Is Amazon Building Its Own Air Delivery Service?

Amazon.com (NASDAQ:AMZN) appears to be building its own air-delivery network, an indication that the e-commerce titan seeks to bypass United Parcel Service (NYSE:UPS) and others that have been bogged down by an onslaught of packages.

Amazon has begun negotiations to lease 20 Boeing (NYSE:BA) 767 jets, according to the Seattle Times. The report adds more fuel to speculation that Amazon, which already runs a same-day shipping service in select cities, will take a bigger role in the delivery of its packages by handling air freight.

An Amazon spokesperson said the company does not comment on rumors or speculation.

E-commerce growth has created challenges for shipping networks. UPS and FedEx (NYSE:FDX) have urged retailers and other customers to cut down on the size of packaging and plan ahead for busy periods, especially the holiday season. Delivery times are slower this year compared to last year’s peak season due in part to a higher-than-expected volume of packages, based on a survey from Kurt Salmon.

When it revealed second-quarter earnings on Dec. 16, FedEx confirmed that online retail orders have pushed holiday shipping volume beyond projections. The Memphis-based company said this is the busiest holiday season in its history, and it is operating around the clock to keep up.

FedEx CEO Fred Smith remarked that while customers are improving their shipping habits, some retailers continue to rely on oversized packages. Smith also acknowledged that it is hard for some e-commerce companies to manage shipping volume and adopt new strategies because they are growing very fast.

For Amazon, recent shipping backlogs may be motivation for lessening its reliance on third-party shippers.

One of the aircraft firms named by the Seattle Times, Air Transport Services Group (NYSE:ATSG), was previously said to be operating a trial program for Amazon in Wilmington, Ohio. Through one of its subsidiaries, ATSG reportedly has five jets hauling Amazon boxes out of a former cargo hub in Wilmington. During an earnings conference call in November, ATSG CEO Joe Hete discussed the trial but did not identify the customer.

“The trial ACMI express network that we launched in September for a U.S. customer has been performing well. It started with two of our 767s and a sort operation here in Wilmington and will grow to five aircraft next week,” Hete said at the time.

ACMI is shorthand for aircraft, crew, maintenance and insurance, which refers to a lease contract that bundles aircraft and related services.

The Seattle Times noted that data from FlightAware.com shows two ATSG subsidiaries flying from Wilmington to a handful of airports that are located near Amazon warehouses.

Shares of UPS and FedEx retreated more than 2% on the report.