Amazon's Strategy to Beat Supply Chain Chaos: Ships, Containers, and Planes

Table of Contents

1. Introduction
2. Supply Chain Chaos
3. Amazon's Unusual Moves
4. The Impact on Other Retailers
5. Amazon's Rise in Out-of-Stock Items and Price Increases
6. Amazon's Control over the Shipping Process
7. The Journey of a Holiday Gift Ordered on Amazon
8. The Shortage of Containers
9. Amazon's Own Containers
10. Chartering Vessels to Bypass Congestion
11. Amazon's Air Cargo Fleet
12. Challenges and Solutions in Manpower
13. Amazon's Investment in Seasonal Workers and Facilities
14. Warehouse Capacity and Last Bottleneck
15. President Biden's Infrastructure Bill
16. The Environmental Impact
17. Collaborative Solutions in the Supply Chain
18. Amazon's Potential Expansion into Selling Container Space

Supply Chain Chaos: How Amazon is Skirting Shipping Delays

In the midst of the holiday season, online retailers are facing a supply chain crisis that has plunged the industry into chaos. With a staggering 77 container vessels waiting off the coast of California's San Pedro Bay, shipping delays have reached record-breaking levels. Ports are overwhelmed, trucker shortages are at an all-time high, and prices are skyrocketing. However, while other retailers are scrambling to minimize the impact, Amazon has taken bold and costly measures to avoid the worst of it.

Amazon's Unusual Moves

Amazon, the world's largest online retailer, has long recognized the importance of controlling its supply chain. They have made strategic moves to tackle the shipping challenges plaguing the industry. For starters, Amazon has been chartering its own cargo ships, a tactic that is now being adopted by other major retailers like Walmart, Home Depot, and Costco. By chartering vessels, Amazon bypasses congested ports and ensures faster delivery of goods.

But that's not all. Amazon is also making its own containers, doubling down on workers and warehouses, and even leasing long-haul planes for the first time. These measures allow them to expedite high-priority goods from China to the United States. Amazon's meticulous planning and anticipation of supply chain disruptions have put them in a more favorable position compared to other retailers. However, they too have experienced a 14% rise in out-of-stock items and an average price increase of 25%.

The Impact on Other Retailers

As Amazon takes unprecedented steps to mitigate the shipping delays, other retailers are feeling the pinch. The rise in transportation costs is inevitably passed down to consumers, resulting in increased prices across various products. Retailers that rely heavily on third-party carriers like UPS and the U.S. Postal Service are especially vulnerable to the delays and rising costs.

While Amazon's competitors struggle to fulfill their orders, the e-commerce giant has been investing tens of billions to control every aspect of the shipping process. By minimizing reliance on external shipping partners, Amazon not only reduces costs but also ensures a smoother and more efficient supply chain. They view themselves not just as a retailer but as the largest logistics company, evidenced by their whopping $61 billion expenditure on shipping in 2020.

Amazon's Control over the Shipping Process

To truly understand Amazon's mastery of the supply chain, let's examine the journey of a holiday gift ordered on their platform. Months in advance, Amazon uses data to predict consumer demand, bulk orders items at lower prices, and packs them into shipping containers in China. These containers are then loaded onto massive cargo vessels and embark on a journey to the ports of Los Angeles or Long Beach, where they face extensive delays.

Once the containers reach the port, they may sit for days, and currently even months, waiting for available dock space. When there is finally availability, port workers unload the containers onto trailers or chassis, which are also in short supply. The containers are then transported by Amazon's fleet of over 50,000 semi-truck trailers or contractors to their fulfillment and other facilities. From there, the goods are stored until an order is placed, and the final mile delivery is carried out by Amazon's 260,000 global drivers and partners like UPS and the Postal Service.

The Shortage of Containers

A significant bottleneck in the supply chain lies in the scarcity of shipping containers. In the past, there was an oversupply of containers, but the current imbalance of trade has made empty containers difficult to retrieve. The cost of shipping one container from China to Los Angeles has skyrocketed from $1,200 to a staggering $20,000. Recognizing the need for a consistent supply of containers, Amazon has started producing its own 53-foot containers in China, ensuring a steady flow of equipment.

Chartering Vessels to Bypass Congestion

To overcome congestion at the busiest ports and minimize delays, Amazon has been chartering its own vessels since 2017. By having control over the route, Amazon can choose to call at less busy ports, such as the Port of Everett or Houston. This tactic allows them to unload goods quickly and ensure timely deliveries, even if it means converting multipurpose vessels originally designed for other types of cargo.

Amazon's Air Cargo Fleet

In addition to chartering vessels, Amazon has been building its own air cargo fleet, known as Amazon Air. With 85 leased and owned aircraft flying out of various airports, Amazon's expanding fleet enables them to transport goods more swiftly. Amid the current challenges faced by the shipping industry, Amazon is reportedly looking to lease even larger long-haul planes to increase capacity and expedite deliveries.

Challenges and Solutions in Manpower

The supply chain chaos has been exacerbated by a shortage of manpower. The great resignation and labor market challenges have left many job positions vacant. To attract workers, Amazon is offering sign-on bonuses of up to $3,000 to all 150,000 seasonal workers it plans to hire. By increasing its workforce and opening more than 250 new facilities in the U.S., Amazon has ensured it has the capacity to handle the influx of orders during the holiday season.

Amazon's Investment in Seasonal Workers and Facilities

With the goal of achieving maximum efficiency and faster deliveries, Amazon continues to invest in its seasonal workforce and expand its facilities. By strategically locating its facilities within close proximity to the population, Amazon aims to make deliveries to almost all customers within a 10 to 15-minute radius. This investment reflects Amazon's commitment to maintaining a robust supply chain and delivering a wide range of products to its customers.

President Biden's Infrastructure Bill

Recognizing the importance of infrastructure improvements for the smooth functioning of the supply chain, President Biden signed a $1.2 trillion infrastructure bill. This bill allocates $17 billion for port improvements and $66 billion for freight and passenger rail over the next five years. Additionally, the President has unveiled plans to run operations at the ports of Los Angeles and Long Beach 24/7, almost doubling the hours of operation. While these measures aim to alleviate the current supply chain crisis, challenges such as warehouse capacity and environmental impact still persist.

The Environmental Impact

The supply chain chaos has a massive carbon footprint, with congestion and delays leading to increased emissions. Smaller ships carrying fewer containers generate more emissions compared to larger cargo ships. This environmental impact highlights the need for greener and more sustainable practices in the shipping industry.

Collaborative Solutions in the Supply Chain

To address the challenges in the supply chain, collaboration among industry players is crucial. By combining supply chains and optimizing logistics, thousands of trucks can be removed from the road, reducing emissions and congestion. Some retailers have already begun collaborating on the last-mile portion of their supply chain, outsourcing deliveries to leverage each other's network and resources. Amazon, with its vast logistics empire, may even extend its shipping services to other companies, selling container space and further optimizing its operations.

In conclusion, the supply chain chaos gripping the industry has compelled retailers to take bold and innovative measures to mitigate the impact. Amazon, in particular, has leveraged its resources and investments to control as much of the shipping process as possible, thereby reducing reliance on external carriers. While other retailers struggle to navigate the challenges, Amazon's extensive preparations and strategic investments have positioned them to weather the storm more effectively. However, the global supply chain remains vulnerable to disruptions, necessitating ongoing efforts to optimize operations and ensure a seamless flow of goods.