In 2013, at the height of the holiday season, a surge of last minute Amazon orders and bad weather left many customers without gifts under the tree on Christmas day.
Amazon said the problem was not due to issues with its warehouses or staff, but failures on the part of UPS and other shipping partners. It apologized and reimbursed some customers with $20 gift cards, but the debacle underscored for Amazon the disadvantages of relying on third party shippers for its delivery process.
The latest rumored venture into Amazon shipping has a name: Aerosmith.
An air cargo operation by that name launched in September of this year in Wilmington, Ohio on a trial basis. The operation is being run by the Ohio-based aviation holding company Air Transport Services Group, or ATSG, out of a state-of-the art facility. It's shipping consumer goods for a mysterious client that many believe to be Amazon.
Situated in Wilmington, a bucolic town of 12,000, is the Wilmington Air Park, a large non-passenger airport facility with major sorting and cargo capabilities.
The airport has two large runways that can land aircraft as large as a 747, and hosts eight industrial facilities ranging from 74,000 square feet to 1.1 million square feet. An on-site administrative facility has 104,000 square feet of office space.
The center previously served as a military base until it was decommissioned by the Air Force in 1972, and following that has been used for shipping cargo for various clients, including as a major hub for DHL US Express starting in 2003. After a failed attempt to compete with FedEx and UPS for shipping locally in the US, the German company announced in 2008 it would discontinue operations there, shifting its focus to international logistics out of Cincinnati and eliminating 7,500 local jobs in Wilmington. The resulting devastation to the local economy made national news, including a profile on 60 Minutes and a series of dispatches from Glenn Beck. The loss made such an impact nationally it became a campaign issue for candidates in the 2008 presidential elections.
Since the departure of DHL, the Wilmington Air Park, which once moved around a million packages a day, according to an estimate from a representative there, has been largely dormant. It hosts a relatively small MRO (Maintenance Repair and Overhaul) operation but its extensive conveyer belt systems and sorting buildings have remained underutilized—until September, when an unnamed company started up operations there.
The nameless company has contracted two Boeing 767s from airline ABX and two more from airline Air Transport International, Motherboard confirmed with Paul Cunningham, a spokesperson for ATSG.
Through a contract like this, called a wet lease, airlines rent out their planes, crews, and maintenance and training teams to carry out projects and ship products for clients. The patchwork operation allows a company to move freight around the world without purchasing planes of its own.
The project is an air freight transportation operation flying four flights a day, Cunningham said. The hub-and-spoke operation is based out of Wilmington (ILN) with flights to and from four other confirmed airports: Allentown, PA (ABE), Ontario, CA (ONT), Tampa (TPA) and Oakland (OAK). Amazon has distribution centers about 20 miles from ABE and ONT and within 60 miles of TPA and OAK.
A representative from TPA told Motherboard, "We have no comment on the cargo flights out of TPA." A daily Air Transport International flight has been flying from ILN to OAK to load and unload cargo since mid-September, a spokesperson from OAK confirmed to Motherboard. The spokesperson said he did not know how long the contract was for this particular project. Keith Snyder, chief of airport operations at Ontario International Airport, confirmed there is a daily air cargo operation flying into ONT from Wilmington. He said he was not familiar with the nature of the cargo involved.
"It is general consumer goods," he said of the cargo being shipped. "I can't be specific."
Cunningham declined to say whether the company behind Aerosmith was Amazon, citing a nondisclosure agreement. "It is general consumer goods," he said of the cargo being shipped. "I can't be specific, we just receive the freight, load it on and move it. It's not something that it's obvious what it is."
This mystery company had not yet indicated if the project was short or long term, Cunningham said. "I imagine through the peak shipping season, fourth quarter, that would be my guess," he said.
Whatever the client is, it seems that its corporate leadership wants to keep things quiet. When questioned about the project, a representative from Lehigh Valley International Airport (ABE) in Allentown told Motherboard, "We can't discuss that," and hung up the phone.
FedEx, UPS, and DHL all confirmed to Motherboard that they are not involved in Aerosmith. Amazon did not deny it was behind the project, but told Motherboard in a statement, "We've long utilized air capacity through a variety of great partners to transport packages and we expect that to continue."
Amazon has been making moves into the delivery business since at least early 2014, when logistics trade publication DC Velocity reported that the company was revamping its fulfillment infrastructure and adding its own private fleet on the ground.
An unnamed Amazon source also told the publication the company "is assembling a high-level executive team to lead the company's push to develop its own transportation network," and that it will launch its shipping infrastructure sometime in 2016.
The company's ultimate goal, the source told DC Velocity, is to guarantee a 90-minute to two-hour delivery window—shaving down the time difference between online orders and going to a brick and mortar store.
Amazon previously announced its ambition to use drone delivery to speed up Amazon Prime orders, a plan that has thus far been slowed down by FAA regulations. It has also been quietly testing deliveries with its own vans since early last year, in locations including San Francisco, New York, and London. It has been building out its Prime Now service, which offers one-hour and two-hour delivery on certain items, expanding the service to several more cities this year and adding food and alcohol deliveries.
With shipping, as with all of Amazon's $250 billion empire, efficiency is key. Amazon's net shipping cost in 2014 was $4.2 billion, up from $3.5 billion in 2013, according to a 10-K filing from 2014 with the Securities and Exchange Commission. With delivery costs weighing heavily on Amazon and ongoing headaches with UPS and other third party shippers, the company has a lot to gain from its own logistics network, whether just supplementing shipments in peak seasons or cutting out other carriers entirely. The company's $190 billion China rival Alibaba launched its own logistics network in 2013 and expanded in 2015 to bring grocery delivery to 250 cities total.
It's not out of the question that an Amazon delivery service could become another revenue stream for the company, similar to its business model for Amazon Web Services, a cloud hosting service it began for internal purposes and then started leasing out to customers. AWS is now one of the company's greatest assets, generating $6 billion a year in profit. A report from financial analysts at RW Baird in October also found Amazon could earn $5 billion a year investing in its own freight and logistics services.
Amazon told the SEC it is looking to offset shipping costs, which are increasing as the company moves into faster shipping options and new kinds of products.
"We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers, and achieving better operating efficiencies," Amazon said in the 10-K filing. "We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers."
It is possible Amazon is just building up a system to supplement its current system during high-volume periods like the holiday season.
However, talk of Amazon's plans to expand into transportation and freight has been intensifying recently, said Marc Wulfraat, president of logistics consulting firm MWPVL International, which follows Amazon closely.
He said he is skeptical of any concrete programs for air cargo, but wouldn't rule transportation operations out completely.
"They might be doing a pilot project, they're always testing something to see whether or not it makes sense, they're always coming up with new ideas to lower shipping cost," Wulfraat said. "Shipping cost is their big albatross, they're always looking for ways to bring that under control."
With a system built for major sorting and shipping capacity that is ready to go but largely unused, Wilmington is an ideal location for an Amazon logistics operation, said Brandon Fried, executive director at the air freight forwarding advocacy group Airforwarders Association.
"It is the perfect setup," he said. "It's ready to go, it's turnkey: They have warehousing, and they have a very sophisticated landing system in place, so it wouldn't be outlandish for them to bring the cargo in using a fleet of planes."
Fried said he has heard rumors for years now in the air cargo world that Amazon wants to take shipping and delivery into its own hands. He said although it would be a risky move, it would make sense for the company to work to cut costs in that area.
"In our business, if you have to go out and buy transportation all the time from others, they are going to make money, and when you are operating on thin margins you are going to find ways to make that more cost efficient," he said. "Amazon has got the delivery infrastructure in place, they are delivering products the next day virtually everywhere in the US now and they are buying that transportation from somewhere."
In October, somebody claiming to work for Amazon posted on a pilot forum saying the company is working on a secretive air delivery operation––the next step toward replacing UPS and other shipping partners with a homegrown solution.
"Well everyone probably knows that Amazon was the first company to be authorized to fly commercial drones, but what you don't know is that they are flying two B-767s and within the next two years are planning to be the world's' largest overnight parcel delivery service," the user wrote.
Amazon becoming the largest overnight carrier in two years would be a Herculean feat. By way of comparison, financial filings released in June show Fedex Express had a fleet of 647 planes as of May. "FedEx and UPS weren't created overnight, no pun intended, those companies have vast infrastructure in place," Fried said. Developing its own operation "might not be the wisest or most prudent move for Amazon at this point, but it could happen."
But the rumor mill is not limited to message boards and industry chatter. One technician at the Wilmington Air Park told Motherboard his company has not yet told him who the Aerosmith client is, but it is "going around work that it's Amazon."
Amazon's involvement in project Aerosmith remains unconfirmed by the company.
However, the strategic locations of project Aerosmith leave little doubt in Fried's mind about who is behind the venture.
"I am guessing it is Amazon," he said. "Of course, we can get off the phone and the next thing you know it's somewhere like Macy's, but I can't think of a retailer that is out there right now that would have the need for such complex distribution. I can't think of anyone else it would be."