Amazon to Take On FedEx and UPS

The flying warehouse patent that Amazon recently announced is pie in the sky. Nor does much progress appear to being made toward drone deliveries.  But the news that Amazon plans to build its first air cargo hub at Cincinnati/Northern Kentucky Airport is based on sound economics.  When the 2-million-square-foot facility opens, it will reduce the company’s dependence on UPS and FedEx. But Amazon was already moving away from reliance on the parcel giants by giving an increasing share of its parcel business to lower cost regional providers.  And many e-commerce shoppers have seen their orders delivered by the company’s fleet of private trucks.

Amazon has moved into the ocean freight business for similar reasons. Now, Amazon is taking greater control over shipments from China. Specifically, Amazon has started handling the shipment of goods from Chinese retailers that sell on its platform. For this line of business Amazon is acting as its own freight forwarder by reserving space on ships and clearing customs itself. This also reduced the fees it pays to outside logistics providers. So far, Amazon has helped ship 150 containers from China to the US.

The company plans to use this new air hub to house its current and future fleet of planes. It’s expected to cost Amazon over $1.5 billion which means this will be a highly automated facility, just as UPS’s and FedEx’s are. It is reported the company will initially employ 2,000 people, which means this hub will work at scale.

The Wall Street Journal reports that Amazon’s end goal is to deliver packages for itself and other retailers.  When it comes to doing this for large retailers like Walmart or Target, this will never happen.  Those companies see Amazon as their toughest competitor and will do nothing to help them achieve additional logistic efficiencies.  But my ARC colleague Chris Cunnane has speculated that small retailers could find this an interesting service, “I feel like a lot of retailers sell through the Amazon marketplace. It could be an agreement where retailers get a prominent spot on Amazon’s search results in exchange for partnering around shipping. Who knows? At this point, every time I think Amazon can’t do something, they find a way to do it.”

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