CORK THE COSTS

Amazon is cutting out middlemen to stop bleeding billions in shipping costs

Amazon China is now registered to deliver its own products to seaports for ocean shipping, part of a bid to cork the costly task of moving packages around the world.

Documents show Amazon submitted its paperwork in November 2015, as first reported by FlexPort. Amazon confirmed it registered for what’s called a freight-forwarding license, but would not elaborate further.

The move illustrates how the company is operating at such a scale that it can cut out some deliveries by middlemen—commonly known as freight forwarders—and replace them with in-house workers in order to save money. For years, shipping costs—which reached more than $8 billion in 2015—have been cutting into Amazon’s profits.

Taking over this part of the shipping process makes sense for Amazon. For example, it might be excessively costly for a person to deliver an occasional envelope to a single address on their own. But if they had to routinely deliver 1,000 envelopes to a single address, it could be cost effective to handle it themselves.

“People forget that Walmart is a $3 billion trucking company; it’s just they only truck for themselves,” said Satish Jindel, a logistics consultant who helped found FedEx Ground. “When you are as big as Amazon, you have to scale. A lot of other companies can’t because they are just not big enough.”

In 2015, Amazon shipped more than a billion packages, making them the largest shipper in the US, Jindel said. Finding ways to reduce costs is crucial.

In this case, Amazon China is looking to cut freight forwarders, the people who get goods from a manufacturer to a market. By example: If Amazon had a plant in Kansas City, Missouri, and wanted to ship a load of goods to China out of the Port of Oakland, freight forwarders are responsible for getting the products from Missouri to Oakland.

The company may be taking a similar step with airplanes. In December 2015, reports surfaced that Amazon was poised to reduce its dependence on delivery services like FedEx and UPS by creating its own overnight freight service.

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