Air Transport Services Group, the parent of the cargo company that began operating at Stockton Metropolitan Airport in February, has signed deals to lease and operate 20 Boeing 767 jets for Amazon Fulfillment Services Inc. The company confirmed the deal to the Cincinnati Enquirer newspaper in early March.
Air Transport International began flying out of Stockton’s airport on Feb. 1. ATSG is its parent company. At that time there had been speculation that ATSG was putting together a fleet for its own air delivery service with the goal of providing one and two-day deliveries for Amazon Prime customers.
“This has been rumored for quite a while,” said logistics industry expert Tom Caporaso of Clarus Commerce. “But I think at its core, adding a potential cargo fleet lets them really control and optimize the delivery process as you start to think about what Amazon’s trying to do and trying to get the packages in the hands of customers faster and faster.”
According to the Enquirer’s story, ATSG granted warrants giving Amazon a 19.9 percent stake in the company. That will allow Amazon to buy the stake over the next five years at a price of $9.73 per share, based on ATSG’s Feb. 9 closing price, the newspaper said.
In November, online magazine Motherboard reported on an operation called Aerosmith that was flying in and out of four airports in Allentown, Pennsylvania; Ontario, California; Tampa, Florida; and Oakland.
Amazon has distribution centers less than 60 miles from those locations, the report said, which led analysts to believe Amazon was behind Aerosmith.
Since then, ATI began flying out of Stockton. Amazon’s fulfillment center in Tracy is 17 miles from the airport. Another is located in Patterson 38 miles away. One flight a day arrives at 11 a.m. and departs at midnight.
Stockton Metro Airport is one of just six airports where the Amazon flights are now based.
“We’re thrilled,” said Stockton Metro Airport Director Harry Mavrogenes. “We feel we’re on the ground floor of an exciting opportunity.”
Mavrogenes thinks Amazon will revolutionize air cargo by eventually offering cargo service to other businesses much the same way Fulfillment by Amazon handles order processing and delivery for other vendors.
Caporaso agrees Amazon could be laying the groundwork for something bigger. But right now, the move appears to be motivated by the e-commerce giant’s need to control deliveries.
During the 2013 Christmas shopping season, Amazon received complaints from customers whose orders failed to arrive on time. Caporaso said there was a lot of finger pointing at UPS and FedEx, and that’s when rumors of Amazon’s plans to start its own air cargo fleet started to emerge.
In addition, Amazon needs to reduce its shipping expenses, especially as many customers don’t pay directly for shipping.
“This is quite a bit of money they’re spending on shipping costs,” Caporaso said. “I think it was something over $11 billion last year. If they can get the fleet in place and get that optimized, I’m sure they’re also looking at it from a cost-reduction standpoint.”
Decreasing costs and boosting reliability has become even more important as the company builds customer loyalty by offering so-called free shipping through its Amazon Prime program.
“There’s such a visceral response to people paying for shipping,” said Caporaso. “At the end of the day, free shipping’s really not free. Someone has to pay to get that box from the warehouse to the front door.”