Amazon’s Air Freight Aspirations
By on Aug 17, 2016
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“…it would be a daunting task requiring tens of billions in capital and years to build sufficient scale and density to replicate existing networks like FedEx.” – President of FedEx Services
Meet Amazon’s ‘Prime Air’. After investments in fulfillment and sortation facilities, trailers, IT and the hiring of industry expertise and know-how, Amazon added another puzzle piece to its logistics network. Unveiled August 5th, the eventual fleet of 40 planes leased by Amazon will be used to beef up its package distribution network. Currently there are about 11 planes in operation but expectations are that the air network will ramp up early third quarter.
We asked folks on social media if Amazon’s leased airplanes will have an impact on the air freight market. The majority of respondents, 61%, indicated that Amazon’s airplanes will indeed have an impact while 19% said no and 20% were unsure.
Something definitely needs to jump start the global air freight market as it limps along. Although year-over-year June data from IATA were a bright spot with FTKs up 4.3%, year-to-date FTKs are up only 0.5%. In addition, for the first half of 2016, industry-wide freight capacity increased 6.0% year-over-year, twelve times faster than demand.
Perhaps the answer to the global air freight market is indeed Amazon. Some industry experts believe Amazon’s entry into the market could help increase demand for airfreight services as its competitors try to keep up with the company’s fulfillment pace. Meanwhile, the director of the Airforwarders Association told the Wall Street Journal that Amazon’s capability could present a competitive threat to smaller freight forwarders. A recent survey conducted by Logistics Trends & Insights found that 48% of survey respondents believed Amazon would be an opportunity to freight forwarders while 33% indicated Amazon would be a threat.
An Accenture consultant noted that if Amazon offers up spare capacity to other shippers utilizing its technology savvy and possible lower rates, that it could potentially “generate more airfreight in the industry”.
As Amazon makes its presence known in the air freight market, it further corroborates the rumors of a global logistics fulfillment infrastructure. Suffice it to say, those rumors have now been dispelled as the retail behemoth looks to control the entire supply chain in-house by connecting suppliers in such countries as India and China to the final customer. This could provide not only a cost advantage over the competition but Amazon could also recover some of the costs by allowing third parties to pay the company to fulfill and transport their orders.
US airports such as Lehigh Valley, Stockton and Rockford International will experience additional cargo thanks to Amazon. Amazon’s ‘1,000s’ of trailers will also likely be put into use transporting goods from airports (and ports thanks to Amazon’s NVOCC license) to fulfillment, sortation facilities and perhaps even bypassing some of these facilities to the final customer.
In Europe, expect the same. Airports such as those in Doncaster, UK, Katowice in Poland and Kassel in Germany could also (if not already) see an Amazon airplane in their near future as these and additional European airports connect suppliers with customers.
Will we see the same in Asia? Perhaps in some locations but the focus will likely be international for the time being as the preference for intra-regional cross-border trade seems to tilt in favor of home-grown favorites such as SF Express, YTO and others. It will depend on how much Amazon wants to play in this region and how low they are willing to go in terms of rates.
In addition, even though Amazon.com has a presence in such emerging markets as South America, the Middle East and Africa, Amazon’s air freight capabilities could open these markets even further.
Domestic, international and cross-border trade will all experience Amazon. All three trade paths are equally important for growth and fits into Amazon’s need to expand internationally to continue to grow its revenues. As for the big 3 express providers, DHL, FedEx and UPS…move over… Amazon could potentially be the 4th.