Amazon.com, Inc. (NASDAQ:AMZN) has launched a new cargo service with around 40 leased planes currently in operation. This is part of the e-commerce giant’s strategy of meeting demand from its customers. The move is expected to cut into the revenues that courier companies such as United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX) generate from Amazon.
In the recent past, Amazon has been trying to attract a new customer base by offering fast shipping and keeping a tight lid on costs. In the United States alone, Amazon Prime has acquired anywhere between 35 to 50 million customers. With Amazon Prime, customers can get orders shipped within 2 days by paying an annual fee of $99.
One of the revenue drivers for courier companies has been bulky boxes for items like toilet paper and paper towels for which they have been charging depending on the volume of the box rather than the weight of the box. Now Amazon’s own transportation service is taking over the shipping responsibilities of the bulky but light packages with a view to cutting costs that are currently increasing. Amazon, however, maintains that its motivation is to support the efforts of its shipping partners as well as to speed up the shipping process.
“Our own delivery efforts are needed to supplement that capacity rather than replace it,” Kelly Cheeseman, an Amazon spokesperson, told Reuters.
Big and light
Currently, Amazon-branded jets are flying to 10 US airports, from where products are then transported to the nearest warehouses. Everything points to the fact that most of the shipments on these planes are in the low-density category. This includes data from four airports indicating that these jets only contain about 37% to 52% of their maximum weight of load allowed. This was in contrast to what UPS and Fedex were shipping – between 53% to 56% of their maximum weight of load allowed. Another thing that Amazon is doing differently to speed up deliveries is having its cargo planes fly without a stopover.
In Friday’s trading session, Amazon Inc edged downwards by 0.75% to close the day at $760.59 a share.