Amazon’s Entry into Logistics May Create Market Fervor

Amazon’s Entry into Logistics May Create Market Fervor

March 14, 2018

According to a recent report by US-based Transparency Research Market, the logistics industry in revenue terms is expected to grow at a compound annual growth rate (CAGR) of 7.5 percent till 2024; the global market is expected to reach USD 15.5 trillion by 2023 – up from 8.1 trillion in 2015.

By Kumar S

The late Chinese General Sun Tzu famously said that the line between disorder and order lies in logistics. Thanks to advancements in modern logistics, international trade has become seamless and highly efficient, making global trade more lucrative than ever…

Logistics services’ is required in virtually all areas across manufacturing and services’ sectors be it retail, healthcare, banking, financial services, media and entertainment, trade, tourism, transportation, delivery, construction, hospitality and information technology.

The logistics market globally is categorized into first-party logistics, second-party logistics, third-party logistics, and others.

In terms of revenue, second-party logistics constituted the leading share in the market in 2015, followed by third-party logistics.

The logistics infrastructure encapsulates the entire ecosystem comprising of warehouses, transportation, manpower, software and hardware systems, customer service, inventory management, flow of information and order processing.
Logistics Market

North America occupies pole position in the global logistics market with US taking the biggest share of the pie. The US currently has trade activities with nearly all markets throughout the world. It has substantial trade exchanges with South America and Europe. Its presence in the Asia pacific region is ever growing, particularly in mass markets like India and China, with American brands being very much in demand in both countries.

Asia Pacific is becoming an important market in the logistics space. The sheer size of Chinese and Indian markets may make them a lucrative bet among foreign investors.

The report has put China as the biggest contributor to the growth of this sector in the region since 2015. China, with its large manufacturing base, augurs well for the logistics industry. India, while still a developing market, is showing immense potential with the Indian Government and private enterprises making attractive incentives and tax breaks to attract greater foreign investment.

Interestingly, the website Forward with Toll published an article in June 2017, quoting China’s claim that it had surpassed the US logistics market in 2016; the former registering USD 1.6 trillion in revenue, outperforming the US market. This figure represented a 2.9 percent on-year increase in the value of the Chinese logistics market from the previous year.

The same report also quoted American Production and Inventory Control Society (APICS), a leading global supply chain organization, which claims that China has been the largest logistics market in the world since 2012.

While China and India dominate the market in Asia, countries like Singapore, Indonesia, Japan, and Malaysia are also on the rise.

Companies based in the Asia Pacific region are primarily dealing with third-party logistics. There are a few big players, and largely medium scale and small players. The smaller and medium players are generally involved in intra-regional trade.

In Europe, Germany remains prominent, apart from the UK and France. European companies have invested heavily in creating the requisite infrastructure to support increased global trade.

Latin America is one market to watch which is showing a great appetite for growth. According to the report, the emergence of developing economies like Brazil and Argentina may present new growth opportunities in the logistics space.

Role of Transportation

The transport infrastructure dictates the logistics market in any country. The logistics market can be categorized into roadways, waterways, railways, and airways, depending upon the mode of transport.

The most preferred transport infrastructure globally is road infrastructure, which plays a vital role in integrating other transport modes. The economic development of a country also hinges upon road infrastructure. Road freight is widely used because of its door to door connectivity. It also gives flexibility to the operation, can be accessed easily by all and is generally reliable in terms of estimating time of deliveries.

In revenue terms, roadways held the dominant share in 2015 according to the report and will occupy the number one slot in the future for a while yet. However, in terms of volume, waterways make up the largest share since 2015.

Industry Drivers

While technological advancements are disrupting most industries, logistics is no exception, with innovation pegged as the single biggest driver of growth in the industry. Logistics companies are moving towards full automation, including automatic material handling equipment and GPS systems to track shipment and reduce pilferage.

State-of-the-art warehouses equipped with warehouse software, biometrics, value chain management software, trailer seals and Radio Frequency Identification Devices are all part of the infrastructure. These will continue to evolve as companies adopt the latest tech to improve efficiency, cut costs and out maneuver stiff competition.

Data and analytics will also play a key role in pre-empting customer needs and open up new markets.

Challenges

To remain competitive, this sector demands a hyper-efficient service delivery system with minimal cost.

Logistics businesses incurs high running and maintenance costs which make it difficult for companies to keep cost escalation in check. This becomes more difficult as clients demand services that require greater customer personalisation.

Tech continues to pose challenges for most players, as up-gradation is a continuous process which demands plenty of upfront capital.

There is also a growing trend in larger logistics companies develop an in-house logistics system, to devise more lucrative offers across the value chain. Margins can only be improved through volume, and in a hotly contested space, this poses a perpetual challenge.

Top Performers, and Amazon

USA-based XPO Logistics Inc was ranked the number one logistics company in 2017 with a net revenue of USD 4,741 million followed by J B Hunt Transport Services and UPS Supply Chain Solutions.
Other major US brands include CH Robinson Worldwide Inc, FedEx Corp, Expeditors International of Washington Inc and Kenco Group.

Ceva Holdings LLC from the United Kingdom and Deutsche Post DHL Group from Germany are two of the largest global players outside the US.

Agency Theory and Sustainability in the Global Supply Chain
Editor’s Pick: This book is an important addition to the management literature on corporate social responsibility in global supply chains – which is highly topical at a time when companies are increasingly aware of the social and environmental aspects of global sourcing.

Industry insiders are keenly watching Seattle-based Amazon which is picking up its logistic services. Amazon recently launched its ‘Shipping with Amazon’ service to directly deal with businesses and consumers.

Amazon is investing heavily to build its own supply chain system to squeeze cost and improve delivery time. The company has over 70 million square feet of warehouse space in North America.  It has acquired aircrafts, trucking companies and invested heavily in shipping companies. According to a report, Amazon has also patented a blimp-like warehouse that would float above cities and deliver products to the customers via drones.

With Amazon entering the logistics race, it looks like the next three years will be interesting to watch – expect to see some high precision strategic positioning among incumbents to stave off Amazon’s bid to undercut the market.

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