Amazon making moves to launch air freight service, says report

23 Dec 2015 | Author: | No comments yet »

Amazon in talks to lease Boeing jets to launch its own air-cargo business. (AMZN) appears to be building its own air-delivery network, an indication that the e-commerce titan seeks to bypass United Parcel Service (UPS) and others that have been bogged down by an onslaught of packages.SAN FRANCISCO — Amazon’s rumored plans to launch its own air freight line could be moving forward with reports the online retailer is in talks to lease 20 Boeing 767 freighter jets. The report adds more fuel to speculation that Amazon, which already runs a same-day shipping service in select cities, will take a bigger role in the delivery of its packages by handling air freight. Amazon’s already been running five Boeing 767’s a week out of Wilmington, Ohio for several months, said John Haber, CEO of Spend Management Experts, a supply chain management consulting firm. “They’re tired of having their hands tied and relying on other carriers to be moving the incredible amount of volume they have.

A senior aircraft-leasing company executive familiar with Amazon’s plans said the company has approached several cargo-aircraft lessors to line up the planes. UPS and FedEx (FDX) have urged retailers and other customers to cut down on the size of packaging and plan ahead for busy periods, especially the holiday season.

Delivery times are slower this year compared to last year’s peak season due in part to a higher-than-expected volume of packages, based on a survey from Kurt Salmon. When it revealed second-quarter earnings on Dec. 16, FedEx confirmed that online retail orders have pushed holiday shipping volume beyond projections. Bringing some of that shipping in-house could save the company money as it works to build out its rapid delivery system for its lucrative Prime members. “We don’t think third-party carriers are providing enough capacity for Amazon.

CEO Joe Hete said in a November conference call that ATSG is using five 767s flown by the company’s subsidiaries Air Transport International and ABX Air for a customer he declined to name. Airplane-tracker shows the two carriersare flying about five times a day from Wilmington to Dallas; Tampa, Fla., Ontario, Calif.; and Allentown, Pa. Smith also acknowledged that it is hard for some e-commerce companies to manage shipping volume and adopt new strategies because they are growing very fast. Amazon originally set up its own storage system just to save money, then they said, “We’ve got so much buying power, why don’t we do it for other people?” said Haber. One of the aircraft firms named by the Seattle Times, Air Transport Services Group (ATSG), was previously said to be operating a trial program for Amazon in Wilmington, Ohio.

However that’s not a problem, and in fact would allow Amazon to work with third parties that can help it quickly build out capacity. “They can get creative with this. Because Amazon doesn’t have an Air Operator’s Certificate, which it needs to fly airplanes commercially, it would have to turn to cargo-jet lessors to launch the business. “As an interim step, (Amazon) will probably have to sign up with somebody who already has 767s and can start the operation,” the leasing executive said. “Then they’ll have to move, probably from 2017 onward, into acquiring airplanes themselves.” Amazon is working to avoid the debacle of two years ago, when the holiday crush overwhelmed UPS, causing many Amazon customers to get gifts after Christmas had passed. Those delays led Amazon to refund shipping charges and offer customers a $20 gift card. “This is more of a warning shot across the bow of the express industry,” said Ned Laird, former managing director of Seattle-based consultancy Air Cargo Management Group, who is now retired. “(Amazon is saying) ‘We’re not getting what we need.

We’ll go elsewhere for now.’ ” In 2014, it debuted its first sortation center in Kent, where it sorts parcels sent from its own warehouses by ZIP code and sends them to individual U.S. post offices for delivery in that day’s mail. Delivery is often done by contract workers who ferry parcels from urban warehouses to customers’ homes. “We have a very good and longstanding commercial relationship with many carriers, but we know that there is supplemental capacity needed in the market — so we are supplementing our existing carriers with our own trailer equipment,” Mike Roth, Amazon’s vice president of North America operations, told the Chicago Tribune at the time. Sebastian believes Amazon will eventually ship air-cargo packages for other companies as well, putting it in direct competition with UPS, FedEx and others.

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