Why Amazon Is Expanding Its Logistics Capabilities to the High Seas

Earlier this year, the news that Amazon China had registered to operate as an ocean freight forwarder in the U.S. surprised nearly everyone. The move means that Amazon will be able to organize the shipment of goods from a factory in China to a company or customer in the U.S.

The filing was first spotted by Flexport, a logistics startup, and though Amazon has yet to comment on the strategy behind the move, it seems entirely logical.

"It's a very smart move," said Jaime Jimenez, CEO of iContainers, a startup trying to digitize the ocean freight industry. "They're going to make it easier for Chinese suppliers to get stock to American customers."

As Jimenez explained, the $350 billion ocean freight industry is completely outdated and a nightmare to deal with. If a merchant wants to ship a container from China to the U.S., they could spend up to 40 days emailing with various providers and carriers trying to figure out how much it would cost and how long it would take.

In the last year, Amazon has imported about 10,000 20-foot containers into the U.S., and received an additional 20,000 containers from merchants as part of the Fulfillment by Amazon program, according to Ocean Audit, a freight auditing consultancy. About 90 percent of the FBA shipments originated in China, according to Ocean Audit.

To get a better idea of how complicated the ocean freight industry is, iContainers asked 40 freight forwarders for a quote to ship a container, and only half of them answered within a week and 59% weren't even able to provide them with the door-to-door quote they were looking for.

Jimenez compares the industry to the airline industry before the days of Expedia, when customers had to call a travel agent to walk them through the whole process. Once online travel sites came around, however, all of that information was suddenly out in the open.

iContainers is trying to do what Expedia did for the ocean freight industry, but Amazon could easily solve that problem for its own sellers by using its own services.

"They can talk to carriers and say, 'Well I'm Amazon so what kind of rates can you offer me,' and they will, I think, resell those rates to customers in China who want to ship to the U.S.," Jimenez said. "It's about eliminating the third parties in between."

Amazon declined to comment for this story beyond confirming the filing for Amazon China.

"International shipping has always been complicated because each country imposes its own rules and regulations that involve customs, excise, import regulations, port fees, drayage, etc.," said Marc Wulfraat, founder and president of MWPVL, a supply chain logistics consultant. "So Amazon being an advanced technology company has probably figured out a way to reduce a lot of this friction to make it easier and less expensive for shippers to move freight from China to Europe and North America."

It all fits into Amazon's larger strategy to develop its own logistics capabilities. In March, Amazon confirmed that it plans to lease 20 Boeing 767 freighter planes to help support its fast delivery of packages to customers.

"Ocean transportation is part of the logistics chain, and [consumers'] purchases flow from warehouses to delivery," said Wedbush analyst Michael Pachter. "Amazon excels at the last two parts, and is backward integrating from warehousing and delivery to front end transportation."

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