Tag Archives: Amazon

Amazon Gets Booted by FedEx, by Wolf Richter

Like Walmart, Amazon’s sales are usually at ultra-thin margins, and suppliers and other vendors are often pressured for rock-bottom rates. That’s not playing too well with FedEx. From Wolf Richter at wolfstreet.com:

Ecommerce is drawing up new battle lines – in the transportation sector.

Amazon is aggressively butting in on freight carriers with its own planes, trucks, and delivery infrastructure, and is at the same time aggressively pushing for faster and cheaper service from freight carriers such as FedEx, UPS, and the US Postal Service. And FedEx has had it with Amazon, announcing today that it was dumping Amazon as customer of its Express division.

“FedEx has made the strategic decision to not renew the FedEx Express U.S. domestic contract with Amazon.com, Inc. as we focus on serving the broader e-commerce market,” it said in a surprise statement. The current contract ends June 30.

Its other units that do business with Amazon and its international services with Amazon are not impacted by this decision, FedEx said.

FedEx is not overly dependent on Amazon – unlike some other freight companies that now have come to grief under Amazon’s boots, including New England Motor Freight, a less-than-truckload carrier that “stunned” the transportation world when it filed for bankruptcy in February.

Interestingly, FedEx chose to address this point explicitly in the statement:

Amazon.com is not FedEx’s largest customer. The percentage of total FedEx revenue attributable to Amazon.com represented less than 1.3 percent of total FedEx revenue for the 12-month period ended December 31, 2018.

Amazon is trying desperately to speed up shipping and keep its shipping costs low. Being so immense, it is able to throw its weight around and negotiate very demanding contracts – that can be too demanding, as New England Motor Freight found out.

NEMF was ranked No. 18 by revenue in the less-than-truckload sector in 2017, with FedEx being ranked No. 1, YRC Worldwide No. 2, and UPS No. 5. When it filed for bankruptcy in February and said that it would go out of business, it blamed a host of reasons.

Industry insiders at the time added a reason: Amazon’s demanding contracts. Amazon accounted for less than 6% of the company’s revenues, according to these estimates, but was low-margin business that required a lot of company resources and was expensive to deal with.

“Multiple industry insiders pointed to NEMF’s over-exposure to a very large online retailer, where volumes may have been high but margins very thin,” Seaport Global Securities analysts wrote in a note, alluding to Amazon. During holiday season, the analyst wrote, “surges in volumes can disrupt current operations, customer service levels, and therefore margins.”

A few weeks after the end of the last holiday period, MEMF was done and threw in the towel.

And so FedEx said it is going to “focus on serving the broader e-commerce market” — more profitable customers that don’t eat up so much of its resources:

There is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026. FedEx has already built out the network and capacity to serve thousands of retailers in the e-commerce space. We are excited about the future of e-commerce and our role as a leader in it.

This “opportunity for growth” would be less gigantic shippers that don’t have the margin-crushing power of Amazon.

In addition, there is the issue of growth for FedEx, with regards to Amazon. Amazon is aggressively building up its own delivery capabilities, from cargo planes to last-mile delivery services, and in the process has become a logistics giant in its own right, as it is trying to get control of its shipping costs and move business away from FedEx and others.

So for FedEx, Amazon is no longer a growth opportunity. It’s just a low-margin cost-intensive and perhaps shrinking business.

We can only imagine what happened during the negotiations between Amazon and FedEx as they were trying to renew the contract that will expire on June 30.

Amazon must have tried to cut its cost further and speed up deliveries further, at the expense of FedEx. And FedEx must have done the math that it would be better off chasing after less costly business. Ecommerce is growing in leaps and bounds, powered by countless large and small players – and Amazon is not the only one.

 

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Vicious Cycle: The Pentagon Creates Tech Giants and Then Buys their Services, by T.J. Coles

How the military-industrial-intelligence complex works. From T.J. Coles at counterpunch.org:

Photograph Source: DoD photo by Master Sgt. Ken Hammond, U.S. Air Force – Public Domain

The US Department of Defense’s bloated budget, along with CIA venture capital, helped to create tech giants, including Amazon, Apple, Facebook, Google and PayPal. The government then contracts those companies to help its military and intelligence operations. In doing so, it makes the tech giants even bigger.

In recent years, the traditional banking, energy and industrial Fortune 500 companies have been losing ground to tech giants like Apple and Facebook. But the technology on which they rely emerged from the taxpayer-funded research and development of bygone decades. The internet started as ARPANET, an invention of Honeywell-Raytheon working under a Department of Defense (DoD) contract. The same satellites that enable modern internet communications also enable US jets to bomb their enemies, as does the GPS that enables online retailers to deliver products with pinpoint accuracy. Apple’s touchscreen technology originated as a US Air Force tool. The same drones that record breath-taking video are modified versions of Reapers and Predators.

Tax-funded DoD research is the backbone of the modern, hi-tech economy. But these technologies are dual-use. The companies that many of us take for granted–including Amazon, Apple, Facebook, Google, Microsoft and PayPal–are connected indirectly and sometimes very directly to the US military-intelligence complex.

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Whole Foods’ Existential Threat? by John McNellis

Is Amazon destroying what made Whole Foods special to its legions of fans? From John McNellis at wolfstreet.com:

“Amazon’s plunge into the $800 billion US grocery industry posed an existential threat to rivals”: CNN, August 2018. So let’s see.

A couple questions remained in the wake of Whole Foods’ announcement last week that it was dropping prices on over five hundred items by twenty percent. Is this Amazon’s long-awaited spring offensive or is the grocer playing defense, treading water, simply trying to keep its market share? Stretched over a broader canvas: Is Amazon truly the existential threat to the grocery business the click-baiters would have you believe?

Before we get to existentialism, let’s consider a smaller question. Was it really a price reduction at all? Maybe not. The New York Times sent a couple reporters to shop their local Whole Foods for a basket of identical items before and after the ballyhooed price reduction. The total post price-cut savings was five cents on a fifty-five dollar purchase. The paper also used a Morgan Stanley study to report that Whole Foods prices are fifteen percent higher than those at a typical supermarket.

Even the kale and quinoa crowd can add, eventually. To keep paying a fifteen percent premium, they need to feel special about themselves and their supermarket. They need to know that their market is buying sustainably, doing business with the little guy, choosing only pesticide-free truck farm vegetables, wild salmon that have never seen a hatchery—let alone a fish farm—and so on.

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Jeff Bezos Protests the Invasion of His Privacy, as Amazon Builds a Sprawling Surveillance State for Everyone Else, by Glenn Greenwald

The hypocrisy is obvious. From Glenn Greenwald at theintercept.com:

THE NATIONAL ENQUIRER HAS engaged in behavior so lowly and unscrupulous that it created a seemingly impossible storyline: the world’s richest billionaire and a notorious labor abuser, Amazon CEO Jeff Bezos, as a sympathetic victim.

On Thursday, Bezos published emails in which the Enquirer’s parent company explicitly threatened to publish intimate photographs of Bezos and his mistress, which were apparently exchanged between the two through their iPhones, unless Bezos agreed to a series of demands involving silence about the company’s conduct.

In a perfect world, none of the sexually salacious material the Enquirer was threatening to release would be incriminating or embarrassing to Bezos: it involves consensual sex between adults that is the business of nobody other than those involved and their spouses. But that’s not the world in which we live: few news events generate moralizing interest like sex scandals, especially among the media.

The prospect of naked selfies of Bezos would obviously generate intense media coverage and all sorts of adolescent giggling and sanctimonious judgments. The Enquirer’s reports of Bezos’ adulterous affair seemed to have already played at least a significant role, if not the primary one, in the recent announcement of Bezos’ divorce from his wife of 25 years.

Beyond the prurient interest in sex scandals, this case entails genuinely newsworthy questions because of its political context. The National Enquirer was so actively devoted to Donald Trump’s election that the chairman of its parent company admitted to helping make hush payments to kill stories of Trump’s affairs, and received immunity for his cooperation in the criminal case of Trump lawyer Michael Cohen, while Bezos, as the owner of the steadfastly anti-Trump Washington Post, is viewed by Trump as a political enemy.

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Is Big Tech Merging With Big Brother? Kind of Looks Like It? by David Samuels

Between them, Big Tech and the government could dish up surveillance Orwell couldn’t dream of. From David Samuels at wired.com:

A FRIEND OF mine, who runs a large television production company in the car-mad city of Los Angeles, recently noticed that his intern, an aspiring filmmaker from the People’s Republic of China, was walking to work.

WHEN HE OFFERED to arrange a swifter mode of transportation, she declined. When he asked why, she explained that she “needed the steps” on her Fitbit to sign in to her social media accounts. If she fell below the right number of steps, it would lower her health and fitness rating, which is part of her social rating, which is monitored by the government. A low social rating could prevent her from working or traveling abroad.

China’s social rating system, which was announced by the ruling Communist Party in 2014, will soon be a fact of lifefor many more Chinese.

By 2020, if the Party’s plan holds, every footstep, keystroke, like, dislike, social media contact, and posting tracked by the state will affect one’s social rating.

Personal “creditworthiness” or “trustworthiness” points will be used to reward and punish individuals and companies by granting or denying them access to public services like health care, travel, and employment, according to a plan released last year by the municipal government of Beijing. High-scoring individuals will find themselves in a “green channel,” where they can more easily access social opportunities, while those who take actions that are disapproved of by the state will be “unable to move a step.”

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The Profitless Prosperity Sector Will Collapse… by Adventures in Capitalism

There are a lot of hope-and-dream companies sucking up tons of money but generating no profits, with no prospect of doing so in the foreseeable future. The profitless prosperity sector is headed for trouble. From Adventures in Capitalism at adventuresincapitalism.com:

Near the culmination of all great stock market bubbles, at least one of that cycle’s supposed luminaries suffers an epic collapse because of fraud. As a result, fresh capital is restricted from that sector when it is needed most, leading to further crisis and a winnowing out of the sector as competitors cannot raise additional capital. Remember; suckers are always willing to finance bad businesses, but fraud means you immediately sell. It is this fear of endemic fraud tarnishing a whole sector, not economics, that finally ends a bubble.

Following Enron; capital was restricted from pipelines and energy trading. The collapses of WorldCom and Qwest led to a slow-down in fiber-optic buildouts. After the collapses of Ivar Kreuger and Samuel Insull, there was a multi-decade decline in conglomerates and holding companies. Following the collapse of Lehman Brothers, there was a multi-year dearth in underwriting archaic structured products and I’m sure the collapse of Madoff led to a decline in Ponzi investing. There are always second order effects in the sectors where these companies were previously shining lights—along with a lot of carnage. As a rule; if the biggest players were cheating a lot, even the honest guys were cheating a little. With Tesla (TSLAQ – USA) beginning its death rattle it’s worth considering what will happen to the rest of the Profitless Prosperity Sector.

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FANGMAN Stocks Plunge 4.4% Today, Down $905 Billion, or 20%, since Aug. 31, by Wolf Richter

The so-called FANGMAN stocks are having a rough go of it recently. From Wolf Richter at wolfstreet.com:

It gets costly when the entire market depends on a handful of over-hyped mega-caps.

For the beginning of Thanksgiving week, it was a little messy today in the stock market, with the Nasdaq dropping 3% to 7,028. It’s down 13.6% from its peak at the end of August. But it’s still up 1.8% year-to-date, so nothing serious has happened yet, just some of the gains this year have turned out to be head-fakes.

Folks who went through the wholesale Nasdaq destruction of 2000-2002 will just smile mildly because that’s when the Nasdaq, as the dotcom bubble imploded, lost 78%. Given our Everything Bubble is even bigger and crazier, the Nasdaq’s current sell-off barely registers on my own Richter scale, so to speak.

The Dow fell 1.6%, is down just 7.2% from its peak, and for the year is clinging to a 1.2% gain.

And the S&P 500 dropped 1.7% today and is down 8.5% from the peak. It too remains, if by the thinnest margin, in the green for the year.

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