Amazon's new cargo hub and its implications within the industry
Can Competitors Survive If Amazon Enters the Logistics and Transportation Industry?
Amazon recently unveiled plans to build a $1.5 billion air cargo hub at the Kentucky airport to accommodate its growing fleet of Prime delivery jets. Similar to the way Amazon initially developed AWS to meet its own cloud needs, then offered it to the public, this initial cargo hub is probably only the tip of the iceberg for Amazon delivery offerings in the future. How will this affect the traditional transport and delivery giants like FedEx, DHL and UPS, the mega-retailers, and the users of these services?
When Amazon, one of the largest retailers and movers of goods, chooses to move transportation and delivery in-house instead of outsourcing to other carriers, it eliminates business as usual with today’s supply chain businesses and impacts the way the third-party carriers plan for future growth. Traditional carriers can no longer ‘rest on the laurels’ of their previous successes. They will have to look for ways to provide more value, including better reliability, efficiency, speed and convenience, to their customers at a lower cost. This will be challenging for companies that aren’t as dynamic and innovative as Amazon and perhaps culturally, aren’t willing or able to take risks like Amazon.
Carriers won’t be the only businesses that will be forced to evolve if Amazon’s expansion into transportation and logistics comes full circle. Retail giants are already investing in providing an improved delivery experience for the on-demand economy. Back in the day, Wal-Mart did some amazing first-of-its-kind practices from how they managed stock in their warehouses and stores vis-a-vis their suppliers, to using jets to efficiently move management around. Many competitors then followed suit. Now Wal-Mart is the one following Amazon, further evidenced by its recent acquisition of Jet.com and clothing line, ModCloth. What’s more, Wal-Mart is now trying to ‘one up’ Amazon on its two-day shipping by offering it for free with no memberships fees. Nordstrom, the epitome of in-store (brick and mortar store, of course) customer service, tried to get in on the online trend, but had much less success than they had hoped, recently laying off a significant part of the tech team. This is just a small sample of what is yet to come. These moves are creating an environment ripe for innovation, convenience, higher value and service levels, where it was once not possible.
All this competition and innovation creates opportunity and increased demand for companies supporting the transportation and logistics industry. Manufacturers of airplanes (Boeing got the 767 deal for Amazon’s Prime Air), trucks, drones, bots, pallets, dollies, loading equipment, cargo tracking, uniform makers…and the list goes on. Individuals and businesses shipping packages will also benefit. If Amazon enters the shipping industry, businesses will now have another great option to select from when shipping their packages and goods. Moreover, this new entrant will force moves toward higher levels of efficiency at lower costs at the other carriers as well. Thus, shippers (be it companies or consumers) will benefit.
So, is it likely we’ll see Amazon enter this market and drive change? If the evolution of AWS is any indication, yes. Amazon created AWS to address its own cloud needs. Prime Air and the new cargo hub will work to solve Amazon’s fulfillment and logistics needs, but are easily extensible to future ecosystem players in the supply chain. The Kentucky airport is nicely positioned for this due to location and potential reach. When setting up a hub of this size, with potential growth projections, an airport that is conveniently located to fly short and long distances is a plus. It needs to be easily accessible both by air (an uncongested or less congested airspace) and by ground (so that trucks and vans can easily and quickly access the hub). Following Kentucky, we may see Amazon open a similar hub somewhere in Asia to accommodate the amount of cargo they ship from the region. China, Vietnam or another key manufacturing arena would be probable. After establishing the two initial hubs and officially entering the logistics and transportation industry as a provider, Amazon may look to expand across the U.S., Asia, Europe and other regions as they grow.