On the heels of news last month that Amazon is officially going into the air freight business solidifying a deal with Air Transport Services Group Inc., there are implications and trends global supply chain managers should consider and watch for in the coming year. Namely, the use of private fleets is increasing, not diminishing. It is important to think through scenarios where this makes sense and where it does not. Looking at Amazon's investment from a logistics performance point of view, the priority is to deliver on the promise of customer service.
It makes sense for Amazon to invest in resources to create a global logistics network, because they are at their core a logistics company. Why? They are doing demand fulfillment for a lot of different organizations – handling delivery. And in light of their latest investment in air cargo capacity, this isn't a novel concept. In the trucking industry for example, every large corporation established their own fleets of trucks delivering shipments across the U.S.
With its expanded delivery network, Amazon will not compete with FedEx or UPS. Ultimately, Amazon is really a new business model. They are a virtual store. Amazon sells companies' products and ensures that orders are delivered with speed, and with the expanded network can better support one and two-day delivery for customers.
Gaining the new fleet and strengthening the existing network, Amazon is able to better control delivery time. Ensuring their ability to deliver what they are promising to their customer base is critical to their business model. Amazon has to have an extremely effective way to control the supply chain. Airplanes are just one of the many areas they are looking into with the goal of increased control of the supply chain. The company is effectively stretching its capacity to be able to make capital investments. At this point, it is better and more cost-effective for them to invest in it themselves. This approach won't be a panacea for everybody.
Will shippers want to use Amazon as a way to get to their customers quickly? They might. Will they follow suit investing in fleets and in-house logistics support? That approach may not be the most cost- effective route, but there may be certain areas where it makes sense. For example, for flights to China, this could be applicable as long as shippers could fill capacity on the flight back after shipments are completed. This could potentially work during certain times of the year as well when there are demand issues like peak holiday season.
The questions most top of mind for supply chain managers:
- When does it make sense to invest in a private fleet?
- Is the primary goal to control delivery?
- Is it to control cost?
The answer is yes if existing networks in a given market limit a shipper, and if they have enough volume. Otherwise, it doesn't make sense. Thinking through where private fleets make sense and where and why they don't, supply chain managers should weigh opportunities to improve operational efficiency in smarter, more effective ways that drive measurable results.