As Amazon fails to deliver and freighters return, ATSG sees profits tumble
“ATSG has never faced such a rapid shift in customer demand as occurred during 2023,” ...
Forwarders and integrators beware. Fascinating Amazon documents, unearthed by Bloomberg, reveal a bold, empire-building plan that has been in place since 2013, aptly named “Dragon Boat”.
It comprises a global delivery network which ultimately cuts out third-parties, creating a $400bn global logistics business and removing cross-border barriers for small merchants.
The documents reportedly envisage the launch of an Amazon “global supply chain” before the end of this year.
It would bypass forwarders and current suppliers, such as UPS and FedEx. Amazon’s sellers will book capacity directly, send their wares to distribution centres from where the e-tailer, buying cut-price capacity through sheer volume, will ship the goods. The fear and cost of cross-border trading for smaller shippers would be removed.
Bloomberg quotes the 2013 document: “The ease and transparency of this disintermediation will be revolutionary and sellers will flock to FBA [Fulfilment by Amazon], given the competitive pricing.”
Colin Sebastian, an analyst at Robert W. Baird & Co, told Bloomberg the move was characteristic of the e-tailer. It would need the integrators at first, but would gradually phase them out.
“This is classic Amazon fashion. They take baby steps along a long path, which allows some companies that could be disrupted to remain in a sense of denial. Amazon rarely takes one big step forward that shocks the market.”
Last week’s UPS earnings call with analysts certainly could have been portrayed as being “in denial” – or at the very least, challenged by Amazon’s status as both customer and rival. CEO David Abney, in answer to a question on the e-tailer, stated carefully: “Let me make sure to express that Amazon is a good customer of ours.
“We have a mutually beneficial relationship. And our goal with Amazon or any other big customer is to continue to show our value through the integrated network and through our technologies, and to have a value proposition that is difficult to match. We do add capacity and for large customers such as Amazon. We do it, though, we ensure we have the proper economic return.
“At the same time we also ensure the integrity of our network for all customers by planning and forecasting our volumes.”
While Amazon’s grand plan may be to cut out the middle men – in its own words, create a “revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking” – it is less clear that it wants to cut out the asset-heavy transport sector, with the possible exception of trucks, in which it is investing significantly.
As Brandon Oglenski and Paul Vogel, of Barclays Equity Research, wrote recently: “Air transportation, especially of goods, is an expensive proposition…Further, with only limited financial returns and plenty of existing air capacity during non-peak periods in the incumbent package networks, we question the need for Amazon to devote the significant capital required to operate a standalone time-definite air network.”
The Barclays research questioned the value of the much-reported Wilmington, Ohio, air operation, suggesting it was an experiment.
That may be the case, but the operation continues, and is expected to expand. In a statement issued yesterday, ahead of its 2015 financial results, ATSG, the operator of the 767 services at Wilmington, raised its guidance for its year-end results, noting increased demand for its ACMI 767s.
ATSG president and CEO Joe Hete said the trial ACMI express network its airlines launched in September for a US customer performed well through the holiday season, and continues to operate. The network grew to five aircraft in ACMI service, together with related logistics services. The statement added that ATSG is seeking to extend its provision of network services for this customer.
“We faced extraordinary challenges in 2015 to quickly place and operate our 767 freighters over new routes and in concert with new ground services, while continuing to provide great service to all of our other customers,” said Mr Hete.
ATSG is not alone in chasing e-commerce volumes. This week Pete Sanderlin, vice-president of 747 specialist Kalitta Air, told Air Cargo World that the airline wanted to develop a domestic US network, with its new fleet of 767s – the very same aircraft on Amazon’s wish list. Two are due to enter Kalitta’s fleet this year, with five or six more on the cards. And if Bloomberg’s documents are correct, it will be good business for the airlines – for now at least.