Forget drones, Amazon wants to use own cargo planes to improve shipping operation

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.The e-commerce giant is negotiating to lease 20 Boeing BA -4.11% 767 jets to transport products and get them to customer homes more quickly, the Seattle Times reported, citing people in the cargo industry who have knowledge of 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. 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 was the latest in a series of hints that Amazon could be gearing up to create an in-house logistics department that would allow it to take full control of its fulfillment process. 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 would be able to sidestep carriers like UPS and FedEx to avoid the shipment delays that it has previously dealt with (most notably during the 2013 holiday season, when many customers didn’t receive orders in time for Christmas). 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. Amazon built AWS out of the infrastructure it had created to support its own operations, and now runs a business expected to pull in $8 billion in revenue this year. 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.

In the same vein, it could build a logistics network to clear up its own delivery bottlenecks, and then, eventually, offer services to other companies. “Similar to the gradual roll-out of AWS, we would expect Amazon to introduce competitive transportation and logistics services to external clients on an incremental basis, with a long-term focus,” Sebastian writes. “Amazon may be the only company with the fulfillment/distribution sophistication and scale to compete effectively with incumbent service providers (UPS, FedEx).” “Given the price-sensitive nature of parcel delivery, we note that Amazon’s investor base, which has been historically tolerant of the company’s investment in high-volume, low-margin businesses, may offer a significant advantage over competitors due to the ‘profit mandates’ of traditional Transportation & Logistics shareholders,” Sebastian writes. When it revealed second-quarter earnings on Dec. 16, FedEx confirmed that online retail orders have pushed holiday shipping volume beyond projections. 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. Yes, there are a lot of “ifs” here—Amazon hasn’t commented onthe Seattle Times report or reports from Vice or Re/code that it’s hurtling toward big logistics ambitions—but the potential effect would be enormous. 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.

It could take months for Amazon to establish such a fleet, since it typically requires the cargo companies to convert older passenger planes, such as Boeing Co. 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. For example, they could support Belgium from France and Denmark from a German fulfillment center with these jets.” Time has become one of the most important differentiating factors in e-commerce. As some major brick-and-mortar retailers increase their online presence and offer quick in-store pick-up, the Internet-based Amazon needs to keep pace.

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.

Although Air Transport would not confirm the name of its client, it did say that an unnamed company had leased two Boeing 767s from airline ABX and another two from Air Transport. In October, a report from DCVelocity, a trade publication for the logistics industry, said that Amazon had started to hire “high-level” executives to operate the company’s logistics transportation network.

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