Amazon, which has moved forward aggressively in recent years to take control of its retail distribution chain, this week announced plans for a US$1.5 billion Prime Air cargo hub in Kentucky.
Amazon already employs more than 10,000 people at 11 fulfillment centers in the state. The company received about $40 million in government incentives to base its new air cargo hub at the Cincinnati/Northern Kentucky Airport (CVG) in Hebron, which will add an additional 2,000 jobs to the local economy.
“As we considered places for the long-term home of our air hub operations, Hebron quickly rose to the top of the list,” noted Dave Clark, Amazon’s senior vice president for worldwide operations.
It has “a large, skilled workforce,” he noted, as well as a “centralized location with great connectivity to our nearby fulfillment locations, and excellent quality of living for employees.”
As part of the agreement, Amazon will have a 50-year lease with access to 900 acres of land, which will be available if the facility needs to expand.
Juicy Incentives
The Kentucky Airport Development Finance Authority approved a package of up to $40 million in incentives through the Kentucky Business Investment Program as an inducement for Amazon to commit to the new hub. The performance-based program allows the company to keep a percentage of its investment through corporate income tax credits and wage assessments by meeting job and investment targets.
The company also is eligible for career resources through the Kentucky Skills Network, which provides no-cost recruitment and job placement services, customized training, and job-training incentives.
Amazon last year signed agreements with Atlas Air and the Air Transport Services Group to lease up to 20 Boeing air freighter jets from each firm, which will be used to transport air cargo. Sixteen of those jet aircraft are currently in service and will be used to transport goods.
Long Relationship
Amazon is one of several major shipping companies to operate in Kentucky, which is the third-ranking state in air cargo shipping volume, according to Jack Mazurak, spokesperson for the Kentucky Cabinet for Economic Development.
The UPS Worldport air hub and the UPS Centennial ground hub operate out of Louisville; the DHL Americas hub, one of only three of that company’s global hubs, operates out of CVG; and Fedex operates several large ground hubs around the state, he told the E-Commerce Times.
Amazon said it will offer competitive pay and a full package of benefits — including health and disability insurance, retirement savings plans and company stock — to full-time employees at the airport. Amazon also offers up to 20 weeks of paid leave, plus programs such as Leave Share and Ramp Back, which offers flexibility to new parents with growing families.
Amazon’s Career Choice training program, available to hourly employees, pays 95 percent of tuition to learn in-demand jobs, the company said.
Amazon’s investment is the biggest in Northern Kentucky in more than 30 years, making the region one of the top air cargo sites in the world, said Campbell County Judge/Executive Steve Pendery, chair of the Northern Kentucky Tri-County Economic Development Corporation (Tri-Ed).
The air cargo hub won’t have much of an impact on superstores like Walmart, which have thousands of physical department stores for holding inventory, noted Paula Rosenblum, managing partner at RSR Research.
“Amazon doesn’t have those, so it is forced to build very fancy distribution networks,” she told the E-Commerce Times. “It also has regional distribution centers where it can keep slow movers or other products that don’t necessarily fit in their stores.”
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My own feeling on Amazon bringing some of it’s transportation logistics internally is of skepticism. For many reason but mainly the fact that you now begin to absorb all the variables of doing that. Labor costs, fuel costs, maintenance and so on. I AM sure Amazon did some very lucrative deals with UPS and Fedex as well as USPS. These were most likely locked in rates with predictable expenditures. If you look at many companies who make or provide a product that requires transportation for shipping. They have abandoned private fleets for outside sources. This is also why Amazon will fail at drone delivery as a transportation means. Because you have to meet regulations, buy equipment, hire pilots, support staff and pay for liability insurance. I AM sure Jeff Bezo and Amazon corporate is obsessed with being independent. Their obvious selling point with internal transportation is eliminating the middle man. However, they seem to over look the advantage of that middle man absorbing all the pitfalls of transportation. Obviously nobody at Amazon is familiar with those issues. Amazon’s real problem is they over promise benefits and charge too little for them. Prime members take advantage of two day shipping even if they don’t need it. Amazon can only streamline that part of retail online by combining orders, raising membership costs or creating incentives for members to use cheaper shipping options. Creating your own shipping system won’t solve the cost problems that are affecting profits.