Category: Blog

John Paul Hampstead, Associate Editor 

( Photo: Amazon )

Today, freight brokers’ and carriers’ worst nightmare has come true: Amazon has quietly taken its digital freight brokerage platform live at freight.amazon.com, and it is undercutting market prices from 26 to 33 percent.

Early this morning, in a client note responding to Amazon’s (NASDAQ: AMZN) announcement that it would begin offering free one-day shipping to Prime members, Morgan Stanley equities analyst Brian Nowak made a cryptic prediction.

“We see AMZN’s 1-day Prime shipping raising consumer expectations and increasing the cost to compete in e-commerce. Over the long term, we also see this as a Trojan horse for Amazon to grow its next disruptive business… a third party logistics network,” Nowak wrote.

Amazon already moves an enormous amount of freight through its distribution and sortation centers and has an extensive network of trucking carriers. For many industry observers, it was only a matter of time before Amazon leveraged the implicit network effect — the total number of shippers and carriers who do business with Amazon — and connected both sides of its business.

Part of this business may be to hedge against the volatile price of trucking capacity: by building a large freight brokerage business, AMZN is turning part of its cost into revenue. After all, Amazon is already a top ten international freight forwarder for Asian ocean freight inbound to North America.

A few weeks ago, a former Amazon executive reached out to FreightWaves to explain the e-commerce giant’s disintermediation strategy.

“The advantages that then come from disintermediation and the monetization of those capabilities are secondary to the immediate need of self-preservation, but then serve to feed very critical needs of Amazon’s ability to continue to succeed,” the Amazon veteran wrote. “This innovation and growth then manifests as continuously evolving towards the ability to sell everything and anything that is or can be sold. That’s the true Amazon flywheel: disintermediate to survive; monetize to fund innovation; innovate to grow; disintermediate to survive…”

The entry of Amazon into freight brokerage is the ‘disintermediate to survive’ phase of the flywheel. AMZN is under pressure to re-accelerate its top line revenue, which has slowed from upward of 30 percent annually three years ago to less than 15 percent projected for this year. Amazon cannot allow trucking capacity to constrain its growth and is entering freight brokerage to lock that capacity up.

Notice how ‘monetize’ comes after ‘disintermediate’. From a cursory review of four lanes in Amazon Freight’s current offering, it’s clear that Amazon is not trying to realize fat gross margins on its brokerage. Instead, it is massively undercutting market prices. Amazon’s new portal is intended for shippers who want Amazon’s rates for full truckload dry van freight in Connecticut, Maryland, New Jersey, New York, and Pennsylvania.

( Table: FreightWaves )

As this table makes clear, Amazon quotes rates to shippers that are below even DAT’s broker-to-carrier spot rates. In other words, in its current form, Amazon Freight is a free, marginless brokerage.

Monetization will come later, but this is the digital freight brokerage startup model on ‘Georgia overdrive’: massive capital deployed to rapidly scale a network on thin or negative margins and take share. There is no telling how big Amazon wants this business to grow, but at a certain point, prices will creep up as Amazon monetizes the brokerage service to fund further innovation.

That day may be some time away. In the first quarter of 2019, Amazon spent $7.3 billion on transportation, which it lumps together with sortation and delivery centers for the line item “shipping costs.” Approximately annualized, AMZN’s “shipping costs” are $28 billion per year, and, crucially, purchased transportation is not formally broken out on its P&L. Amazon could grow its brokerage into a $10 billion operation — effectively a shadow C.H. Robinson — selling capacity at cost, add it to ‘shipping costs’, and it could be years before investors begin asking about margins.

We think that building a third-party logistics network will allow Amazon to blow out retail peak season. By taking no margin during soft freight seasons and keeping trucks running, AMZN will have capacity locked up and ready to move truly staggering e-commerce volumes in November and December.

John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley–Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.

www.freightwaves.com/news/insurance-and-risk-management/cell-phone-based-freight-tracking –  Vishnu Rajamanickam, Staff Writer  

Photo: Jim Allen/FreightWaves

Note: This story has been updated to clarify that apps which depend on tracking capabilities to function will continue to work, even as app-less tracking is discontinued.

As visibility into shipments become increasingly relevant, track and trace solutions now play a vital role in the transportation and logistics industries, helping fleets automate real-time location tracking of shipments. Cellphone-based tracking has been one of the easiest ways to do this, because companies are not required to set up extensive infrastructure to monitor freight movement.

However, due to recent government scrutiny, cell phone pinging would be disabled by the major telecom service providers in the upcoming month, which is a cause for concern among fleets that rely entirely on app-less mobile signal tracking. “Sprint and AT&T have already stopped sharing location data, with T-Mobile announcing that it will stop sharing by the end of March. I believe Verizon will follow suit shortly thereafter,” said Jason Traff, president and co-founder of Shipwell.

Much of this has to do with consumers getting conscious of their privacy. Traff explained that telecom service providers never intended to walk this path, as they started selling data initially for reasons that were legitimate – like for emergency medical services and distress signals. Slowly, they extended their aggregated services, with track-and-trace becoming popular among law enforcement agencies and bounty hunters who used it to track people without their knowledge or consent.

Quite recently, a group of Senators have called on the Federal Communications Commission (FCC) and Federal Trade Commission (FTC) to investigate the business dealings of telecommunications companies with bounty hunters over their data-sharing arrangements. The Senators wrote a letter charging the service providers have failed to regulate themselves or their partners, thus exposing consumers to serious harm.

The concern is valid since there have been sporadic occurrences of security breaches. With consumer data being leaked, it kicked off a government investigation that put pressure on the carriers to stop trading location data. The fallout of this debacle has hit the freight industry as well, even when the issue that revolves around privacy and being tracked without consent does not necessarily apply to transportation-related use cases.

“It is a part of the public perception shift, where consumers are increasingly more protective over their data and on how it’s used. I think transportation is almost an unfortunate bystander in this, as you’ve always had to have a carrier opt-in and permit you to track them,” said Traff.

The impact of this development is enormous, especially with regard to shippers and third-party logistics providers (3PLs). Traff explained that transportation management systems (TMS) have integrated tracking automation that works on an app-less cellphone-based ping, and once that is taken out, they have a problem with accessing real-time visibility. “Looking at the largest trends in transportation with things becoming more connected and automated, taking a step back in terms of visibility has a big impact on the operations of shippers and 3PLs,” said Traff.

However, the future is not as bleak as it sounds. Though app-less cell-phone pinging is going away, companies that depend on app-based tracking would have no reason to worry. Also, the move to eliminate app-less phone tracking would possibly rive the industry to place greater value on data coming from the electronic logging devices (ELDs) – that after the mandate last year, is ubiquitously present across all trucks that travel U.S. roadways.

Companies are developing iOS and Android applications that draw upon ELD data. However, the downside to this is that many truckers still don’t have smartphones, and so companies need to figure out a way to circumvent this. But with more data coming out of the cab like the hours of service (HOS), companies can inch closer to freight operations automation like geo-fencing locations, automatically understanding and paying for detention and dwell times, and even helping to match freight based on location and the number of HOS that a trucker has left for the day.

 Tags

cell phone cell phone connectivity cell phone pinging cellular connectivity ELD Electronic logging device freight movement Shipwell startups Technology track and trace truck movement

 Share

FacebookTwitterLinkedInRedditShare via Email

Vishnu Rajamanickam, Staff Writer

Vishnu writes editorial commentary on cutting-edge technology within the freight industry, profiles startups, and brings in perspective from industry frontrunners and thought leaders in the freight space. In his spare time, he writes neo-noir poetry, blogs about travel & living, and loves to debate about international politics. He hopes to settle down in a village and grow his own food at some point in time. But for now, he is happy to live with his wife in the middle of a German metropolitan.

By Jim Best

Jim launches his first blog for the EKA Beacon by inviting audience participation, and outlining to the readers what they can expect going forward.   

Blogging has become so commonplace that its value as a medium can easily be questioned.  And, in fairness, some of the blogs we’ve seen don’t deserve a lot of regard, or attention, for that matter.  Just as the internet is receiving a lot of scrutiny about its role as a source of accurate information, there are a lot of blogs that are just opinions, rants, a gush of emotions, or a rush of ill-considered – and often misspelled – words.

Given that, I can’t think of many things less anticipated than the initial piece of a rookie blogger.  And yet, that’s just what this is. Don’t get me wrong – I’ve written before…plenty. But, technically not a blog, per se, so that makes me a rookie blogger.  

Let me set out early what you can expect from these blogs, and what you can expect from the EKA Beacon.  

1. We want your active participation.  Your opinions are welcome, your perspective is important to us.  Granted, we won’t always agree, but we want to know what you are thinking.  So, we encourage you to find a way to comfortably contribute to the dialog. 
2. Our goal is to have blogs written by EKA staff, and have blogs that are provided by “external” sources.   In this way, we hope to have a robust forum for ideas, viewpoints, news, complaints and concerns.  At EKA, we work hard to see “the best idea win”.  We hope the blogs in the EKA Beacon will serve as the e-format of that commitment. 
3. We want the work we do in our field, and the service we provide on a daily basis to be sensational, but we will not look for “sensationalism” in the EKA Beacon.  We will have opinions with which you may not agree, or views on issues that may seem controversial, but we will not attempt to provoke or incite for the sake of attention.  

If you would like to contribute to The Blogs of EKA Beacon, please contact me at jim@go-eka.com.  We promise to make it as easy and pleasant for you as possible.  

Further, I will always make it as easy as possible for you to contact me.  

My phone numbers are:

Office:   833-352-8364, x 711

Mobile:  612-839-2174  

Jim Best (aka The Rookie Blogger) spent his entire “first” career in transportation and logistics with C. H. Robinson Worldwide.  He is now Chief Growth Officer with EKA Solutions, Inc.

By Jim Best

Have you heard the word?  The word is the cloud. But, if the cloud is so great, what’s slowing down its adaptation in transportation and logistics?  Is there something you’re missing? 

Back in the day, where most of my knowledge, and all of my experience, originated, Brian Tracy (a good one to Google) claimed that everybody’s favorite radio station was WII-FM.   This was long before Sirius XM and Pandora, and he explained that it stood for, “What’s In It for Me?”

It proved for me to be a good way to remember some powerful advice:  always tell people what they will personally gain from something.  

At the time, Tracy was dispensing sales advice – RELAX, you are among friends, I am not trying to sell you anything.  But I do want to provide some info and perspective about transportation, logistics, and technology. And I want to focus on “The Cloud”.  

In the spirit of full disclosure, when I left C. H. Robinson at the end of 2012 and 33 years, there was already a great deal of technology spend and momentum, and attention for “the cloud”.  Returning to the industry in 2019, I was surprised by two things:

1. Technology has made great inroads in our industry, but there’s still a long way to go
2. Adaptation and/or conversion to the cloud has not been as quick as many expected

In fact, an acquaintance, nameless and blameless for the time being, claims robustly that he saw figures indicating only 6% of the “business” of supply chain is cloud-based.   If you have information to the contrary, please let me know. Meanwhile, the 6% figure suits my purposes here, so I will carry on undaunted and perhaps misinformed.  

Quickly, to the point, my editor implored.  The cloud offers specific advantages to many businesses.  After a little research, here are the ones most commonly cited:

1. Nix fixed costs – Technology purchases can be  budget-busting light-dimmers.  If you’re not interested in sacrificing vital resources (cash and personnel) to IT integration, seek refuge in The Cloud.  Startup and integration are often as easy as saying “yes”.   
2. Pay for what you use – SaaS (Software as a Service) is measurable, and providers will bill you ONLY for your usage.  If your customers are predictable, and you know what your IT demands will be, maybe there’s no need to worry about excess, idle capacity, or not being able to service your needs.   Otherwise, take advantage of the cloud.    
3. Scalability – Ramp up and down as you see fit – most businesses have surges and plateaus, but the predictability ends there.  Guessing can be costly.  Cloud services flex according to your specific needs.  
4. Reliability – I’ve said it before, and I’ll say it again, redundancy is good.  Cloud providers make a priority of being reliable; “being available” is literally their business model.  Businesses often attain much greater reliability through cloud providers, at a much reduced cost, since the cost for redundancy is spread across multiple users. 
5. Security – Public cloud providers pride themselves on data security.  If a business has strict security requirements, or legal regulations by which to abide, private clouds, or a hybrid cloud might be the answer.  But for most businesses, and the majority of transactions, data security through public cloud providers is superb. 

Those are five of the most cited benefits attributed to “the cloud”.  As older, premise-based systems and hardware become “fully depreciated and finally outdated”, the transition to the cloud will accelerate.  Then, the “cloud question” will change from “What’s In It for Me?” for “When Will It Be Time for You?”  

Comments? Questions?  Caustic remarks? I seek enlightenment.  Email Jim@go-EKA.com 

Jim Best worked for C. H. Robinson Worldwide his entire first career.  He left the company in 2012, launched Best Story Alive LLC,creating “Fun Stories for Living & Learning”.  Right, wrong or indifferent (but rarely all three), Jim decided to come back home to the wonderful world of transportation, logistics and supply chain. 

If you would like to contribute to The Blogs of EKA Beacon, please contact me at jim@go-eka.com.  We promise to make it as easy and pleasant for you as possible. 

Further, I will always make it as easy as possible for you to contact me.  

My phone numbers are:

Office:   833-352-8364, x 711

Mobile:  612-839-2174