$AMZN - Amazon is Building The Greatest Moat Through Its Logistics Network

Amazon Investment Thesis - Logistics moat Shipping supply issues have impacted businesses globally, and increased shipping costs hurt operating margins for all retailers. Carrier companies are the biggest winner due to supply chain constraints, but there is one retailer that has an advantage despite rising shipping costs. Amazon, due to it’s shipping network (doubled in size in the last 2 years), will be able to absorb these costs because they dominate the “Last Mile Delivery” which other retailers can’t control. Shipping – Bottlenecks In the Supply Chain Container rates and availability are usually built into annual contracts between shippers and the carriers, and these deals normally have strict requirements, such as only nonstop service between ports or a minimum of two sailings a week. But little by little over the past 18 months the daily rates quoted by carriers and freight agents have soared.[1] Side note: Earlier this year I wrote about $GSL and how they could take advantage of shipping turmoil. Since sharing the idea, GSL's stock price has increased close to 200%. Original writeup https://assets.bwbx.io/images/users/iqjWHBFdfxIU/isJKk_o2FWqU/v0/1200x713.png Transportation costs—typically a fraction of a finished product’s price—are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor. The fabric and crafts retailer Jo-Ann Stores LLC said it has spent 10 times more than its historical cost in some cases to move products from one point to another. [2] But it’s not just shipping containers. Everywhere across the supply chain is getting squeezed as truck drivers are in short supply and gasoline is more expensive than many expected. This is a cost you can’t control if you are a retailer, you are absorbing these costs form the delivery service, And it’s not going to be over soon. A lot of retailers and distributors foresee these problems lasting well into 2023. This bodes very well for Amazon, as I will discuss below. Amazon’s Explosive Shipping Network Growth Let’s look at what Amazon can control. Mainly their north American distribution network and facilities. Amazon’s Distribution Network has doubled over the last 2 years [3]. See Attached Image We can also see massive growth in the additions of delivery stations. Amazon now has 250 delivery stations, accounting for 13.9% of it’s physical footprint, which are the last step (last mile) in the e-commerce distribution chain. [3] Delivery Stations: Parcel delivery stations are medium-sized cross-docking facilities mostly to sort parcels bound for specific local delivery routes. Since deliveries are primarily within an urban setting, parcels are usually loaded into delivery vans or other specialized urban delivery vehicles (electric vans and even cargo bicycles) Why Delivery Stations Are Important In the past, Amazon was beholden to USPS, UPS, and FedEx for the last mile delivery, but these are not dedicated to Amazon. In the past, when demand surged, Amazon would experience shipping delays. This impacts their reputation since customers don’t benefit from Prime – same day delivery. Having these delivery stations means that Amazon can bypass USPS, FedEx, and UPS and perform the vital last mile delivery. It is one of the aspects of their operating margin they can control and ensures the optimal Amazon experience. Why Amazon Wins An increase in shipping costs will squeeze operating margins in the coming quarters, but more importantly, it squeezes competitors. Because the competitors can’t control other aspects of the supply chain (last mile delivery) they won’t be able to handle the spike in shipping costs. To put it bluntly, Amazon is building one of the greatest moats in history through its logistics network. Who knows, maybe they will acquire a shipping company? Sources [1] Bloomberg [2] https://www.wsj.com/articles/rising-shipping-costs-are-companies-latest-inflation-riddle-11631784602?mod=latest_headlines [3]  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7419283/

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$AMZN - Amazon is Building The Greatest Moat Through Its Logistics Network

bullish

Amazon Investment Thesis - Logistics moat

  • Shipping supply issues have impacted businesses globally, and increased shipping costs hurt operating margins for all retailers.
  • Carrier companies are the biggest winner due to supply chain constraints, but there is one retailer that has an advantage despite rising shipping costs.
  • Amazon, due to it’s shipping network (doubled in size in the last 2 years), will be able to absorb these costs because they dominate the “Last Mile Delivery” which other retailers can’t control.

 

Shipping – Bottlenecks In the Supply Chain

Container rates and availability are usually built into annual contracts between shippers and the carriers, and these deals normally have strict requirements, such as only nonstop service between ports or a minimum of two sailings a week.

But little by little over the past 18 months the daily rates quoted by carriers and freight agents have soared.[1]

Side note: Earlier this year I wrote about $GSL and how they could take advantage of shipping turmoil. Since sharing the idea, GSL's stock price has increased close to 200%. Original writeup



Transportation costs—typically a fraction of a finished product’s price—are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor.

The fabric and crafts retailer Jo-Ann Stores LLC said it has spent 10 times more than its historical cost in some cases to move products from one point to another. [2]

But it’s not just shipping containers. Everywhere across the supply chain is getting squeezed as truck drivers are in short supply and gasoline is more expensive than many expected. This is a cost you can’t control if you are a retailer, you are absorbing these costs form the delivery service,

And it’s not going to be over soon. A lot of retailers and distributors foresee these problems lasting well into 2023. This bodes very well for Amazon, as I will discuss below.

 

Amazon’s Explosive Shipping Network Growth

Let’s look at what Amazon can control. Mainly their north American distribution network and facilities. Amazon’s Distribution Network has doubled over the last 2 years [3].

See Attached Image

We can also see massive growth in the additions of delivery stations. Amazon now has 250 delivery stations, accounting for 13.9% of it’s physical footprint, which are the last step (last mile) in the e-commerce distribution chain. [3]

Delivery Stations: Parcel delivery stations are medium-sized cross-docking facilities mostly to sort parcels bound for specific local delivery routes. Since deliveries are primarily within an urban setting, parcels are usually loaded into delivery vans or other specialized urban delivery vehicles (electric vans and even cargo bicycles)

 

Why Delivery Stations Are Important

In the past, Amazon was beholden to USPS, UPS, and FedEx for the last mile delivery, but these are not dedicated to Amazon. In the past, when demand surged, Amazon would experience shipping delays. This impacts their reputation since customers don’t benefit from Prime – same day delivery.

Having these delivery stations means that Amazon can bypass USPS, FedEx, and UPS and perform the vital last mile delivery. It is one of the aspects of their operating margin they can control and ensures the optimal Amazon experience.

 

Why Amazon Wins

An increase in shipping costs will squeeze operating margins in the coming quarters, but more importantly, it squeezes competitors. Because the competitors can’t control other aspects of the supply chain (last mile delivery) they won’t be able to handle the spike in shipping costs.

To put it bluntly, Amazon is building one of the greatest moats in history through its logistics network.

Who knows, maybe they will acquire a shipping company?

Sources

[1] Bloomberg

[2] https://www.wsj.com/articles/rising-shipping-costs-are-companies-latest-inflation-riddle-11631784602?mod=latest_headlines

[3]  https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7419283/

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