Transportation and logistics is the next massive market opportunity for Amazon but rather than developing it as another internal business unit, this may be spun out.
Amazon currently operates 167 distribution facilities around the world, totaling more than 100 million sq. ft., and continues to grow.
In North America, Amazon operates 92 facilities (including local sortation centers).
The analyst believes that this could be a $5 billion opportunity for Amazon even if it only captures 1% marketshare in the various segments of the industry.
Amazon has created ancillary services that help the company subsidize investments that were originally aimed at growing the core e-commerce business.
Amazon’s third-party Marketplace is a good example which leverages the scale of Amazon’s e-commerce traffic and supporting fulfillment infrastructure.
“We believe Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global UPS, FedEx, DHL, and with an investor base that historically is tolerant of margin volatility relative to the ‘profit mandates’ of traditional Transportation & Logistic shareholders, a significant competitive advantage in our view”
Amazon was able to leverage not only its position as the leading destination for e-commerce with ~280 million active customers, but also as a top-ten web property overall, generating more than 175 million unique visitors monthly.
Early initiatives with Prime Now to offer third-party delivery suggests there is evidence Amazon may ultimately pursue more comprehensive third-party services.
Is Amazon Set to Disrupt Another Billion-Dollar Market?
Amazon is not finished disrupting industries. Among other opportunities, Amazon has “powerhouse potential” in the large transportation and logistics market, dominated by global enterprises such as DHL, FedEx, and UPS.
Just as Amazon leverages infrastructure behind the core retail business to grow AWS and Marketplace, there is evidence the company may extend its increasingly complex and technology-centric logistics and delivery platform as a third-party offering.
Global logistics is a highly competitive market that we believe has yet to fully capitalize on the emergence of web-based technologies such as cloud computing, data-centric analytics and optimization that can reduce inefficiencies throughout the supply chain. Amazon’s cloud technology expertise and increasingly complex fulfillment, logistics and delivery network seem to be obvious foundation to offer third-party services, with an incremental $400-450 billion market opportunity.
Significant addressable market size and market cap open for disruption. We believe Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global providers, and with an investor base that is historically tolerant of large-scale investment and low margin revenues. We note there is currently ~$170 billion in market capitalization in legacy companies that may be ripe for disruption. Just as AWS contributes an incremental $50Bn+ in Amazon value, we believe Logistics could ultimately add billions more.
Our assessment of Amazon’s broadening fulfillment ecosystem, internal domain expertise, and early initiatives with Prime Now to offer third-party delivery suggests there is evidence Amazon may ultimately pursue more comprehensive third-party services. Similar to the gradual rollout of AWS, we would expect Amazon to introduce competitive transportation and logistics services on an incremental basis, with a long-term focus.
Ideal customers for ATL (Amazon Transportation & Logistics) would range from SMBs to enterprise businesses that lack financial resources, expertise, or technology horsepower to manage fulfillment/logistics internally, and with an offering that raises the competitive bar vs. incumbent service providers. Amazon currently operates >165 fulfillment centers worldwide, and is already testing “last mile” delivery of products not sold via Amazon’s websites.
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