Large corporations with huge purchasing power pushing smaller organizations with contract terms that are disadvantageous are nothing new, large brick-and-mortar retailers have been employing this strategy for decades.
However, we are now starting to see a decreased willingness by carriers to acquiesce to Amazon’s terms that are set in order to partner with them for shipping items purchased from their online outlet.
Most recently, a smaller carrier in Texas won a consequential court case against Amazon to the tune of $2.4 million.
Details of the Lawsuit
Central Freight Lines, a Waco-based carrier, had been partnered with Amazon for LTL since as early as 2011. Beginning in 2016, the company claims, Amazon “attempted to wield its economic power to force through billing and procedure changes that Central Freight never agreed to.”
The actual details of the dispute are quite convoluted, with Central claiming Amazon pulled a “ruse” in order to withhold payments.
According to Central, Amazon began tendering shipments whos size was outside their agreed-upon-terms. As a result, Central applied a rate higher than the LTL rate and an additional fuel surcharge. Though a verbal agreement was made regarding these rates, Amazon began disputing all billing for these larger shipments and, after an audit, demanded that Central reimburse for additional costs. In addition, Amazon began requiring that Central use Amazon’s internal identification system for shipments, any shipments that didn’t include this identification had to be returned at a cost to Central.
Amazon then hit Central with a $1.3 million (originally $2.8 million) fee that would need to be paid if they wanted to continue as a partner for Amazon for the peak holiday season of 2017. After Central ended its relationship with Amazon fulfillment services, a separate department from Amazon called Amazon Truckload Services engaged the company.
However, according to Central, this was all a ploy by Amazon as the new division withheld payment for the amount Amazon said was owed to its fulfillment services.
The Recent History of Amazon vs. Carriers
Earlier this year, FedEx made the groundbreaking announcement that they would be entirely ending their relationship with Amazon as both a ground and air shipping partner.
In their recent quarterly financial reporting, FedEx released a graph that was extremely telling:
This graph shows that Amazon is doing over 50% of its own last-mile delivery. While the hasn’t really impacted FedEx considerably, there is a direct correlation with how much Amazon business was lost by USPS.
Historically, shipping has been one of Amazon’s biggest costs. While they have been putting pressure on third party carriers for better rates, the company seems to have seen the writing on the wall years ago and began plans to become a full-fledged shipper in its own right.
That’s why Amazon has front-loaded a massive cost of $800 million to transition its warehouses and move inventory closer to customers, as well as increase its own logistics operations. Though this investment ended up hurting the company in the short term, they seem to be betting that it will have longer-term benefits in terms of shipping costs and efficiencies.
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