Amazon.com, Inc (NASDAQ:AMZN) can do anything it wants. Well, at least most anything. The one problem that the online retail giant has had for all of these years is shipping costs. Amazon may have found a solution to that quandary: leasing new planes to serve customers across the U.S.
Amazon.com, Inc Working With Air Transport Services
For years, Amazon has been trying to rely less on traditional mail carriers, such as FedEx Corporation (NYSE:FDX), United Parcel Service, Inc. (NYSE:UPS) and public mail delivery organizations. The website is in the midst of developing drone shipping and its own type of Uber-esque delivery platforms.
In its latest quarterly earnings report, Amazon told investors that its financials took a serious hit due to shipping and delivery costs. Its fulfillment costs rose 32.8 percent, and that’s because it has been expanding its Prime Now service. The company said that it was working to cut down on its shopping costs and help give its profit margins a shot in the arm.
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With its new partnership with Air Transport Services Group Inc (NASDAQ:ATSG), Amazon may have found its shipping panacea.
The two firms announced Wednesday that Amazon will lease 20 Boeing 767 freighter aircraft, signaling that the online retailer is inching ever so closer to starting its own air delivery network. The lease deals are for five to seven years, and the agreement to operate the aircraft is set for five years. The deal is expected to support its one- and two-day deliveries.
“Since last summer, we have been working closely with Amazon to demonstrate that a dedicated, fully customized air cargo network can be a strong supplement to existing transportation and distribution resources,” said Joe Hete, President and CEO of ATSG. “We are excited to serve Amazon customers by providing additional air cargo capacity and logistics support to ensure great shipping speeds for customers.”
Reportedly, the agreement will also give Amazon the right to purchase as much as 19.9 percent of the firm’s stock over five years at a cost of $9.73 per share. After the news broke, its shares climbed about 20 percent to just under $14 during Wednesday’s trading session.
Amazon’s shares, meanwhile, have remained relatively unchanged at $555 a share.
Amazon.com, Inc: The Shipping Affair
Amazon’s shipping woes are a well-known story in the business media. Last year, Amazon repeatedly sat down with various air cargo firms as part of plans to cut down on use of conventional carriers, avoid delays and keep costs at a minimum.
Its fulfillment costs have ballooned to just under $2 billion. This number could shrink if last year’s estimates are true: Amazon could generate up to $5 billion a year if it established its own freight services and logistics.
In order to rein in shipping costs, Amazon confirmed last month that it would raise its free shipping minimum to $49, up from $35, for non-Prime members. It defended the move, citing faster delivery times and an expanded Prime network.
It’s been widely reported that Amazon has been experimenting with Amazon Flex, a home delivery service just like Uber. It’s been operating in several major cities, and continues to grow. It works in the same way the ride-sharing app does: drivers install the app, sign up for shifts, pick up packages and then deliver them to customers.
Many believe that no matter what Amazon does – drones, Uber-like delivery or its own flight network – the major mail carriers will be upset. Amazon is a major cash cow for much of the main players.
At the same time, Amazon could facilitate its own wave of new services, like its grocery-delivery feature.
If Amazon is successful in this new endeavor then the obvious conclusion is: this is Amazon’s world and we’re just living (and shopping) in it. There is nothing Amazon can’t do.