Skip to content
Search AI Powered

Latest Stories

newsworthy

Amazon's Cincinnati air hub speaks to company's broad supply chain ambitions

$1.5 billion facility designed to reduce delivery and fulfillment costs, ultimately expand market share.

E-tailing giant Amazon.com, Inc. has made little secret of its desire to more effectively manage its own supply chain and to take over the supply chains of its customers, and its announcement late Tuesday that it will break ground later this year on a $1.5 billion air hub at Cincinnati/Northern Kentucky Airport is a major step on that quest.

The facility, to be located in the Cincinnati suburb of Hebron, Ky., will contain 11 buildings, according to a research note by Colin Sebastian, an analyst for Robert W. Baird, an investment firm. It will be the focal point of Seattle-based Amazon's growing fleet of dedicated freighter aircraft—of which 16 of a planned fleet of 40 are operational—to support its "Prime Air" network for two-day deliveries. More importantly, especially for traditional transport and logistics firms that don't think Amazon competes with them, this new facility places another piece in the company's ambitious jigsaw puzzle of controlling a greater portion of its supply chain, and those of its third party merchants that use the "Fulfillment by Amazon" (FBA) service, over time.


Though it is not clear, the assumption is that the Cincinnati hub will replace Amazon's existing operations at the nearby Wilmington, Ohio, air park, which were not dedicated Amazon facilities. A local report said Amazon employees there would be offered jobs in other parts of its network. The new operation is expected to employ 2,000 full-time workers, Amazon said.

Amazon chose the site for its central location, skilled workforce, and proximity to its other nearby fulfillment centers, Dave Clark, Amazon senior vice president of worldwide operations, said in a statement. Besides the air cargo fleet, Amazon has a network of 4,000 trailers, a crowd-sourced courier service, called "AmazonFlex," for last-mile deliveries, and an ocean freight forwarder license for its Chinese operation which enables it to serve the U.S. According to published reports, Amazon has handled the movement of 150 containers in the past few months. All of this, and what may be still to come, are enabling Amazon to move beyond its roots as an online retailer, and to define itself as a "transportation service provider" carrying freight for both its direct retail customers and third-party wholesalers participating in the FBA program.

SUPPORTING BOTH GOALS The Cincinnati airport is ideally located to support both of those goals, sitting in a fast growing cargo hub that is part way between an "Amazon Prime Air" facility in Wilmington and the Amazon subsidiary Zappos.com's fulfillment center in Shepherdsville, Ky., said Jim Tompkins, CEO of supply chain consultancy Tompkins International.

By combining that central location with a growing aircraft fleet, Amazon could be positioning itself to move from standard two-day delivery for its Prime customers to one-day delivery, Tompkins said. Such fast service could help Amazon counter a competitive move from rivals like Wal-Mart Stores Inc., which said yesterday it would provide two-day shipping for free.

"The only hole in (Amazon's) bucket is when they have slow-moving items that can't be stored in all their fulfillment centers, so they're stored in just one or two distribution centers (DCs) instead of 40 to 50 sites," he said in an interview today. "The only way to do [next-day shipping] then is to have more air capacity and more airplanes. And that is exactly what they're doing."

Even for a company of Amazon's size, the only way to provide such fast fulfillment at a reasonable cost is to achieve enough volume to drive down the cost of order picking by automating its DCs and to cut the costs of home delivery by increasing delivery density, he said.

"That is part of the brilliance of Amazon: That they realize what drives efficiency in fast delivery and great customer service is to have high volumes. Scale is king," Tompkins said.

Amazon has 11 fulfillment centers in Kentucky alone, with at least 13 fulfillment centers within a 150-mile radius of the planned Cincinnati facility, providing plenty of package volume to generate significant per-unit savings, Sebastian of Baird said.

Transport savings have become one of Amazon's many Holy Grails. Its shipping costs have exceeded shipping revenue for several years, due to the explosive growth of its business and, the company believes, its lack of custodial control of its shipments. Tomorrow, Amazon releases its fourth quarter and year-end results, which will include shipping trends during the key holiday peak season.

The move to Cincinnati is a blow to Wilmington, which has spent the past eight years rebuilding its presence after package giant DHL Express ceased domestic U.S. service in 2009 and closed its national hub there. DHL today uses the same Cincinnati airport where Amazon will build its hub.

The air park has 1,300 acres, two runways, and 3 million square feet of office, industrial, and hangar space. In an email, Wilmington officials said they are optimistic about the air park's future. The work with Amazon "proved its ability to handle a major cargo project reliably and cost effectively," they said. City officials said they are in on-going discussions with other airlines. About 1,300 people are employed at 12 companies in the air park.

Satish Jindel, president of consultancy SJ Consulting, believes Amazon is taking a big gamble relocating from Wilmington to Cincinnati. In a letter to be sent tomorrow to Amazon Chairman and CEO Jeffrey P. Bezos, Jindel said Amazon would save about $1 billion by developing a hub in Wilmington, and that it would be up and running sooner. Jindel added that it would be easier and less expensive to hire and train workers in Wilmington than in Cincinnati. In a phone interview today, Jindel said Amazon would have an all-cargo facility at Wilmington at its disposal, whereas at Cincinnati it would share space with passenger airlines.

Though Jindel has doubts about the move, he doesn't have any doubts about Amazon's strategy. The fast-growing FBA service has been taking business from Memphis-based FedEx Corp. and UPS Inc., both of whom had these merchants as former customers, Jindel said. What's more, consumers and businesses that order on Amazon's website were once the customers of retailers that are FedEx and UPS shippers, he said.

"FedEx and UPS need to get their heads out of the sand and bring in outside people with a different vision" of dealing with a company like Amazon, Jindel said.

The Latest

More Stories

U.S. map with drought risk

Everstream Analytics quantifies how climate risk affects supply chains

Supply chain risk analytics company Everstream Analytics has launched a product that can quantify the impact of leading climate indicators and project how identified risk will impact customer supply chains.

Expanding upon the weather and climate intelligence Everstream already provides, the new “Climate Risk Scores” tool enables clients to apply eight climate indicator risk projection scores to their facilities and supplier locations to forecast future climate risk and support business continuity.

Keep ReadingShow less

Featured

packaging supplies plastic films

Innotex Packaging launched from merger of three companies

The investment firm LongueVue Capital has bundled three shipping product companies together to create Innotex Packaging Solutions, calling it an integrated flexible packaging solutions provider that unites Summit Plastics, ClearView Packaging, and Fredman Packaging.

According to New Orleans-based LongueVue, the “strategic rebranding” brings together the complementary capabilities of these three companies to form a vertically integrated flexible packaging leader with expertise in blown film production, flexographic printing, adhesive laminations, and converting.

Keep ReadingShow less
Stampin’ Up!’s Riverton, Utah, distribution center

Stampin’ Up!’s Riverton, Utah, distribution center

Picking reimagined

What happens when your warehouse technology upgrade turns into a complete process overhaul? That may sound like a headache to some, but for leaders at paper crafting company Stampin’ Up! it’s been a golden opportunity—especially when it comes to boosting productivity. The Utah-based direct marketing company has increased its average pick rate by more than 70% in the past year and a half. And it’s all due to a warehouse management system (WMS) implementation that opened the door to process changes and new technologies that are speeding its high-velocity, high-SKU (stock-keeping unit) order fulfillment operations.

The bottom line: Stampin’ Up! is filling orders faster than ever before, with less manpower, since it shifted to an easy-to-use voice picking system that makes adapting to seasonal product changes and promotions a piece of cake. Here’s how.

Keep ReadingShow less
autostore AS/RS at toyota materal handling site

New AutoStore AS/RS at Toyota Material Handling’s DC will increase parts volume and fulfillment speed

With its new AutoStore automated storage and retrieval (AS/RS) system, Toyota Material Handling Inc.’s parts distribution center, located at its U.S. headquarters campus in Columbus, Indiana, will be able to store more forklift and other parts and move them more quickly. The new system represents a major step toward achieving TMH’s goal of next-day parts delivery to 98% of its customers in the U.S. and Canada by 2030, said TMH North America President and CEO Brett Wood at the launch event on October 28. The upgrade to the DC was designed, built, and installed through a close collaboration between TMH, AutoStore, and Bastian Solutions, the Toyota-owned material handling automation designer and systems integrator that is a cornerstone of the forklift maker’s Toyota Automated Logistics business unit. The AS/RS is Bastian’s 100th AutoStore installation in North America.

TMH’s AutoStore system deploys 28 energy-efficient robotic shuttles to retrieve and deliver totes from within a vertical storage grid. To expedite processing, artificial intelligence (AI)-enhanced software determines optimal storage locations based on whether parts are high- or low-demand items. The shuttles, each independently controlled and selected based on shortest distance to the stored tote, swiftly deliver the ordered parts to four picking ports. Each port can process up to 175 totes per hour; the company’s initial goal is 150 totes per hour, with room to grow. The AS/RS also eliminates the need for order pickers to walk up to 10 miles per day, saving time, boosting picking accuracy, and improving ergonomics for associates.

Keep ReadingShow less
US Bank truck shipments Q3

U.S. Bank: truck freight shipments and spending slow their decline

Truck freight shipments and spending continued to contract in the third quarter, albeit at a slower pace than earlier this year, according to the latest U.S. Bank Freight Payment Index.

“The latest data continues to show some positive developments for the freight market. However, there remain sequential declines nationwide, and in most regions,” Bobby Holland, U.S. Bank director of freight business analytics, said in a release. “Over the last two quarters, volume and spend contractions have lessened, but we’re waiting for clear evidence that the market has reached the bottom.”

Keep ReadingShow less