Meet the company reaping the benefits of Amazon's popularity in Canada

PARIS, FRANCE - SEP 28, 2018: Small Amazon parcel cardboard box against yellow background smile logo. Amazon Prime is the online paid subscription service offered by web-commerce site. Inc. has become the leading e-commerce destination for Canadian consumers, according to a new RBC survey – and Cargojet Inc. is reaping the benefits.

According to RBC’s Canadian E-Commerce Survey, conducted in late 2018 and released last week, Amazon was the top e-commerce destination for Canadian consumers, more than twice as popular than Walmart.

“Amazon was the clear market leader, with 85 per cent of consumers indicating they had made a purchase on the website, and was 2.5 (times) more popular than the runner-up Walmart, which had a 32 per cent response rate,” the report said.

According to the report, Amazon has quadrupled its same or one-day delivery reach since 2015, now reaching approximately two of every three households in Ontario, Quebec and British Columbia, 59 per cent of households in Alberta, and 44 per cent of households in Saskatchewan.

Amazon Prime has been expanding its reach in Canada. Earlier this year, it announced that it would be launching its free, one-day delivery service that comes with a Prime membership to 13 additional Canadian cities, including Ancaster, Brantford, Hamilton, Kitchener, and Woodstock Ontario, as well as Quebec City, Que. and Victoria, B.C.

The expansion of the one-day delivery service has been a key positive for Cargojet, RBC Capital Markets analyst Walter Spracklin wrote in a note to clients earlier this month.

“The prior two-day delivery in many cases could be accommodated by truck,” Spracklin wrote.

“However, at one-day, the need for air freight capacity is notably higher.”

CargoJet, which provides time sensitive overnight air cargo services, saw its share of the air freight market grow from 50 per cent to 95 per cent in 2015 when it won the lucrative Canada Post contract away from Kelowna Flightcraft. Since then, it has been reaping the benefits of the growth of Amazon Prime in Canada.

“We consider Cargojet to be uniquely positioned within the niche time-sensitive overnight cargo segment in Canada,” Spracklin wrote earlier this year.

“The company controls (about) 95 per cent of the domestic overnight cargo business, benefits from long-term contracts with solid customers, and boasts (about) 75 per cent contracted volumes.”

Cargojet does not report its e-commerce and business-to-business (B2B) results separately in its financial reports. But, RBC notes the company’s total volume grew 7 per cent in 2016, 14 per cent in 2017 and another 14 per cent in 2018 “entirely due to the rise of e-commerce.” RBC estimates that e-commerce represents about 25 per cent of Cargojet’s total volumes, with Amazon representing a majority of that figure.

Cargojet’s stock has jumped 21 per cent since the start of the year. Since 2015, the stock is up more than 210 per cent.

For Amazon and other e-commerce operators, there’s still room to grow. According to the RBC report, 55 per cent of respondents said that just 20 per cent of their total online purchases were made online.

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