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Is Amazon Ocean Shipping Worth Millions In Free Cash Flow?

With annual ocean shipping hauling in $350 billion a year in revenue, there is good reason why Amazon.com ( AMZN ) is interested in the business. E-commerce leader Amazon is planning to launch a global shipping and logistics operation that will compete directly with UPS ( UPS ) and FedEx ( FDX ), Bloomberg reported Tuesday, saying it had reviewed documents for the plan, called “Dragon Boat.” Bloomberg wrote that the new operations would expand Fulfillment By Amazon (FBA), which provides storage, packing and shipment of goods from third-party sellers. Such sellers make up a significant portion of its e-tail growth. An ocean shipping business alone could generate substantial returns — more than $100 million in free cash flow, Flexport CEO Ryan Petersen told IBD. That’s assuming the goods would be ingested into FBA’s supply chain — which aims to eventually squeeze out the middlemen, paperwork and headaches from logistics and delivery. The cost savings Amazon expects to see by owning the supply chain end to end, and the charges it could levy third-party sellers (or other merchants) would generate that free cash flow, generally defined as cash generated by operations minus capital expenditures. “It’s attractive for Chinese merchants to get into Fulfillment By Amazon centers right now,” Petersen told IBD. “Even with my conservative model, which would not make Amazon a large freight forwarder (though) less than a fraction of 1% of the overall ocean shipping business, it could easily earn more than $100 million in free cash flow.” Peterson says Amazon’s 90 or so fulfillment centers in the U.S. would easily be able to handle 450 containers every week. (The number of fulfillment centers is from Flexport’s data, Amazon does not disclose that). Based on current shipping costs, that would easily net Amazon $100 million in free cash flow, Petersen says. His estimate also assumes ocean shipping prices dig themselves out of the current slump. Rates are about half of what Petersen expects in the long run. San Francisco-based Flexport provides software and expertise that simplifies the international shipping process. Alibaba, Amazon Competition Grows The Bloomberg story said Amazon’s Dragon Boat program also will pit against its Chinese counterpart Alibaba ( BABA ) to gain share of cross-border e-commerce, which is expected to grow to $2 trillion by 2020. The world’s largest retailer , Wal-Mart ( WMT ), already does something similar when it takes possession of freight in China. But Wal-Mart doesn’t re-sell the freight shipping service, and Amazon might, according to analysts. Wal-Mart did not return requests for comment. Southington, Conn.-based Ocean Audit founder Steve Ferreira agrees with Petersen that ocean shipping could be lucrative for Amazon, and he says the company could well disrupt the shipping market. Ocean Audit specializes in detecting errors in ocean freight billing errors. The fact that Amazon last August filed initial paperwork for what might be the Chinese-side of Amazon’s ocean shipping division, Ferreira told IBD, suggests to him that the company is far along in developing its shipping operations. Amazon Would Be ‘Game Changer’ Ferreira calls Amazon’s potential entry into the ocean freight business a “stunning game changer.” He says the Seattle-based e-commerce firm could “theoretically enter the market and start moving goods at below the current market cost.” Amazon might well be gearing up to do just that. Ferreira says he believes Cong Pan , a Beijing-based Amazon attorney, is getting all the “paperwork” for Amazon Ocean set up. He says Beijing-based Amazon Vice President Brian Xue would run the ocean freight operation. Amazon did not return requests for comment. Amazon CEO Jeff Bezos has often repeated his mantra of putting customers before profits. Additional free cash flow could be used to lower the cost of Amazon’s goods or begin to offer essentially free parcel shipping for shoppers willing to wait, says Peterson. “If I had to read the mind of Jeff Bezos, he might not go after the free cash flow,” Petersen said. Baird analyst Colin Sebastian agrees with Petersen’s assessment. “I would caution that Amazon likes to use projects and other things to subsidize its core business,” Sebastian told IBD. “Amazon might not see any free cash flow because it would be absorbed into other businesses.” Sebastian says  he expects Amazon will move in stages into the transportation and logistics sector. “Amazon takes an incremental approach to new businesses, and they’re not going to create a competitor to DHL right away,” he said. But Sebastian says he sess enormous potential. “There’s a lot of potential disruption,” he said, “if Amazon plays its cards right.”

Verizon Talks Up 5G Wireless, AT&T Less Vocal

Marketing for 5G is revving up fast — well ahead of applicable wireless technology, which is moving from lab demos to field trials, with wide-scale commercialization years off. And 5G marketing is moving a lot faster at Verizon Communications ( VZ ) than at AT&T ( T ). Verizon in September declared its intention to be a global leader, and the first in the U.S., in rolling out a 5G wireless network. In September, Verizon said that its 5G wireless technology would be 50 times faster than its current 4G network, which is engineered to provide average data speeds in a range of 8 to 12 megabits per second (Mbps) during peak usage in urban markets. In January, Verizon CEO Lowell McAdam raised the bar. He touted 5G networks’ one-gigabit-per-second speed. That’s roughly 100 times faster than Verizon’s average 4G speed of 10 Mbps. It’s not clear, analysts say, whether McAdam was referring to peak or average 5G speeds. On Verizon’s Q4 earnings call, CFO Fran Shammo brought up its commitment to 5G numerous times. But on AT&T’s 4Q earnings call Jan. 26, not a word about 5G was heard. Said Shammo: “We are currently at the forefront globally talking about standards. We will be the first company to roll 5G out in the U.S., and we are currently preparing for (2016) field trials.” AT&T management’s latest public comment on 5G came at a Citigroup conference in early January. John Donovan, AT&T’s senior executive vice president of technology and operations, said that 4G networks still seem fast enough for most customers. “Speed has not been a big, successful marketing program recently,” he said, perhaps alluding to a wireless industry price war spurred by T-Mobile US ( TMUS ) and Sprint ( S ). AT&T has filed with regulators to test 5G services in Austin, Texas. Donovan indicated that AT&T may prefer waiting until the cost of 5G network equipment goes down as global manufacturing ramps up. First, standards need to be set, perhaps around 2018-19, analysts say. “We haven’t been overly public because what we want to do is — we want to keep the optionality of being early, mid- or on the back end (of deployment), depending on whether we’re going to optimize to (network) speed, capacity or cost,” Donovan said. While speed matters, analysts say that 5G will also be defined by new capabilities, such as streaming data to and from self-driving cars or to high-flying civilian drones. Verizon has touted plans to roll out 5G commercially in 2017, though its reach could be very limited. By being an early player in 5G, Verizon aims to influence industry standards. Many wireless firms — network gear makers such as Nokia ( NOK ) and Ericsson ( ERIC ), and chipmakers like Qualcomm ( QCOM ), Intel ( INTC ) and Samsung — have the same goal. Europe, South Korea, Japan and China all have 5G initiatives under way. S. Korea plans large-scale 5G testing around the 2018 Winter Olympics. In Japan, NTT DoCoMo ( DCM ) is gearing up for 2020. 5G will be a hot topic at the Mobile World Congress in Barcelona on Feb. 22 to 25. The arrival of 5G networks is important to gear makers because global capital spending on wireless networks is expected to be flat or down until deployment picks up. “Small-cell” radio antennas, which increase network capacity in urban areas, and software-defined network (SDN) technology are expected to be at the core of 5G deployments. Verizon has been pushing the Federal Communications Commission to allocate airwaves in very high radio frequency bands, above 24 GHz and around 37 GHz, to help jump-start 5G deployment. The U.S. regulatory process to dole out 5G spectrum could take a few years. The next World Radiocommunication Conference, where 5G spectrum allocation is expected to be discussed, isn’t until 2019. While many countries are looking at high frequencies, one view is that 5G services could surface earlier in bands below 6GHz. In that case, networks could continue using interfaces designed for LTE gear. The industry in late 2015 approved an interim “4.5” standard that carries the marketing term “LTE-Advanced Pro.” 5G deployment could take two tracks, says Tristan Gerra, an analyst at R.W. Baird, in a report. He says that a version of LTE could be marked as 5G early on, until higher-bandwidth “real” 5G is ready commercially. What’s clear is that  4G networks aren’t going away anytime soon. Research firm Ovum forecasts that by 2020, 3.62 million people will subscribe to services delivered via 4G LTE networks, up from 1.05 billion in 2015.  Ericsson predicts 150 million 5G subscriptions worldwide by 2021. Verizon says that it does not expect 5G networks to replace the existing 4G ones. Consumers will still be viewing Netflix ( NFLX ) on Apple ( AAPL ) iPhones and other devices for a long time. Verizon plans to overlay 5G capabilities in markets, most likely urban areas, to provide ubiquitous street coverage for self-driving cars and other emerging uses. Verizon’s partners include Alcatel-Lucent ( ALU ), Ericsson, Cisco Systems ( CSCO ), Nokia, Qualcomm and Samsung. Verizon has been working with carriers in Japan and South Korea as well. “(Verizon believes that) one of the primary reasons why Japanese carriers are at the forefront of 5G is because cities like Tokyo and Seoul benefit from high levels of densification,” said Amir Rozwadowski, a Barclays analyst in a report. While speed matters, wireless firms are also providing service for applications that require always-on, low-data-rate connections. The apps involve data-gathering industrial sensors, home appliances and other devices oft referred to as parts of the Internet of Things. Image provided by Shutterstock .

Amazon.com, T-Mobile Win Tech Ad Contest At Super Bowl 50

Tech companies advertising during Super Bowl 50 on CBS ( CBS ) on Sunday didn’t exactly set the Internet on fire with their commercials. None mustered the buzz of Heinz’s wiener dogs dressed like hot dogs or Mountain Dew’s creepy PuppyMonkeyBaby. Still, a number of tech company commercials were well received by the general public and critics alike. USA Today’s Ad Meter ranked Amazon.com ’s ( AMZN ) star-studded commercial as the top tech company commercial during the big game. Amazon’s first-ever Super Bowl ad featured actors Alec Baldwin and Jason Schwartzman, football great Dan Marino and hip-hop artist Missy Elliott. The e-commerce giant used the comic ad to promote its Echo smart-speaker with Alexa voice controls. The Amazon ad also was listed among the best commercials in post-game articles by the Verge, the Chicago Tribune, BGR and Sports Illustrated’s Extra Mustard blog. Also scoring well in the USA Today audience ranking were T-Mobile ( TMUS ) ads featuring rapper Drake and TV and radio personality Steve Harvey. In one commercial, Drake pokes fun at his hit song “Hotline Bling.” In the other, Harvey makes light of his recent Miss Universe pageant gaffe. T-Mobile had three of the top 10 most shared ads of Super Bowl 50, according to video ad tech company Unruly . (The third was an extended version of the Drake commercial.) Audience measurement company iSpot.tv said the T-Mobile ads earned the highest “digital share of voice” of any tech company ads during Super Bowl 50. The iSpot.tv measurement is based on online views and social media actions. The T-Mobile ads were listed among the big game’s best commercials by the Washington Post, Vox, ESPN, Bleacher Report, TVLine.com, BGR and Sports Illustrated. The top tech ad in terms of social media mentions was LG’s OLED TV commercial starring Liam Neeson, according to Infegy . Coming in second among tech companies was PayPal ’s ( PYPL ) first Super Bowl commercial. However, some critics ranked the LG commercial as among the worst of the night. Chicago Tribune writer Steve Johnson said the warmed-over “Tron” ripoff didn’t make any sense. “Here’s a case of wasting a perfectly good celebrity,” he said. “The TV maker has Liam Neeson speaking ominously to a young guy about ‘the future’ and ‘they want to stop it.’ There is a motorcycle chase, suggesting high stakes. But who, really, wants to ‘stop’ a better kind of TV?” Other tech companies that advertised during the Super Bowl included Apartments.com, Fitbit ( FIT ), Intuit ( INTU ), Squarespace and Wix.com ( WIX ). GoPro ( GPRO ) ran its latest commercial in regional markets, such as Chicago, Los Angeles and New York, during the game, according to Adweek . RELATED: Tech Firms Draft Neeson, Schwarzenegger For Super Bowl 50 Ads .