Amid shipping snarls and record consumer spending, the company is prepared to sacrifice profit to get products to customers on time.
Most of the cargo ships calling at Port Everett, Washington, are packed to the brim with cement and timber. So when Olive Bay docked in early November, it became clear that this was no ordinary party. Below deck was rolled steel bound for Vancouver, British Columbia, and 181 containers with the Amazon logo were stacked at the top. Some of them ended up empty and were immediately used to shuffle inventory between the company’s warehouses. The rest, according to customs, were stuffed with laptop cases, campfire pits, Radio Flyer trailers, Peppa Pig puppets, artificial Christmas trees, and dozens of other items shipped directly from China – Amazon.com Inc. products that needed to make customers happy during the holiday season when many retailers are struggling to fill their shelves.
By chartering Olive Bay and shipping it to a relatively quiet port a few miles north of its hometown of Seattle, Amazon circumvented the shipping dilemma of stranded holiday inventory in Los Angeles and other ports. In addition to Everett, the company also docks in the Port of Houston. This extreme measure convinced Amazon executives that they will have enough inventory to welcome another record-breaking holiday shopping season when Adobe predicts that American consumers will spend US$207 billion online, an increase of 10% over last year. Many retailers advise consumers to shop as soon as possible to avoid disappointment. Amazon’s unwavering message: Come on!
In addition to chartering a ship like Olive Bay, Amazon hires 150,000 US seasonal workers to help select, pack and ship items, raise wages and raise contracts up to $3,000. It dispatches half-full trucks to deliver luggage to customers on time. The estimated $4 billion costs of logistics efforts could wipe out the company’s profits during the most important three months of the year. But for Amazon, which gained a reputation as a lifeline when Covid-19 broke out, the holiday season is an opportunity to gain an edge over its rivals.
If the company succeeds in meeting its promises to customers this year, that will be thanks to Amazon-chartered ships taking products from factories in Asia, Amazon Air cargo jets crisscrossing the U.S., Amazon-branded vans departing from hundreds of local delivery depots and the hundreds of thousands of employees and contractors at each step along the way.
“There are structural advantages you have in redundancy if you’re Amazon,” says Jason Murray, a former Amazonian who led teams working on logistics software. “Amazon has its own transportation network, it has access to all the carriers. Multiple ships, multiple factories.”
This logistics prowess is not lost to the merchants who sell their products in Amazon’s vast market. For years, they resisted the use of the company’s global shipping services. Because doing so means sharing information about pricing and suppliers, data that companies fear they can use to compete with them. However, container shortages in the leadup to the holiday season persuaded many of them to overcome their qualms and entrust their cargos to the world’s largest online retailer. “Amazon had space on ships and I couldn’t say no to anyone,” says David Knopfler, whose Brooklyn-based Lights.com sells home décor and lighting fixtures. “If Kim Jong Un had a container, I might take it, too. I can’t be idealistic.”
According to Knopfler, Amazon’s price was “phenomenal”, at $ 4,000 to ship containers from China, compared to the $ 12,000 required by other freight carriers. Amazon also oversees shipments from China to US warehouses, simplifying the process. Other services have many intermediaries for freight to exchange hands, providing opportunities for misunderstandings and delays. “It’s a one-stop-shop from Asia to Amazon,” says Walter Gonzalez, CEO of Miami-based GOJA, which sells various products on Amazon including Magic Fiber cleaner for glasses. “It reduces the grey areas where the shipping process might fail,” Gonzalez says his company, which has been using Amazon’s global logistics service, has about 95% of the inventory it needs to meet holiday demand.
Freight consultants said that other large retailers, including Wal-Mart, have also rented freighters or tried to board ships containing iron ore, coal, grain or other commodities. But Amazon has been preparing for this moment since the mid-2010s when it began booking space on cargo ships to provide a more seamless connection between its Chinese factories and its warehouses. “They basically went from zero containers a month a few years ago, to over 10,000 containers a month,” says Steve Ferreira, an ocean freight consultant. “The thing is an 800-pound gorilla now.”
Last year, the company added chartered aircraft to the mix. Most air freight is carried in the bellies of passenger jets, but when Covid-19 restricted travel, Amazon moved quickly to replace the lost space with cargo planes. This effort complements Amazon Air, the company’s fleet of 85 planes that move inventory between 40 airports in the U.S. and has expanded to Germany.
Bernie Thompson, CEO of Plugable Technologies, used Amazon’s air services to deliver laptop docking stations and other electronics from China to the United States to bypass clogged ports. Before the pandemic disrupted the supply chain, flying inventory by air cost ten times as much as shipping by ship. Today, the cost of air transportation has only quadrupled, thanks to the surge in the cost of moving goods at sea. This is a premium that Thompson is willing to pay. “As long as we don’t have stuff stranded on boats,” he says, “it’s worth it.”
As it stands, Amazon has solved the challenge of trans-Pacific shipping. Getting merchandise from warehouses to customers’ homes could be an equally tricky challenge in the face of one of the worst labour shortages in the US in half a century. The internet and the airways are littered with job ads in the company’s warehouses advertising $15 an hour for getting started and day one health benefits. Amazon employees in online chat rooms say they can earn more than their superiors thanks to copious amounts of overtime, while others fear they will burn out from overwhelming demand. Even those who don’t like the job have to stay over the holidays to qualify for awards.
The mom-and-pop delivery contractors that now handle most of Amazon’s U.S. deliveries are also struggling to hire and retain drivers who, faced with the company’s demanding requirements, have been known to abandon their vehicles mid-shift and quit. If the delivery firms can’t keep up, Amazon can turn to its Flex network of drivers, who ferry packages in their own vehicles. Flex drivers have been boasting of earning $40 to $50 an hour, up from the usual rate of about $18. It’s a sign Amazon is willing to pay whatever it takes to reduce strains on its delivery operation.
“Amazon will stick to its guns and get things to customers,” says David Glick, a former Amazon logistics executive who is now chief technology officer at Seattle logistics startup Flexe. “It’s going to be expensive but, in the long term, builds customer trust.”