Amazon is making its own containers and bypassing supply chain chaos with chartered ships and long-haul planes, reports CNBC.
Amazon Vs Supply chain crisis
“Los Angeles, there’s 79 vessels sitting out there for up to 45 days waiting to come into the harbor,” ocean freight analyst Steve Ferreira told CNBC in November. “Amazon’s latest venture that I’ve been tracking in the last two days, it waited two days in the harbor.”
By chartering private cargo vessels to carry its goods, Amazon can control where its goods go, avoiding the most congested ports.
The rise
Still, Amazon has seen a 14% rise in out-of-stock items and an average price increase of 25% since January 2021, according to e-commerce management platform CommerceIQ.
“The consumer has been feeling price increases in everything that they’re purchasing,” said Margaret Kidd, Supply Chain & Logistics Technology program director at the University of Houston. “Ultimately, when there’s an increase in the cost of transportation, it gets passed down to the consumer.”
Amazon has been on a spending spree to control as much of the shipping process as possible. It spent more than $61 billion on shipping in 2020, up from just under $38 billion in 2019. Now, Amazon is shipping 72% of its own packages, up from less than 47% in 2019 according to SJ Consulting Group.
Cargo containers
It’s even taking control at the first step of the shipping journey by making its own 53-foot cargo containers in China. Containers are in short supply, with long wait times and prices surging from less than $2,000 before the pandemic to $20,000 today.
“Amazon has produced probably 5,000 to 10,000 of these containers over the last two years I’ve been tracking it,” Ferreira said. A cargo vessel called the Star Lygra called at the Port of Houston on October 5, 2021, filled with Amazon containers.
“By creating their own containers, they are essentially guaranteeing that equipment is going to be available for them,” said Lauren Beagen, maritime lawyer and founder of Squall Strategies.
Global freight forwarder
Then in 2017, Amazon started quietly operating 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 dubbed this project “Dragon Boat.”
“They are doing over 10,000 containers per month of the small- and medium-sized Chinese exporters. Amazon’s volume as an ocean vendor — that’s right, you heard me correct, they’re considered an ocean vendor — would rank them in the top five transportation companies in the Trans Pacific,” Ferreira said.
For some of the highest-margin goods, Amazon is avoiding ports altogether by reportedly leasing at least ten long-haul planes that can get smaller amounts of cargo directly from China to the U.S. much faster.
One of the converted Boeing 777 planes can carry 220,000 pounds of cargo. According to capacity estimates from Ocean Audit, the small 1,000-container freighters being chartered by Amazon and others can hold 180 times that, with the biggest cargo ships carrying more than 3,600 times what the planes can hold.
From multipurpose vessels to containers
“The real purpose of these vessels when they were built was not containers. It was really lumber, chemicals, grain, and agricultural products. But because of the ingenuity and creativity and lack of space, Amazon and many other smart people have quickly figured out how to convert some of these multipurpose vessels to container,” Ferreira said.
Another strain on the supply chain is manpower
To fight the worker shortage — and a reputation for relentless workload and breakneck speed — Amazon says it’s offering sign-on bonuses of up to $3,000 to all the 150,000 seasonal workers it’s hiring this year. Last year, it hired 100,000 seasonal workers.
“That 50,000 increase in employees this year over last year is probably people to do the unloads.” said John Esborn, who used to run logistics operations for Wayfair and is now the head of international transportation for Amazon aggregator Perch.
The seasonal workers are unloading and loading, picking and packing at more than 250 new facilities Amazon says it’s opened in the U.S. just in 2021 — a clear indication that it planned far ahead for the final bottleneck in the supply chain backlog: warehouse capacity.
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Source: CNBC
