Amazon manufactures its personal containers and bypasses the chaos within the provide chain with chartered ships and long-haul plane
For years Amazon has been quietly chartering private cargo ships, manufacturing its own containers and renting aircraft in order to better control the complicated shipping route of an online order. Now that many retailers are panicking about the chaos in the supply chain, Amazon’s costly early steps are helping avoid long waits for available docks and workers in the country’s busiest ports in Long Beach and Los Angeles.
“In Los Angeles, 79 ships wait up to 45 days to enter port,” ocean freight analyst Steve Ferreira told CNBC in November. “Amazon’s newest company that I’ve been following over the past two days has been waiting in port for two days.”
By chartering private cargo ships to transport its goods, Amazon can control where its goods go and avoid the most congested ports.
“Who else would think of shipping something to an obscure port in Washington and then trucking it to LA? Most people think, well, just take the ship to LA. Weeks delay. So Amazon has really taken advantage of some of the niche strategies I think the market needs to use, “said Ferreira.
However, according to e-commerce management platform CommerceIQ, Amazon has seen out-of-print items increase by 14% and an average price increase of 25% since January 2021.
“Consumers are feeling the price of everything they buy,” said Margaret Kidd, program director for Supply Chain & Logistics Technology at the University of Houston. “When transportation costs rise, they are ultimately passed on to the consumer.”
Amazon is on the frenzy of buying to control the shipping process as much as possible. In 2020, it spent more than $ 61 billion on shipping, up from just under $ 38 billion in 2019. Amazon now ships 72% of its own packages, up from less than 47% in 2019, according to SJ Consulting Group.
It even takes control of the first step in shipping by making its own 53-foot freight containers in China. Containers are scarce, with long waits and prices that have soared from less than $ 2,000 before the pandemic to $ 20,000 today.
“Amazon has probably produced 5,000-10,000 of these containers in the past two years, I’ve been tracking them,” Ferreira said. “If they put these containers on US soil when they’re unloaded, guess what? They’re used in the domestic and rail system. You don’t have to bring them back to Asia like everyone else.”
A cargo ship called the Star Lygra called at the port of Houston on October 5, 2021, filled with Amazon containers.
Amazon containers arrive on the Star Lygra cargo ship in the port of Houston on October 5, 2021
“By making their own containers, they essentially guarantee that equipment will be available to them,” said Lauren Beagen, maritime attorney and founder of Squall Strategies. She was working for the Federal Maritime Commission when Amazon first registered with the agency in 2015, a first indication that it was investigating its own ocean freight business.
Then, in 2017, Amazon began tacitly operating as a global freight forwarder through a Chinese subsidiary, helping to move goods across the ocean for its Chinese sellers who pay to participate in the Fulfilled by Amazon program. Internally, Amazon called this project “Dragon Boat”.
“They produce over 10,000 containers per month from the small and medium-sized Chinese exporters. Amazon’s volume as an ocean seller – that’s right, you got me right, they are considered a sea seller – would place them in the top 5 transport companies in the Trans-Pacific,” said Ferreira .
This season, a handful of other major retailers – Walmart, Costco, Home Depot, Ikea, and Target – are also chartering their own ships to bypass the busiest ports and have their goods unloaded earlier.
“The real purpose of these ships when they were built was not containers. It was really wood, chemicals, grain, agricultural products. But because of the ingenuity and creativity and lack of space, Amazon and many other smart people quickly figured out how to convert some of these multi-purpose vessels into containers, “said Ferreira.
For some of the highest-margin goods, Amazon is avoiding ports altogether by reportedly leasing at least ten long-haul aircraft that can bring smaller volumes of cargo direct from China to the US much faster. One of the converted Boeing 777s can carry 220,000 pounds of cargo. According to capacity estimates by Ocean Audit, the small 1,000-container freighters chartered by Amazon and others can carry 180 times the capacity of the largest cargo ships, while the largest cargo ships can carry more than 3,600 times the capacity of the aircraft.
Another burden on the supply chain is labor.
“We heard a lot about the great resignation, which left many positions open and unoccupied. So I think companies want to get very creative when it comes to recruiting. Bonuses or higher wages could be signed, ”said Judy Whipple, supply chain management professor at Michigan State University.
To address labor shortages – and a reputation for relentless workload and breakneck speed – Amazon is offering sign-up bonuses of up to $ 3,000 to all 150,000 seasonal workers hired this year. 100,000 seasonal workers were hired last year.
“This year-on-year increase of 50,000 employees this year is probably due to the fact that the employees are taking over the unloading. You have these containers at the last minute, man, you want to unload these goods and put them on the shelves in fulfillment centers. “As soon as possible,” said John Esborn, who used to be in charge of logistics for Wayfair and is now head of international transportation Amazon aggregator Perch is.
The seasonal workers unload and load, pick and pack at more than 250 new locations, which Amazon claims to have opened in the USA in 2021 – a clear indication that the last bottleneck in the supply chain backlog was planned well in advance: storage capacity.
Watch the video to learn about all of the brave and costly ways Amazon is avoiding its worst supply chain crisis this holiday season.