Amazon As Expected Moves Into Air Freight Leasing, Investment

Surprising no one, Amazon ended months of speculation by announcing it was leasing 20 Boeing 767 cargo jets from Air Transport Services Group Inc., while at the same time taking a 20% stake in the Wilmington, OH-based company. That is where Amazon has reportedly been running air freight operations from a former DHL facility since the fall.

The move gives Amazon significant additional capacity, with one estimate pegging it at 15% of the company’s annual domestic air freight volume. It will also undoubtedly fuel more speculation about the company’s aspirations as a third-party provider of freight and logistics services, including ocean freight from Asia.

“I certainly think this early step is to augment capacity they have via the existing transportation companies, but clearly Amazon will over time develop its own capabilities and resources in this area,” said Robert W. Baird analyst Colin Sebastian, who started the ball rolling on the Amazon Logistics discussion with a December note.”I think the stake (in ATSG) is used to signal a long-term commitment to this relationship.”

“We offer Earth’s largest selection, great prices and ultra-fast delivery promises to a growing group of Prime members and 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 Dave Clark, Amazon’s senior vice president of worldwide operations and customer service, in a prepared statement.

This move will likely impact UPS more than FedEx, as the former does an estimated $1 billion worth of business with Amazon each year, but it will hit both major carriers, said Forrester analyst Sucharita Mulpuru-Kodali.

“UPS is a bigger partner but FedEx handles lots of express packages so both could be affected by this,” Mulpuru-Kodali said. “That said, they’ve both been affected already as Amazon has managed their own injections into the U.S. Postal Service network for some time.”

Mulpuru-Kodali said Amazon may have opted to go with 20 cargo planes initially, based on calculations of its volume of air freight and current available capacity. “This may also be mostly about the holidays, where the shipping issues are most pronounced,” she added.

FedEx officials said they were not surprised by the move, and UPS says Amazon continues to be a strong customer. “We continue to with Amazon and many other ecommerce retailers to support their global logistics needs,” said  company spokesman Matthew O’Connor.