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   Vol. 18 No. 43
Monday June 17, 2019

The 800 lb Amazon Of Air Cargo
800 lb Amazon Of Air Cargo

(Forget about the fabled gorilla in the room, here SkyKing confronts the reality of an 800-pound Amazon).

Recently Bill Boesch, the distinguished and eloquent former President of American Airlines Cargo, explained in a FlyingTypers column how Amazon has the capability to transform the air cargo landscape.

Follow The Fleet

     For example, the e-tailer is already “its own air cargo customer,” thanks to its ACMI contracts with ATSG and Atlas for Boeing aircraft, which will give it a fleet of more than 50 freighters by next year. This leaves integrators such as UPS and FedEx in the position of both providing services to Amazon – one recent report claimed Amazon accounts for 6.5% of total UPS revenue and 4.7% of FedEx revenue - as well as competing with it for customers and their cargoes.
     What’s more, Amazon can easily upgrade its air freight operations, either by buying out one of its air charter partners or by acquiring or partnering with an integrator. “Either move by Amazon would change the face of America’s air cargo industry and cause withdrawal or consolidation of the present U.S. cargo charter carriers, and maybe even one of the integrators,” argued Boesch.
     He is not alone in his views. Multiple commentators have contended that taking on the world’s leading integrators and 3PLs is a logical next step for Jeff Bezos’s brainchild.
     Amazon itself claims its only aim is to move its goods more quickly to customers and avoid delays and/or paying premiums during peak season. However, when it filed its annual report it listed "transportation and logistics services", previously not identified as a rival vertical, among its list of competitors.

Shake Rattle & Roll

     “Amazon is clearly shaking things up in North America and they have built an unbelievable network and are actually threatening FedEx’s and UPS’s core business,” said Neel Jones Shah, SVP and Global Head of Air Freight at Flexport.
     “I don’t know if that was their intent from Day 1, but once they have built this amazing network, they certainly don’t have to use it only for Amazon, they can use it for third parties.”

The Price Squeeze

     Already Amazon’s growing presence in the market is putting downward pressure on prices.
     “By being both vendor and carrier, and through unprecedented data mining into customer preferences and habits, Amazon can control its market and flatten out seasonality peaks and valleys by adjusting prices and offering free express delivery, forcing many FedEx and UPS customers to demand lower rates from the integrators so they can be competitive,” added Boesch.

Amazon The Report

     One recent report by Armstrong & Armstrong - Amazon Logistics – Market Estimates, Benchmarking and Predictions - illustrated just how significant Amazon’s logistics footprint already is and why the demands of e-commerce are opening up opportunities for it to emerge as an even bigger player in the logistics field.

Amazon warehouse

Sorting It All Out

     In the U.S., Amazon’s 38 sorting centers comprise 11.3m square feet while its 124 logistics facilities comprise 124.7 million square feet, with another 41.1 million planned or in progress. Amazon also has an estimated fleet of 4,000-7,500 trailers used for transport between warehouses and fulfillment centers and is investing $1.5 billion in its Cincinnati/Northern Kentucky Hub.

Head To Head

     By comparison, UPS owns and leases more than 1,000 package operating facilities and A&A estimated its 33 principal facilities comprised about 17.9 million square feet.
     FedEx Ground, meanwhile, has 601 total facilities, 37 of which are hubs. 373 of these facilities are co-located with FedEx Home Delivery (B2C) operations, with an additional 38 FedEx Home Delivery locations. “FedEx Ground hubs account for 17 million square feet. We estimate FedEx Ground’s facilities total 46.8 million square feet,” said the report.

Down To Brass Tacks

     The report noted that Amazon’s third-party ‘marketplace’ sales already exceed Amazon’s own and its logistics business is becoming critical to brand enhancement. “For Amazon, logistics is inseparable from brand,” said A&A, adding that its investments in logistics improve the customer experience, reduce prices and feed back into its branding, therefore offering multiple reasons why executives might see the sense of continued expansion.

The Road Ahead

     Based on Amazon’s several-year $1.5 billion investment commitment at the Cincinnati/Northern Kentucky International Airport, A&A expects Amazon to ramp up this facility and continue to work with lessors/operators like Atlas Air to grow its fleet size for full utilization of the hub.
     “As the hub won’t be operational until 2020 and complete until 2025–2027, we would expect any additional build out of regional hubs to come at the tail end or after the CVG hub completion,” added the report.
     “The strategy for Amazon Air will depend on Amazon’s international expansion. Amazon has fulfillment centers across North America, Europe, Asia, and Australia. Third-party sellers can ship products to either domestic or international fulfillment centers, and Amazon will provide value-added warehousing, transportation, and handle customs. “International sales are growing rapidly, with 80% year-over-year growth in 2016.
     “Global sellers now represent a quarter of third-party seller sales. We know international is increasing in importance for Amazon, and the company has interest in developing e-commerce markets, such as India.”
     A&A said, in future, Amazon could establish more regional air hubs after completion of CVG, but a more aggressive scenario would see a strategic partnership to attack U.S. rivals.

DHL/Amazon Hook Up?

     “Amazon could embark on a strategic partnership to jointly chip away at the UPS/FedEx/USPS oligopoly,” said the report, which suggested DHL would be a suitable partner in such an endeavor, given that the German integrator has a hub at CVG on 181 acres, with sorting capacity of 108,000 packages per hour and 80 flights per day. DHL also already partners with Amazon at CVG since Amazon’s hub won’t be operational until 2020 and complete until 2027.

The Amazon Space Ship

     Cathy Morrow Roberson, founder and head analyst at Logistics Trends & Insights, told FlyingTypers that logistics has rapidly become a competency of Amazon. “I still believe they will take care of their customers first and if there is space on a ship, plane, truck or van they will sell it out just like any forwarder or 3PL would do,” she said.
     What is certain is that Amazon’s next logistics investments will have huge repercussions across the industry.

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