Amazon and Maersk fight to control global supply chains – Quartz

Over the past five years, one of the largest shipping companies in the world has grown in every other step of the supply chain. Maersk can now arrange air freight, trucking, warehousing and even last mile delivery for its customers.

Meanwhile, Amazon, which has been handling last-mile warehousing and delivery for its sellers since 2006, has expanded further up the supply chain. Seeking to better control its own logistics, it is now involved in long-distance trucking and air freight, and even charters its own ships to transport goods around the world. He also has started moving the cargo for businesses that don’t sell on Amazon but want to use the e-commerce giant as a courier.

Reuters/Murad Sezer

Over the next decade, if these trends continue, the ambitions of Amazon and Maersk will begin to overlap. Companies will compete for most of the same e-commerce customers and sell a similar all-in-one service to get products from a factory loading dock to a customer’s doorstep.

“It creates this battle between these two very different beasts that will likely come to a head over the next two years,” says Eytan Buchman, who heads up marketing for freight booking platform Freightos and wrote on Maersk pivot away of a business model based solely on maritime transport.

Neither company is likely to develop a monopoly over the entire global logistics market, which is large, fragmented and governed by a patchwork of regional regulations so misaligned and complex that local operators will always have an advantage over competition from global behemoths. But Amazon and Maersk can take over the most lucrative niches in logistics, especially e-commerce fulfillment in the world’s wealthiest countries.

The battle brewing between them now will determine how they share control of some of the most profitable supply chains on the planet.

Maersk’s end-to-end supply chain ambitions

Maersk’s ambition to become a one-stop logistics window dates back to 2016, a dark year for maritime transport. Slowing economies in Europe and China, along with an increase in ship supply, have sent global freight rates plummeting, denting Maersk’s profits and prompting one of its main competitors, Hanjin, to seventh shipping company in the world to declare bankruptcy. in 2015. To make matters worse, oil prices have fallen, causing Maersk to lose money in another of its main lines of business, oil exploration and drilling operations.

In September 2016, Maersk unveiled a new corporate strategy: The company would sell its oil business the following year and expand beyond the difficult world of shipping to focus on more lucrative parts of the supply chain. Turbocharged Maersk its makeover using the $21 billion in profits made during the pandemic.

In addition to expanding its fleets of trucks and cargo planes, Maersk has purchased five companies in the past three years that hint at its plans for the future. In November 2021, Maersk bought the freight forwarder Senator International.

Normally, freight forwarders act as intermediaries between shipping companies or airlines and customers who need to transport goods. But Maersk has been work to cut out middlemen and directly selling freight forwarding services to its customers. In addition to buying freight forwarders, Maersk has also revamped its website to allow businesses, especially small to medium-sized e-commerce sellers, to book space directly on Maersk ships or aircraft.

REUTERS/Amanda Perobelli

Maersk is using its pandemic profits to expand in all corners of the supply chain.

Maersk also purchased two customs brokers (Vandegrift and KGH Customs) and two e-commerce fulfillment companies (Visible MCS and B2C Europe Holding) since 2019. Vandegrift and Visible SCM focus on the United States, while KGH and B2C specialize in Europe. The acquisitions expand Maersk’s ability to get its customers’ cargo out of Maersk vessels, through customs, transport to regional warehouses and ultimately deliver it directly to customers’ doorsteps on behalf of customers.

Amazon is building its next AWS

Amazon, meanwhile, has started working for take control of its supply chains after a disastrous holiday shopping season in 2013. Prior to that, Amazon relied heavily on couriers like FedEx and UPS to deliver its packages. But in 2013, as e-commerce became more mainstream, businesses failed to keep up with the torrent of freebies American shoppers were ordering from Amazon, leading to widespread delays. The following year, Amazon ramped up the construction of its own fulfillment centers and began accumulating fleets of tractor-trailers, cargo planes and delivery vans.

The pandemic has accelerated Amazon’s ambitions to develop its own supply chains. Amazon spent about $80 billion a year on logistics infrastructure in 2020 and 2021, compared to $56 billion in logistics investment the company made in the five years between 2015 and 2019. Amazon Air, the company internal airline company, amassed a fleet of 85 Aircraft; the company also started build your own shipping containers and charter your own freighters.

REUTERS/Mark Makela

The rapid growth of Amazon’s logistics operation suggests that the company is preparing to build a standalone courier company who will deliver goods to customers even if they are not Amazon suppliers. This would replicate the strategy of Amazon Web Services (AWS), the internal division that served Amazon’s web hosting needs before selling its services to other companies and becoming one of biggest cloud computing companies in the world (and Amazon’s most profitable unit).

Amazon is already testing a standalone email servicenicknamed Amazon Shipping, which is so far limited to the UK. Any e-commerce vendor, whether or not they sell on Amazon, can hire Amazon to deliver packages on its behalf. Morgan Stanley analysts predict that Amazon launch a similar service in the United States This year.

A brake on the growth of giants

Amazon and Maersk are on a collision course to compete for e-commerce fulfillment customers in the US and potentially the UK and Europe. But the companies are unlikely to create a global shipping duopoly in the next decade.

REUTERS/Clodagh Kilcoyne

A robotic arm sorts containers in an Amazon warehouse.

First of all, the logistics industry is massive – worth somewhere between $8 trillion and $12 trillion per year— and no company manages to control it on a global scale. Amazon, while delivering most of its own packages, is still only the third-largest courier in the US, behind UPS and the US Postal Service. Maersk, meanwhile, controls only about 17% of the container shipping market. Even in their most dominant supply chain niches, Amazon and Maersk aren’t the biggest players, and there are competitors dedicated to package delivery (DHL, FedEx, UPS), shipping (MSC, CMA GCM) and all other corners of logistics that will fight for market share every step of the way.

Second, the key elements of the logistics industry are very local. Customs brokers specialize in the regulations of specific countries (or states). Short-haul trucking fleets typically operate within a single city or region, while long-haul fleets tend to be limited to one country or a few neighboring countries. In many of these cases, it would be more practical for Maersk and Amazon to partner with local logistics companies rather than buying or competing with them directly.

“One-stop shops are difficult to build; they are even harder to grow on a global scale,” Buchman wrote in an analysis of Maersk’s end-to-end logistics strategy. “[T]global capabilities with competitive pricing among local carriers, knowledge of local regulations and specialization, is elusive.

The rise of one-stop logistics shops

So the most likely outcome is not a world in which Maersk and Amazon control the movement of every package and shipping container around the world. But the two companies are fortunate to offer a new vertically integrated logistics model, in which online retailers can outsource all their transport and delivery operations to a single supplier.

These one-stop logistics stores could oversee the entire supply chain from a factory making a finished product to a customer’s doorstep, moving as much cargo as possible onto their own ships, planes and trucks. , and by partnering with local logistics operators to fill the gaps in their own networks.

By consolidating the entire range of logistics services into a single package, one-stop shops promise to increase efficiency and reduce prices. But companies that outsource their logistics to Amazon or Maersk will have much less flexibility to shape their own supply chains. In good times, that won’t matter: customers will benefit from reduced costs and the ease of not having to think about their supply chains. But in times of crisis, like the pandemic-fueled supply chain chaos we’re living in now, those customers will be at the mercy of Amazon and Maersk’s decisions about which shipments to prioritize. This would give both companies considerable pricing power the next time global supply chains are disrupted.

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