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Amazon Is Expanding to the Ocean Freight Industry

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Ocean freight is a $1 trillion industry

Amazon (AMZN) is expanding into the $1 trillion ocean freight industry, according to a Wall Street Journal report. The report further said that Amazon has shipped 150 containers from China into the US since October 2016.

Seeing what Amazon has done to traditional retailers such as Walmart (WMT), Sears (SHLD), and Costco (COST), the sea transportation move could complicate the picture for FedEx (FDX), United Parcel Service (UPS), and other freight operator incumbents. Amazon’s net shipping costs soared to $5.0 billion in 2015 from $4.2 billion in 2014.

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Bringing shipping in-house

Amazon has traditionally relied on third-party shipping services. However, the company has recently shown a desire to develop its own shipping infrastructure, so that it can control the system and potentially save on shipping costs and avoid delivery hiccups prevalent during busy holiday seasons. Thus, Amazon’s expansion into ocean freight is seen as a step in building a robust in-house delivery system. Besides venturing into the oceans, Amazon has also acquired cargo planes, and it is in the process of deploying drones to support its delivery operations.

In addition to cost savings, a thriving in-house delivery system would yield incremental revenue for Amazon in its Fulfillment by Amazon (or FBA) segment where it moves goods for third-party sellers for a fee, enabling the company to squeeze more value from its e-commerce platform.

FBA soars more than 50%

The company said items shipped through FBA increased more than 50% in the holiday season, and that FBA moved more than 2 billion items worldwide in 2016. Amazon further disclosed that active vendors in the FBA program also increased by more than 70% in 2016.

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