Ever since the late 1990's, Amazon CEO Jeff Bezos had been claiming that his company was a technology company pioneering e-commerce, not a retailer. Although some would argue that Amazon is indeed a retailer, it goes without saying that Bezos has pioneered, and continues to pioneer e-commerce. Innovations such as Amazon Prime, and most recently, Amazon Prime Now (expected to roll out to its website in May), set new standards and force the industry as a whole to adapt and progress in order to remain relevant and competitive.
In a previous blog, we mentioned how Amazon: was negotiating to lease 20 Boeing 767 jets for its own air-delivery service, registered to provide ocean freight services in China, and purchased thousands of truck trailers to ship merchandise between distribution facilities. Based on the structure of its business model, and its recent ventures, it's obvious Amazon is seeking to have more control of the end-to-end customer experience.
Amazon has always been about the customer. In fact, Amazon formulates this in its business model as, "Our goal is to be the Earth's most customer centric company." According to a recent Deloitte survey, 96% of U.S. consumers consider same-day or next-day delivery to be fast, but that number drops to 63% for 3-4 day shipping. Alibaba’s Jack Ma, wishes to deliver anywhere in the world in 72 hours, that is door to door NOT airport to airport.
Amazon could be ramping up its air cargo logistics plans further by buying Frankfurt-Hahn Airport (in the top ten for annual cargo volumes). If such an acquisition were to occur, what companies are at risk? Is this again a swipe at FedEx and UPS? Fedex’s Memphis airport is by far the largest cargo airport in the US, and second globally behind Hong Kong with more than 4 million tons annually. UPS’s Louisville airport is the second largest in the US for air cargo.
It is to no surprise of ours that Amazon is pursuing such a purchase. The fact of the matter is the air cargo industry lacks efficiency, and for a company like Amazon that is "pioneering e-commerce" this is unacceptable. Just as they have looked to fill the gaps in line haul and last mile delivery at peak times, perhaps they are now addressing the inefficiencies in air cargo.
The impact could be more significant on an industry that is already struggling. International Air Transport Association (IATA) departing Director General, Tony Tyler stated that “2015 was another very difficult year for air cargo. Growth has slowed and revenue is falling. In 2011 air cargo revenue peaked at $67 billion. In 2016 we are not expecting revenues to exceed $51 billion.”
According to IATA, in total, air cargo revenues are expected to fall from and estimated US$52.2 billion in 2015 to $50.8 billion in 2016, IATA said. Average yields will fall by 5.5 percent in 2016, a significant improvement on 2015 when yields are expected to slump by 18 percent,.
E-commerce is no longer a new concept, but it is constantly evolving and changing as consumer expectations continue to increase. Therefore, if the players within the air cargo supply chain do not evolve, then e-commerce giants like Amazon and Alibaba are going to have their cake and eat it too.