As a supplement to our blog highlighting this week’s news that FedEx is breaking shipping services ties with Amazon, we highlight some additional developments related to Amazon’s ongoing deployment of transportation and last-mile delivery capabilities as well as logistics needs supporting the upcoming Q4 holiday fulfillment period.

Amazon Prime Logistics

The Wall Street Journal, reporting on the FedEx bow out, indicated that during the recent Prime Day shopping holiday in July, customers complained of shipping delays.  Estimates are that the online retailer shipped upwards of 100 million packages during that particular week, and that this was a learning by the online carier as to what to anticipate in November and December.  The WSJ essentially concurred with our viewpoint that Amazon would indeed have to compensate for FedEx and that UPS and the USPS would be more than willing to fill-in capability during the upcoming holiday fulfillment quarter.

 

Added Air Transport Assets

As we have noted in prior Amazon focused commentary. Air Transport Services (ATSG), is one of two air cargo services providers for the online retailer, providing an estimated  20 percent of ATSG’s existing revenue stream.

MRO-Network.com reported this week that ATSG reported a rather strong financial performance for the first half of this year, with revenues surging 64 percent. Upwards of $159 million of capital expenditures invested in the first half were to purchase additional Boeing 767 aircraft that will be re-fitted for air cargo service needs.

At the end of last year, Amazon contracted for an additional ten Boeing 767-300 wide-body aircraft for converted freight transport service needs. ATSG has delivered two of such aircraft thus far, a third is scheduled for August delivery, and three more are planned for delivery by the end of this year. A remaining four of the wide-body aircraft will be delivered next year.

By 2021, Amazon will have at least 70 cargo aircraft operating from over from over 20 air gateways across the U.S. which are significant assets for an online retailer. Consider that a 767 alone utilized for air cargo transport can haul a maximum payload of upwards of 132,000 pounds of cargo.

Indeed, while such capacity cannot rival a DHL or UPS, each with an active fleet of upwards of 250 wide body aircraft, an online provider with such capabilities is significant. FedEx operates the world’s largest air cargo fleet with 598 aircraft.

In addition to air transport capacity, the online retailer remains actively invested in ocean, surface and last-mile leased assets. The unfolding strategy is one of independence in fulfilling both Prime member and preferred supplier customer fulfillment and delivery needs.

 

Complexity of Last Mile Defeats One Carrier

With the popularity of online shopping now spreading to home appliance, furniture, home improvement and oversized goods, certain third-party logistics and surface transportation carrier saw an opportunity for a new growth business. Many have flocked to this sector.

But, as many consumers may have already experienced, including this Editor, the ability to master white glove or customized delivery has been a hit or miss for some. Such capabilities require a driver profile attuned to customer needs and requirements, equipment that can easily navigate and transcend urban and residential neighborhoods and schedules that can present a fair number of unplanned events or complex needs.

Last week provided a significant development in this area.

One of the largest U.S. truckload carriers, Schneider National indicated that the carrier will exit its First to Final Mile custom home delivery business after three years. Schneider entered this business in 2016 by acquiring Lodesco and Watkins and Shephard Trucking, two specialized providers. The carrier will now shutdown 26 terminals dedicated to this service and incur a pre-tax charge of between $50 million and $70 million as a result.

As Amazon and other online providers continue to expand offerings of oversized and specialty goods, there will likely be a reckoning among specialty services providers, especially during surge shopping periods such as holidays.

Supply Chain Matters anticipates additional exits coupled with increased investments in added network, physical asset and supporting software technologies to address overcoming the cost implications of this segment. It may well be that a grouping of niche, highly specialized last-mile services providers will thrive and survive in this sector.

For Amazon, this an area that will need added attention and resources if the online provider expects to grow in the segment.  We would not be all that surprised if partnerships or business arrangements with localized appliance and furniture shops begin to emerge in an Uber or Lyft type of arrangement where specialized goods are picked-up at regional or localized transfer locations.

 

Bob Ferrari

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