(AMZN) Considers Launching an Air-Cargo Business

257, Inc. (NASDAQ:AMZN) is planning to launch an air-cargo business to prevent delays from package-shipping companies such as United Parcel Service (NYSE:UPS) and FedEx Corporation (NYSE:FDX).

Market observers suggested that the e-commerce giant is becoming dissatisfied with third-party package-shipping companies because of their inability to keep up with large volume orders particularly during the holiday shopping season.

Colin Sebastian, an analyst at Robert W. Baird & Co., commented, “Amazon is pretty fed up with the third party carriers being a bottleneck to their growth.”

Amazon in talks to lease 20 Boeing 767 freighters

The e-commerce giant is in talks to lease to lease Boeing (NYSE:BA) 767 freighters for its air-delivery service, according to The Seattle Times based on information from executives in the cargo industry.

According to a senior executive from an aircraft-leasing company, Amazon contacted several cargo-aircraft lessors to line up the Boeing 767 freighters as the commerce giant is contemplating on handling more of its deliveries.

The aircraft-leasing executive said Amazon is negotiating with Air Transport Services Group (ATSG), Atlas Air, and Kalitta Air.

Amazon is serious with air-cargo operation

“I believe they are serious about looking at this. They are not going to hang about,” according to the executive, who requested anonymity because of the possibility that his company may later engage into business with Amazon.

Amazon has an ongoing trial air-cargo operation, which is operated by ATSG on its behalf at Wilmington, Ohio. In November ATSG CEO Joe Hete said the company is using five 767 freighters in Wilmington. The planes are being flown by its subsidiaries Air Transport International and ABX Air for a customer, which he refused to name.

The e-commerce giant’s plan to lease 20 Boeing 767 freighters would be a significant expansion to the trial, and could lead to a bigger air-cargo operation. Amazon is expected to decide early next year whether to proceed with its plan to launch an air-cargo business.

Amazon’s plan poses threat to UPS, FedEx

Market observers suggested that Amazon’s plan to establish an air-cargo business poses a threat to the UPS and FedEx although it would take years for the e-commerce giant to expand from a small number of freighters to a size that would have an impact to the operations of the two package-delivery giants.

Amazon is shipping approximately 5.2 million packages per day during the holiday shopping season based on the estimate of Satish Jindel, a logistics consultant in Sewickley, Pennsylvania.

The United States Postal Service (USPS) is delivering 70% of the Amazon orders while UPS and FedEx account 15% and 10% of the deliveries, respectively. The remaining 5% are being delivered by smaller shipping companies, according to Jindel.

UPS spokesman Glenn Zaccara told Bloomberg, “Amazon is an important customer and we are working hard to help all our customers meet their objectives for growth and customer service. He declined to comment on the e-commerce giant’s plan to establish an air-cargo business.

Source: The Seattle Times