February 25, 2019

The internet isn’t just a network, but a network of networks. Thanks to an array of shared protocols, what would be a jumble of incompatible systems can work together. Whatever its source or destination, information is processed and transmitted in a consistent way that all parts of the internet can understand and facilitate.

What’s less appreciated is that the world’s transport networks have undergone a similar revolution. Thanks to common standards, they’ve become increasingly inter-operable, boosting global trade. The containerisation of shipping and freight has proved especially important – something that Ruth Davidson wrote about in her UnHerd launch essay:

“Before containerisation, loading cargo cost $5.86 per ton and only 1.3 tons could be loaded per hour. Today, cargo can be loaded at a rate of 10,000 tons per hour and at a cost of just $0.16 per ton.

“90% of all purchased goods are now shipped inside a container and 90% of the world’s nations have at least one container port.”

Obviously the parallels between the internet and transport aren’t exact. The internet is pretty much instantaneous, but can only move information, while neither of those things is true of the global transportation system. However, in other ways, the similarities between the two global networks are growing – indeed, they are gradually merging into one another.

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For instance, containerisation didn’t just streamline shipping in a physical sense, it also did it electronically, establishing globally-shared systems for recording and tracking goods as they travel around the planet. The growing automation of both the physical and informational components means that within decades the global transport network will become a robotic extension of the internet, able to see and move physical objects as precisely as the internet currently does with bits of data. Our transport networks and the internet will become one.

Who is best-placed to dominate this emerging super-network?

I’d look to those companies whose operations and expertise already cut across the still distinct spheres of electronic communication and physical transport. One company in particular comes to mind: Amazon.

Writing for Bloomberg, Shira Ovide urges us to keep an eye on the most expansive of the tech giants:

“We shouldn’t lose sight of Amazon’s interest in transportation and logistics — moving physical goods by land, sea and air, organizing that transportation, storing merchandise or delivering it to the right place. PwC has said this is a roughly $5 trillion annual market, which fits with Amazon’s love of attacking massive pools of spending.”

Here are just some of the things that Amazon has been up to lately:

“Amazon and General Motors Co. are discussing an investment in an electric truck company. Amazon was among a group of recent investors in autonomous vehicle startup Aurora Innovation Inc. Last month, Amazon said it would test package deliveries by small robots in a Seattle-area neighborhood.”

For all of the prototyping, it will be years, perhaps decades, before driverless vehicles and delivery drones go mainstream – and there’s no guarantee that Amazon and its partners will win the technological race. So a more immediate test of the company’s ambitions concerns its existing capabilities.

Amazon is a vertically integrated company, with massive investments at almost every stage in the online retail value chain. It has a history of using those strengths as a base from which to expand horizontally to create parallel businesses. Ovide gives the example of Amazon Web Services (AWS):

“The company had already built data centers and servers to support its online store. Turning this into a service for others required different technology and a lot of work, but the initiative let any company rent Amazon-caliber computing horsepower. “

In previous UnPacked columns I’ve looked at another example – Amazon’s plans to expand from online to real world retail via its fully automated Amazon Go stores.

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Given this track record, will Amazon use it mastery of logistics and deliveries to expand into territory currently held by companies like FedEx and UPS?

“The huge volume of existing packages — about 2 billion a year in the U.S., Cowen & Co. estimates — helps Amazon learn the delivery routes that hit the most homes. It’s already paying for those routes. How much harder and more expensive would it be to layer on more deliveries to those routes from other companies?”

Perhaps the question is not how much more expensive would it be for Amazon to deliver other packages, but whether they can do it more cheaply than the established companies. If they can, and if Amazon were willing to act on such an advantage, then governments would be faced with a dilemma: to allow consumers to enjoy the immediate benefits or to prevent this over-mighty giant from becoming even more powerful.

The pattern thus far is of governments giving Amazon what it wants. Take US taxation policy, for instance. It was recently reported that the company made a profit of $11.2 billion, but paid nothing in federal income tax. Indeed, as the saga of Amazon’s new HQ demonstrates, it is often the corporates who benefit from the public purse, not the other way round. 

I don’t know if Amazon has plans to expand into public transport too, but someone’s being taken for a ride.