Amazon.com to buy 9.9pc of Canadian air freight partner Cargojet
AMAZON.COM is acquiring a 9.9 per cent stake in Canadian freight cargo carrier Cargojet. The e-commerce giant already uses Cargojet's aircraft services for mid-mile delivery from Amazon warehouses to distribution centres.
The deal will enable Amazon to use Cargojet's network even more and claim new ground in a different market, reported New York's Motley Fool.
The move comes soon after Amazon launched one-day delivery in both the US and Canada. Where promises for two-day delivery could largely be handled by truck, the guarantees for speedier shipping necessitate the use of more air cargo capacity.
While in-store pickup for online orders is a preferred method for same-day fulfilment, the need to move packages from warehouse to customer means air freight capacity is will become a premium service.
Like in the US, Amazon is the primary online shopping destination for Canadian consumers. Amazon has quadrupled its same-day or one-day delivery reach within the country since 2015. Earlier this year, the company added 13 cities in Canada that are eligible for one-day delivery.
Cargojet has a 95 per cent share of Canada's domestic overnight air cargo business. The Royal Bank of Canada says the segment was wholly responsible for the carrier's rising total volumes over the past three years, which grew seven per cent in 2016 and 14 per cent over the last two years.
Cargojet had 100 per cent on-time delivery rates during Amazon's 48-hour Prime Day event this year as it handled one million pounds more of cargo than it does during a typical week while operating 23 additional flights.
Under the agreement for Amazon to acquire a stake in Cargojet, the carrier will issue warrants to Amazon in two tranches. The first one gives the e-commerce leader the right to acquire a 9.9 per cent stake in the company over six years, but it's conditioned on Amazon increasing its usage of Cargojet's network up to C$400 million in business volume (US$301 million).
The second tranche gives Amazon warrants for an additional five per cent of the company if it uses an additional C$200 million worth of business volume after the first tranche vests at a price to be determined.
The online retailer has 60 planes in its fleet after announcing in June it would lease 15 additional Boeing 737s to accelerate delivery of packages, with plans to have 70 planes in the air by 2021. The hub it is building at Cincinnati/Northern Kentucky International Airport will be able to accommodate up to 100 planes.