But in business, when you think it may make financial and strategic sense - and you think you're smarter and more efficient than everyone else - management may be tempted.
Amazon has always embraced risk despite Wall Street's aversion to uncertainty. And Amazon has demonstrated that, more often than not, it has the brains and the operational chops to finish what it starts. Whether this venture is deemed 'bold' or 'foolhardy' will depend on the outcome. JL
Jay Greene and Dominic Gates report in the Seattle Times:
Amazon is fed up with the third-party carriers being a bottleneck to their growth.
That has led Amazon to consider handling more of its own delivery. The company has approached several cargo-aircraft lessors to line up planes. Leasing 20 jets would be a significant expansion of an Amazon trial operation out of Wilmington, Ohio
Amazon.com is negotiating to lease 20 Boeing 767 jets for its own air-delivery service, cargo-industry executives have told The Seattle Times.
The online retail giant wants to build out its own cargo operations to avoid delays from carriers such as United Parcel Service, which have struggled to keep up with the rapid growth of e-commerce.
“Amazon is pretty fed up with the third-party carriers being a bottleneck to their growth,” Robert W. Baird & Co. analyst Colin Sebastian said.
That has led Amazon to consider handling more of its own delivery. A senior aircraft-leasing company executive familiar with Amazon’s plans said the company has approached several cargo-aircraft lessors to line up the planes. The company has had talks with Air Transport Services Group (ATSG), Atlas Air and Kalitta Air, according to sources, though Kalitta Chief Executive Connie Kalitta denied he has talked with Amazon.
Leasing 20 jets would be a significant expansion of an Amazon trial operation out of Wilmington, Ohio, operated by ATSG on Amazon’s behalf, sources said. A cargo-industry source said Amazon expects to make a decision to go beyond the trial run and pull the trigger on a larger air-cargo operation by the end of January.“I believe they are serious about looking at this,” said the leasing executive, who asked not to be named because he may later do business with Amazon. “They are not going to hang about.”
One analyst even speculates Amazon could deliver for other companies, putting it in direct competition with UPS and FedEx, a move that would dramatically shake up the express package business.
Amazon declined to comment on the development of an air-cargo operation.
The online news site Motherboard reported last month on the Wilmington trial.
Right now, that trial at Wilmington is limited. CEO Joe Hete said in a November conference call that ATSG is using five 767s flown by the company’s subsidiaries Air Transport International and ABX Air for a customer he declined to name.
Airplane-tracker FlightAware.com shows the two carriersare flying about five times a day from Wilmington to Dallas; Tampa, Fla., Ontario, Calif.; and Allentown, Pa. Amazon has warehouses near each of those airports.
From Nov. 1 through Dec. 17, the two ATSG carriers flew a total 219 flights with 767s from Wilmington. In the same period in 2014, the carriers flew just seven 767 flights from Wilmington.
The additional jets Amazon is negotiating to lease would likely operate out of Wilmington Air Park, a former cargo hub that had fallen into disuse.
Airborne Express, the former Seattle-based cargo company, once operated from Wilmington. German carrier DHL later acquired the sales and ground network of Airborne.
DHL used the airport, which has two runways, as hub for its U.S. operations. That business sputtered, and DHL closed its Wilmington business in 2008, laying off 7,000 workers.
One of Amazon’s biggest challenges is finding the cargo planes necessary for the operation. Boeing’s 767s are the preferred plane for the job, but there are a finite number of them, and they are a hot commodity.
According to ABX, main decks of its 767s can accommodate up to 19 pallets, each measuring 88 by 125 inches at the base.Earlier this month, ATSG bought two former Qantas 767-300ERs for conversion. Kalitta, which recently acquired two used 767-300ER passenger planes that are being converted to cargo freighters, is negotiating to buy even more.
“Atlas is also adding 767-300ERs and chasing Amazon,” the leasing executive said.
Because Amazon doesn’t have an Air Operator’s Certificate, which it needs to fly airplanes commercially, it would have to turn to cargo-jet lessors to launch the business.
Leasing newly built Boeing 767F jets runs $600,000 to $650,000 a month, according to industry experts.
Used converted freighter jets, which Amazon will likely have to launch the cargo business, cost about $300,000 to $325,000 per month to lease.
“As an interim step, (Amazon) will probably have to sign up with somebody who already has 767s and can start the operation,” the leasing executive said. “Then they’ll have to move, probably from 2017 onward, into acquiring airplanes themselves.”
Amazon is working to avoid the debacle of two years ago, when the holiday crush overwhelmed UPS, causing many Amazon customers to get gifts after Christmas had passed. Those delays led Amazon to refund shipping charges and offer customers a $20 gift card.
“This is more of a warning shot across the bow of the express industry,” said Ned Laird, former managing director of Seattle-based consultancy Air Cargo Management Group, who is now retired. “(Amazon is saying) ‘We’re not getting what we need. We’ve told you what we need. We’ll go elsewhere for now.’ ”
Package-delivery services are already showing signs of strain this holiday season.
Tracking-software developer ShipMatrix reported the on-time rates for FedEx and UPS this season are behind where they were a year ago.
“(Amazon is) growing so quickly, their partners can’t keep up,” Baird’s Sebastian said.
For its part, UPS disputes the ShipMetrix data and said the company’s on-time shipping performance topped 97 percent this week.
“The vast majority of customers are receiving their packages on time,” UPS spokesman Steve Gaut said.
For the past few years, Amazon has been working to exert greater control over its shipping.
In 2014, it debuted its first sortation center in Kent, where it sorts parcels sent from its own warehouses by ZIP code and sends them to individual U.S. post offices for delivery in that day’s mail.
A year ago, it launched Prime Now, offering delivery as fast as one hour to members of its $99-a-year Prime subscription service. Delivery is often done by contract workers who ferry parcels from urban warehouses to customers’ homes.
Earlier this month, Amazon announced adding thousands of trucks to its fleet to handle the growing load of packages it’s shipping.
“We have a very good and longstanding commercial relationship with many carriers, but we know that there is supplemental capacity needed in the market — so we are supplementing our existing carriers with our own trailer equipment,” Mike Roth, Amazon’s vice president of North America operations, told the Chicago Tribune at the time.
Other users
Sebastian believes Amazon will eventually ship air-cargo packages for other companies as well, putting it in direct competition with UPS, FedEx and others.
Conceptually, other retailers could store goods in Amazon’s warehouses, then have Amazon manage the entire delivery operation. That would help Amazon keep the cargo planes loaded even after the holiday crush ends.
“They potentially will have air-cargo vehicles with extra space,” Sebastian said. “So it makes sense to offer that space (to other companies) to fill it up.”
Sebastian believes Amazon could begin offering shipping for third parties “as soon as next year.”
A source said the air-cargo operation is being run by Scott Ruffin, who joined Amazon two years ago. Among the team he’s assembled to get this operation off the ground is Kniffin Kelly, who joined Amazon in September after a long career with UPS.
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