By Paul Page

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Amazon.com Inc.'s Prime Air is preparing to buckle up for the long haul. Amazon plans to build its first air cargo hub to handle its growing freighter fleet, the WSJ's Laura Stevens reports, putting the e-commerce giant even more firmly in the delivery path of traditional carriers including United Parcel ServiceInc. and FedEx Corp. The Seattle-based retailer is placing the hub at Cincinnati/Northern Kentucky Airport, where DHL ran its domestic express hub years ago and where the company still operates its international cargo services. The airport will provide a single base for the 40 cargo planes Amazon says it plans to lease in its burgeoning network, a linchpin of the company's strategy to take greater control of its own logistics operations. The airport is firmly within the Ohio Valley zone that parcel carriers have long used as a base for national operations. It's also a short truck drive from the 11 fulfillment centers Amazon has placed in Kentucky for easy reach to a big swath of the U.S. population.

Wal-Mart Stores Inc. is taking a different delivery route in its online sales competition with Amazon. The retailer is abandoning its two-year-old membership-focused ShippingPass service, the WSJ's Sarah Nassauer reports, and instead loweringthe barriers to free shipping across its online products. The move removes a pillar of Wal-Mart's efforts to match Amazon and sends a signal across the retail industry that competing with the e-commerce behemoth on Amazon's terms won't work. Wal-Mart is betting instead that it can leverage its scale and a more simplified approach rather than competing strictly on membership price -- ShippingPass was $49 while Amazon Prime sells for $99 a year. The move also shows that Wal-Mart's e-commerce strategy remains a work in progress. Wal-Mart says its membership program helped ramp up and test the logistics network that it's spending billions of dollars to create, and that the distribution channels. The bigger test will be whether the lure of free shipping draws in enough customers to cover its costs.

Delivery companies are struggling with e-commerce almost as much as retailers are. United Parcel Service Inc. saw its profit margins wilt in its busiest season, the WSJ's Paul Ziobro reports, as gains in e-commerce deliveries offset growth in more profitable business-to-business shipping and helped send the company to a $239 million loss. UPS is pledging to boost spending by a third to $4 billion this year as it tries to keep up the shift toward online shopping. But the results show the company and rival FedEx Corp. are flying against strong shipping and trade headwinds. They hardly lack for business: UPS domestic shipments rose 5% last quarter over the year before. But the results show how online shopping is overhauling the economics of retailing and distribution, with growing residential deliveries raising operating costs. UPS is focused on raising prices to match those higher costs, a move that will add new worries for retailers as they struggle with their own costly response to e-commerce.

SUPPLY CHAIN STRATEGIES

The pharmaceutical supply chain is next in the firing line. President Donald Trump met with drug-company executives and appointed two pharmaceutical chiefs to a 28-member advisory council tasked with expanding manufacturing in the U.S., the WSJ's Peter Loftus and Preetika Rana report, putting new focus on an industry that he has criticized over its overseas production. That puts the administration in the middle of another complicated and far-reaching supply chain: The Food and Drug Administration says roughly 60%, of finished medicines sold in the U.S. are made in the country but some 80% of the main components used to make pharmaceuticals are produced abroad. Companies including AbbVie Inc. and Pfizer Inc. are investing outside the U.S., and are adding factories in Asia. But their research and development comes in the U.S. And attempts to shift more production to the U.S. could undermine another goal of the Trump administration -- to lower the cost of prescription drugs.

The sprawling corporate structure that Roadrunner Transportation Services Inc. built through acquisitions is starting to crack. The transport and logistics company says it is restating three years' of earnings after finding what it called "various accounting errors," WSJ Logistics Report writes, in a big step backwards for a business that's been focused on rapid growth. Investors punished the company, shaving its share price by nearly a third, and investment firm Stifel suspended its rating on the business and said the company would likely have to sell various pieces to repay lenders. Roadrunner's initial reading identifies only $25 million in costs at two subsidiaries into question, but the company says accountants are still going over the books. Beyond that, the restatement revives questions over a growth strategy that has created more than 20 separate units with a wide and varying range of operations.

QUOTABLE

IN OTHER NEWS

Elaine Chao was confirmed and sworn in as secretary of Transportation. (WSJ)

Florida Gov. Rick Scott threatens in his proposed budget to cut funding for improvements at state ports if they pursue deeper trade ties with Cuba. (WSJ)

Eurozone economic growth accelerated at the end of 2016 while the jobless rate fell to its lowest level since 2009. (WSJ)

American consumer confidence fell in January after reaching a 15-year high in December. (WSJ)

Canada's economy rebounded in November on strong manufacturing growth. (WSJ)

Hennes & Mauritz AB is abandoning its target of opening 10% to 15% more physical stores each year. (WSJ)

Apparel retailer Under Armour Inc.'s strong growth pace slowed down sharply in the fourth quarter. (WSJ)

Caterpillar Inc. will move its headquarters from Peoria, Ill., to Chicago to gain better transportation access to its global customers. (WSJ)

Xerox Corp. reported declining profit and revenue in its legacycopier business as it completed its split from the bulk of its services businesses. (WSJ)

Toshiba Corp. plans to stop building nuclear power plants. (WSJ)

Trump administration trade advisor Peter Navarro says the White House wants companies to redraw global manufacturing to make "components in a robust domestic supply chain that will spur job and wage growth." (Financial Times)

China's e-commerce boom depends on many thousands of local couriers who critics say work long hours under harsh conditions. (The New York Times)

States in the U.S. are adding tolls to more roads since lower fuel costs have reduced gas-tax revenue. (Governing)

UPS will pay more than $25 million to settle charges it submitted false claims to the federal government over delivery of overnight packages. (USA Today)

Auctions of former Hanjin Shipping Co. container ships have netted a total of $460 million. (Port Technology)

Ontario, Calif., officials are struggling to rid the town of hundreds of abandoned Hanjin shipping containers. (Inland Valley Daily Bulletin)

Seattle-based freight-matching business Convoy hired former Uber Technologies Inc. executive Tim Prouty as head of engineering. (Geekwire)

Local residents are fighting efforts by the Portland, Maine, port to create a refrigerated shipping center for trans-Atlantic trade. (Maine Public)

ABOUT US

Paul Page is deputy editor of WSJ Logistics Report. Follow him at @PaulPage, and follow the entire WSJ Logistics Report team: @brianjbaskin, @jensmithWSJ and @EEPhillips_WSJ and follow the WSJ Logistics Report on Twitter at @WSJLogistics.

Subscribe to this email newsletter by clicking here: http://on.wsj.com/Logisticsnewsletter .

Write to Paul Page at paul.page@wsj.com

(END) Dow Jones Newswires

February 01, 2017 06:33 ET (11:33 GMT)

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