Amazon building its own overnight airfreight operation, sources say

[physcab]

Amazon handling its own logistics is going to be a big problem for UPS. I have a friend who works for the AP and recently visited a large distribution facility for a story. He said UPS does over 1M packages a day and anecdotally he said it seemed like every other package was Amazon or Zappos (an Amazon company). I wonder how UPS will react.

I was in awe hearing about the incredible efficiency of the operation. Apparently the delivery of 1M packages happens between the hours of 1am and 4am and over 300 planes fly in to be loaded before heading out later that morning.

[wjamesg]

Having lived in Louisville, KY (location of UPS Worldport, where much of this shipping takes place) I can attest to the nightly takeoffs/landings every 30-60 seconds or so

[tyingq]

Good for them. There's no real competition between Fedex and UPS. Both raise their rates around 5% every year, even with fuel costs dropping dramatically. The claims process is specifically designed to be difficult.

Might be more interesting if Amazon decides to open up to outside customers and re-instates real competition. Both UPS and Fedex had better rates and service when DHL was still competing with intra-US shipments.

[BookmarkSaver]

Fuel costs have an incredibly low short (or even medium) term impact on overall costs. It is a major expense and absolute necessity for these companies to even operate, they are probably incredibly hedged. It would take years of low prices (with confidence that they will stay low) for it to have a large impact.

[ethagknight]

I interviewed for a position at FedEx's main office few years back, and I was asked "Why should FedEx avoid a shipping-rate pricing war with UPS?" Their answer: we don't want to shrink the value of the overnight shipping market. That sounded reasonable at the time, albeit collusion-y, until I learned about market elasticity. Now it just sounds lazy and protectionist.

[redstripe]

I find it interesting that the Google, Apple and especially Amazon have become very successful by going against the orthodoxy of the last few decades which was outsourcing everything that wasn't a core business because you can't possibly do it efficiently.

If these companies followed prevailing MBA business thinking, their products and services would be as mediocre as many other large but floundering fortune 500s.

[mgkimsal]

Interesting, but consider that, in general, they probably did outsource some aspects early on, and learned the lessons needed. In most cases, the example you give are just too large for anything they do to be outsourced to anyone else - few other companies operate on Amazon scale.

The "outsource everything" mantra may also be fueled in part by VC firms who also just happen to be funding a bunch of other companies that... look at that... provide some of the services you should outsource. Many years ago, on a small scale, I had discussions with a small VC firm. In exchange for their investment, we were also expected to use some of the other companies in their network whenever possible (media/marketing/other tech/etc). That seems a bit of an extreme scenario, but i can't imagine this doesn't ever happen at all.

[Scarblac]

And now half the world outsources things _to_ them (like AWS).

[ejdyksen]

Perhaps most interestingly, Amazon appears to be in negotiations to purchase 20 brand new 767 freighters directly from Boeing.

[scurvy]

That is odd. Don't most airlines work through a 3rd party that actually purchases and owns the planes?

[amelius]

As companies grow bigger, the de-modularization of the economy increases. Not something to be very excited about.

[pjlegato]

> Not something to be very excited about.

Why not? The economy demodularizes if and only if it is economically cheaper and more efficient to do so.

In other words, demodularization only happens when many, many people can derive a huge economic benefit from it happening.

The alternative is slower, more expensive, less efficient economic systems, filled with rent-seekers at every level.

[ultimoo]

What does this mean in layman terms? (I'm genuinely asking for a simpler explanation.)

[bgilroy26]

Aren't any problems with de-modularization opportunities for more modular companies to come along and do a better job? In the long run at least?

[rayiner]

As technology gets better, the equilibrium between diseconomies of scale and economies of scale shift toward favoring bigger companies.

[randyrand]

demodularization is not a problem when competition is overall increasing in the shipping industry.

[zrail]

I would love to see the financial analysis of this move. Paying for the leases on 20 737-300Fs is not going to be cheap, but it must be letting them cut costs somewhere important.

[dogma1138]

You can lease those class of aircraft for about 100-150K per year, might be even cheaper for cargo configurations. A 20 year old 737-300 today would cost around 4-5M these days, so a fleet of 20 would cost Amazon around 100M which while is allot of money is some pretty much pocket change for them.

[imroot]

If you're really interested in looking more at this, look at the flightaware stats for the flights going out of KILN -- Wilmington, Ohio.

Outside of a Corporate Jet going to New Orleans (R&L Carriers), it's all ABX Air traffic...and it's going to airports near major Amazon Warehouses (Lehigh Valley/Allentown was the biggest one that came to mind when I was looking at the flights).

Atlas (ABX Air Competitor) doesn't have a lot of wiggle room -- they're doing freight contracts for DHL and PAX contracts for the Oil and Gas companies to Africa right now.

I think what Amazon's doing right now is moving or rebalancing the freight -- something that they've traditionally done via semi -- in order to get it in place for the holiday season. It will be interesting to me to see if these flights continue to keep up during the slower months in the beginning of the year.

[idibidiart]

Amazon Air ® .... They will probably buy the planes and lease excess capacity to FedEx, UPS, USPS, DHL, et al.

[thedogeye]

I just wrote a post about Amazon's air freight operation and how it may affect UPS and FedEx

https://www.flexport.com/blog/amazons-new-fleet-of-jets/

[Dowwie]

Lately, I've been getting my Amazon deliveries by street-clothed people driving around in rental vans. (in NJ)

[backtoyoujim]

I wonder how this reflects on the corporate-state relationship between USPS and Amazon?

[nashashmi]

That is what I was thinking and then I realized how UPS offloads delivery to USPS. It could be because they are overloaded.

Further, there is too much risk and loss of power when UPS's biggest customer is just one company. UPS probably doesn't want that risk and it would rather stay moderately sized than put all of its eggs in one basket.

But more importantly, it is Amazon that is taking these steps and I predict, because they have been hiring large swaths of people that many years ago they would not have even thought of, Amazon is beginning to think about doing business over the course of the next hundred years. It is preparing for those hundred years now, knowing that airplanes will be integral to continue meeting demand. These airplanes will most likely run side by side with their partner delivery companies.

[harigov]

I believe logistics has become a weakness for Amazon. Other retailers seem to handle most of their warehousing and logistics on their own (?). Amazon reduced the need for warehousing but seemed to have become totally dependent on other companies for logistics. For long time they benefited from tax breaks and users willingness to wait few days for packages to get delivered. With price matching offered by several other retail stores, and Amazon thinking of starting their own retail stores, it makes sense to invest in their own logistics as well. I guess they would like to differentiate themselves in the long run as a ship-to-door retail company with excellent customer experience.

[bdcravens]

This article and the comments here seem to focus on the cargo flight portion of delivery, but how are they planning on getting it to the door?

[notatoad]

That's sort of a different project. They are already building up infrastructure for local delivery via amazonfresh and their same day delivery services, but can also still use UPS or FedEx for to ship from their local terminal.

[grandalf]

Just had an Amazon owned van deliver some stuff the other day.

[malandrew]

I'm wondering if Apple will start doing the same.

[tyingq]

Apple doesn't ever seem interested in providing something that's a commodity. If they did get into it, I assume it would only be for some premium, same-day type service.

[vmarsy]

Interesting! Maybe the plan is to launch drones directly from the flying 767 the same way military planes drop vehicles!

[InclinedPlane]

Make no mistake, drone delivery is not planned to be the way most amazon packages are delivered, ever. It's a high-cost "I need it now" service, that's it.

[darrenkopp]

I'm not sure if that makes a lot of sense... how would they recover the drones? Drones have a pretty short range.