Amazon Reportedly Stepping Up Its Air Transport Plans

Amazon is reportedly in talks to lease 20 Boeing 767 jets to power its nascent air freight operations, according to a report in the Seattle Times, showing the ecommerce giant is getting much more serious about its logistics aspirations.

The company has been reportedly in negotiations with aircraft leasing operations, including Air Transport Services Group – which took over the old Airborne Express – Atlas Air and Kalitta Air, none of whom are speaking publicly.

At the same time, Amazon has reportedly been running four flights per day out of an old DHL Express operation in Wilmington, OH for several months, according to John Haber of shipping consultancy Spend Management Experts. The Verge reports that the destinations include Allentown, PA, Oakland, CA, Ontario, CA and Tampa, FL, all of which have an Amazon DC within 60 miles. The Wilmington airfield ran just 7 cargo flights in 2014, but that has grown to over 250 in 2015, an indication of the growing activity there.

There has also reportedly been parcel sortation activity at the Wilmington facility, fueling speculation as the dots are connected. Amazon is not commenting on any of the news.

“From our standpoint, it’s clear that Amazon is moving into the transportation business,” Haber said. “They’re ramping up air cargo, and hiring delivery drivers in Seattle in an Uber-type situation. So it only makes sense they’ll get into their own parcel transportation as well.”

If true, it would appear Amazon is looking for a two-for-one special: A hedge against its considerable transportation costs, that also helps it avoid snafus like peak season 2013, when an estimated 2 million parcels arrived late for Christmas. It would also help the company keep its two-day “free” shipping promise to millions of Prime members, as it’s doing this season with a Manhattan skyscraper that doubles as a DC. The company spent $2.72 billion on shipping during the third quarter, up 35% from 2014.

While reaction to the news of an alleged “Amazon Air” has been mostly positive, some pundits wonder if the company, for all its heft, data and smarts, can successfully move into the highly complex and capital-intensive logistics business. Amazon has in recent quarters demonstrated its latent capacity for turning a profit, but investment in an air freight operation could challenge that trend.

Haber echoed Robert W. Baird analyst Colin Sebastian in saying this investment could be offset by Amazon offering third-party logistics as a service, much as it has done to great success with its web services product, a major top- and bottom-line component. In addition to the air freight, Amazon has its massive distribution and fulfillment network to draw from.

“I think what they’re doing is building up a network to move their product, and when they see the time is right, they’ll start moving goods for other people,” he said. “It’s the way they did it with web services. With so much capacity and buying power, why not just go into the business? Now it’s a huge component of their overall revenue. They test and learn, then when they feel comfortable, go to market with it.”

Jerry Hempstead, principal of Hempstead Consulting, said Amazon has more than enough volume of its own to cost justify the air operation. He also said that Amazon makes the most sense as the operator of the Wilmington air-and-sort facility, given its centralized location, Amazon’s expansive network of facilities and its considerable inventory management needs. He said DHL abandoned the facility in 2009 and relocated to Cincinnati.

“It’s prudent for (Amazon) to make it work for their own business first before ever trying to offer logistics services to people who may be perceived as their competitors,” Hempstead said. “Why give other sellers a logistics advantage? They have enough critical mass of their own to do what they want to do and keep it a low-cost operation, which is the key to free shipping.”

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