C.H. Robinson's new CEO dismissed the threat of Amazon's logistics play — here's why he's wrong

This is an excerpt from a story delivered exclusively to Business Insider Intelligence Transportation & Logistics Briefing subscribers. To receive the full story plus other insights each morning, click here.C.H. Robinson, a US-based third-party logistics provider, has dismissed the threat posed by Amazon's recent foray into digital freight brokerage, according to FreightWaves.On the company's Q1 2019 earnings call, incoming CEO Bob Biesterfeld argued the firm has successfully weathered several waves of technological disruptions before, dating back to the 1990s. C.H. Robinson is the third leading US logistics company to dismiss Amazon's moves into the industry.On its Q1 2019 earnings call, UPS CEO David Abney echoed a similar sentiment, while FedEx CEO Fred Smith said last year that the company doesn't consider Amazon to be a peer competitor, a sentiment that was repeated on FedEx's most recent earnings call.Here's what it means: C.H. Robinson is wrongly dismissing the threat Amazon poses to its business.Legacy logistics firms like C.H. Robinson are now competing with Amazon on multiple fronts. Last week, we discussed Amazon's foray into digital freight brokerage. This is just the latest area of the logistics industry in which C.H. Robinson and its peers will be competing against Amazon. For example, in February 2018, the company launched a parcel delivery service, which offers business-to-business and business-to-consumer shipping services. Biesterfeld is correct in noting that C.H. Robinson and other legacy shippers have weathered disruption in the past. But they haven't before encountered a competitor involved in so many aspects of the logistics business, making Amazon a much greater threat.At the same time, the e-tailer appears willing to significantly undercut its competitors on price. Amazon Shipping offers lower rates than UPS and FedEx (one merchant received about 10% cheaper rates) by eliminating certain surcharges. The firm is taking the same approach with its newly launched online freight brokerage — its rates are 26% to 33% lower than the market, according to an analysis conducted by FreightWaves. Outdueling a company that's willing to significantly undercut its competitors on price will be immensely challenging for legacy shipping firms.The bigger picture: We believe Amazon will force C.H. Robinson and other competing logistics firms to slash their shipping rates and accelerate their digital pushes.Amazon's move to undercut legacy shippers could trigger an all-out price war, compressing firms' profit margins. While legacy shipping companies may not be able to stomach offering rates as low as Amazon's, they'll likely be forced to cut their rates to some degree, especially given how important shipping prices are to merchants: A third of US online retailers surveyed by IR Research would switch to Amazon's delivery service if it offered shipping rates that were at least 20% lower than their current carrier. Amazon's willingness to undercut legacy shipping firms could trigger a price war as firms look to slash their rates and fight back against the e-tailer, compressing profit margins across the industry.Meanwhile, the firm's wide logistics technology footprint will likely force legacy firms to accelerate their own digital pushes. Amazon has built up significant warehouse robotics capabilities, for example. The e-tailer has said its extensive use of warehouse robotics has helped it cut its production costs by 20% and slash fulfillment times from between 60 and 75 minutes to only 15 minutes. As Amazon opens more of its logistics capacity to third parties, competing logistics firms will be pressured to deliver similar efficiency gains via robotics and technology or risk losing customers to Amazon. For its part, C.H. Robinson has earmarked $1 billion for technology investments over the next four to five years, on top of the $1 billion it has invested over the last decade. This capital could be used to develop or purchase delivery routing algorithms, warehouse robotics capabilities, and demand-planning software to shore itself up against the growing threat of Amazon.Interested in getting the full story？ Here are two ways to get access: 1. Sign up for the Transportation & Logistics Briefing to get it delivered to your inbox 4x a week. >> Get Started2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Transportation & Logistics Briefing, plus more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now