Amazon is fast becoming a player in the logistics and shipping industry, as the company recently expanded Amazon Air to include 50 new planes and several new regional hubs, including a $1.5 billion hub opening in northern Kentucky in 2021.
The move is to handle 26% of the Company’s shipping of online orders through its dedicated air network. In the last quarter, Amazon’s shipping costs jumped to 23% reaching a record $9 billion. For the whole year, the company spent $27 billion.
The in-house shipping can significantly reduce its hefty shipping costs. Currently, Amazon pays UPS or FedEx about $8 or $9 per box. By bringing shipping in-house, this will be reduced to about $6 per box which means even cheaper products along with faster deliveries.
Currently Amazon Air has planes at 21 U.S. airports and it's opening new regional hubs this year in Fort Worth, Texas, Wilmington, Ohio, and expanding one in Rockford, Illinois. In 2021, Amazon will open a $1.5 billion air hub at Cincinnati/Northern Kentucky International Airport where it will have a capacity for 100 planes, double what it has now.
But is this concerning for UPS and FedEx?
FedEx's senior vice president of integrated marketing, Patrick Fitzgerald, said he's not worried at all. He explained that the broad portfolio of FedEx’s business cannot be justly compared with Amazon’s that is just one aspect of its business, which is transportation. In 2018, Amazon represented less than 1.3 % of FedEx’s total revenue. Fitzgerald pointed out that FedEx has 700 planes, while Amazon only has 40.