So this is a rather niche question so I hope it is still relevant to this group, but I was thinking. The big package transport companies(in the US this is UPS and FedEx) make most of their air cargo money on overnight packages, where the business model is pretty straightforward. Have packages fly between a small number of hubs each night so you can relatively economically cover large areas with overnight service, because each plane is as full as it can be. The better question is how the same air cargo operation can transport the same packages in two days while being so much cheaper that they can charge 1/3 the cost of overnight. I can come up with a few ways, such as driving the package to a further away airport so you can put it on only 1 flight, or trying to drive it to a big hub before flying it, but all of these business models seem questionable at best because they seem to apply to niche cases only. Does anyone with more knowledge of the subject know the answer?
The answer is logistics. That’s a very broad and boring answer, but it’s just the way it is.
UPS is one of, if not the largest airline in the world. Their package tracking and logistics framework is well developed.
UPS, in WorldPort (and FedEx from just a short distance away), have positioned a hub that allows a huge amount of freight in; for it to be sorted cheaply, efficiently, and quickly; and for those planes to get back out the same night. I forget the exact statistic, but the Louisville airport is a 2 hour flight or less to 75% of the US population in the continental US. So for a plane to fly in, unload, refuel, reload, and fly back can be done for 3/4 of every major population center in the US with a single flight crew rotation.
Sounds crazy, but WorldPort has (had?) an average package sort speed of 13 minutes. So turnaround is fast. But of it’s a two day package, it can sit for a few hours at WorldPort and take a later plane.
Then from there, as the planes return, ground transport takes over. Ground shipping can also cover a lot of area for a two day shipment, so air transit isnt always needed.
To a bit on why the cost is so different. It’s because that plane is flying overnight packages no matter what, it could be half full, 80%, or totally full. That forces the price of overnight to always be able to cover the flight. 2 day packages can allow for planes to run full more often or get placed on trucks. Since it costs negligibly more to fun a full plane than a half full plane, the 2 day packages don’t need to cover the same amount of costs.
I used to work at Amazon, though nowhere near fulfillment so I’m not an expert but can give you a general perspective from within the company. Carriers also charge the seller for shipping services, so what you pay for as the buyer may be different. Costs are also offset by volume of packages. With 2 days the logistics become less tight than with 1 day. Ground shipping becomes more of a possibility, and is much less expensive comparatively.
This next one may be Amazon specific, but they would preemptively distribute some products shipped from sellers in closer warehouses. If they have to hold the inventory anyways, holding it closer to a metropolitan area makes it easier to use cheaper ground shipping methods. With that in mind, I know inventory holding costs were more of a focus for cost optimization internally.
Not an expert as well, but I’ll share my experience. Used to work for a company that contracted with multiple shipping companies mainly for large palletized freight shipments (FedEx, R&L), but not all of them (UPS, other local freight). We had a business contract with FedEx so our shipping rate for both parcel and freight was ~50-60% cheaper than their standard rate if you were to try to schedule/ship something yourself as an individual, but we still used UPS time to time if a client needed it overnight and the FedEx truck already made it’s stop for the day. For example, FedEx website would quote ~$1400 to pickup and ship a pallet shipment standard from your residential address (this would include lift-gate truck service), whereas it would cost our company $450 because they have a regular freight truck that stops by our company twice a day. Of course we ship out much higher volume, so that’s where FedEx would set their discount pricing to ensure they profit in the end over a long duration.
If a pallet needed to go somewhere overnight, that price can easily double or quadruple depending if it was domestic or overseas, but nothing much changes from my end other than changing the shipping label type.
With our FedEx contract, we also had a regional manager contact for support if issues occurred with the shipment that had much quicker response time than going through their standard support routes.
Not to hijack, but I’ve been wondering how Amazon’s deliveries can possibly be optimized at all. On Monday I received three packages from three different drives at three different times of the day. A fourth van was spotted 30 mins after my last delivery still in my neighborhood. FedEx at most has their ground / express separation and priority delivery that they charge handsomely for. What the heck is Amazon doing?
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