How Amazon is beating supply chain chaos with long-haul ships and planes

For years, Amazon has quietly chartered private freighters, built its own containers, and leased planes to better control the complicated shipping route of an online order. Now, as many retailers panic over supply chain chaos, Amazon’s costly first steps are helping it avoid long wait times for available dock space and workers at ports the busiest in the country, Long Beach and Los Angeles.

“Los Angeles there are 79 ships waiting up to 45 days to enter port,” ocean freight analyst Steve Ferreira told CNBC in November. “The last Amazon company that I followed in the last two days, they waited two days in the port.”

By chartering private cargo ships to transport its goods, Amazon can control where its goods go, avoiding the most congested ports.

“Who else would think of sending something to an obscure port in Washington and then trucking it over to LA? Most people think, well, just bring the ship to LA. Weeks. So , Amazon has really taken advantage of some of the niche strategies that I think the market needs to use, ”Ferreira said.

Still, Amazon has seen a 14% increase in out-of-stock items and an average price increase of 25% since January 2021, according to the ecommerce management platform. CommerceIQ.

“The consumer has felt price increases on everything they buy,” said Margaret Kidd, director of the supply chain and logistics technology program at the University of Houston. “At the end of the day, when there is an increase in the cost of transportation, it spills over to the consumer.”

Amazon has embarked on a spending spree to control the shipping process as much as possible. It spent over $ 61 billion on shipping in 2020, up from just under $ 38 billion in 2019. Now Amazon ships 72% of its own packages, up from less than 47% in 2019 according to SJ Consulting Group.

It even takes control on the first leg of the shipping journey by manufacturing its own 53ft freight containers in China. Containers are scarce, with long wait times and prices dropping from under $ 2,000 before the pandemic to $ 20,000 today.

“Amazon has probably produced 5,000 to 10,000 of these containers in the last two years that I’ve tracked them,” Ferreira said. “When they bring these containers to American soil, once they unload them, guess what? They can be used in the national system and the rail system. They don’t have to send them back to Asia like everyone else does. “

A freighter called the Star Lygra called at Port of houston on October 5, 2021, filled with Amazon containers.

Amazon containers arrive at the Port of Houston on the Star Lygra freighter on October 5, 2021

Port Houston

“By creating their own containers, they are essentially ensuring that the equipment will be available to them,” said Lauren Beagen, maritime lawyer and founder of Grain strategies. She was working at Federal Maritime Commission when Amazon first registered with the agency in 2015, the first indication it was exploring its own ocean freight business.

Then, in 2017, Amazon began operating quietly as a global freight forwarder through a Chinese subsidiary, helping move goods across the ocean for its Chinese sellers who pay to be part of the Fulfilled by Amazon program. Internally, Amazon has dubbed this project “Dragon Boat”.

“They manufacture over 10,000 containers per month from small and medium-sized Chinese exporters. Amazon’s volume as a shipping supplier – that’s right, you heard me right, they’re considered a shipping supplier – would rank them in the top five transport companies in the Transpacific, ”said Ferreira.

This season, a handful of other major retailers – Walmart, Costco, Home Depot, Ikea and Target – are also charter their own ships to bypass the busiest ports and unload their cargo faster.

“The real purpose of these ships when they were built was not containers. It was really timber, chemicals, grain, agricultural produce. But because of ingenuity and creativity and from the lack of space, Amazon and many other smart people quickly figured out how to convert some of these multi-purpose ships into containers, ”said Ferreira.

For some of the higher margin products, Amazon completely avoids ports in would have lease at least ten long-haul jets that can carry smaller amounts of cargo directly from China to the United States much faster. One of the converted Boeing 777s can carry 220,000 pounds of freight. Based on capacity estimates of Ocean audit, the small 1,000-container freighters chartered by Amazon and others can hold 180 times that, the larger freighters carrying over 3,600 times what planes can hold.

Another constraint on the supply chain is the workforce.

“We’ve heard a lot about the big resignation, with a lot of open and unfilled jobs. So I think companies are looking to be very creative in attracting people. It could be signing bonuses. , higher wages, ”said Judy Whipple. , professor of supply chain management at Michigan State University.

To tackle the worker shortage – and its reputation for relentless workload and breakneck speed – Amazon says it is offering sign-up bonuses of up to $ 3,000 to the 150,000 seasonal workers it hires this year . Last year it hired 100,000 seasonal workers.

“This increase of 50,000 employees this year compared to last year probably relates to the people in charge of unloading. They have these containers coming in at the last second, man, they want to unload these goods and put them on the shelves in the distribution centers. as quickly as possible, ”said John Esborn, who previously led Wayfair’s logistics operations and is now responsible for international transportation for the Amazon Perch aggregator.

Seasonal workers unload and load, pick and pack at over 250 new facilities. Amazon says it only opened in the United States in 2021 – a clear indication that it has planned well in advance for the latest bottleneck in the supply chain backlog: the warehouse capacity.

Watch the video to learn more about all the bold and expensive ways Amazon is avoiding the worst of the supply chain crisis this holiday season.