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Amazon devours capacity with new brokerage pilot program

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In a move that can only be seen as a way to squeeze out freight brokerage firms, retail goliath Amazon has set up its own brokerage pilot program as a way to gobble up the market by utilizing shippers during its peak seasons but also selling off that capacity during down times, sometimes at a loss. The new program, currently in its infancy, is limited to five states in the northeast, Connecticut, Maryland, New York, Pennsylvania, and New Jersey.

Amazon denies it is seeking to monopolize shippers in its network. In a recent statement, the company said, “Analysis suggesting dramatic undercutting of pricing is false. We work with many line-haul service providers in our transportation network and have long utilized them to carry loads for Amazon. This service, intended to better utilize our freight network, has been around in various forms for quite some time.”

In April, however, reports surfaced that Amazon is offering low-margin and sometimes zero-margin rates to shippers in its network. This allows shippers to haul freight for a cheaper rate than they would get from traditional brokerages, but still within the rates that Amazon already promised them. A second goal for Amazon is also to make it tougher for competitors such as Walmart, Neiman-Marcus and Bed, Bath and Beyond to find enough capacity during peak retail seasons such as Halloween, Christmas and Valentine’s Day.

Amazon’s strategy seems to be a win for carriers, especially small carriers, because Amazon can guarantee rates and loads, often selling capacity for far under the market rate. In contrast, it may be a catastrophe for brokerage firms who will lose out on the 12-18% margin they charge shippers for booking loads.

During non-peak periods, Amazon simply auctions off capacity they don’t need but have already paid for. Because it ships on such a large scale, it is easy for Amazon to discount truckload services it offers shippers. For brokerages, it is impossible to stay in business with zero-margin rates.  

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