Menu
Edit

This Company Spent $28 Billion On Freight Last Year – Could It Have Done Better?

Share
Share
Share

Share:

This Company Spent $28 Billion On Freight Last Year – Could It Have Done Better?

Someone asked me this question on a popular social platform. The subtext was this:

What kind of discount do you think they’ve negotiated with the major carriers (UPS, FedEx, USPS, etc.)?

I have over 12 years of operational experience and 23 years of commercial negotiation experience with freight companies on large scale global freight operations.

Even though I have no direct experience with Amazon’s freight operations (and I would not reveal any inside information, even if I did) I think I am well qualified to answer this question.

Based on my review of Amazon’s cost reports, I would first question the full details of $28 Billion freight spend. My gut feel is that all of it may not be freight bill for external freight vendors such as UPS, FedEx or USPS etc.

Moving on, irrespective of the fact how big is the external freight bill – amazon’s shipping spend is huge. One of the biggest in the world.

As such, Amazon would start with a massive advantage in the price negotiations with the vendors. There are two questions here:

1. How big? And,

2. How well Amazon uses this advantage?

Let’s start with the second question first – because I have worked with many companies who had a similar massive advtange where they formed bulk of the trade on some lanes and yet did not know how to negotiate and control freight well enough.

What went wrong?

In many cases the same company has 20 or more divisions each with its shipping department – negotiating with the same vendor on the same lane. In most cases the vendors pitched their best salesmen while the buyers thought of freight as a fixed cost (an after thought).

The net result? They were paying the retail! Or, close. Worse still, they did not know the difference. I will skip a lot of other bad news, except for the worst one – they were signing contracts which were largely one sided (favouring the freight vendors). And, as usual the contracts make all the difference in any transaction.

So how well does Amazon perform on this front?

An external point of view is that it performs very well. What is my evidence? Read these articles to get a sense:

President Trump, Amazon Should Run The USPS: Here’s Why

There are many others in the same vein. Sure it is a political hot potato now, but the facts of the case are still quite clear. Amazon is using every advantage it can. And, quite well.

Let’s spend some time on the first question.

How big is the advantage?

Everyone knows that the full truck, full plane, or full ship, or full shopping centre is very lucrative proposition for the vendor. Any operation close to its peak volume is at its most productive.

Think of what kind of rent subsidies do the anchor tenants enjoy in shopping centres, and in commercial buildings?

What kind of deals do Take-or-Pay (ToP) buyers enjoy on LNG trains where investment in each train exceeds several billions of dollars. There are countless such examples in the realms of supply chains – ranging from explosives to chemicals to gases to property to FMCG etc.

Almost all commercial operations have a bulk buyer who enjoys significant cost advantage over the retail buyers.

How do you model the advantage? How do you model the industry cost curve and pick your vendors? How do you negotiate your advantage?

All this is an art – which cannot be summarised in a few pages. You have to live it all day, every day, for years to master the art.

By all indications Amazon has mastered the art. If you have not figured it out from the foregoing discussion, then I would rather not reveal my estimate of the advantage they are likely to enjoy.

In a future post I will reveal Amazon’s achilles’ heel, which none of the big box retailers have yet identified, and which would level the playing field for them.

Share Generously :

LinkedIn
Twitter
Facebook
WhatsApp

Copyright - These concepts, frameworks and ideas are copyright of GLOBAL SUPPLY CHAIN GROUP from the time of their creation. Do NOT copy these without permission and proper attribution.

Notes:

1. These ideas and concepts will be usually expressed by our thought leaders in multiple forums - conferences, speeches, books, reports, workshops, webinars, videos and training. You may have heard us say the same thing before.

2. The date shown above the article refers to the day when this article was updated. This blog post or article may have been written anytime prior to that date.

3. All anecdotes are based on true stories to highlight the key points of the article - some details are changed to protect identification of the parties involved.

4. You are encouraged to comment below - your real identity and email will not be revealed when your comment is displayed. Insightful comments will be featured, and will win a copy of one of our books. Please keep the comments relevant, decorous and respectful of everyone. All comments represent opinions of the commentators.

Our Quick Notes On Five Flows Of Supply Chain Management

Part of our new “Quick Notes” series – this report answers your most pertinent questions of the topic.

LIMITED TIME
USD 20
FREE

. What are the five flows of SCM?

. Why are they important TO YOU?

. How can you map, track, and optimise these flows to serve YOU?

. What is the importance of difference between "Supply Chain" and "Value Chain"?

. What are the stellar case studies of each of the five flows?

MORE INTERESTING READING

Leave a Comment

Your email address will not be published.

Table of Contents

ABOUT THE PRINCIPAL AUTHOR

Today, Vivek and his partners are among 20-30 people on the planet earth who have this deep understanding of supply chain systems, practices and tools. CEOs, COOs, executives and Boards call them in most challenging situations once they know the full potential of supply chain based transformations. Following are key milestones in Vivek's journey:

  • Started in 1983 as a merchant navy cadet at 18 years age, worked his way to qualify as a Captain – qualified to take command of any merchant ship, worldwide.
  • Earned a top tier MBA from UNSW at the top of his class.
  • Joined highly regarded strategy consulting firm Booz Allen & Hamilton, consulting to the CEOs, Boards and senior management of global corporations within Australia.
  • To learn and specialise in supply chain – against all odds, sought out the co-inventor of supply chain in Germany and convinced him to be a partner in his firm, GLOBAL SUPPLY CHAIN GROUP, launched in January 2000.
  • More than 500 successful blue chip projects with high impact business transformations in large corporations using the full power of SUPPLY CHAIN MANAGEMENT.
  • 4 Seminal and path breaking business books IN SUPPLY CHAIN MANAGEMENT – these are available in bookstores and universities and libraries worldwide.

Limited Time

FREE

This offer expires in

Our Quick Notes On Five Flows Of Supply Chain Management

US$20

USE CODE "FREETODAY"

WHAT OTHERS ARE SAYING

Our Clients say it better than we ever could:

TRENDING POSTS

OUR CLIENTS

Our Clients come from a variety of industries – yet they have a common element. They rarely rest on their laurels, and are always looking to do better.

OUR PROJECTS - EFFECTIVE TRANSFORMATIONS

In the last 20 years we have completed more than 500 projects. Click below to see a sample of our projects.

OUR TESTIMONIALS

RELATED POSTS

Our Books

5.0
5/5

THE 5-STAR BUSINESS NETWORK

If you are deeply passionate about the world of business and supply chain networks as I am, and enjoy digging answers to critical questions that will help build and steer your business with wisdom, then join me. This book is a journey of exploration through the world of business networks that run along the veins of today’s commercial world.

4.3
4.3/5

OUTPERFORM OUTSOURCE OUTPROFIT

The trend of outsourcing continues to grow unabated with the whole gamut of services, from simple to mission-critical tasks. There is not a single company on earth that does not outsource anything. It is not just about cost arbitrage, it is also a finer expression of division of labour at the organisational level. Like all leverage, outsourcing is a double-edged sword too. On one hand, it allows you to do more, faster. On the other hand, if it goes bad, it can easily kill your business. If you do not believe that is possible – you can google the Fox Meyer saga from the 90s and see for yourself.

4.3
4.3/5

UNCHAIN YOUR CORPORATION

Businesses Are Chained By Unseen Chains. If You Are Looking For Ways To “Unchain Your Corporation” A Successful Business Transformation Is Required.

Successful Business Transformations Are Difficult, Yet Rewarding.

Business Transformation Is Fast Becoming A Question Of Survival In The Modern Globalised Era.

Modern Supply Chains Integrate Businesses And Economies Faster By Systematic Information Sharing From Internal And External Sources.

Companies Can Multiply Profits By Progressively Ramping Up Cohesion And Collaboration Of All Moving Parts In B2B Network To Achieve Tighter Integration.

4.3
4.3/5

GREEN SUPPLY CHAIN – AN ACTION MANIFESTO

It is generally accepted that environmental consciousness is now changing to environmental proactiveness as organizations are discovering that it makes good commercial sense.

Boards are asking the management to review their policies related to environmental norms, not only to bolster their corporate social responsibility aims, but also because consumers are asking for greener supply chains

It is also widely agreed that consumers will increasingly prefer to buy more and even pay more for products or services provided in an environmentally sound manner.

FOR SENIOR EXECUTIVES AND DIRECTORS

YOUR HIGHEST VALUE ADDED IN YOUR COMPANY

Scroll to Top