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Dan Gilmore


Supply Chain Digest

Gilmore's Supply Chain Jab

Gilmore is Editor and President of Supply Chain Digest, which he founded in 2003.


March 17, 2016

Supply Chain Comment: Will Amazon Really Build Parcel Shipping Network?

FedEx Exec Says Cost to High, Timeline too Long, but Recent Moves Give Amazon More Options


Big news over the last couple of weeks, as it was finally confirmed that has leased 20 Boeing 767 freighter aircraft from Air Transport Services (ATS). Several months ago, reports first surfaced that Amazon was in such talks, but the deal was apparently just completed, and confirmed by an ATS executive.

ATS operates out of the Wilmington, OH Air Park that was previously DHL's US parcel hub before it shut down its US domestic service, and before that the hub for Airborne Express before it was acquired by DHL.

Gilmore Says...

I will also note that the DHL abandonment of the Wilmington, OH air hub negates much of the investment Amazon would otherwise have had to have made to get into the ai cargo business.

What do you say?

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ATS had been flying a few air cargo flights per day for some months for a mystery customer most assumed was Amazon, but that was confirm last week by a ATS.

Details on Amazon's exact plans are of course few, though it seems clear it wants to end its reliance in part on UPS and FedEx. Amazon said on the news that it expects the agreement to support one and two-day deliveries.


Is Amazon really serious about this? Current partner and potential rival FedEx thinks not.


In comments this week after strong quarterly results, FedEx executive Mike Glenn stated that "While recent stories and reports of a new entity [Amazon] competing with the three major carriers in the United States [UPS, FedEx and the USPS] grabs headlines, the reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx."


In other words, it is unlikely to happen, Glenn thinks, and even if Amazon does have such ambitions, the journey would be a very long and expensive one, so no real worries for FedEx in the short term (meaning this shouldn't impact our stock price).


Glenn added that "Amazon is a valuable customer that we worked with for many years and we expect to work with them for many years to come. We’ve been in constant dialogue with them to understand their transportation needs as they've experienced significant growth. We’ve been aware of Amazon’s need for supplemental capacity related to inventory management, which is driving some of the investments they are making in transportation."


Somewhat surprisingly, Glenn also noted that no single customer - incuding Amazon - accounts for more than about 3% of its volumes, and only one, the USPS in its partnership arrangement, accounts for more than 3% of revenue.


That is surprising to me. Amazon clearly represents more than 3% of US ecommerce sales - I will have that exact number soon - but obviously FedEx has a lot of other business besides ecomemrce fulfillment. I suspect, though, that a higher share than 3% of UPS' business comes from Amazon.


So is Amazon leasing air cargo planes just for supplemental capacity , as Glenn says? I think it's more than that.


First, the effort will enable Amazon to understand the operational and financial aspects of being its own air cargo carrier much better.


Second, gaining that expertise will in effect create a "real option" to expand the scale of its air operation in the future, perhpaps only as leverage in negotiating with the three main carriers now, but perhpas to truly expanding its air cargo scope and scale down the road.


Third, I am not a parcel network expert by any means, but experience tells me there is almost always "cream" that can be skimmed off the top. Could not Amazon expand its currently planned service with 20 planes with additIonal capacity for its highest volume moves?


I will also note that the DHL abandonment of the Wilmington, OH air hub negates much of the investment Amazon would otherwise have had to have made to get into the ai cargo business. That changes the dynamic here - and is quite a stroke of luck for Amazon. It is a wonderful facility. The USPS probably should have bought it earlier.


So who knows. Amazon air in partnership with USPS and regional pacel carriers to cut out FedEx and UPS?


I am pondering all this and talking to some industry experts - more soon.


Do you think Amazon is serious about operating its own air cargo service? Let me know at the comment section below.

Your Comments/Feedback




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