Planes And Vans Could Deliver Billions In Cost Savings For Amazon

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From Seeking Alpha:

For most investors, watching a stock they own increase in value by more than 30% in one year would be reason to celebrate. However, Amazon isn’t just any company, and investors haven’t been used to a prolonged decline in the stock. Since late September, Amazon’s shares have struggled to get back to their old highs. Whether this is a short-term issue, or a longer-term consolidation remains to be seen. It’s exciting when Amazon gets into new markets, but investors should be equally happy that the company is addressing its profit margins in a meaningful way. Fulfillment costs consumed just under 15% of revenue last quarter, and Amazon is making moves to cut this expense. The first step was to order thousands of delivery vans. The most recent step is developing its own fleet of airplanes.

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 The current move is for Amazon to take delivery of as many as 40 planes by the end of this year. There is further speculation, that the company could expand this fleet to as many as 100 planes.

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 Amazon will save between $2 and $4 per package through these changes. In theory, the initial rollout would save the company between $1 billion and $2 billion annually. To make things simple, savings billions is a huge reason to make these changes even if the President never made a comment at all.

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Is Amazon delivery going to take on FedEx and UPS directly?

At this point, the short answer is Amazon is not going after FedEx and UPS for delivery of other company packages. There are several reasons Amazon quite honestly cannot take on the, “big two” delivery companies at the present time.

First, the size of the UPS and FedEx fleets makes going head-to-head an impossible task at present. In total, UPS has roughly 120,000 vehicles, while FedEx Express has 85,000 vehicles and FedEx Ground reports 60,000 for a total of about 145,000. As mentioned before, Amazon’s vehicle count stands at about 25,000. When your competitors have tens of thousands of vehicles more than you, the battle has been lost before it even started.

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If Amazon isn’t going directly after FedEx and UPS, what is the benefit to the company? The short answer is Amazon is looking to save money on its fulfillment expenses. As mentioned earlier, the company’s fulfillment expenses have been growing faster than revenue for quite a while.

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 The description on Amazon Air’s own web site makes the purpose of this venture very clear. The goal is to, “create technological solutions to help us exceed the expectations of our Prime customers through the use of our air cargo planes.” Amazon’s job description of the Amazon Air Procurement Manager position seems to echo this thesis: “game changing air transportation solutions for Amazon’s middle-mile transportation network, with the aim of ultimately improving our customer’s experience.”

Link to the rest at Seeking Alpha