Sunday, February 25, 2024

Is Amazon a distributor?

Another government agency zeros in on Amazon Marketplace

Most everyone who shops online buys from Amazon, but, presumably, few shoppers give much thought as to whether the products are being purchased from the retailer itself or one of the sellers on the Amazon Marketplace (AM). AM, which represents 60% of Amazon’s sales, is the portion of the e-commerce giant where Amazon facilitates sales of products owned by third parties without taking ownership of inventory. Unless shoppers receive the annoying “See All Buying Options” message (which they rarely care to see), it’s not clear if an item is being sold by a Marketplace seller. In September 2023, the Federal Trade Commission sued Amazon for illegally abusing monopoly power — the agency’s complaints largely centered around treatment of AM sellers, such as whether sellers should be required to use Amazon’s fulfillment centers and transportation network to qualify for Prime and “win the buy box.” I interviewed an expert on that topic in October who had mixed thoughts on the FTC’s complaint. I also recommend reading this Seattle Times article, which provides a summary and next steps.

Now, Amazon Marketplace is reportedly coming under fire from a different angle — this time from the U.S. Consumer Product Safety Commission, which is said to be working on an order to classify Amazon as a distributor. That’s important because it would make the online retailer responsible for the safety of products sold on Amazon Marketplace and would make the online retailer responsible for product recalls. Such an order would create additional compliance costs, and the retailer may have to more aggressively vet Marketplace sellers. An order could encourage Amazon to reduce its third-party seller ranks and scale back its product selection — that could help the more reputable sellers that would remain on Marketplace. An order would also likely have implications for other online marketplaces, such as eBay or Walmart Marketplace, a growing channel that is similar to Amazon’s third-party offering.

Any Amazon haters will enjoy the Amazon comments in this lecture from author Cory Doctorow. I can’t speak to his credibility — all I can say is that he does not exactly see the world through rose-colored glasses. The obvious counterpoints are: Most consumers love the convenience of Amazon, most U.S. households happily pay for Prime, Prime has a 91% satisfaction rate (what else is that high?), and it has a very low cancellation rate. If Amazon really is taking advantage of consumers, the public is too dumb to know it.

Rob Haddock describes why Coke aspires to be a Shipper of Choice

I recommend reading Rob Haddock’s (Group Director, Transportation Strategy at Coca-Cola North America) article on how to become, and why it pays to be, a Shipper of Choice. In short, he believes that many shippers do not fully appreciate the nuances of moving their freight — those can be idiosyncrasies related to their lanes and/or service requirements. But, carriers fully understand how less-tangible factors contribute to or detract from their bottom lines. To be a Shipper of Choice, beneficial cargo owners should take steps to help their carriers’ efficiency and compensate them for any inefficiencies. Here are a few of Haddock’s pieces of advice:

Don’t rely too heavily on rating tools. While rating tools provide a convenient gauge of market rates in a particular lane, they have important limitations and do not consider inefficiencies that may be inherent to serving the shipper in question.

Shippers must provide accurate volume projections — they are critical to optimize carriers’ drive time and reduce empty miles.

Shippers should maintain relationships with a set of core carriers and look to utilize those carriers at all points in the freight cycle. That will naturally lead to improved compliance with the added benefit that the carriers will fully grasp the shippers’ service requirements.

Intermodal contract rates to be lower y/y during the first half

On their respective earnings calls, domestic intermodal providers J.B. Hunt and Hub Group told analysts to expect intermodal pricing to be down year over year in the first half of this year. That is consistent with the year-to-date data contained in SONAR via the IMCRPM1.USA ticker (shown above), which is an average of intermodal contract rates, excluding fuel surcharges. Year to date, SONAR shows average intermodal contract rates down 9% y/y and down 13% on a two-year stack versus 2022. Some intermodal carriers expect a turn in rates later this year — Hub Group’s management said it expects rates to be up slightly y/y in the second half. Progress toward meeting that expectation can be monitored in the same SONAR data set, which is a daily series on a two-week lag. Risks to positive intermodal rates in the second half include a truckload market that may remain loose, potential continued domestic container availability (a measure of domestic intermodal capacity) and potential rail service disruptions.

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