• Scott Ruffin, who founded Amazon Air and helped grow its shipping operations, has a new start-up to help retailers speed up deliveries.
• Pandion said Tuesday it raised $30 million and plans to open its first warehouse in time for the holiday shopping season.
• "The incumbent shippers weren't built for e-commerce, and shoppers often feel the strain through delayed deliveries, missing packages, and poor customer experience," said Bow Capital's Rafi Syed.

In late 2014, Scott Ruffin was deep in the trenches of Amazon's logistics operation, when he was tapped to solve a major problem. The company was relying on air cargo partners to haul its packages across the country, but needed more space to meet its rapid growth.

Amazon began to lease its own airplanes. And in 2016, Ruffin launched Amazon Air, a dedicated cargo network that would directly rival shipping shipping giants UPS and FedEx.

Before Amazon Air, Ruffin had an early role in developing Amazon's sortation centers, the facilities that allow the company to better control a package's journey to a shopper's doorstep and to speed up the process.

Now that he's seen the complicated nature of logistics for online retailers, Ruffin wants to help smaller companies navigate the world of sorting, packing and shipping. In February, his logistics start-up Pandion, located near Amazon's Seattle headquarters, came out of stealth mode with a $4.9 million round of seed funding.

Pandion said Tuesday it raised another $30 million from investors, including AME Cloud Ventures, a firm led by Yahoo co-founder Jerry Yang, and Innovation Endeavors, co-founded by former Google CEO Eric Schmidt.

Bow Capital led the round. Rafi Syed, the firm's general partner, said Pandion is designed for the modern challenges of online retail and to meet surging demand, which is overloading the existing shipping system.

"The incumbent shippers weren't built for e-commerce, and shoppers often feel the strain through delayed deliveries, missing packages, and poor customer experience," Syed said in a statement.

U.S. consumers are projected to spend $933.3 billion online this year, up 17.9% from 2020, according to eMarketer. Amazon is expected to account for 40% of that.

Pandion is going after the other 60%, and has already signed up a number of retailers, including multiple Fortune 100 companies, Ruffin said.

The company is building a network of warehouses for online retailers, with its first sortation center opening in the coming months. The new 150,000-square-foot site in Quakertown, Pennsylvania, will help major retailers offer low-cost, reliable two-day deliveries in the U.S. Northeast and mid-Atlantic regions, an area Ruffin said covers up to 45 million people.

"You're talking a pretty good chunk of the U.S. population," said Ruffin, who briefly led Walmart's e-commerce transportation division after leaving Amazon in 2017.

FedEx and UPS can only provide so much shipping capacity. They deliver to 40 million addresses, five days a week, while current e-commerce volume requires deliveries to 160 million addresses, seven days a week, Ruffin said.

Pandion aims to operate 20 sorting centers within the next three to four years. By comparison, Amazon has at least 69 such facilities in the U.S., according to a September tally by MWPVL International, a supply chain and logistics consulting firm. Target has been testing a sortation center in Minnesota and plans to open five more by the end of the fiscal year.

Sortation centers are designed to cut down on shipping times by organizing packages and bundling them by ZIP code, before loading them onto trucks for transport to a last-mile delivery station, like a U.S. Postal Service site. Through that process, the shipping center doesn't have to sort the packages before delivering them to consumers.

'Waze of e-commerce shipping'

In addition to investing in its own facilities, Pandion has developed software so it can spot potential hiccups in its shipping network and reroute packages to another facility. That makes its system more flexible than those operated by the big shippers, which set rigid pathways that determine where packages go from the warehouse.

Ruffin said it's like an airplane's flight plan.

"Amazon, UPS, FedEx, they fly that flight plan every single time," Ruffin said. "They even code it on the label and so it's kind of locked in."

Pandion's technology, which is still being tested internally, will allow it to change the path of a package while it's in flight, Ruffin said. For example, the software might flag a warehouse that's shut down due to a Covid-19 outbreak or weather event. Pandion can then divert the packages to another site, increasing the likelihood that they're delivered on time.

Ruffin said it's like "the Waze of e-commerce shipping."

"We're looking to see what's happening to packages along a route and getting that signal in and making a real-time decision," Ruffin said.

WATCH: Inside the rapid growth of Amazon Logistics and how it's taking on third-party shipping