2 min read
Ocean freight is cheap right now. As of January 2016, Flexport’s ocean freight customers were paying less than $1300 to ship a 40-foot container from Shenzhen to Los Angeles. More than 10,000 parcels can fit in a single container, so the price for the ocean freight leg could be as low as $0.14 per parcel. Here’s another way to think about that figure: Right now it costs under $10 to ship a flat screen television across the Pacific.
This can only be good news, surely? After all, ocean freight is super-low on carbon emissions, and cheaper shipping means cheaper stuff for everyone!
With ocean freight itself so low, a considerable portion of logistics costs come through labor costs—particularly compliance and coordination of cargo handoffs between different players in the chain. It’s here that automation, something no traditional freight forwarding company can do even one percent as well as Amazon can, becomes the key competitive advantage over legacy freight forwarders. By using software to eliminate additional transaction costs associated with government filings, status updates, pricing, booking and more, Amazon will be able to cut their costs significantly. At the same time, fulfilling products directly from China to consumers in the U.S. will cut handling costs at U.S. warehouses.
Which is a really elaborate and euphemistic way of saying "this'll let them wander through the payroll like combine harvester". Cheaper stuff, then, but even fewer folk with an income that'll let them buy it.
If we’ve learned anything from Amazon’s strategic playbook over the last two decades, we can expect that it will price freight as close to marginal costs as it can get.
And the only way to achieve that goal is to establish an effective organisational monopoly over the core routes of the network across which those transactions flow.
Credit where it's due: the heroes of the Valley make the rail barons look like provincial waterhead gangsters. But then again, if the rail barons had understood network theory... well, we'd probably be living in something like the world of The Difference Engine.