Just like in the last mile delivery field, Amazon Challenge the traditional UPS and FedEx, Amazon is now moving towards the middle mile of the freight business.
In recent years, Amazon's last mile distribution service - from the ubiquitous distribution trucks with the company's smiley face arrow logo to the UAV distribution in testing - has attracted widespread attention.
However, this e-commerce giant is also quietly making efforts in another little-known area: cargo transportation from the Amazon storage center to the manufacturing center and the port, the so-called "one mile distribution in the middle". It is reported that by the end of 2019, Amazon had used a new project in the United States to transport more than two-thirds of the goods between warehouses around the company. This new project can help small independent freight companies to book. In this way, Amazon can significantly reduce its dependence on large third-party freight forwarders. Two years ago, most of Amazon's goods were handled by these large companies.
Amazon is also exploring other ways to further occupy the middle mile distribution market. According to three current and former employees, the company also launched a new plan to rent Amazon's trucks to small freight companies. This project has never been reported by the media before.
A person with direct knowledge of Amazon's ambitions in this field said that Amazon's goal is far beyond becoming a major carrier of its own goods. The company quietly launched a new freight service in May, allowing freight companies to hire their own truck drivers to transport goods for Amazon and companies other than Amazon (including Dollar General and other retailers). This is also part of Amazon's long-term plan to become one of the top five freight forwarders in the United States, serving large group customers. At the same time, the person familiar with the matter said that Amazon is also facing problems such as C H. Competitive pressure brought by industry giants such as Robinson and XPO Logistics.
However, Amazon also encountered some setbacks in this process. A person familiar with the matter said that due to the high turnover rate of commercial truck drivers, Amazon refused to expand the training program to turn warehouse workers into commercial truck drivers. In addition, the epidemic led to a surge in online shopping orders and a serious shortage of truck drivers. Therefore, recently, Amazon had to make friends with the previously alienated freight forwarders and give them more business.
However, these efforts have proved once again that there is almost no category Amazon does not intend to touch, whether it is streaming video, satellite Internet services or cloud computing. Freight cost is the second largest category of Amazon's operating expenditure, second only to the first largest operating expenditure - the cost of consumer goods sold by Amazon, and far exceeds the expenditure on technology, marketing and content. According to the company's documents, in the first nine months of this year, Amazon spent $39.7 billion on shipping, including the distribution business of the middle mile and the last mile, an increase of 58% over the same period last year.
In theory, controlling more transportation in your own hands can provide Amazon with more ways to control costs. However, so far, Amazon has only used this advantage to provide consumers with faster delivery services. From the third day delivery to overnight delivery and then to the same day delivery, Amazon has been trying to shorten the shipping time in the past decade, because the company believes that shorter delivery time can attract consumers to shop online. Therefore, so far this year, freight costs account for as much as 16% of the company's total operating expenses, while in 2015, the proportion was less than 11%.
"Amazon's development is so fast, and they have increased so much capacity in a very short time - in my opinion, everything they do strategically is to ensure that they have the ability to do things well, so as to firmly grasp the fate in their own hands," said Mark Wolflat, president of MWPVL International. MWPVL International is a consulting firm that studies Amazon's logistics and transportation network.
"For them, cost is almost a secondary issue," Wolfrat said.
In response to questions about this report, Amazon spokesman Kate Kudner said: "There are many long-distance transportation service providers in our ground transportation network, and we have been working with them for a long time to transport goods for Amazon with their help. We are very happy to promote the development of thousands of small and medium-sized enterprises. At the same time, we are also committed to improving the capacity of the middle mile transportation network to serve our consumers. "
Amazon Transportation Services
Two former employees said that most of Amazon's middle mile business belongs to a relatively new department in the company: Amazon Transportation Services (ATS), which was formed in 2015. The two former employees said that ATS's main goal is to reduce Amazon's dependence on large third-party freight forwarders by launching its internal one mile business.
At present, the director of ATS is David Bozman. Bozeman is responsible for reporting to David Clark, senior vice president of global business, one of Amazon's most powerful executives. (Amazon recently announced that Clark will be promoted to CEO of Amazon's consumer business at the beginning of next year.) Bozeman has two major generals: Wes Herman, who is responsible for ATS operations and business, and Stephen Amanto, who is responsible for products and technologies in the department.
At present, ATS is more like an umbrella organization with various departments related to the middle mile business. One of the most well-known is Amazon Air, a freight line, which specializes in transporting long-distance packages between Amazon warehouses. Amazon has leased more than 80 cargo planes, and is also building regional aviation hubs to handle air parcels. ATS also includes Amazon's network of 69 U.S. parcel sorting centers. Here, the staff will sort the packages according to the zip code.
An Amazon tractor truck in New Jersey In 2018, Amazon began to test a platform similar to Uber, matching the cargo transportation tasks of the company and other shippers for independent commercial truck drivers in five states. Finally, the platform was integrated with another application developed by Amazon, Relay. Relay can help drivers plan the route to Amazon storage center. The combined platform is called "Relay for Carriers", which allows small freight companies to apply to join Amazon's internal transportation network, and after verification, book and transport available Amazon goods based on freelance or short-term contracts.
A former ATS employee said that in 2018, Relay changed the type of Amazon's middle mile carrier partners. The former employee said that before 2018, Knight Swift Transportation and XPO Logistics, which provided transportation services for large companies by outsourcing work to their own independent freight carriers, undertook the middle mile transportation of most Amazon goods.
By the end of 2018, small carriers using Relay had undertaken more than half of Amazon's total cargo volume. By the end of last year, this number had risen to more than two-thirds.
In April 2019, Amazon officially began to provide intermediate transportation services for shippers on the east coast at a price much lower than the market price, which made the freight industry feel uneasy. FreightWaves, a freight data company, compared Amazon's offer to shippers for 30 different routes with the price of DAT, the world's largest freight market, in an analysis report given in June 2019, and found that the service launched by Amazon earned little or no profit because Amazon charged shippers less than the market, The driver's remuneration is equal to the market price.
Amazon's approach is actually a little similar to Uber's. Uber provides passengers with cheap travel services in a loss making way, while at the same time, it attracts drivers with high pay for the platform, thus occupying more shares in the transportation market. (Recently, Uber was reprimanded for paying drivers less than in the past.)
The former employee of ATS said that the Relay platform has a built-in protection mechanism to ensure that the remuneration of freight drivers will not be significantly lower than the market price, even if Amazon's pricing algorithm predicts that the carrier may be willing to accept lower remuneration. For Amazon, establishing a large-scale transportation network of small self-employed carriers is the top priority, while profit is secondary.
A person familiar with the matter said that Amazon has promoted the freight project to the whole country, and is also trying to win over small shippers and large enterprise customers. In 2020, Amazon has invested a lot of resources in the project to expand the sales team, so as to sign more valuable contracts with large customers and small and medium-sized customers.
Trailers, Trucks and Telemetry
In order to promote the development of the middle mile business, Amazon has taken the purchase of customized Amazon brand equipment as the primary task from the beginning, first to invest in trailers, and then to tow trucks for trailers. A person familiar with the matter said that Amazon hopes that these investments can help the company become a small freight company ideal Partners, who usually do not have their own trailers; At the same time, these trailers, as mobile billboards on highways, also help Amazon improve brand awareness.
Over time, Amazon has purchased about 30000 53 foot trailers with the company's brand logo to provide loading, unloading and transportation services. This function allows employees in Amazon's warehouse center to load goods before picking them up, thus saving a lot of time for each transportation line. Amazon has also installed telemetry equipment for each trailer of its own to track the exact location of each batch of goods in real time, and adjust delays and other distributions in time before cascading delays occur.
Amazon has purchased thousands of customized tractor trucks by signing agreements with automobile manufacturers Volvo and Kenworth. These trucks are equipped with driver facing cameras provided by SmartDrive. According to the internal video of the vehicle, these cameras can use machine vision to monitor the driver's facial expressions, eye movements and other behaviors, and timely find signs of distracted driving or inattention.
For a long time, truck drivers have been under the tracking and monitoring of their employers through GPS and other technologies. In recent years, they have had to accept the close monitoring of their driving process by their employers, partly because federal regulations require employers to install electronic recorders to ensure that they will not drive for a long time. However, most truck drivers believe that these technologies installed by Amazon are aggressive and highly sensitive, such as yawning or frequent blinking will be marked as risky by the system.
New freight project
In the second half of last year, when a tractor truck with Amazon's smiley face logo appeared on the road, Amazon proposed a new project aimed at attracting truck drivers in the middle mile.
According to the documents we learned and the descriptions of three current and former employees, Amazon began to invite truck drivers to join a program called "Amazon Freight Partners". After joining the plan, truck drivers can effectively rent Amazon brand trailers, and the agreement also includes vehicle maintenance. Amazon said that the project is not a leasing plan, because these trailers belong to Amazon, and the cost of carriers using these trailers will be automatically deducted from their weekly salary.
This project is very similar to Amazon's last mile plan. The Last Mile Program encourages businesses to rent Amazon branded trucks, launch their own small freight services, and act as a contractor to deliver packages specifically for Amazon.
Wolflat of MWPVL International said that one of the benefits of this trailer or truck rental plan for Amazon is to prevent project participants from abandoning Amazon and choosing other competitors. "They want fixed staff so that they can work exclusively for Amazon," Wolflat said. "Amazon wants to ensure that it can maintain this ability. Their biggest nightmare is waking up in the morning and finding no one to do it."
Amazon Distribution Center in Portland The cost of the rental plan is unknown, but it seems to be favored by some truck drivers. According to Amazon's internal documents, as of August, at least four of the more than 60 small freight companies that joined the program have signed up to use multiple trucks from Amazon.
"For those who are interested in buying trucks but are unable to admit the cost alone, this project is very affordable," said Kathy Robertson, president of Logistics Trends&Insights, a research company, "This project is also very attractive to drivers who already have an old truck but need a new one, or who do not want to continue to contract trucks independently."
Amazon Driver
Not all Amazon custom tractor truck drivers are contractors.
Amazon has a department, the Transportation Operation Management Department, which is referred to as the TOM team internally. It provides a driver training program to help hourly workers in the company's distribution center obtain commercial driving licenses. Employees said that the person who obtained the license could immediately drive on the road to complete short distance transportation between Amazon warehouses.
However, despite the additional certification, the driver of the TOM team can only get a little more than the average salary of Amazon warehouse workers. A former employee revealed that the hourly salary of Amazon warehouse workers is generally between $15 and $18, depending on the location and experience.
According to the investment rate of two former employees of ATS, the low salary may be one of the reasons for the high turnover rate of drivers. They often leave soon after obtaining a commercial driver's license to work for other freight companies or shippers. According to the US Bureau of Labor Statistics, in 2019, the median hourly wage of American truck drivers was 21.76 dollars.
A former employee said that the executives of Amazon's transportation department were very concerned about the high turnover rate of drivers. Amazon has repeatedly considered expanding its commercial driver license training program so that more drivers can replace contractors.
However, some executives worry that the expanded driver training program may also face the same high turnover rate and leave Amazon in a helpless situation when the demand for truck drivers is tight. Internal analysis found that Amazon must pay drivers higher than the industry average if it wants to reduce the churn rate. Financially, this is not good for Amazon.
Wolflat said that for truck drivers driving 53 foot trailers, the hourly wage is between 55 dollars and 60 dollars, which is normal, and may even be higher if welfare is added. He said that the gap between the market price and the salary Amazon is willing to pay for employee drivers could explain why Amazon invested heavily in establishing a transportation network dominated by independent contractors.
"They want to avoid accumulating labor force on the transport side, because they don't want to spend money on all wages, benefits and unionized risks, and most freight companies are unionized. They don't even want to devote themselves to recruiting all these personnel, because independent contractors will do these things. What Amazon needs to do is to invest, and the last thing they need is money. "
