Amazon may lease cargo jets to control its delivery chain

December 18, 2015 05:47 PM

(Bloomberg)— Inc. is considering leasing 20 Boeing Co. 767 freighter jets to help gain more control over its delivery methods and costs, according to a person familiar with the plans.

The tech-savvy retailer is interested in building up its cargo operations as consumers increasingly order online, especially during the holiday shopping season. Controlling its own planes and crew would help Amazon shave time and money getting goods to customers’ doorsteps, and help keep its warehouses stocked with inventory. Amazon has run into delays when the shippers it depends on now, United Parcel Service Inc. and FedEx Corp., have struggled to keep up with the large and erratic orders around Christmas.

The Seattle Times reported Thursday that Amazon is testing its own service on a limited basis and will decide early next year whether to proceed.

The move could eventually pose a threat to FedEx and UPS, the world’s largest package delivery service, though Amazon would be starting with a small number of planes and it could take years to expand the operation to the point of having an impact on the two shipping leaders.

Peak shipping

Seattle-based Amazon, No. 1 in the Internet Retailer 2015 Top 500 Guide, ships about 5.2 million packages a day during the peak holiday period, estimated Satish Jindel, a logistics consultant in Sewickley, Pa. About 70% will go through the U.S. Postal Service, 15% through UPS, 10% through FedEx and the remainder through smaller delivery companies, Jindel said.

Yet Amazon has a reputation for moving quickly when its trials show signs of working. The one-hour delivery service Prime Now grew from a test in a few Manhattan ZIP codes to a service in 16 cities around the country in less than a year with restaurant deliveries also being added.

The online retailer sets the standard for fast, inexpensive delivery in e-commerce and CEO Jeff Bezos has spent billions of dollars creating a network of warehouses and shipping hubs in 69 cities. The company is also buying thousands of its own Amazon-branded truck trailers to help speed shipping from its fulfillment centers—where items are gathered and packed—to its sorting centers. And Bezos’ dream is to one day deliver items instantly with drones.

Amazon spokeswoman Kelly Cheeseman declined to comment on the Boeing discussions. UPS spokesman Glenn Zaccara declined to comment on Amazon’s plans for an air freight operation.

“Amazon is an important customer and we are working hard to help all our customers meet their objectives for growth and customer service,” Zaccara said.

Cost control

Air delivery is a service few businesses are large enough to handle on their own, but Amazon’s growth and emphasis on logistics makes it an important area for the company to control its costs, said Jarrett Streebin, CEO of EasyPost, a San Francisco company that helps retailers coordinate shipping labels and tracking with delivery companies. It also gives the company leverage over its delivery partners since it can demonstrate it has alternatives, he said.

"This is all part of Amazon’s cost-cutting phase," Streebin said. "Amazon loses $1 billion each quarter on shipping. It wants to do the same work cheaper."




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