Every day, there is news of an impending supply chain collapse resulting in increased costs to both merchants and end consumers. If you shop on Amazon.com, Christmas 2021 may seem like any other.
You click, buy and then you receive your order, generally in the same time frame as you have always received your previous Amazon orders. Where other online stores have been struggling, how does it seem like Amazon is unaffected?
Just like everything else, the current logistics chaos is causing panic this holiday season. There are at least count 77 cargo vessels, carrying over one million containers waiting in California’s San Pedro Bay. In case you are wondering, that is a record high.
Plan for a supply chain collapse
Amazon has been planning for a supply chain collapse this since the beginning of the pandemic and has made some big moves to avoid the worst of it. The first thing that Amazon has done is charter its own cargo ship, a strategy adopted this year by other large American retailers like Walmart, Home Depot and Costco.
Amazon is also making its own containers, using long haul planes to expedite high priority orders, and doubling output capacity of its warehouses by increasing the seasonal workers it has hired this year.
Amazon has still been affected by the backlog at American east coast ports. There has been a 14 percent increase in out-of-stock items on the website and since the start of 2021, there has been an average site wide price increase of 25 percent. Unfortunately, when there is an increase in transportation costs, it gets passed down to the end consumer.
Amazon a large logistics company
Everyone views Amazon as the largest retailer, in actuality Amazon is one of the largest logistics companies. Currently ahead of Christmas 2021, Amazon ships 72 percent of its own packages. In 2019, that figure was just 47 percent. Amazon used past buying patterns to predict what will sell and order those items months in advance in bulk. A great plan in theory to beat a supply chain collapse, but it has not saved Amazon from the effects of product shortages this holiday season.
What is causing the supply chain problem is the fact that there is currently a shortage of shipping containers, trailers to pull the containers on for trucks to deliver them to warehouses, big box stores and fulfillment centres. Also, the trip from manufacturers in China currently takes 10 days longer to complete.
Added to this, the wait time at the port of Los Angeles and the port of Long Beach can be as long as a month. This results in empty shelves at brick-and-mortar stores and out-of-stock notices on Amazon.com.
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Rising shipping costs
A decade ago, containers were in such oversupply that an excess were repurposed as houses, apartments and even business parks. Now with a supply chain collapse, containers are so scarce that the price to ship one has gone through the roof, moving from a price of US$1,200 from China to Los Angeles.
Today, it cost approximately US$25,000 to ship just one container, and price is expected to increase even more as the situation worsens with time. One of the reasons that there is a shortage of containers is just the imbalance of trade.
So, if you have a lot of imports coming in, you are moving those containers from the port inland. One of the challenges is getting those empty containers back to the manufacturers who need them to ship out consumer goods.
Amazon has begun making its own 53-foot containers in China using a company called CIMC. These containers can be used inland via freight trains since they do not have to be returned to Asia.
At this point, goods meet the first real bottleneck in Amazon’s fulfillment process, the warehouse. To ease the flow of orders through this end of the process, Amazon has hired 150,000 seasonal employees instead of the usual 100,000.
How Amazon is saving Christmas 2021
As illustrated above, the real problem starts at the port. How Amazon has bypassed the current log jam at California’s ports is by leasing its own ships. If you control the cargo ship you can dictate where the ship docks. Smaller ships can dock at smaller ports, and if necessary they can use the Panama Canal to get goods to the west coast. Amazon has basically taken control of almost every aspect of your online purchases.
High value, high profit margin items like luxury goods can be shipped across the Pacific Ocean using Amazon’s fleet of leased and owned cargo aircraft. This fleet of aircraft is currently numbers 75, in January 2021 it bought 11 used 767-300 jets. This would put Amazon in competition against veteran logistics companies like UPS and FEDEX, companies that still do deliveries for Amazon.
The final cog in this massive machine that Amazon has created is what happens in the “last mile”. Last mile, in supply chain management and transportation planning, is the last leg of a journey comprising the movement of people and goods from a transportation hub to a final destination.
“Last mile” was adopted from the telecommunications industry which faced difficulty connecting individual homes to the main telecommunications network. In the US, this was taken care of by FEDEX, UPS and the US Postal Service. Just as with sea and air freight, Amazon has begun taking control of this leg of the journey as well.
From automating certain activities in warehouses, to incorporating drones in deliveries and finally increasing size of its fleet of transport and delivery trucks. Currently, Amazon has 400,000 drivers worldwide, 40,000 semi-trucks and 30,000 vans.
Amazon is even planning for the future. The company plans to add 12 new Prime Aircrafts to take the total at 82 for their shipping requirements. Amazon is developing an Air hub for last-mile delivery services at the Cincinnati/Northern Kentucky International Airport by the end of 2021, planning to create a fleet of more than 200 aircraft for the Prime Air programme from 2022. The only thing left for Amazon to do at this point is to start manufacturing products to sell on its website.
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