Amazon Could Be Forced to Sell Logistics Business Under Bill

(Bloomberg) -- Amazon.com Inc. could be forced to sell its valuable logistics services division -- the network of warehouses and delivery hubs around the country that power quick delivery of online orders -- under antitrust legislation proposed by a congresswoman from Amazon’s hometown of Seattle, according to a spokesman for the lawmaker.

Washington Democrat Pramila Jayapal has proposed a bill with bipartisan support that would prevent Amazon from luring sellers to use its logistics services in exchange for preferential treatment on its busy web store. Nearly 85% of Amazon’s biggest sellers use its Fulfillment by Amazon service, paying the online retailer fees for warehouse storage, packing and shipping of their products, according to a report last October from Democratic staff on the House Judiciary Committee’s antitrust panel.

Jayapal’s bill was introduced on June 11 and will be considered on Wednesday by the Judiciary Committee along with five other bipartisan antitrust reform bills, with votes to advance the measures to the House floor expected this week. There’s no Senate companion for the legislation, and support in that chamber is unclear, clouding its prospects.

The legislation is part of a larger push in Washington to curb what critics describe as anti-competitive practices in the tech industry. The Justice Department and several state attorneys general have sued Google, while the Federal Trade Commission is suing Facebook and is investigating Amazon. President Joe Biden named Lina Khan, who rose to prominence criticizing Amazon’s business practices, to chair the FTC.

While the Jayapal bill may never become law, it’s the clearest indication yet how lawmakers are gunning to rein in the market power of Amazon, where U.S. shoppers will spend $386 billion this year and which captures 41 cents of every dollar spent online, according to EMarketer Inc. Amazon’s promise of fast delivery helped it become the dominant online retailer in the U.S.

“The bipartisan Ending Platform Monopolies Act requires dominant platforms including Amazon to divest lines of business -- such as Fulfillment by Amazon -- where the platform’s gatekeeper power allows it to favor its own services,” said Jayapal spokesman Chris Evans. “Numerous third-party sellers reported feeling that they had no choice but to pay for Fulfillment by Amazon in order to sell their products,” said Evans, referring to the House Democrats’ investigation and report.

Amazon’s logistics business will be worth as much as $230 billion in 2025, more than Coca Cola Co., according to a research note last year from Bank of America Corp.

“We are still analyzing the bills, but from what we can tell so far, we believe they would have significant negative effects on the hundreds of thousands of American small- and medium-sized businesses that sell in our store, and tens of millions of consumers who buy products from Amazon,” Brian Huseman, Amazon’s vice president of public policy, said in a statement Tuesday. He went on to say that without access to Amazon customers, sellers would find it harder to draw attention to their products, which in turn could reduce selection and push up prices for consumers. Huseman urged lawmakers to “thoroughly vet the language in the bills for unintended negative consequences.”

Jayapal’s legislation shows how some lawmakers want to blunt Amazon’s rapid growth in the logistics industry, which poses a threat to United Parcel Service Inc. and FedEx Corp. Amazon has been reducing its reliance on its longtime partners, including the U.S. Postal Service, in favor of delivering products on its own.

More than half of the products sold on Amazon come from independent merchants who pay Amazon a commission on each sale. Merchants can handle packing and shipping items on their own, but many say they use Amazon’s service and pay Amazon additional fees because that gives their products better placement on the site and boosts their sales, according to the Democrats’ report. Amazon’s third-party seller service revenue, which includes commissions and logistics, exceeded $80 billion in 2020, nearly double the $45 billion in sales from its cloud-computing division Amazon Web Services.

Amazon uses algorithms to determine which products appear most prominently on the site in response to keyword search terms entered by shoppers. Much of the most visible space goes to paid advertisers. Mixed in are products that Amazon believes are preferred by consumers. Exactly how the algorithm works is a well-kept secret. It includes factors like price, the reputation of the merchant and whether Amazon can deliver it to the customer quickly. Merchants have said they use Amazon’s logistics services as a way to get better visibility on the cluttered site.

In a 2019 letter to federal lawmakers, an online merchant accused Amazon of forcing him and other sellers to use the company’s expensive logistics services, which in turn forces them to raise prices for consumers. The letter accused Amazon of “tying” its marketplace and logistics services together, a potential antitrust violation in which a company uses dominance in one market to give itself an advantage in another market where it’s less established.

Sellers said in interviews that delivering products on their own was potentially less expensive than Amazon’s services. But most said they used Fulfillment by Amazon anyway to avoid being punished for late deliveries and other performance issues and because doing so meant their products had more visibility on the site. In the letter, the merchant said Amazon had raised its fees by 20% over the preceding four years until they were 35% more than competing services. Amazon disputed the allegations.

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