Amazon has sealed the deal to lease 20 Boeing767 widebody freighter aircraft to handle more of its own deliveries in the United States more effectively and efficiently. The deal comes at a time when the world’s largest online retailer is offering ever-faster, and increasingly free, deliveries for millions of online orders.
Amazon, which primarily depends on carriers like UPS and FedEx to deliver most of its packages, spent $11.5 billion on its shipping last year.
In an offer to assume more control over its supply chain and reduce costs, Amazon has rolled out thousands of trailers and launched a program that uses contract drivers to deliver fast orders. However, analysts said the long-rumored plan to build its own air fleet posed little threat to the leading delivery companies.
‘This is an incremental negative for FDX and UPS as it will likely remove some higher yielding express freight and parcel volume from each of the respective networks,’ RBC Capital Markets analyst John Barnes wrote in a client note.
FedEx said on Wednesday the announcement was not a surprise and called Amazon a valuable customer.
‘We work closely with Amazon and have been aware for some time about their need for supplemental air capacity related to inventory management,’ said Patrick Fitzgerald, senior vice president of integrated marketing and communications at FedEx.
Amazon has said that the goal is not to compete with package delivery carriers such as FedEx Corp. and UPS but work on improving its own logistics to provide quicker delivery for customers as well as providing shipping services for third-party sellers on the site, a service called Fulfilled by Amazon. Amazon’s US$99 annual Prime loyalty program offers free two-day shipping on many items.
Dave Clark, Amazon’s senior vice president of worldwide operations and customer service, said in an emailed statement that the agreement will help supplement its existing delivery network and ensure the company has the air cargo capacity to support one- and two-day delivery for its customers. “We’re excited to supplement our existing delivery network with a great new provider, ATSG, by adding 20 planes to ensure air cargo capacity to support one and two-day delivery for customers.” said Clark.
Amazon’s new air force could mean big savings, according to experts. Right now a typical shipment to an Amazon customer could be coming from three or four different warehouses in far-off corners of the country, said Marc Wulfraat, president of MWPVL International, a logistics consultancy that closely tracks Amazon.
And the cost will increase as Amazon’s sales grow, Wulfraat said. The only way to make it come down is “to set up your whole hub-and-spoke network,” centered in the Wilimington facility, which formerly belonged to DHL.
The idea is for planes to fly in and out of areas housing Amazon’s major clusters of fulfillment centers in places such as Western Washington, Phoenix and Southern California. A plane from, say, Seattle, would fly to Ohio full of items needed by other fulfillment centers across the nation, and fly back carrying items requested by Seattle-area shoppers.
“Having their own shipping infrastructure and capacity will allow them to expand,” said Colin Sebastian, an analyst with Baird.