
Amazon building its own overnight airfreight operation, sources say - ejdyksen
http://cargofacts.com/exclusive-e-commerce-giant-amazon-is-building-its-own-overnight-airfreight-operation-sources-say/
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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

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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.

~~~
tyingq
So, it's a major expense, but would require "years of low prices" to have an
impact? Huh?

Fuel and "Purchased Transportation" (also indexed to fuel costs) are their two
largest cost categories.

They pass hedging costs directly via fuel surcharges, which is unrelated to
rate hikes.

"Both FedEx and UPS reported that fuel costs were down about 35% from the year
earlier in their most recent quarter"

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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.

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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?

~~~
chatmasta
Notably, Amazon and Boeing are both based in Seattle. The executives probably
golf together. It's also possible that the two companies might receive some
sort of Washington State tax subsidy for the deal.

Edit: I stand corrected... Although I still wouldn't be surprised if the execs
golf together. :)

~~~
banku_brougham
Its not even the Chicago thing; Amazon execs don't golf.

~~~
elcct
Yes, they just order golf ball on Amazon and set it to be delivered to a hole.

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

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

~~~
vedant
High modularity refers to when a system's components can be cleanly separated
and recombined.

If I were to guess, I'd say that amelius is saying that it becomes
increasingly common as companies grow for them to expand into functions that
were originally outside their core function. Framed this way, "selling stuff
online" may have once set an effective upper bound on what Amazon does, but
now they appear to be expanding into "moving stuff from place to place."

This concept is related to vertical integration.

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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.

~~~
reustle
I'm pretty sure Amazon is not going to invest in a fleet of 20 year old
airplanes.

~~~
ubernostrum
20 years is _young_ for a cargo fleet. Passenger airlines in developed
countries often aim to have an average fleet age younger than that, but the
planes are built to fly for 20, 30, 40 years and sometimes more.

And remember that the maintenance procedures, mandated by law, for commercial
aircraft are kind of insane. The analogy to a car (since everything has to
have an analogy to a car) would be:

Every time you're about to get in the car and drive somewhere, first you do a
full walk-around inspection of the exterior, then inspect all the lights,
vents, wipers, horn, and so on. If anything is in less than perfect condition,
you don't drive the car until it's been fixed.

Every ten days, you drop the car off overnight at a garage. They do a full
fluid check, tire check and rotation, alignment, lubricate everything, and if
they find anything less than perfect it gets fixed before driving again.

Once a month, oil change, filters replaced, new battery. If there's visible
wear on the tires, replace them.

Every two years or so, you pull out the engine and replace it.

Every five years, you have the car completely disassembled and reassembled,
replacing any part that's even the slightest bit worn or fatigued or shows any
detectable amount of corrosion.

If you maintained a car this way, the car would last damn near forever. This
_is_ how planes are maintained, and is why they last as long as they do.

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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.

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

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

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

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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.

~~~
Spooky23
The USPS stuff was historically corporate welfare that let UPS and Fedex have
a third party handle unprofitable delivery.

USPS is beefing up its parcel operations and is getting more competitive.
Generally speaking, in my city the post office performs better for most ground
scenarios, mostly because they are separating parcel delivery from the
standard routes.

~~~
backtoyoujim
That is the exact opposite experience in my part of the world. The local post
offices have become fiefdoms.

I could not find any accountability without having to go through Amazon. And
the USPS claims poverty with what's left of their 5 billion dollars surplus
still sitting in their pension fund.

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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.

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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.

~~~
bdcravens
It'll be interesting if there's any guarantees. UPS and Fedex use the USPS for
last mile, and all guarantees go out the window.

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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.

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

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

~~~
dogma1138
If they can solve launching a drone from altitude from an aircraft without a
rear cargo door at 250MPH without shredding it to pieces finding an efficient
means of collecting them would be an easy task.

