The Amazon Effect On US Airports

FreightWaves is providing a forum – Market Voices – for a number of market experts.

Cathy Morrow Roberson is a market analyst with a research and economics background. Roberson began her career as a librarian; she was then an analyst at an e-commerce start-up; and was an analyst at UPS Supply Chain Solutions supporting market, competitive and mergers & acquisition research and analytic needs for 11 years. After a brief stint with specialized consulting firms, Roberson now manages the logistics-focused market research firm Logistics Trends & Insights LLC, which is based in Atlanta, Georgia.

As air cargo volumes point downward, recent conferences focused on the air market are touting e-commerce as the savior of airlines and airports. Indeed, my first article for Freightwaves discussed the phenomenon of e-commerce and the need for the air industry to invest in solutions to meet the growing e-commerce demand.

Rather than beat the drum for more investments, let's take a look at what is actually being done to address e-commerce from the airport perspective.

Bradley International Airport, a civilian/military airport located in Windsor Locks, Connecticut, United States, recently highlighted the growth of package-delivery and other supply chain companies operating from the airport. The growth led to a 16.4 percent growth in freight and mail handled in 2018 compared to 2017.

Companies such as FedEx Corporation FDX, UPS Inc. UPS and DHL are playing a role in Bradley's growth but also companies such as Pinnacle Logistics, which ships packages for Amazon.com, Inc. AMZN. In fact, airport officials attribute much of the 2018 growth to Pinnacle, since it relocated to 394,000-square feet of space at the airport. The Bradley Airport Development Zone, in which Pinnacle is located, encompasses nearby towns and has seen additional logistics providers move into the area, particularly due to the rise in e-commerce. Walgreens WBA, Dollar Tree, Inc. DLTR and Amazon all have established fulfillment and distribution centers in the Bradley Airport Development Zone.

Why Bradley International Airport? According to airport officials, Bradley's available space and lower rents has set it apart from transportation hubs such as Logan International Airport in Boston and John F. Kennedy International Airport in New York.

Available space and lower rents is what is attracting more logistics providers servicing e-commerce demands. Depending on how one views it, the Amazon effect is either the reason and/or Amazon, itself, is playing a leading role in this trend, particularly here in the United States.

A look at the airports that Amazon's Prime Air uses finds such airports as Lehigh Valley International Airport, Stockton Metropolitan Airport and Tampa International Airport – over 20 airports, in fact, and growing – all located fairly close to Amazon's fulfillment facilities with the ultimate goal to reduce last-mile delivery time to two days and ultimately to one day. As Amazon benefits and thus e-commerce grows, so do the airports.

Chicago's Rockford International Airport is certainly experiencing the benefits of an Amazon presence. Amazon is investing $11 million – adding an additional 120,000 square feet of space and developing a ramp parking area for more aircraft. Currently, Amazon's air partners can park up to eight aircraft.

Late last year, Amazon announced plans to build a new air gateway at March Air Reserve Base in Riverside, California to supplement current and ongoing operations at Ontario International Airport. This region, known as the Inland Empire, has been good to Amazon. Beginning in 2012 with its first fulfillment facility in San Bernardino, Amazon now has at least nine such facilities in the area. The new operation will include daily flights, and an onsite facility to sort packages bound for their next destination.

Amazon is also building a regional air hub at the Fort Worth Alliance Airport that will include daily flights and sortation capabilities. The new air hub will supplement existing operations at area airports including George Bush Intercontinental Airport in Houston, Dallas/Fort Worth International Airport and Lackland Air Force Base in San Antonio.

Least not we forget, Amazon's main air hub will be located at Cincinnati/Northern Kentucky International Airport (CVG) in Hebron, Kentucky – located in the backyard of UPS' own air hub in Louisville, Kentucky. Expected to open in 2021, the new $1.5 billion investment will include, among other things, a new ramp for aircraft parking, vehicle parking lots, a sortation building and airport and local roadway improvements. Amazon has been in the process of acquiring land for the project, including the purchase of 210 acres in 2018 for a total of nearly $20 million. In the meantime, the company has been using DHL's facility at CVG to provide its services.

Amazon is also using area airports as its main hub is built. Last year, it opened a package sorting operation at Wilmington Air Park, just 60 miles from CVG. According to airport officials, Amazon will add eight daily flights from the airport beginning sometime this quarter.

Much of the focus on e-commerce air cargo has been centered on Amazon as it continues to build an impressive logistics network. Representing an estimated 49 percent of U.S. e-commerce transactions, its actions are closely watched. Should alarm bells go off for other providers? Not yet. As noted at a recent Air Cargo News Conference, Amazon's move into logistics should be seen as an opportunity, not as a threat.

"Some air cargo players are already benefiting from working with Amazon and others are looking at the e-tailer's efficiencies and learning from them – such as how the company shares data," said Brendan Sullivan, head of ecommerce and cargo operations at the International Air Transport Association. Meanwhile, Ross Marino, senior vice president of international airport operations for dnata, observed that similar stories about the death of the air cargo industry had been made when the integrators arrived. "But they became our customers. There is definitely an opportunity here but we have to understand the trends."

For airports, Amazon is an opportunity for increased volumes and potential economic benefits for surrounding areas. However, tax benefits that are used to attract such players as Amazon should be studied and used logically so as not to impede any benefits to the surrounding areas or to the airports themselves.

As Amazon, FedEx and UPS introduce new planes into their networks, invest in airport facilities and surrounding areas, the U.S. domestic air market looks promising – particularly with retail e-commerce sales set to grow at least at an estimated 11.1 percent this year.

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