How Amazon Overcome Shipping Barriers with Its Own Packaging, Shipping, and Airline

 

For years, Amazon has quietly chartered private freighters, built its own container, and leased planes to better handle the complex shipping process of ordering online. As many vendors fear unsafe products, the start-up costs can avoid docked areas and longer wait times for workers at some of the nation's largest ports, Long Beach and Los Angeles.

“There are 79 ships waiting 45 days to enter the Port of Los Angeles,” marine transportation analyst Steve Pereira told CNBC in November. "The last Amazon company I followed two days ago was waiting two days at the port."

By chartering private freighters to transport goods, Amazon can control where goods go when there are no congested ports.

"Who would have thought of packing in a small port in Washington and transporting it to Los Angeles?" Most people think they just need to get the boat to LA, but they are two to three weeks late. So Amazon has come up with niche ideas that it thinks the industry should embrace, ”Ferreira said.

According to the e-commerce management platform CommerceIQ, Amazon has seen a 14% increase in product production and an average price increase of 25% since January 2021.

“Consumers think the price of whatever they buy is going up,” said Margaret Kidd, director of the supply chain and logistics technology program at the University of Houston. to consumers. "

Amazon spends as much money as possible to streamline the shipping process. Amazon spent more than $ 61 billion on shipments in 2020, up from less than $ 38 billion in 2019. According to SJ Consulting Group, Amazon now ships 72% of its packages, up from less than 47% in 2019.

It even built its own 53ft freight container in China, being the leader in the first phase of its transport. Inadequate packaging, long wait times and prices have dropped from less than $ 2,000 before the spread to $ 20,000 today.

“Amazon has produced between 5,000 and 10,000 of these boxes in the past two years,” Pereira said. “When they bring these boxes to American soil, what happens when they are taken out? They are used in domestic and rail systems. They don't have to send them back to Asia like everyone else. "

The Star Lygra freighter, carrying Amazon packaging, makes a stop in the Port of Houston on October 5, 2021.

“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. She was working at the 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 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.

This season, a handful of other major retailers — Walmart, Costco, Home Depot, Ikea and Target — are also chartering their own vessels to bypass the busiest ports and get their goods unloaded sooner.

“The real purpose of these vessels when they were built was not containers. It was really lumber, chemicals, grain, 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.

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.

Another strain on the supply chain is manpower.  

“We’ve been hearing a lot about the great resignation, with a lot of jobs going open and unfilled. So I think companies are looking to get very creative in attracting labor. It might be signing bonuses, higher pay,” said Judy Whipple, supply chain management professor at Michigan State University.

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. They’ve got these containers coming in at the last second, man, they want to unload those goods and get them on the shelves in the fulfillment centers as quickly as possible,” 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.

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