Amazon Now Wants to Disrupt the Trucking Industry

Amazon is getting ready to disrupt another industry - freight shipping.

Editor's Note: An earlier version of this article stated that David's Bridal had gone out of business. This isn't accurate. David's Bridal filed for Chapter 11 protection in December 2018 and emerged from under Chap. 11 6 weeks later in January 2019. No stores were closed and customer service was never disrupted. We apologize for the error.

First, Amazon disrupted the book business. By 2011, Borders Books was out of business and today, Barnes & Noble is hanging on by a thread.

Then, Amazon disrupted the entire retail industry. Just in the last year, Sears, Mattress Firm, Brookstone, Rockport, Nine West, Claire's, and Bon Ton have all gone out of business.

RELATED: THE AMAZON EFFECT: AMAZON GO STORES AND THE FUTURE OF RETAIL

On April 27, 2019, without fanfare, Amazon announced its latest disruption target – the freight shipping business – as Amazon's digital freight brokerage platform located at www.freight.amazon.com went live.

So far, the site is offering freight services in the U.S. states of Connecticut, Maryland, New Jersey, New York, and Pennsylvania, and, Amazon is already undercutting market prices by 26 to 33 percent.

Amazon's shot over freight shippers' bows was in a client note to investors in which it said that it would begin offering free one-day shipping to Amazon Prime members.

Morgan Stanley equities analyst Brian Nowak saw the announcement for what it was. Speaking to the website freightwaves.com, he said, "... we also see this as a Trojan horse for Amazon to grow its next disruptive business… a third party logistics network."

Amazon Was Already in the Shipping Business

For Asian ocean freight inbound to North America, Amazon is in the top ten of international freight forwarders. Amazon already moved so much of its own freight via third-party carriers that it was able to become a broker for other companies needing to move freight. And, Amazon is offering its brokerage service with no markup, allowing it to undercut its competitors.

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Amazon could easily grow this freight brokerage business into a $10 billion a year operation by selling capacity at cost.

It's Time to Learn a New Word – Disintermediation

Disintermediation means "reduction in the use of intermediaries between producers and consumers." For example, someone could invest directly in the securities market instead of going through a bank. What Amazon is doing is cutting out its shipping intermediaries.

Quoted in the freightwaves.com article, a former Amazon executive said, "This innovation and growth then manifests as continuously evolving towards the ability to sell everything and anything that is or can be sold. That’s the true Amazon flywheel: disintermediate to survive; monetize to fund innovation; innovate to grow; disintermediate to survive…"

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While Amazon is hardly in survival mode, its revenue growth has slowed from 30 percent annually three years ago, to less than 15 percent projected for 2019. While not too shabby, the new venture is designed to prevent trucking capacity from constraining Amazon's growth.'

Georgia Overdrive

Amazon is using its massive capital to rapidly scale its shipping network on thin or even negative margins, and to take share.

The trucking industry is calling this ploy "Georgia Overdrive," which is described as follows: A truck can only go so fast because it is restricted by its transmission. But, if that truck is coming down a hill, and you can kick its transmission into neutral where the truck is no longer governed, it can go very, very fast.

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There is no telling how big Amazon wants its freight business to grow, but at a certain point, it will raise prices as it monetizes the brokerage service to fund other innovation.

And, by keeping its trucks running and not taking a margin during the so-called soft freight seasons, Amazon will be able to move a truly staggering amount of merchandise during the peak freight season in November and December.

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