Does Amazon’s Air Cargo Hub Plan Make Sense?

Amazon (AMZN) has announced plans to set up a large air cargo facility at the Cincinnati/Northern Kentucky International Airport. The project is expected to cost $1.5 billion and produce more than 2,000 jobs.

The air cargo hub jobs are believed to be part of the more than 100,000 full-time jobs Amazon promised to create over the next 18 months. With the job pledge, Amazon’s full-time employment is expected to increase to 280,000 by mid-2018.

The above graph shows how Amazon’s full-time employment has evolved over the years.

Amazon is creating employment by investing $1.5 billion in its air cargo hub. But the company’s cost-cutting plan also seems to be the focus of the project.

Since air cargo companies are increasingly tying their charges to volumes rather than weight, taking charge of its own air deliveries could help Amazon reduce expenses associated with shipping orders.

Amazon hopes that taking charge of its own delivery system will help it improve customer experience by ensuring that orders are shipped on time, especially during holiday seasons when demand for third-party shipping services is high. Delayed deliveries have impacted Amazon’s reputation, causing the company to make costly refunds to mollify affected shoppers.

E-commerce competition is increasing as traditional retailers such as Sears (SHLD), Walmart (WMT), Best Buy (BBY), and Target (TGT) expand online and try to impress shoppers with faster delivery services. By controlling its own delivery infrastructure, Amazon hope to expand and speed up its delivery service, perhaps making its Prime program more attractive.