If there’s been one persistently hot issue – aside from the depressedair cargo market – that just keeps on getting hotter and hotter, it’sthe topic of Amazon and its purported ambitions to become its owntransport provider.
To recap – the fi rst indication Amazon was making moves into thetransport realm was late last year when news reports began circulating thatthe e-commerce company was quietly trialing its own air service in the US,code-named ‘Aerosmith’, which was being operated by Air Transport Services Group (ATSG).Th en barely a month later it emerged once again that Amazon had been working with DBSchenker to connect cities in Poland, Germany and the UK by air. ASL has reportedly beenfl ying a B737-300F six times a week to airports near Amazon fulfi lment centres in Wroclaw,Kassel and Doncaster.
Next was news that Amazon was expected to shortly acquire a 75 per cent stake in the Frenchpackage-delivery company Colis Privé, that it doesn’t already own. And then came the news that theUS-based company had received a license from the US Federal Maritime Commission to operateas a non-vessel operating common carrier (NVOCC) of cargo from China to the US.So it is, by now, pretty obvious that the e-commerce retailing giant is bound and determinedto move into the cargo transport realm. Exactly to what extend, at this point, remains unclear.It also begs the question, as to whether this is really a good idea – more control over its vitalfulfi llment function is understandable, but operating an air, ocean and ground network is avastly diff erent business proposition.
In a recent research note Barclays Equity Research analysts Brandon Oglenski and PaulVogel questioned the move, writing in their brief: “Air transportation, especially of goods, isan expensive proposition. FedEx Express remains the market leader in terms of domestic USair shipments, but fi nancial returns have remained stagnant, (beyond recent fuel and pensioncost reductions) for over a decade.
“We know aircraft and airlines drive disproportionate attention from the media, fl ying is stillsexy. However, for Amazon, we view the potential launch of an air operation at the old DHLhub in Wilmington, Ohio as a likely experiment, or ultimately small network designed to meetvery specifi c high-value product inventory requirements for the company.
“Further, with only limited fi nancial returns and plenty of existing air capacity during non-peakperiods in the incumbent package networks, we question the need for Amazon to devote thesignifi cant capital required to operate a standalone time-defi nite air network.”“By reducing the need for FedEx and UPS to sort and move individual shipments in a highcostlinehaul network, we think Amazon can lower package distribution costs by $2 to $3,relative to current ground package prices.
“We genuinely believe the intention of Amazon is not necessarily to replace FedEx or UPS, butrather drive faster and lower-cost package delivery to consumers, albeit potentially with other carriers.”It may not be aiming to replace all of its third-party transport providers, but clearly it’saiming to bring a chunk of it in-house. And lets also not forget its drone delivery focus whichaccording to the company, remains a sharp focus once it can overcome regulatory hurdles.Meanwhile it would seem these developments by Amazon could and should be taken as aproverbial ‘warning shot across the bow’ – not just for the integrators who stand to lose somevaluable business, but for the traditional air cargo sector as well.
A warning for the traditional players that if they don’t start adapting to this new e-commercedriven world and come up with solutions for this new sector, they stand to lose out, because not onlywill new disruptive elements fi ll the gaps, but e-commerce companies will simply do it themselves.
