Amazon is doing more than just getting into the Air Cargo business

I wrote a few months back that Amazon was looking into getting into the Air Cargo business, with interest for some 767 cargo freighters.

Well, it doesn’t look like that’s where they will stop. Bloomberg reports that Amazon is building a global delivery business to take on Alibaba!

In that article, Bloomberg references a lot about FBA:

A 2013 report to Amazon’s senior management team proposed an aggressive global expansion of the company’s Fulfillment By Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company’s website. (emphasis mine)

And further

The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London.

This, will become: Global Supply Chain by Amazon. Initially, you might read this as not necessarily syncing with the FBA approach that I normally write about, but this could be impactful, in that Amazon could provide that necessary linkage for Private Label products. I don’t talk about Private Label much, but essentially, it is when you have a manufacturing facility produce a product under your own brand, versus something like Ralph Lauren for example. This could be a big deal in closing that gap. But there’s more to the story.

Reported via the Seattle Times published 9 March, Amazon will lease 20 Boeing 767 freighters.

The deal with ATSG gives Amazon 20 Boeing 767 jets on leases running five to seven years, which is typical in the air-leasing world. Amazon also has the right to acquire just shy of one-fifth of ATSG for just more than $600 million.

So, Amazon is putting a bunch of money toward this air cargo initiative. It looks like the plan remains to be providing air cargo services among Amazon’s network of Fulfillment Centers. I would argue, that’s really all they need to do, considering Fulfillment Centers are in nearly every major metropolitan area, so if they can get the products to the right Fulfillment Center, then getting the product out to the customer is a problem that Amazon is already solving. They’ve solved this partly with contracting with the United States Postal Service, and other small shippers, like Laser Ship.

Amazon can do even better, if they want. With this augmented fleet of widebody air freighters, Amazon could in theory streamline Fulfillment by Amazon merchants shipping, by allowing them to ship to their closest Fulfillment Center, and just including those products into Amazon’s internal supply chain network, which isn’t necessarily different from how it is now, except that FBA Merchants have to pay a hefty fee (read: More fun with Fulfillment by Amazon Shipping – Inventory Placement Service) for that service.

Wrapping Up

Overall, I think its pretty awesome that Amazon is expanding like this. They are vertically integrating, which I think will provide a better service for many Amazon stakeholders. Customers will get products faster. FBA Merchants’ products could be on sale sooner. Amazon could save significantly on their shipping and freight costs. Shareholders probably see that return in the stock price.

What do you think? Is this a good move by Amazon to vertically integrate into Air Cargo?

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