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This is something the carriers have known was coming for a while and I wouldn't expect it to hurt their bottom line much (and it might end up being a benefit).

This is something the carriers have known was coming for a while and I wouldn't expect it to hurt their bottom line much (and it might end up being a benefit). When you cater to dominant customers like Amazon, you end up operating around their peaks and valleys. Amazon buys so much that if the carriers wanted to keep up with Amazon's demands, they would probably suffer utilization hits whenever Amazon is not peaking. If Amazon assumes the risks of volume variation, they gain a lot of scheduling flexibility (flying later at night, etc.), and they can better level load their volumes across their carriers and themselves. This is a win for both Amazon and their carriers.

brianobush 11y ago
In the short term, this is probably true. However, can you see a future where Amazon increases their own fleet to the point where it hurts other carriers? I certainly do.
- saosebastiao 11y ago
  I think in the long term you can expect to see Amazon directly competing with other carriers in retail parcel delivery, so yes. However, the carriers have a very difficult job, and contrary to popular belief, they are phenomenally cost efficient given the constraints placed on them. Amazon may try to undercut on price, but given the cash flows and margins of large carriers, any significant pricing discount would introduce negative cash flows that could cripple even a behemoth like Amazon. And by significant, I mean anything more than 2-3% off of the rates that UPS or FedEx charges. Given the constraints and inherent difficulty of the business, I would imagine the impact would be no different than if DHL tried to re-enter the US market.
  - JBReefer 11y ago
    UPS is a miracle in motion, go to a bit distribution center sometime.
    - hamburglar 11y ago
      I heard back in January that amazon was hiring up ups managers like crazy and forming a partnership with ATSG. Would have been a good time to buy ATSG, which has jumped quite a bit on the news.
sib 11y ago
That's an interesting idea. I would have assumed that Amazon would be planning to use its own assets for "baseload" demand (to use power generation analogy) and rely on third parties to deal with spikes in demand. Doing so would result in a higher variance in 3rd-party utilization compared to its mean. That is, if Amazon currently needs 50 planes' worth of capacity on average from third parties with a standard deviation of 10 planes' worth, and they decide to acquire 30 planes of their own, then it would mean residual demand for third parties would be 20 planes on average but still a standard deviation of 10 planes' worth.
bobbles 11y ago
Maybe this is where a hyperloop can shine? Direct point to point transport at massive speeds, without people in the cargo to go and get themselves killed

brianobush 11y ago

In the short term, this is probably true. However, can you see a future where Amazon increases their own fleet to the point where it hurts other carriers? I certainly do.

saosebastiao 11y ago
I think in the long term you can expect to see Amazon directly competing with other carriers in retail parcel delivery, so yes. However, the carriers have a very difficult job, and contrary to popular belief, they are phenomenally cost efficient given the constraints placed on them. Amazon may try to undercut on price, but given the cash flows and margins of large carriers, any significant pricing discount would introduce negative cash flows that could cripple even a behemoth like Amazon. And by significant, I mean anything more than 2-3% off of the rates that UPS or FedEx charges. Given the constraints and inherent difficulty of the business, I would imagine the impact would be no different than if DHL tried to re-enter the US market.
- JBReefer 11y ago
  UPS is a miracle in motion, go to a bit distribution center sometime.
  - hamburglar 11y ago
    I heard back in January that amazon was hiring up ups managers like crazy and forming a partnership with ATSG. Would have been a good time to buy ATSG, which has jumped quite a bit on the news.

sib 11y ago

That's an interesting idea. I would have assumed that Amazon would be planning to use its own assets for "baseload" demand (to use power generation analogy) and rely on third parties to deal with spikes in demand. Doing so would result in a higher variance in 3rd-party utilization compared to its mean. That is, if Amazon currently needs 50 planes' worth of capacity on average from third parties with a standard deviation of 10 planes' worth, and they decide to acquire 30 planes of their own, then it would mean residual demand for third parties would be 20 planes on average but still a standard deviation of 10 planes' worth.

bobbles 11y ago

Maybe this is where a hyperloop can shine? Direct point to point transport at massive speeds, without people in the cargo to go and get themselves killed