CHICAGO — Amazon’s move to increase control of its domestic supply chain by purchasing additional 53-foot intermodal containers could be a pivot-to-growth story for U.S. Class I railroads in the years ahead.
The online sales giant has grown its container fleet from 250 containers in 2019 to more than 5,000 today. That’s the equivalent of 36 miles of double-stacked intermodal trains branded with Amazon’s prime arrow on navy blue containers.
The retailer’s investment in its domestic intermodal program has reduced the number of containers it needs from intermodal providers such as J.B. Hunt or the Hub Group, meaning to some extent, Amazon packages have simply moved from those containers to its own. But few companies have scaled at Amazon’s pace, and its decision to invest in intermodal logistics exerts greater control over its supply chain process and creates capacity that could drive volume growth for railroads. The company’s commitment to achieving zero net carbon emissions by 2040 further supports a closer bond between railroads and e-commerce, as rail is generally viewed as four times more fuel efficient than moving freight on highways.
Intermodal analyst Larry Gross says retailers who own equipment and deal directly with U.S. intermodal rail are a revolutionary development. Historically, retailers have relied on logistics middlemen to coordinate this aspect of the business, keeping shippers from short-circuiting the process and dealing directly with railroads.
“Walmart and Amazon have so much clout, they forced it,” Gross says.
Amazon also sees its containers as marketable assets, diversifying its role as a logistics provider as it looks to build density. In July, Amazon opened its intermodal network to other shippers, allowing companies to use its containers [see “Amazon opens its intermodal network …,” Trains News Wire, July 22, 2022]. This could be a catalyst for creative growth opportunities between Amazon, its partners, and rail.
According to supply chain consultant MWPVL, Amazon has more than 1,200 facilities and 393 million square feet of capacity in the U.S., with an additional 99 million square feet of capacity planned. A quick analysis confirms a correlation between Amazon fulfillment centers and nearby rail intermodal terminals. In the West, a significant number of Amazon’s fulfillment centers are within 25 miles of BNSF Railway or Union Pacific facilities. CSX Transportation and Norfolk Southern facilities are near a number of Amazon hubs in the East.
While Amazon’s current fleet may represent just 5% of J.B. Hunt’s 100,000 containesr, the company is taking intermodal logistics by the reins. As it gains market share, it should be able to strengthen its negotiating leverage with favorable freight rates and premium service. It’s becoming increasingly possible to foresee the day when a high-priority Z train on BNSF’s Southern Transcon sports an all-Amazon container consist.
Federal Express grew as large as it did thru marketing and having control of their environment. Initially starting as a courier operation, then morphing into airfreight. The initial control was Civil Aeronautics Board (CAB) loophole that allowed courier companies to use aircraft with a 5000lb payload (FedEx used Dassault Falcon 20’s). When the air freight market was deregulated FedEx bought Boeing 727’s.
Now look at FedEx.
Amazon is looking to control their environment as well. The companies affected, FedEx and UPS.
I dislike what this may mean to “niche” hobbies. (A description of Model Railroading by a major retailer)
What makes everyone think Amazon has much leverage at all. Very early on in the Santa Fe intermodal revolution we made it clear to the world we would not be leveraged in the basis of price. Go back and read my July 1998 Trains Magazine article!!! BN-Santa Fe already has UPS and JB Hunt as intermodal partners. Who or what is this thing called Amazon. And what most if not all of you miss is the impact of a small freight transportation provider fond of the color Purple. Depending on the year and the basis of measurement, UPS and Federal Express are the two largest freight transportation providers in North America if not the world.
Amazon is strange. They only make money in AWS (web services(lots!)) and advertising, the original online sales operations runs at a loss and its third party sales operations aren’t terribly profitable (and a political liability – possible favoritism). Why they want to get into businesses (like shipping) that don’t have great returns is a mystery to me, unless Prime memberships are hugely profitable (Costco sells at cost, its profits come only from membership fees). Its internet entertainment is another loss leader, evidently only to drive Prime memberships.
It seems to me that BNSF is best positioned to serve the demanding needs of Amazon. Buffett has the business insight to make this happen plus BNSF has the ability to run modern Super C -level service between LA and Chicago and many other locations. A partnership with NS for eastern cities would be key along with a significant upgrade to the Streator connection.
Amazon will never buy a Class 1. Never.
They will get what they want as a domestic shipper leveraging all the modes to their advantage.
Finally Amazon is no longer *just* a retailer. While retailing does get the most exposure they are the leader in cloud services (AWS) which on a margin basis makes more than the retail side.
It was Robert Sears ( a former railroader) and Montgomery Ward who pushed the largest single haul service in the US at the time (USPS) to perform Rural Free Delivery and from that (distribute catalogs) allowed them to push the railroads on delivery standards.
Amazon is simply repeating what Sears and Wards did.
Richard Sears. And he moved from the Twin Cities to Chicago to have better access to railroads.
There are many companies that could provide intermodal growth. But the railroads will have to develop the markets and they’re not very good at that.
Freight transportation is a derived demand business. Amazon’s business depends on the overall level of consumer spending and consumer demand. The growth rates here will be about that of normal GDP growth. And look at how badly Amazon missed the boat recently on their warehouse forecasts. Amazon and Walmart are simply putting smaller intermodal providers out of business. Maybe Amazon becomes another UPS or JB Hunt but maybe not. Mr. Gunnoe seems to be suffering from a case of irrational exuberance.
Perhaps. But for the right here and right now Amazon does have the wherewithal to do “something.” What that something is debatable. It is also finite. If they do nothing we will not be having this conversation 5-10 years from now.
Amazon’s market cap is larger than all the Class 1s combined. So the real question: When is Amazon going to fork over some pocket change and buy one or two of the Class 1s to reform them into their image?
Of all major US Corporations, I believe Amazon is among the most admirable. A close relative who works there can’t stop raving about it. How many Class 1 railroad employees would say the same?
That’s somewhat surprising, because I’ve heard horror stories about the working conditions at Amazon fulfillment centers, namely productivity goals that preclude breaks, even bathroom breaks.
Management vs Floor Workers and Drivers?
My daughter worked one Christmas at an Amazon warehouse.
The horror stories are true.
To this day, she will not use Amazon.
There was this one train on the Virtual Railfan cameras a few months back that appeared to sport an (almost) all Amazon container consist. I guess Amazon did watch Alan Fisher’s video on one day shipping that had a photoshopped locomotive with an Amazon livery.