Could Amazon’s business of reselling goods produced by Chinese manufacturers allow it to create a profitable niche in transporting those goods into the U.S. and possibly other markets? Some believe that is the reason the giant online retailer is the newest NVOCC in the trans-Pacific.
Amazon’s newly achieved non-vessel-operating common carrier status opens the e-commerce giant to tap a potentially highly profitable revenue stream by providing ocean shipping services to its Chinese vendors and increase its buying power with container lines.
For example, if Amazon buys a 40-foot container space from China to the West Coast for $1,000, it can sell each cubic meter of the roughly 60 cubic meters of space for $50, allowing it to make a roughly $2,000 profit on transport services for its Chinese vendors, which supply about 90 percent of the goods sold on its website, Steve Ferreira, founder of Ocean Audit, a Connecticut-based global ocean freight auditing service, told JOC.com. The average spot rate to ship an FEU from Shanghai to the West Coast is $1,377, according to a Jan. 22 reading of the Shanghai Containerized Freight Index, as displayed on the JOC.com Market Data Hub
“A larger percentage of (Amazon’s) Chinese shippers are sending small amounts of freight,” he said “The most striking thing is Amazon’s ability to co-op a lot of smaller Chinese vendors and make one huge vendor”
There’s another roughly $50 to $70 in related fees, from handling to bill documentation charges, which Amazon can add to each shipment, allowing the company to “double-dip on the revenue stream,” he said. Amazon could charge small Chinese shippers $10 to $15 less per cublic meter of cargo compared to the current market levels.
Those cost estimates don’t take into account a variety of charges, including loading charges in Asia, and U.S. and Asia drayage costs, Amazon would be hit with, said Bill Woods Jr., managing director and founder of America’s Sales Agency, a Rhode Island-based logistics consulting firm. When calculating those charges, Amazon’s profit on a FEU move it bought for $1,000 would be about $750, he said.
By either giving Chinese shippers container pricing at cost or more, Amazon can also improve its ability to get better rates from carriers since it will be purchasing more vessel space, Ferreira said. To gain greater purchasing power in the short-term, Amazon could give its vendors ocean shipping at cost for the first year and then charge more once they’ve become used to using Amazon as their ocean transportation provider.
The recently granted NVOCC license from the U.S. Federal Maritime Commission to Amazon’s Beijing-based subsidiary, Beijing Century JOYO Courier Service Co., sent ripples through the estimated $350 million forwarding industry and reignited speculation that Amazon is working to reduce its dependence on parcel giants such as FedEx and UPS. The license, first noted by Flexport, a San Francisco-based logistics start-up, is the latest sign of how Amazon is taking a more active role in transporting its own freight, after it purchased thousands of trailers for U.S. delivery and reports suggest it’s considering handling some its own air cargo.