Consultant Insight: Will same-day delivery mean higher air cargo volumes?

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Rising numbers of e-commerce purchases could mean increased demand for air cargo to meet last-mile delivery commitments. The U.S. Census Bureau estimates that e-commerce made up almost 12% of total retail sales for the first quarter, amounting to a 14.8% increase year over year. What’s more, the e-commerce share of second-quarter retail sales will be much higher because of stay-at-home mandates and store closures due to the COVID-19 pandemic. The result of this trend has been the proliferation of fulfillment networks across the U.S. from such retailers as Home Depot and Lowes. Property management firm JLL noted in a recent report that 35% of its industrial leasing activity was tied to e-commerce operations before the pandemic. As retailers further expand capacity to meet demand, JLL expects that percentage to rise to as much as 50% by the end of the year. Amazon, the largest U.S. e-commerce provider, has built an intricate network of fulfillment centers, delivery stations, inbound and outbound sortation facilities, Prime hubs and returns facilities. It is a freight broker, a freight forwarder, an airline and it sells last-mile delivery routes, all while promising next-day delivery to its Prime members. In 2019, Amazon announced that instead of offering two-day delivery for Prime members, it would offer next-day delivery. Since the announcement, Amazon has expanded its ground and air networks. According to its website, the e-commerce giant has more than 75 fulfillment facilities in North America and at least 100 more outside the continent. Amazon Air operates almost 100 flights per day in the U.S. via such partners as Atlas Air, Air Transport International, Southern Air and Sun Country Airlines, according to a DePaul University study . On the other hand, Amazon’s leading competitor, Walmart, seems to be shying away from the use of air cargo in its e-commerce strategy. Walmart is known for its impressive supply chain that includes tight oversight of its suppliers, its own trucking fleet supplemented by outsourced carriers as needed and its use of ocean freight to import and disperse goods to its more than 190 distribution centers that have such specializations as imports, consolidation, food, e-commerce, and others. With a large retail store footprint, Walmart has incorporated its stores into its same-day delivery plan rather than grow its utilization of airfreight. Earlier this year, Walmart announced its own competitor to Amazon Prime, Walmart Plus, but has so far delayed its launch several times, citing COVID-19 as a reason for the delay. As part of Plus membership benefits, Walmart also plans to offer same-day delivery. However, Walmart’s last-mile endeavors are questionable. Utilizing a number of outsourced and crowd-sourced delivery providers, its network can be clunky and unpredictable. Walmart also leans heavily on FedEx for deliveries. FedEx, however, has suffered from capacity issues this year and has had to cap volumes on some retailers while implementing “temporary” Ground surcharges. As an alternative to delivery, Walmart has primarily promoted its buy online, pickup in store (BOPIS) solution as well as curb-side pick-up. Walmart considers these capabilities to be a big advantage against Amazon. According to the company, 90% of the U.S. population resides within 10 miles of a Walmart store. The question remains whether these advantages will be sufficient for the retailer’s same-day delivery plans. Other retailers are also utilizing storefronts to fulfill same-day pick-ups and last-mile deliveries. Meanwhile, air cargo dependency continues to be focused on inventory replenishment from Asia, Europe or elsewhere. Among those carriers focused on airfreight’s space in last-mile fulfillment, FedEx and UPS continue to build out their domestic air express networks to meet growing e-commerce needs from customers, for both B2C and B2B fulfillment. FedEx, for example, is building a 51-acre facility located at Ontario International Airport (ONT) that almost triples the number of acres for cargo storage, sorting and equipment maintenance. The new facility should be completed by October or November. UPS recently signed a long-term lease with the airport authority for Gary/Chicago International Airport (GYY) that will allow the company to begin express air shipment operations later this year. The service from GYY to the UPS Louisville hub (SDF) will expand UPS’ Next Day Air service. With the ongoing investments in last-mile capability expansion, we have seen promised last-mile delivery times decline from five to seven days to two-day and now same-day — or less-than same-day — delivery from Amazon in certain parts of the country. The same is also true for some retailers with storefronts; look for this preference to become the norm soon.

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