Amazon.com (AMZN +2.17%) has slowly built up an impressive shipping network that gives it a major advantage of over its pure-digital and physical retail competitors.
That edge starts with the company's network of distribution warehouses. These facilities, which cover the entire United States, not only use a mix of humans and sophisticated robots to fulfill orders, but they also use proprietary predictive software to literally prepare customers' orders before they're placed.
The online leader hasn't stopped there. If it had, then the large retail chains might be able to compete using their combination of improving shipping efficiency and physical locations. But Amazon has gone well beyond simply being efficient. It has also developed out-of-the-box shipping solutions.
This approach includes its unique deal with the United States Postal Service that allows it to offer two-day shipping seven days a week, including Sundays, in many markets. Amazon has also built out its own last-mile trucking service in select cities. This service lets the company offer two-hour delivery, same-day grocery delivery, and an overall capacity that the rest of the retail world can't begin to approach.
It's about problem solving, working within the system when it can, and creating its own solutions when needed. Using a little bit of everything has let Amazon earn a well-deserved reputation for having reliable, nearly perfect, two-day-or-even better shipping.
Now the company is looking to boost its delivery network even further. It appears to be making moves to start its own air-freight business.
Amazon uses a mix of people and robots in its warehouses. Source: Amazon.
What is Amazon doing?
The retail leader looks to be preparing to begin shipping its own air freight, according to a report in The Seattle Times. Amazon, the paper reports, is negotiating leases on 20 Boeing (BA +5.51%) 767 jets, which would be used to ship packages around the country.
The move would lessen the company's reliance on third-party delivery companies, which have caused shipping problems for the company in previous years.
"Amazon is pretty fed up with the third-party carriers being a bottleneck to their growth," Robert W. Baird & Co. analyst Colin Sebastian told the paper.
Why would Amazon do this?
It's possible the company is simply looking to gain leverage over its third-party shipping partners. UPS has struggled to meet the online retailer's heavy holiday demand in many of the past years, with 2013 being the "nadir," according to USA Today, when shipping issues meant some packages didn't arrive in time for Christmas.
By creating its own fleet -- even a small one -- Amazon will have a legitimate "or else" threat for its partners. This leverage could force UPS and the USPS to grow capacity and build in more fail-safes to keep their large-volume customers happy.
That's likely a piece of the equation, but it's also very clear that Amazon understands that shipping is its competitive advantage over other retailers. Both of those major chains have vastly improved their websites, but neither offers consistent two-day shipping at anywhere near the level Amazon does.
If Amazon has its own planes, it can use them strategically to lessen the load on its partner network during busy seasons. That, along with all of the other shipping efficiencies Amazon has built into its system, will allow it to reliably offer the fastest shipping of any large-scale retailer.
That advantage, and the stunning consistency with which Amazon maintains two-day shipping, are the company's equalizer in competing with companies that have physical stores. An air freight network is simply another arrow in the Amazon quiver, but it could prove to be an important one that keeps it steps ahead of everyone else in the retail space.
