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Next Disruption for Amazon Stock: The Freight Industry

Tom Taulli

When it comes to posting profits, Amazon.com (NASDAQ:AMZN) has been on a roll for the past year. This has been a clear demonstration of the inherent operating leverage in its model. Moreover, management has effectively adapted to shifting conditions and its own massive growth spurt, boosting the profile of Amazon stock.

Amazon stock has eyes on disrupting the freight industry

Source: Atomic Taco Via Flickr

But of course, Jeff Bezos is always looking to the long haul. So as revenues in its core e-commerce business have started to trail off, he’s looking toward the delivery and fulfillment infrastructures. Investments here should help keep up the gains in AMZN stock.

What exactly does this entail? Principally, it’s to make one-day delivery the standard option for those with Prime memberships. True, this will not be cheap, as AMZN will need to make significant changes to its platform. On the earnings call, CFO Brian Olsavsky noted that the costs could come to $800 million. He also did not specify when the program will go into effect.

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Yet Wall Street responded swiftly. Companies like Walmart (NYSE:WMT) and Target (NYSE:TGT) absorbed the brunt of the damage. It’s not surprising. Big-box retailers are only now beginning to compete competently online.

Should Amazon make good on the one-day delivery promise, that’s a big plus for AMZN stock. The fact of the matter is that they have a deeply-established online consumer base. At the same time, it represents a doozy for Walmart and Target. Both rely on cheaper, and therefore slower shipping options.

If matters devolve into a “shipping war,” it could disproportionately hurt the brick-and-mortars.

Large-Scale Opportunity for AMZN Stock

Interestingly enough, to pull off this move to one-day delivery, AMZN stock may benefit from the launch of a new business; that is, freight brokerage. Keep in mind that last week, the company launched this venture in Connecticut, Maryland, New Jersey, New York and Pennsylvania. Eventually, this foray could turn into another big driver for Amazon stock.

To get a sense of the opportunity, just look at Uber’s S-1 filing. The ride-sharing firm discusses severe fragmentation in both the freight and product-procurement industries. In the former’s case, several hours can sometimes extend into days for shippers to find a driver/truck combo for shipments. What’s worse, this process is conducted over the phone, or wait for it … by fax.


The latter case is equally terrible. Both procurement specialists and carriers must grind out convoluted deals to find what works. Often times, this involves hours on the phone negotiating pricing and terms. Eventually, these inefficiencies contribute to unnecessary productivity slowdowns.

Note that Uber has leveraged its on-demand platform to capitalize on this business. In the latest quarter, the revenues came to $125 million and the network has over 36,000 carriers.

That said, AMZN’s move into freight brokerage could crimp Uber’s plans. It might even impact demand for Uber’s initial public offering, and subsequent trades!

No doubt, AMZN has tremendous scale and a massive network. The company is also taking a low-cost strategy to the industry, which will likely put significant pressure on legacy operators like C.H. Robinson Worldwide (NASDAQ:CHRW). By driving down margins, this will mean a reduction on shipping costs (these came to $27.7 billion in 2018). And in the coming years, the e-commerce giant could easily increase prices to generate substantial revenues.

Bottom Line on Amazon Stock

Perhaps the most important effort for Amazon stock during the past decade was AWS. The cash flows from this cloud platform have allowed for investment in multiple categories.

And yes, the move into freight brokerage has similarities to AWS. Both are the result of Amazon.com’s internal needs as well as the leveraging of its e-commerce business.

Now, the market opportunity for freight brokerage may not be as big as cloud computing. But then again, it is still significant. After all, CHRW posted revenues of $16.6 billion last year. More importantly, the move into the freight industry is likely to open up more growth in e-commerce while helping to alleviate associated shipping costs.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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