Navy Takes First Big Step to Cloud, Pushing Logistics to Amazon’s Service – Echoes USPS EMS Contract with USAF

August 30, 2019

https://breakingdefense.com/2019/08/navy-takes-first-big-step-to-cloud-pushing-logistics-to-amazons-service/

The recent news item on the US Navy’s award to Amazon Web Services (AWS) for its supply chain to meet the Navy’s requirements to unify the movement and documentation of some $70 billion worth of parts and goods into one accessible space, where the information can be shared, analyzed and protected in a more uniform fashion is significant. The Navy’s acquisition, logistics, and back office data will be moved to the cloud over the next two years.


While the contract is for IT cloud services, it is also significant in that it focuses on Supply Chain for parts and goods for Navy flight operations. So a good question is, will this lead to a ‘two for one’ win for Amazon; i.e., will Amazon’s ever growing logistics operations have an in on the transportation and delivery piece of the parts and goods business, offering full integration for both the shipments, and the information about the shipments? Amazon’s HQ2 will be the Pentagon’s next door neighbor starting in 2020 (one Metro stop away), and closer than Boeing’s campus to DoD.

And who else might be in the wings for the logistics piece of the business? In the late 1970’s the US Postal Service won a multi-million dollar, multi-year contract with the USAF to handle the exact same type of shipments for restock and repair parts and supplies for aircraft. Shipments, outbound and inbound were carried via the eponymous US Postal Service “Express Mail Customized Designed Service”, every routing leg was individually designed and programed by time of day for PUDO on a 24/7/365 day schedule for the Air Force, with full en-route tracking.

Today USPS ® Priority Mail Express ® service is a shadow of its former glory. However, another contender may very well be FedEx® Aerospace Solutions, possibly one of the reasons FedEx Express® cancelled its Amazon contract.

How Amazon will beat UPS and FedEx at shipping – or Not

How Amazon will beat UPS, FedEx at shipping: Driverless trucks – https://www.bizjournals.com/seattle/news/2018/02/23/how-amazon-will-beat-ups-fedex-at-shipping.html?ana=e_me_set1&s=newsletter&ed=2018-02-26&u=l8ZrcdM1tBcwfbYcoSNXmQ00417653&t=1519672590&j=80196851

“Shipping with Amazon” (SWA) actually puts “SmartPost and to a lesser extent SurePost in Amazon’s cross hairs, and opens up a major USPS opportunity, if (and a Big IF) Amazon and the Postal Service can engineer a major alliance involving a.) USPS retail and mail processing and distribution hub footprints, b.) Investment in a USPS fleet leasing agreement and c.) USPS can negotiate a a unique third-level flexible labor agreement with the two key labor associations, NALC and APWU.

Granted, there are multiple moving parts that need to come together in a non-legacy environment, but the alternatives are not encouraging. The USPS is facing accelerating decline in FCM volumes and revenues, it has not re-engineered its operating model quickly enough away from letters and flats to parcels, nor sufficiently leveraged its key assets and thrown off the yoke of the PAEA pre-funding mandates’, and labor agreements, although the NALC, from past observations seems more open to such asymmetrical concepts, and puts pressure on the APWU to take the forward step.

UPS and FedEx are constrained and locked in by their size and operating models and both have unique exposure to Amazon.

Amazon on the other hand faces the double edge sword of accelerating eCommerce growth success; i.e., business is great, but it can’t expand fast enough to meet volume demand and customer expectation (“Demand Driven Delivery”, “D3”) which it created, and its rising shipping costs – even with its moves into taking control of and streamlining its end to end supply chain and delivery networks are still above historical industry norms for B2C marketplace – 14 to 17%.  The relative weight of fulfillment and shipping costs on Amazon’s bottom line has increased over the past decade. Last year, the two cost factors amounted to 26.4 percent of the company’s net sales, up from 16.6 percent in 20071.

  1. https://www.statista.com/chart/12893/amazon-fulfillment-and-shipping-costs/

FedEx Signs New Express Air Transportation Agreement with United States Postal Service

FedEx Signs New Express Air Transportation Agreement with United States Postal Service

The FedEx agreement with the US Postal Service extends their alliance for the next seven years, and provides significant benefits to both parties.

The Postal Service locks in its main air transportation network including the unique operating efficiencies and level of service it needs to support its business objectives for Priority Mail. The growth of Priority Mail is a key element in the USPS’s strategic refocus to develop its parcel business along with the deployment of state of the art scanning technology and acquisition of a new delivery fleet designed for parcel and mail delivery. Priority Mail is a major USPS success story in today’s burgeoning eCommerce marketplace.

FedEx maintains a key customer and revenue stream, and the postal volume supports its operating efficiencies for the air and hub operations.

A “Win Win” for both partners.