Why not? The economy demodularizes if and only if it is economically cheaper and more efficient to do so.
In other words, demodularization only happens when many, many people can derive a huge economic benefit from it happening.
The alternative is slower, more expensive, less efficient economic systems, filled with rent-seekers at every level.
By setting up their own distribution networks they control the entire chain from first click to final delivery, and to Amazon that is equally important as cost.
It also allows them innovate in an area that is sorely lacking innovation, all under their control.
This is the lesson of the new economy. You have to control all contact points with the customer. If you don't, you are letting a third party "sell" your brand which never works in your interest.
If I were to guess, I'd say that amelius is saying that it becomes increasingly common as companies grow for them to expand into functions that were originally outside their core function. Framed this way, "selling stuff online" may have once set an effective upper bound on what Amazon does, but now they appear to be expanding into "moving stuff from place to place."
This concept is related to vertical integration.
this is driven by the fact that airlines don't consistently have taxable income. If you have net operating losses, which airlines often do, you can't fully take advantage of the tax shield provided by depreciation. Airplanes are big capital assets, hence they provide a large tax shield. That's why you often see financial entities (e.g. banks, insurance companies) who have regular taxable income have leasing arms.
Edit: I stand corrected... Although I still wouldn't be surprised if the execs golf together. :)
Might be more interesting if Amazon decides to open up to outside customers and re-instates real competition. Both UPS and Fedex had better rates and service when DHL was still competing with intra-US shipments.
Fuel and "Purchased Transportation" (also indexed to fuel costs) are their two largest cost categories.
They pass hedging costs directly via fuel surcharges, which is unrelated to rate hikes.
"Both FedEx and UPS reported that fuel costs were down about 35% from the year earlier in their most recent quarter"
If these companies followed prevailing MBA business thinking, their products and services would be as mediocre as many other large but floundering fortune 500s.
The "outsource everything" mantra may also be fueled in part by VC firms who also just happen to be funding a bunch of other companies that... look at that... provide some of the services you should outsource. Many years ago, on a small scale, I had discussions with a small VC firm. In exchange for their investment, we were also expected to use some of the other companies in their network whenever possible (media/marketing/other tech/etc). That seems a bit of an extreme scenario, but i can't imagine this doesn't ever happen at all.
Further, there is too much risk and loss of power when UPS's biggest customer is just one company. UPS probably doesn't want that risk and it would rather stay moderately sized than put all of its eggs in one basket.
But more importantly, it is Amazon that is taking these steps and I predict, because they have been hiring large swaths of people that many years ago they would not have even thought of, Amazon is beginning to think about doing business over the course of the next hundred years. It is preparing for those hundred years now, knowing that airplanes will be integral to continue meeting demand. These airplanes will most likely run side by side with their partner delivery companies.
USPS is beefing up its parcel operations and is getting more competitive. Generally speaking, in my city the post office performs better for most ground scenarios, mostly because they are separating parcel delivery from the standard routes.
I was in awe hearing about the incredible efficiency of the operation. Apparently the delivery of 1M packages happens between the hours of 1am and 4am and over 300 planes fly in to be loaded before heading out later that morning.
Outside of a Corporate Jet going to New Orleans (R&L Carriers), it's all ABX Air traffic...and it's going to airports near major Amazon Warehouses (Lehigh Valley/Allentown was the biggest one that came to mind when I was looking at the flights).
Atlas (ABX Air Competitor) doesn't have a lot of wiggle room -- they're doing freight contracts for DHL and PAX contracts for the Oil and Gas companies to Africa right now.
I think what Amazon's doing right now is moving or rebalancing the freight -- something that they've traditionally done via semi -- in order to get it in place for the holiday season. It will be interesting to me to see if these flights continue to keep up during the slower months in the beginning of the year.
