Amazon seeks leasing Boeing freighter planes to control delivery chain

23 Dec 2015 | Author: | No comments yet »

Amazon Seeks Cargo Planes for Air Freight Operation.

Atlanta/Seattle/Chicago: Amazon.com Inc. is considering leasing 20 Boeing Co. 767 freighter jets to help gain more control over its delivery methods and costs, according to a person familiar with the plans. Amazon.com (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. The tech-savvy retailer is interested in building up its cargo operations as consumers increasingly order online, especially during the holiday shopping season. Amazon is creating a logistical system that will include an overnight air freight line in the United States, the shipping news site CargoFacts and the Seattle Times reported.

Controlling its own planes and crew would help Amazon shave time and money getting goods to customers’ doorsteps, and help keep its warehouses stocked with inventory. The Seattle-based online retailer has said it is seeking as many as 25 aircraft from companies including Atlas Air Worldwide Holdings Inc. and Air Transport Services Group Inc., ATSG 1.67 % these people said. 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. The move could eventually pose a threat to FedEx and UPS, the world’s largest package delivery service, though Amazon would be starting with a small number of planes and it could take years to expand the operation to the point of having an impact on the two shipping leaders.

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. Seattle-based Amazon ships about 5.2 million packages a day during the peak holiday period, estimated Satish Jindel, a logistics consultant in Sewickley, Pennsylvania. 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. About 70% will go through the US Postal Service, 15% through UPS, 10% through FedEx and the remainder through smaller delivery companies, Jindel said.

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.

In some cases, the company is using its own trucks, drivers and a fleet of couriers for so-called last mile delivery, the final and most-expensive leg of an order’s trip. The one-hour delivery service Prime Now grew from a test in a few Manhattan zip codes to a service in 16 cities around the country in less than a year with restaurant deliveries also being added. The online retailer sets the standard for fast, inexpensive delivery in e-commerce and chief executive officer Jeff Bezos has spent billions of dollars creating a network of warehouses and shipping hubs in 69 cities. 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.

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. During an earnings conference call in November, ATSG CEO Joe Hete discussed the trial but did not identify the customer. “The trial ACMI express network that we launched in September for a U.S. customer has been performing well. UPS spokesman Glenn Zaccara declined to comment on Amazon’s plans for an air freight operation. “Amazon is an important customer and we are working hard to help all our customers meet their objectives for growth and customer service,” Zaccara said.

Air delivery is a service few businesses are large enough to handle on their own, but Amazon’s growth and emphasis on logistics makes it an important area for the company to control its costs, said Jarrett Streebin, CEO of EasyPost, a San Francisco company that helps retailers coordinate shipping labels and tracking with delivery companies.

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