August marks the traditional start of the peak transportation period leading up the October thru December peak holiday fulfillment period involving both traditional and online retail channels. The following two Supply Chain Matters commentaries address two important trends that will make the forthcoming period far different and perhaps far more challenging for industry supply chain teams.

Since last December, Supply Chain Matters has been alerting our readers to the changing dynamics related to parcel logistics and transportation, specifically Amazon’s ongoing efforts to build out and directly manage its own logistics, transportation and last-mile fulfillment capabilities during high peak periods such as the holiday fulfillment period.  We have urged teams to stay informed.

During this period, Amazon had been rather coy in not commenting on each of the developments that had come to light across business, industry and supply chain social media such as this blog. Ongoing developments included two separate direct agreements involving the leasing of former used air cargo aircraft. Subsequently two leasing deals were established that including the leasing of 20 Boeing 767 air freighters from Air Transport Services Group (ATSG), and an additional 20 cargo jets from Atlas Air. ATSG is reportedly further contracted to provide loading and unloading support for Amazon’s entire air freighter fleet. Further disclosed was the leasing of 4000 semi-trailers to move parcels among various Amazon distribution and logistics sortation centers.

In a media event held late last week, Amazon unveiled one of the cargo planes now painted in the Prime Air logo design shown here. Keep in mind that because Amazon has leased these aircraft from a third-party charter carrier and does not directly own the aircraft, there are limitations to directly affixing a corporate logo to the aircraft.  Amazon One Cargo Jet_Sized450

The accompanying Amazon press release portrays a more direct admission of the ongoing supplementary capabilities including a direct quote from Dave Clark, Amazon’s senior vice-president of worldwide operations. This newly painted aircraft, similar to the painted leased semi-trailers, establishes the branding of dedicated logistics and transportation services to the Amazon Prime program which customers pay a premium for in order to obtain free and more responsive shipping. Readers may have already noticed Amazon Prime logo delivery vans navigating urban and suburban streets across select areas of the U.S.

Noted in the press release is that in approaching the upcoming 2016 holiday fulfillment period, the global online retailer has a network of 125 fulfillment centers and over 29 logistics sortation centers to increase delivery speeds for customers.  Directly confirmed is the leasing of the 40 air freighters through leasing partners ATSG and Atlas Air and that there are currently 11 dedicated aircraft now flying with all 40 expected to be operationally deployed within the next two years.

A separate published report from the Seattle Times notes the significance of the unveiling of the newly painted plane being held with a Boeing hanger in Seattle. The newspaper cites two informed sources with knowledge indicating that Amazon is further talking with Boeing about the possibility of buying brand-new 767’s for its dedicated Amazon Prime air cargo fleet. However, Mr. Clark insisted in a direct interview that this option is not one that the online retailer is pursuing at this time, but added: “I’d never say never… Who knows what the future holds?” Another hint is an indication by an Atlas Air executive indicating that the leasing firm has plans to hire 400 to 500 pilots just to support its Amazon dedicated aircraft needs.

Once again, Amazon has all strategic options covered while being careful to not disrupt current service agreements with existing parcel transportation partners FedEx and UPS. In essence, Amazon is indeed taking more direct control of both its transportation and logistics capabilities as well as its cost structures along with the potential opportunity to share such capabilities with other manufacturers and online fulfillment partners.

In the coming months, we will all get to observe Amazon’s dedicated logistics, transportation and last-mile fulfillment capabilities and the implications to other carriers and to retail and consumer goods industry supply chains will continue to reverberate.

In the meantime, you can watch the dedicated You Tube video depicting the branding of the first Amazon Prime Air cargo aircraft, a milestone with lots of ongoing multi-industry significance including the upcoming holiday fulfillment period.

Bob Ferrari