The transportation industry's worst-kept secret, Amazon.com Inc.'s decision to lease 20 Boeing 767 freighters from all-cargo operator Air Transport Services Group Inc. (ATSG) to launch its own domestic air delivery network, was formally disclosed yesterday. The question for the moment is which hide the Seattle-based e-commerce beast will tan by this announcement.
According to Satish Jindel, founder and president of SJ Consulting Group Inc., the hide could belong to another beast: UPS Inc. According to SJ estimates, two-day air deliveries from Amazon's burgeoning DC network to end customers, the type of service it will likely be providing through the ATSG deal, accounted for two-thirds of the $2.1 billion in revenue the Atlanta-based transport and logistics giant generated from Amazon last year. Part of that business will be hived off, Jindel said. The only question is how much.
Amazon will leverage the ATSG network to execute two-day deliveries of goods to locations that cannot be reached by ground from one of its 72 U.S. fulfillment and redistribution centers, Jindel said. In many cases, the air network will be used to fulfill orders for goods that aren't in the fulfillment centers nearest the destination, he added.
Jindel said Amazon would likely use the planes to carry consolidations of thousands of packages that are picked up along multiple points. For example, a plane leaves Seattle with shipments bound for Atlanta, but makes several stops along the way to aggregate what may be equal to two to five thousand pounds of individual parcels, he said. The consolidation will be broken down at or near Atlanta, and tendered to the U.S. Postal Service—which already moves 62 percent of Amazon's direct ground parcels—for the final delivery, Jindel said.
Glenn Zaccara, a UPS spokesman, did not address the issues raised by Jindel. Zaccara said in a statement that UPS has a good relationship with Amazon and that it continues to work with the e-tailer to support its global logistics requirements. Amazon, which rarely, if ever, publicly discloses its operating plans, left it to Wilmington, Ohio-based ATSG to announce the deal on its web site. Nothing appeared on Amazon's corporate site.
Last summer, Amazon began leasing five of the aircraft in what amounted to a pilot program. An additional 10 planes are expected to come on line by year's end, with at least five more in 2017. Rob Martinez, CEO of consultancy Shipware LLC, said the combined airlift could support up to 500,000 packages a day, an estimate that Martinez said is based on certain assumptions about shipment size. That figure, which would be slightly more than 10 percent of Amazon's daily count of 4 million shipments, is a "significant start" toward the company building out its own air delivery network, he said.
Amazon's decision to control its network is believed to be based on reining in third-party transportation spending, which has escalated in recent years as ordering demand from its site has exploded, and on providing a more direct and personalized shipping experience. Its goal, according to some, is to go beyond supplementing the capacity provided by its transport partners to function as an asset-based, third-party logistics provider (3PL) to manufacturers, retailers, and other businesses. Colin Sebastian, who follows Amazon for investment firm Robert W. Baird and Co. Inc., has estimated Amazon has a $400 billion market opportunity for delivery, freight forwarding, and contract logistics services.
John Haber, CEO of consultancy Spend Management Experts, said that Amazon will now look to Europe and sign a similar contract with a provider on the continent. Haber said it had been rumored around the Christmas holidays that Amazon had leased a Boeing 737 freighter operated by charter carrier ASL Airlines France, which is part of Dublin-based ASL Aviation Group. In early February, ASL and Dutch delivery company TNT Express signed a conditional agreement calling for ASL to buy two cargo airlines owned by TNT Express, which is in the process of being acquired by FedEx Corp. for US$4.8 billion. TNT's Belgian airline TNT Airways and its Spanish carrier Pan Air Líneas Aéreas SA will have to be divested due to European airline ownership regulations.
Editor's note: This story has been updated to include comments from UPS.
Copyright ©2024. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing