Amazon to invest $1.5bn in Kentucky air cargo hub

US e-tailer Amazon announced on Tuesday that it plans to move its air cargo hub from Wilmington air park in Ohio to a newly built $1.5bn facility at Cincinnati/North Kentucky international airport (CVG).

The 360ha cargo hub will be sited in Hebron, which is about at the centre of the eastern US and close to a similar facility run by UPS. It is intended to provide a base for the company’s "Prime Hub".

Dave Clark, Amazon’s senior vice president of worldwide operations, said in a statement: "As we considered places for the long-term home for our air hub operations, Hebron quickly rose to the top of the list with a large, skilled workforce, centralised location with great connectivity to our nearby fulfilment locations."

The move will create around 2,700 jobs in the Cincinnati area, 600 of them full-time, although 300 will be lost in Wilmington. The facility is similar in size to the cargo hub of a large airline.

In exchange, the State of Kentucky will give Amazon $40m in incentives over the next 10 years; another $5m will be offered by CVG and Boone County will offer payroll and occupational tax incentives. The average wage has been set at $26 an hour, including benefits.

The new hub will be home for the next 50 years to 40 Boeing 767 cargo planes, 16 of which are currently operating.

The move is part of an attempt by Amazon to cut its freight costs. In its latest nine-month figures, the company reported that shipping revenues rose 42% year-on-year to $5.97bn, but that shipping costs also increased 42% to $10.5bn. Reuters notes that the strategy will probably be to fly large lightweight boxes and rely on integrators – who increasingly charge by volume – to carry small, heavy packages.

It may also be the start of a diversification into freight-forwarding. Amazon’s cargo building will be 3 million square feet, it will have more than 100 aircraft stands and a 350,000 square foot loading wing. Reuters quotes Colin Sebastian, an analyst for Baird Equity Research, who said in a note to clients: "We estimate a $400bn-plus market opportunity for Amazon in delivery, freight forwarding, and contract logistics."

The company aroused comment at the end of December when it filed a patent for floating warehouses that would release drones to deliver packages to customers. Quite how seriously the company is taking this idea is not clear.

Image: Amazon has announced plans to lease 40 Boeing 767s (YouTube)

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