Amazon Leases Planes – eCommerce Giant Aiming To Make Its Own Deliveries And Save $11.5 Billion Annually?

Amazon has leased planes to ferry its cargo across the length and breadth of the United States. The eCommerce giant is increasingly attempting to make its own deliveries and save a ton of money in the process.

Amazon Inc. announced it has leased about 20 cargo planes. The e-retailer has been experimenting with multiple techniques to bring the delivery of its cargo in-house, reported The Christian Science Monitor. However, this is by far the biggest step it has taken. Signaling its intention to make its own deliveries, Amazon signed an agreement with Air Transport Services Group Inc. (ATSG) to initiate operations for an air cargo network for Amazon customers across the United States. The 20 freight planes are just part of the Amazon Fulfillment Services.

For quite some time, Amazon has relied on carriers like United Parcel Service (UPS) and FedEx to deliver most of its packages. Securing the services of third-party courier companies doesn’t come cheap. The company spent $11.5 billion last year, just to get your purchase delivered to your doorstep in the fastest and safest way possible. It is quite clear Amazon intends to significantly cut down the expenses involved in delivering the products it sells, and operating its own air delivery fleet is the fastest and cheapest way.

According to the agreement with ATSG, Amazon has leased 20 Boeing 767 cargo planes. These wide-bodied freighter aircraft are similar to the ones being used by UPS and FedEx. These cargo planes are quite efficient and are designed to ensure smoother cargo handling, while at the same time ensuring optimum load-hauling to bring down delivery cost.

According to GDN Online, Amazon has rolled out thousands of trailers and launched a program that uses contract drivers to deliver fast orders. It is all being done to assume more control over its supply chain and reduce costs. It’s no secret that Amazon has grown substantially and has offered some amazing services like Prime, which promises insanely fast delivery times. Hence taking ever more control of its logistics has been an evolutionary requirement to cut costs and ensure on-time delivery, shared spokeswoman Kelly Cheeseman,

“The planes will be used to transport customer packages from our fulfillment centers closer to customers for delivery, including for injection into our sortation center network. These planes provide critical capacity expansion to support the growth of Prime in the U.S.. Planes provide an additional dedicated transportation method connecting Earth’s largest selection to customers from coast to coast. At our scale, supporting growth requires adding some of our own logistics capabilities.”

When Amazon leases planes, it does so in a grand manner. According to USA Today, ATSG will lease 20 Boeing 767 freighter aircraft to Amazon Fulfillment Services, Inc., an affiliate of Amazon. The lease validity is between five and seven years. Incidentally, ATSG has also been tasked with flying the planes and will be responsible for gate and logistics services, confirmed the company through a statement,

“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.”

Interestingly, while it appears obvious that Amazon is attempting to reduce its dependence on standard carriers like FedEx or UPS by building its own delivery network, these carriers need not worry much about possible encroachment on their turf, feel experts. While FedEx operates 370 cargo planes, UPS has an operational fleet of 240 freight aircraft. UPS is still considered the world’s No 1 package delivery company. FedEx announced that Amazon’s decision to lease cargo planes wasn’t a surprise. It added that Amazon will always be considered as a valuable customer.

Amazon to lease 20 cargo planes to build its own overnight air operations https://t.co/fHa4X1z2C8 #disruption https://t.co/fHa4X1z2C8

— Michael Krigsman #CXOTALK (@mkrigsman) December 18, 2015

The planes leased by Amazon should be pressed into service from April 1. Interestingly, the lease agreement allows Amazon the right to buy up to 19.9 percent of ATSG’s stock over five years at $9.73 per share, reported Bidness Etc.

[Photo by David Paul Morris/Bloomberg/Getty Images]