(Exclusive)—Rumors that Amazon is one of three bidders looking to establish a presence at Germany’s Frankfurt-Hahn Airport continue to mount. The location would offer easy access to warehouses across Europe, potentially generating cost savings and service improvements. It would also give Amazon better access to Germany, Europe’s largest economy.
     Such an investment would not be unexpected given Amazon’s recent efforts to bolster its international distribution network and reduce reliance on third parties, particularly the integrators that currently fulfill many of its global freight and last-mile services.
     Recently the company has been using a Boeing 737 freighter to link fulfillment centers in Poland, Germany, and the UK on a trial basis. A base at Hahn would enable the retail giant to reach any city in Europe as well as a few in the Middle East with the low-range B737—an option that could boost the attractiveness of the Amazon Prime program.
     Amazon China registered with the Federal Maritime Commission as a licensed Ocean Transport Intermediary earlier this year. This means it will be able to provide ocean freight services for third parties, a significant move given the company’s market clout and considering the ocean freight market’s estimated worth of around $350bn annually. Amazon could eventually offer fulfillment services from Chinese factories direct to customers in the U.S. and Europe, a strategy that could vastly reduce warehousing and other inventory costs.
     Perhaps Amazon’s boldest recent step into the transportation business was its deal in March with Air Transport Services Group (ATSG), which will operate an air freight network to serve Amazon’s U.S. customers.
     The commercial agreement includes the leasing of 20 Boeing 767 freighter aircraft to Amazon Fulfillment Services by ATSG’s Cargo Aircraft Management, the operation of the aircraft by ATSG’s airlines—ABX Air and Air Transport International—and gateway and logistics services provided by ATSG’s LGSTX Services.
     “Since last summer, we have been working closely with Amazon to demonstrate that a dedicated, fully customized air cargo network can be a strong supplement to existing transportation and distribution resources,” said Joe Hete, (right) President and CEO of ATSG.
     Amazon has not been commenting much on its efforts to secure more of its own supply chain capacity, but its shipping costs have been rising for the last five years. Reports suggest the retail giant has a strategy to expand its ‘Fulfillment By Amazon’ service, which offers supply chain services to merchants that sell products on its websites.
     Elsewhere, it is claimed Amazon is planning to launch a ‘Global Supply Chain by Amazon’ service, a step that could give sellers the option to reach global markets via Amazon at reduced cost—a major potential threat to many 3PLs and forwarders.
     Wolfgang Lehmacher, Head of Supply Chain and Transport Industries at the World Economic Forum, said Amazon’s move into global logistics and air freight were designed to increase supply chain control, but does not expect this to threaten incumbents just yet, although that could change rapidly.
     “It’s similar to the move of Chinese SF Express—one of the leading private express delivery providers with its own ecommerce and retail business,” he said. “Operating an air network is costly but at the same time an important operational backbone.
     “SF Express and Amazon gain more control over service levels and can secure capacity, in particular important during peak seasons. Cost aspects might play a role as well.
     “In China, according to Reuter’s, Amazon registered a subsidiary, Beijing Century Joyo Courier Service, and filed an application with the Shanghai Shipping Exchange to serve as a shipping broker for 12 trade routes, including Shanghai to Los Angeles and Shanghai to Hamburg, Germany.
     “All this indicates that Amazon is preparing to set up a large global end-to-end logistics operation.”
     Lehmacher also noted that Amazon had already invested heavily in the infrastructure needed to manage more complex supply chains. The acquisition of Kiva Systems—now Amazon Robotics—gave it 173 logistics facilities worldwide, 104 in the North America region with the rest spread across Europe and Asia. It has also been bolstering its network of Amazon Prime Now centers to fulfill one-hour and two-hour deliveries and has invested in last-mile experience by buying stakes in Yodel in the UK and Colis Privé in France.
     “In Germany, Amazon offers last-mile delivery to customers in Munich through its own delivery operation—with more than 200 delivery vehicles operated by a subcontractor,” he said.
     “After the UK, France, and Germany, Amazon might eye the other larger European markets such as Italy, Spain, and Poland.
     “Complementary is Amazon’s plan to introduce a locker network across Europe. Currently the company is operating lockers in the U.S. and the UK. Building the capabilities to service all customer touch points opens new opportunities to Amazon.”
     According to Lehmacher, Amazon’s strategy of increasing its end-to-end supply chain control is unlikely to have a major impact on freight rates in, for example, the air cargo market. However, Amazon might set new standards, in particular for last-mile delivery. This would put pressure on traditional players in the supply chain services industry.
     “Driving the downstream logistics value chain alone requires volumes,” he said. “Amazon is probably one of the few players with sufficient volumes to set up a viable end-to-end logistics supply chain.
     “On the back of the newly built supply chain operation Amazon could offer supply chain services to small and mid-sized companies—a traditionally higher margin but difficult-to-service segment.”
     “This would well complement the current offer to the small- and mid-sized customer segment, which is core to Amazon’s strategy.
     “Whether the developments will hurt or stimulate the traditional supply chain players remains to be seen.
     “Whether Amazon will enter into frontal competition with the well-established global logistics giants will depend on the value proposition Amazon is able to create.”
SkyKing

(Continued Next Issue.

The picture for freight demand remains mixed, but signs of an upturn in March and the sense that European and U.S. retailers are restocking are buoying industry confidence, at least on some lanes.
      Hackett Associate’s Global Trade Pulse noted that U.S. retail sales had been rising this year but not by much, while inventories remained high and an economic slowdown in Q2 was a possibility. By contrast, in Europe “the forward looking import and export trade pulses show that year-on-year they are on solid ground.”
      The latest Danske Bank Markets’ European Freight Forwarding Airfreight Index, which covered February sentiment in comparison to December 2015, remained slumped at 46, indicating lower volumes over the two-month period. However, expectations for April rose to 67, “suggesting a lot higher volume.”
      China’s export growth for March came in above market expectations at 11.5 percent year-on-year as external demand improved, particularly to EU and ASEAN markets, although HSBC warned “the recovery in exports is still very fragile considering the tepid growth outlook for China’s major export markets such as the EU and U.S.”
      In March, there was at least a recovery in pricing as Drewry’s East-West Airfreight Price Index—a weighted average of all-in airfreight “buy rates” paid by forwarders to airlines for standard deferred airport-to-airport airfreight services on 21 major East-West routes for cargoes above 1,000 kg—inched up 0.3 points to a reading of 79.5. This brought to an end four consecutive months of falling pricing during which period the index declined over 20 points from its October peak.
      Yet despite the slight improvement in rates last month, the Association of Asia Pacific Airlines noted that Asian carriers registered a 5.3 percent decline in March traffic even with the pick-up in Chinese exports following the Lunar New Year factory closures. Freight load factors remained under pressure, with the average international freight load factor registering a 5.2 percentage point decline to 62.9 percent after accounting for a 2.6 percent expansion in offered freight capacity.
      AAPA Director General Andrew Herdman commented that during the first quarter of the year “international air cargo demand remained soft, with volumes declining by 6.5 percent compared to the same period a year ago, reflecting the general slowdown in global trade.”
      Certainly, growth indicators in Asia offer a mixed picture. Shanghai Pudong Int’l Airport Cargo Terminal (PACTL), which now handles also most half of Pudong’s cargo, set new records for both the first quarter of the year and March. Although Q1 volumes were up just 1.5 percent year-on-year, the 6.8 percent increase in March suggested accelerating demand.
      Hong Kong International Airport recorded “mild growth” of 1.1 percent year-on-year in March, driven by 5 percent growth in exports and 3 percent growth in transshipment traffic. “Amongst the key trading regions, traffic to and from India and Australasia increased most significantly during the month,” said a HKIA statement. Yet despite the March improvement, volumes handled at the world’s leading international freight hub over the first quarter were down 3.5 percent year-on-year and, on a rolling 12-month basis, dropped by 1.4 percent to 4.34 million tons.

      Cathay Pacific Airways, meanwhile, reported that combined Cathay Pacific and Dragonair cargo and mail volumes in March dropped 0.4 percent compared to the same month last year, while the cargo and mail load factor fell by 5.4 percentage points to 63.0 percent on a 4.3 percent increase in capacity. Over the first quarter, tonnage was down 3.1 percent against a 2.6 percent increase in capacity.
      “Following a generally weak February, we saw some improvement in airfreight demand in March,” said Cathay Pacific General Manager Cargo Sales & Marketing Mark Sutch. “This was helped by the shipment of new consumer IT products out of the major manufacturing cities of Western China.
      “There was a pickup in traffic on key transpacific routes, and we mounted a number of additional flights into India in response to continued robust demand. Overall, however, the air cargo markets remain soft and yield remains under pressure in what is a highly competitive environment.”
      Evidence of some improvement in the air freight market in March was also tempered by a rate environment that globally still remains tepid. As Drewry noted, the gains of March still left its price index at its second-lowest level since it was first launched in May 2012.
      “Drewry expects airfreight pricing to temporarily strengthen from its current lows as European and North American retailers rebuild inventories for the new Spring season,” added the analyst.
Sky King