Amazon, Walmart look to insource railroad deals

Major retailers Amazon.com and Walmart plan to begin insourcing more of their transportation needs, with both meeting with Class I railroads to discuss direct contracts without the use of an intermediary.

Neither company has indicated it will completely sidestep intermediaries, known as “channel partners,” but the actions will disrupt the relationship between shippers, intermodal marketing companies (IMCs), and railroads.

Railroads traditionally don’t talk directly with shippers, instead negotiating contracts with ocean carriers, freight forwarders, and IMCs.

The reason is simple: There are so many shippers that it would be hard to keep track of all those accounts. By forcing international and domestic US shippers to use an ocean carrier, forwarder, or IMC, traffic can be filtered through middlemen.

In domestic intermodal, shippers get routed through asset-based IMCs such as J.B. Hunt Transport Services, Schneider National, Hub Group, and others, or non-asset-based IMCs.

Amazon and Walmart, however, have taken steps recently to show they are insourcing transportation and logistics. Amazon has pulled business from a number of transportation providers, including XPO Logistics and bankrupt New England Motor Freight. Amazon has become a non-vessel-operating common carrier (NVO) and launched a beta trucking brokerage platform last summer.

Walmart pulled back on some of its business with Schneider, including taking control of its Chicago-area warehouse in Elwood. Walmart is also running a pilot program using its own 53-foot containers. Although the company hasn’t disclosed how many containers, a source told JOC.com the number is a few thousand. Expect Amazon to get its own containers eventually to supplement its trailer-on-flatcar business.

There is no evidence that railroads courted the retailers, rather it seems to have happened the other way around.

In a statement to JOC.com, Walmart sought to assuage any concerns that it will eliminate the middleman.

“We have talked to railroads as a direct provider, but we will continue to use IMCs as well,” a company spokeswoman said.

Amazon wasn't available for comment.

CSX CEO Jim Foote said these direct relationships are very common in the carload business.

“Years ago, Home Depot and other box stores popped up, becoming more involved in having a say in their supply chains. I think now that these new players, whether it be Amazon, Walmart, or whoever it may be, have also stepped in,” he said at a May 15 investor conference sponsored by Bank of America Merrill Lynch.

Cindy Earhart, chief financial officer for Norfolk Southern Railway, confirmed a meeting with Amazon but emphasized a commitment to IMCs as intermediaries.

“We are still very much close to our channel partners [IMCs]. We’ll see how that may change over time, but we have good relationships and expect them to be a big part of our business,” she said at the investor conference.

Will the average shipper be able to walk into CSX, NS, or another Class I’s headquarters and sign an agreement? Probably not. But shippers should pay attention to whether there are more attempts to cut out IMCs or whether it will remain an option for only the highest-volume shippers in the containerized industry.
https://www.joc.com/rail-intermodal/intermodal-shipping/amazon-walmart-may-insource-railroad-deals_20190521.html