Tag: air freight

OM in the News: Amazon Air’s Supply Chain Obsession

There is nothing like a pandemic and a European war to highlight the value of logistics, writes The Wall Street Journal (March 17, 2022).  Amazon’s growing fleet of planes shows that it is investing hard to deliver—probably at the expense of FedEx, UPS, and DHL.

Amazon’s cargo airline currently makes an average of 187 flights a day, compared with 85 in May 2020.

Since the Covid-19 crisis started, e-commerce purchases have skyrocketed and a lot of belly-hold space in planes has been removed. Many airfreight companies have seized the opportunity to grow. Amazon has taken the lead. It now has as many as 110 jets—less than DHL’s 202, UPS’ 289 and FedEx’s 474 but a lot more than the 50 it had at the start of 2020.

Having previously leased its planes, Amazon started buying some last year as a flood of parked jets entered the secondhand market and freighter conversions surged. This strategy of building extra flexibility and control may herald more encroachment on the territory of FedEx and UPS. Amazon already provides some “third party” services to companies, and could soon start competing head-to-head in business-to-consumer deliveries.

Even after spending heavily on its own vans, trucks and warehouses, Amazon still relies on traditional logistics firms to deliver a lot of packages, which makes for a strained partnership. But the company hasn’t used its planes much to compete directly with the likes of UPS. It typically flies inventory between warehouses on daytime flights, with a focus on two-day delivery. There are clues that this may be changing. Routes seem increasingly designed not just to align with warehouse needs but also to close geographical gaps.

A rule of thumb among OM professors is that companies have good reason to buy a supplier when sourcing a product is subject to a lot of uncertainty. (See our discussion of “vertical integration” on page 448). With uncertainty today pervading the entire global supply chain, Amazon’s logistics ambitions seem ready for takeoff.

Classroom discussion questions:

  1. What are the advantages and disadvantages of Amazon’s strategy?
  2. Provide other examples of vertical integration.

OM in the News: Taking to the Sky to Deliver on Time

Shoppers accustomed to getting e-commerce orders in 2 days or less are adding to the pile at airport cargo terminals

Companies are shipping more items by plane to meet customers’ rising expectations for rapid delivery, prompting a scramble for cargo space that has sent airfreight rates soaring and pushed Amazon and others into the airline business. Global airfreight traffic climbed almost 9% this past year.

The cause is twofold: As online shoppers come to expect faster home delivery of everything from smartphones to paper towels, passenger jets and dedicated cargo planes are picking up more kinds of cargo traditionally carried by container ships, trains and trucks. At the same time, strong global economic growth also is spurring demand for goods long ferried by air, such as automotive and manufacturing parts.

Those factors are creating some of the stiffest competition for air-cargo space in years, reports The Wall Street Journal (Jan. 10, 2018). To meet the rising demand, Amazon has started its own airline and some air-cargo operators are searching for older, idle jets to convert into freighters. Amazon has used its current fleet of about 30 use Boeing 767 jets primarily for its fastest Prime delivery service, and is adding 10 more planes this year. The dedicated fleet has allowed it to extend the window for guaranteed 2-day delivery from 6 p.m. on the East Coast to as late as 11 p.m.

Demand for new smartphones from Apple and Samsung last year pushed up airfreight costs. Elevated semiconductor shipments, an airfreight mainstay, also have been gobbling up cargo space. And increasingly, manufacturers are loading toys, clothing and other products onto planes to meet shorter delivery windows and leaner retail inventories.

Airport cargo terminals are now teeming with items such as dog food and spaghetti sauce. “We’re shipping more and more of what you might consider to be everyday basics,” said a UPS spokesman.

Classroom discussion questions:

  1. What can operations managers do to better control shipping/logistics costs?
  2. What technique in Supplement 11 (Supply Chain Management Analytics) could be used in this situation?