Since 2015, Amazon has been building up an internal logistics network so it can deliver its own packages — a move that saves the retail giant money. It costs Amazon $6 to move a single box through its own network, versus $8 to $9 to move through UPS or FedEx. Given Amazon’s scale, that could be a couple of billion dollars at least in savings.
From Partners To Competitors (FEDEX and Amazon)
Amazon has been bolstering its own delivery network for years to get orders to customers more quickly. The move puts it in direct competition with services like FedEx and UPS. As Amazon has expanded its logistics and pushed the envelope on shipping, FedEx has matched it step for step, including offering things like expanded fulfilment centers, faster shipping and robots and automation. The long partnership could now turn into a strong rivalry.
Losing Amazon could seem like a big drop for FedEx, but it actually opens the door to partner with other retail giants, including its existing deals with Walmart and Walgreens. FedEx says one of the key factors in deciding not to renew its contract with Amazon was because it wanted to focus on the larger e-commerce market. The number of e-commerce packages is expected to grow from 50 million to 100 million a day by 2026.
Amazon is a leading company in the e-commerce and logistics space, but that doesn’t mean it’s immune to broken partnerships. Its aggressive delivery strategy cost it a deal with FedEx. Time will tell if the internal delivery service is ready to handle the large influx of orders and deliveries.
Why Amazon Is Bringing Logistics In-House
Amazon’s Chief Financial Officer Brian T. Olsavsky said it: “What we like about our ability to participate in transportation is that a lot of times we can do it at the same costs or better and we like the cost profile of it, too.”
Not to mention, Amazon can use all of the data they can bring to bear to create the most efficient e commerce shipping solution possible. But what is behind the big push?
Shipping is expensive. Companies everywhere are wrestling with slim margins made slimmer by heavy operations costs. Amazon has some of the most advanced warehouses on the planet. They’re constantly looking to innovate and streamline their current operations.
Despite these efforts, Amazon’s worldwide shipping costs were fifteen times higher in 2018 than in 2009.
Inside an Amazon Air operation
Amazon Air currently has planes at 21 U.S. airports and it’s opening new regional hubs this year in Fort Worth, Texas, Wilmington, Ohio, and expanding one in Rockford, Illinois.
Amazon will open a $1.5 billion air hub at Cincinnati/Northern Kentucky International Airport in 2021. There it will have capacity for 100 planes — double the number in its fleet now — and will plan to schedule 200 flight landings and departures each day.
One bustling Amazon Air operation is at Ontario International Airport in Southern California. It recently dethroned Atlanta as the country’s No. 1 airport for outgoing cargo.
“We have about eight flights a day on Prime Air,” said Ontario International Airport Deputy Executive Director Atif Elkadi. “I know when they started here a couple of years ago it was maybe three or four flights a day and it has steadily increased.”
Some of the Amazon aircraft CNBC saw at Ontario International are repainted with blue Prime branding, while others still carry logos of the airlines Amazon leases the planes from: Atlas Air, ABX Air and air cargo conglomerate Air Transport Services Group.
Once Amazon packages are offloaded from Amazon planes, they’re sorted on site at the Ontario airport, loaded onto Amazon semi trucks and sent out to one of its 185 fulfilment centers. Amazon Air has gotten so busy in the region that it recently opened a new center at March Air Reserve Base in Moreno Valley, just 30 miles from Ontario International.
- What does the logistics industry look like?
- Will Fedex’s decision to part ways from Amazon be sustainable in the long run?
- Can Amazon sustain its logistics business?