element required by OSRA-22 was actually being complied with due to technical constraints. This week, Jake Hoffman, CTO of Gnosis Freight weighed in with thoughts that are well worth a read.
Ian Arroyo, chief commercial officer at Freightos, this week suggested this long form piece on the origins of online booking at Skift. Ian said there were mind-blowing lessons to be drawn from this to be applied to the logistics industry. I’ve only just started this beast of a piece, but recommending it already.
Speaking of Freightos, huge thanks to the team there, and especially Eytan Buchman, for inviting me to speak this week at their FreighTech22 event in Barcelona. Aside from giving me a perfectly legitimate excuse to spend a few days in the greatest city in the world, it also gave me a chance to catch up with numerous wonderful people at the event and in the days after.
Some upcoming events I’ll be involved in:
Our Inland Distribution Conference is finally here. I’ll see you all in Chicago Monday-Wednesday for the best domestic freight event of the year. If you are on the fence about attending, you can use the code EJInland25 to get 25% off registration. See you there!
For early risers in the US, and morning time CET, I’ll be joining an all-star panel at Container xChange’s Digital Container Summit Oct. 4 at 4 am ET/10 am CET. Joining me to discuss where the container market is headed are The Loadstar’s Mike King, Drewry’s Martin Dixon, and Xeneta’s Peter Sand.
Really delighted to join Rob Garrison on his Let’s Talk Supply Chain show First Things First noon ET Oct. 11. Make sure you’re subscribed to his show here for updates and episodes.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or S&P Global, and any opinions are mine only.