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Amazon gains more from warehouses than owning air network: Barclays
BARCLAYS questions the wisdom of Amazon earmarking the capital required to operate a standalone time-definite air network, saying the money could be better spent.
The investment group maintains that this approach is likely to be "less impactful in the long run relative to local fulfilment network build out - meaning money would be better spent on expanding its warehousing network.
The analysts argue that establishing its own air network would have "only limited financial returns" and there exists "plenty" of air capacity during "non-peak periods in the incumbent package networks".
The Barclays Equity Research report was published amid speculation that Amazon has been testing its own air freight operation in the US and Europe, reported Lloyd's Loading List.
The report notes: "Air transportation, especially of goods, is an expensive proposition. FedEx Express remains the market leader in terms of domestic US air shipments, but financial returns have remained stagnant (beyond recent fuel and pension cost reductions) for over a decade.
"However, for Amazon, we view the potential launch of an air operation at the old DHL hub in Wilmington, Ohio, as a likely experiment or ultimately small network designed to meet very specific high value product inventory requirements for the company."
The report estimates that by the end of 2016, Amazon is likely to operate over 100 US fulfilment and/or distribution centres. This would create a nationwide network with meaningful scope and enable inventory placement closer to consumers in most metropolitan areas.
"We genuinely believe the intention of Amazon is not necessarily to replace FedEx or UPS but rather drive faster and lower cost package delivery to consumers, albeit potentially with other carriers," it notes.
The report highlights that over the years, "one of the keys to Amazon's success and one of the key pillars of their strategy" has been to continually build out its distribution infrastructure.
"As they have been able to push more product closer to where individuals live, the cost to ship goods, on average, has come down."
This has allowed them to compete at an advantage against almost every e-commerce alternative and to distance themselves from brick and mortar retail as well," said the report.
The investment group maintains that this approach is likely to be "less impactful in the long run relative to local fulfilment network build out - meaning money would be better spent on expanding its warehousing network.
The analysts argue that establishing its own air network would have "only limited financial returns" and there exists "plenty" of air capacity during "non-peak periods in the incumbent package networks".
The Barclays Equity Research report was published amid speculation that Amazon has been testing its own air freight operation in the US and Europe, reported Lloyd's Loading List.
The report notes: "Air transportation, especially of goods, is an expensive proposition. FedEx Express remains the market leader in terms of domestic US air shipments, but financial returns have remained stagnant (beyond recent fuel and pension cost reductions) for over a decade.
"However, for Amazon, we view the potential launch of an air operation at the old DHL hub in Wilmington, Ohio, as a likely experiment or ultimately small network designed to meet very specific high value product inventory requirements for the company."
The report estimates that by the end of 2016, Amazon is likely to operate over 100 US fulfilment and/or distribution centres. This would create a nationwide network with meaningful scope and enable inventory placement closer to consumers in most metropolitan areas.
"We genuinely believe the intention of Amazon is not necessarily to replace FedEx or UPS but rather drive faster and lower cost package delivery to consumers, albeit potentially with other carriers," it notes.
The report highlights that over the years, "one of the keys to Amazon's success and one of the key pillars of their strategy" has been to continually build out its distribution infrastructure.
"As they have been able to push more product closer to where individuals live, the cost to ship goods, on average, has come down."
This has allowed them to compete at an advantage against almost every e-commerce alternative and to distance themselves from brick and mortar retail as well," said the report.
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