How Amazon Beat Supply Chain Chaos With Ships, Containers And Planes

Summary

The video discusses how supply chain chaos, particularly in the U.S., is impacting holiday orders. With record-high container ship congestion and a severe trucker shortage, retailers are facing significant delays and increased costs. Amazon, however, has taken strategic steps to mitigate these issues, including chartering its own cargo ships, producing its own containers, and expanding its logistics network. Despite these efforts, Amazon is not immune to challenges, as out-of-stock items have increased, and prices have risen. The video highlights Amazon's innovative strategies to maintain its supply chain efficiency during the crisis.

Takeaways

• 🚢 Supply chain chaos has led to a record high of 77 container vessels waiting in California's San Pedro Bay, with some ships having no docking appointment.
• 📉 Amazon has been proactive in avoiding supply chain issues by chartering its own cargo ships, making its own containers, and leasing long-haul planes for the first time.
• 💵 Amazon's strategy of controlling more of the shipping process allows it to reduce reliance on third-party shippers like UPS and the U.S. Postal Service, and gather more data to optimize shipping.
• 📈 Amazon's shipping costs increased from under $38 billion in 2019 to over $61 billion in 2020, and they now ship 72% of their own packages.
• 📦 The shortage of shipping containers has driven up prices from about $1,200 to $20,000 to ship a container from China to Los Angeles.
• 🚚 Amazon is addressing the trucker shortage by hiring 150,000 seasonal workers, a 50% increase from the previous year, offering sign-on bonuses, and expanding its warehouse capacity.
• ✈️ Amazon Air is expanding with 85 leased and owned aircraft, and is considering leasing larger long-haul planes to bypass port congestion.
• 🌎 Amazon has increased its ports of entry by 50%, expanded network partnerships, and doubled container processing capacity to alleviate supply chain issues.
• 🏭 The U.S. is experiencing a trucker shortage at an all-time high of 80,000, and Amazon is investing in its logistics infrastructure to mitigate this impact.
• 🌐 The global supply chain remains vulnerable to future disruptions, and Amazon's investments in controlling more of the process could provide a competitive edge.

Q & A

What is causing panic in the supply chain during the holiday season?

Supply chain chaos is caused by a record high of 77 container vessels waiting in California's San Pedro Bay, with some ships having no docking appointment, leading to fines for shipping companies starting November 1st.

How is the trucker shortage in the U.S. affecting the supply chain?

The trucker shortage, currently at an all-time high of 80,000, is exacerbating the supply chain issues, as it limits the transportation capacity for goods from ports to their final destinations.

What steps has Amazon taken to mitigate the impact of supply chain disruptions?

Amazon has chartered its own cargo ships, made its own containers, increased warehouse capacity, and leased long-haul planes for the first time to expedite high-priority goods from China to the U.S.

How has Amazon's strategy of chartering its own cargo ships benefited them?

By chartering its own cargo ships, Amazon can better control the shipping process, reducing reliance on other logistics companies and avoiding some of the delays impacting the industry.

What is the current situation with Amazon's out-of-stock items and pricing?

Amazon has seen a 14% rise in out-of-stock items since the start of the year and an average price increase of 25% on the site.

How much did Amazon spend on shipping in 2020, and how does it compare to 2019?

Amazon spent more than $61 billion on shipping in 2020, which is an increase from just under $38 billion in 2019.

What is the 'first-mile' in the context of supply chain management?

The 'first-mile' refers to the initial step in the supply chain where bulk orders are packed into shipping containers and the best journey across the ocean is orchestrated based on the value and destination of the goods.

Why are shipping containers currently in short supply and what is the impact on costs?

Shipping containers are in short supply due to an imbalance in trade, with more imports than exports. This has led to a significant increase in the cost to ship a container from China to Los Angeles, from about $1,200 pre-pandemic to around $20,000 currently.

What is Amazon's approach to dealing with the shortage of shipping containers?

Amazon is making its own 53-foot containers in China, using a company called CIMC, which allows them to ensure the availability of containers for their use and avoid the need to return them to Asia.

How is Amazon leveraging its Amazon Air cargo fleet to bypass port congestion?

Amazon is reportedly looking to lease at least 10 larger, long-haul planes that can hold more volume and traditionally fly across the North Pacific, allowing them to bypass congested ports and expedite the delivery of goods.

What is the potential environmental impact of the current supply chain situation?

The use of more smaller ships and increased flights by companies like Amazon to bypass port congestion can lead to higher carbon emissions due to less efficient engines and more ships being used.

What is the role of collaboration in addressing supply chain issues?

Collaboration between companies can help optimize the use of resources, such as combining shipments on trucks to reduce the number of vehicles on the road, and could potentially alleviate some of the supply chain bottlenecks.

Outlines

00:00

📦 Supply Chain Chaos and Amazon's Strategic Moves

The video script discusses the current supply chain crisis, particularly highlighting the record high of 77 container vessels waiting off the coast of California. It details Amazon's proactive measures to mitigate the impact, such as chartering its own cargo ships, making its own containers, and leasing long-haul planes for high-priority goods. The script also mentions Amazon's increase in out-of-stock items and rising prices, reflecting the broader market trend. Amazon's strategy to control more of the shipping process to reduce reliance on third-party shippers like UPS and the U.S. Postal Service is outlined, emphasizing the company's goal to be the largest logistics company. The summary of the supply chain journey of a holiday gift ordered on Amazon is provided, from bulk orders to last-mile delivery, and the challenges faced at each step are discussed.

05:03

🚢 Amazon's Innovative Solutions to Container Shortage

This paragraph delves into Amazon's response to the shortage and high cost of shipping containers by manufacturing its own 53-foot containers in China. It explains how Amazon's containers can be used in the domestic and rail systems without needing to return to Asia, providing a competitive edge. The paragraph also covers Amazon's expansion of ports of entry, increased partnerships, and enhanced container processing capacity. It discusses the creative solutions retailers are employing, such as repurposing old vessels and chartering their own to bypass congested ports. The economic implications of chartering smaller, older vessels despite their high cost are examined, along with the strategic choice of docking at less busy ports to expedite offloading.

10:05

✈️ Amazon Air and the High-Margin Goods Dilemma

The script addresses Amazon's use of its Amazon Air cargo fleet to bypass port congestion, with plans to lease larger, long-haul planes capable of carrying more volume. It contrasts the high cost of leasing and flying cargo planes with the benefits of moving high-demand, high-margin goods quickly. The paragraph also touches on the strain on the supply chain caused by the worker shortage and Amazon's efforts to attract labor with sign-on bonuses. The strategic expansion of Amazon's facilities in 2021 to handle the influx of goods is highlighted, along with the company's goal to be in proximity to a significant portion of the U.S. population for efficient delivery.

15:06

🌳 Environmental Impact and Future of Supply Chain Collaboration

The final paragraph discusses the environmental impact of the supply chain crisis, noting the increased carbon emissions due to the use of smaller ships and 24/7 port operations. It suggests that greater collaboration among companies could reduce truckloads on highways and improve efficiency. The script mentions Home Depot outsourcing deliveries to Walmart as an example of such collaboration. It also speculates on Amazon's potential future strategies, such as selling container space to other companies and expanding its logistics empire. The paragraph concludes by emphasizing the importance of innovative solutions to address the ongoing vulnerabilities in the global supply chain.

Keywords

💡Supply Chain

Supply chain refers to the network of organizations, activities, information, and resources involved in the creation and delivery of a product or service. In the video, the supply chain chaos is the central issue causing panic during the holiday season due to delays and congestion, particularly with 77 container vessels waiting in California's San Pedro Bay.

💡Container Vessels

Container vessels are large ships designed to transport goods in standardized shipping containers. The script mentions a record high of 77 container vessels waiting, indicating a severe bottleneck in the supply chain, which is a major theme of the video.

💡Docking Appointment

A docking appointment is a scheduled time for a ship to dock at a port. The video highlights that some ships are unscheduled, meaning they do not have a confirmed time to dock, contributing to the supply chain disruptions.

💡Shipping Companies

Shipping companies are businesses that transport goods and cargo via ships. The script discusses fines imposed on these companies for leaving containers on the dock, showing one of the measures being taken to address the congestion issue.

💡Trucker Shortage

Trucker shortage refers to a lack of truck drivers available for transport work. The video cites an all-time high shortage in the U.S., which is a critical part of the supply chain problem, with 80,000 truckers missing according to the data mentioned.

💡Amazon

Amazon is highlighted in the video as a company taking significant steps to mitigate supply chain issues. It is shown chartering its own cargo ships, making its own containers, and investing in various logistics strategies to bypass delays.

💡Cargo Ships

Cargo ships are vessels used to transport goods internationally. The video discusses Amazon's strategy of chartering its own cargo ships, which is a tactic other retailers are also trying, to have more control over the shipping process.

💡Out-of-Stock Items

Out-of-stock items refer to products that are not currently available for purchase. The video notes a 14% rise in out-of-stock items on Amazon since the start of the year, illustrating the impact of supply chain issues on retail availability.

💡Fulfillment Centers

Fulfillment centers are warehouses run by companies like Amazon where products are stored until they are shipped to customers. The video mentions Amazon's 260+ fulfillment centers as part of the middle-mile in the supply chain process.

💡First-Mile

The first-mile in logistics refers to the initial leg of the transportation process, from the point of origin to the first mode of transport. The video describes how Amazon uses data to predict sales and orders items early from China, packing them into shipping containers for the first-mile of their journey.

💡TEU

TEU stands for Twenty-foot Equivalent Unit, a measure used in the shipping industry to express the cargo capacity of a vessel. The video explains how different sizes of container ships, measured in TEUs, affect the supply chain and port congestion.

Highlights

Supply chain chaos is causing panic during the holiday season with a record high of 77 container vessels waiting in California, San Pedro Bay.

Unscheduled container charters with no docking appointment are contributing to the port congestion.

Ports of Los Angeles and Long Beach to fine shipping companies for containers left on the dock starting November 1st.

U.S. trucker shortage is at an all-time high of 80,000, exacerbating supply chain issues.

Amazon charters its own cargo ships to mitigate supply chain disruptions, a strategy now adopted by other retailers.

Amazon is making its own containers and leasing long-haul planes for the first time to expedite high-priority goods.

Amazon's proactive measures since 2020 have helped it be less impacted by supply chain issues compared to other retailers.

Amazon has seen a 14% rise in out-of-stock items and a 25% increase in average prices on its site.

Amazon is investing billions to control more of the shipping process, reducing reliance on third-party shippers.

Amazon spent over $61 billion on shipping in 2020, shipping 72% of its own packages, up from 47% in 2019.

Amazon uses data to predict sales and orders items early, often in bulk from China, to optimize the first-mile of shipping.

Container shortage has led to a surge in shipping costs, from $1,200 to $20,000 per container from China to Los Angeles.

Amazon is producing its own 53-foot containers in China to ensure availability and reduce reliance on the domestic rail system.

Amazon's ocean freight business, 'Dragon Boat', moves goods for Chinese sellers and ranks it among the top five Trans Pacific transportation companies.

Amazon is considering leasing larger long-haul planes to bypass port congestion and expedite goods from China to the U.S.

The supply chain crisis has led to increased costs and carbon emissions due to the need for more smaller, less efficient ships.

Collaboration between retailers could optimize supply chains, reduce truckloads, and lower carbon emissions.

Amazon's logistics strategy includes selling container space to other companies, further expanding its logistics empire.

Transcripts

Online holiday orders are streaming in, but supply chain chaos is causing panic this season.

There are 77 container vessels waiting in California, San Pedro Bay. That's a record high, but some of those ships are unscheduled container charters

with no docking appointment.

The ports of Los Angeles and Long Beach announcing they'll fine shipping companies for each container they leave on the dock starting the first of

November.

The trucker shortage in the U.S. is at an all time high: 80,000, according to new data released this week.

But Amazon has made some unusual, big moves to avoid the worst of it.

Los Angeles, 79 vessels sitting out there up to 45 days. Amazon's latest venture that I've been tracking in the last two days: it waited two days in

the harbor.

For years, Amazon has chartered its own cargo ships, a tactic that retailers like WalMart, Home Depot and Costco are trying this season.

Amazon is also making its own containers, doubling down on workers and warehouses, even leasing long-haul planes for the first time to expedite

high priority goods from China to the U.S.

They've been anticipating this. So they've been taking steps since 2020 to alleviate the issues that other retailers are going to have. So Amazon will

not be as impacted as other retailers. But they're not immune to this.

Amazon has seen a 14% rise in out-of-stock items since the start of the year. And prices on the site are up an average of 25%.

The consumer has been feeling price increases in everything that they're purchasing. I mean, ultimately, when there's an increase in the cost of

transportation, it gets passed down to the consumer.

We talked to former Amazonians, maritime lawyers and supply chain experts about all the bold but costly ways Amazon is trying to skirt the shipping

delays plaguing other retailers this holiday season.

Across every node of the complex, winding shipping journey, Amazon has been investing tens of billions to control as much of the process as possible.

The more Amazon controls each node, the less it has to pay outsiders like UPS and the U.S. Postal Service to ship its goods, and the less vulnerable

its goods are to delays impacting the rest of the industry.

Amazon always understood: they didn't want to be the largest retailer, they wanted to be the largest logistics company.

Amazon spent more than $61 billion on shipping in 2020, up from just under $38 billion in 2019. And Amazon is now shipping 72% of its own packages up

from less than 47% in 2019. And the more Amazon ships, the more data it gathers at every potential pain point of the process.

They're watching what's going on on an hourly basis, globally. So when anything changes in terms of a cost increase of one mode of transportation

versus another, then Amazon has the ability to say, you know what, shipping a container is so high, it's actually cheaper now for us to fly product via

a cargo aircraft.

Let's break down the complexities of the supply chain by looking at the journey of a holiday gift ordered on Amazon. Months or weeks before your

order, Amazon uses data to predict what will sell and where, and orders those items early, at bulk prices, often from China. There Amazon packs the

bulk orders into shipping containers and orchestrates the best journey across the ocean, based on the value of the goods and where they need to

go. This step is referred to as first-mile. Most often the shipping containers are loaded onto massive 14,000-container cargo vessels, the most

cost effective option, sharing space with goods from up to thousands of other companies. About 40% of the time, the vessels are headed to the ports

of LA or Long Beach on a journey taking between 25 and 40 days right now, at least 10 days longer than normal. Once there, they typically sit for

days, and right now, up to months, waiting for available dock space and workers. Once there's availability port workers unload the containers onto

trailers or chassis, which are also in short supply, then move the containers around on port property until they're ready to be picked up by

one of Amazon's 50,000+ semi-truck trailers or contractors and brought that middle-mile to one of its 260+ fulfillment and other facilities. It's

stored here until you place an order and one of Amazon's 260,000 global drivers, or its partners at UPS or the Postal Service, pick it up for that

last-mile delivery.

The first real bottleneck happening in this process is where to put the bulk orders of goods for their journey across the ocean. A decade ago

containers were in such oversupply that excess boxes were repurposed as houses and entire business parks. Now containers are so scarce that the

price to ship one has gone through the roof.

Prior to the pandemic, it would cost about $1,200 to ship a container from China to Los Angeles. Today, it's about $20,000 for just one container.

One of the reasons that there's a shortage of containers is just the imbalance of where trade is. And so if you have a lot of imports coming in,

you're moving those containers from the port inland, and one of the challenges is then getting those empty containers back.

So Amazon is making its own 53-foot containers in China, using a company called CIMC, which makes similar containers for Walmart. In early October,

hundreds of Amazon's own containers arrived at the Port of Houston on the Star Lygra.

Amazon has produced probably somewhere in 5,000 to 10,000 of these containers over the last two years I've been tracking it. When they bring

these containers in to U.S. soil, once they unload them, guess what? They get to be used in the domestic system, in the rail system. They don't have

to return them to Asia like everyone else does.

By them creating their own containers, they are essentially guaranteeing that that equipment is going to be available for them.

Lauren Beagen 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 to give it more control over the shipping journey of certain goods.

What if we had Tickle Me Elmo this year? Guaranteed you wouldn't be able to find it anywhere because that would definitely fall victim to the

congestion that's happening out there right now. But that would be an example of something that would give you a competitive edge if you were to

be able to provide that good faster.

Amazon wouldn't disclose details of its ocean freight program, but says it's increased ports of entry by 50% this season, expanded network

partnerships and doubled container processing capacity.

Amazon and other retailers are getting creative with ocean freight, from repurposing old vessels and chartering their own, because congestion at the

busiest U.S. ports is at record levels.

This is really taking a lot of capacity off the market because you have fewer ships available. Why? Because they're sitting so long to be unloaded.

One solution is to simply call at a less busy port. But to control the route, a company needs to charter its own vessel. So that's exactly what

Amazon has been doing, for years.

You can pull into much smaller ports, the Port of Everett, Washington, for example, or Houston or New Jersey: those ports that have the lowest

congestion and the fastest offload times.

Amazon's been experimenting with chartering vessels since 2017, quietly acting through a Chinese subsidiary as a global freight forwarder, 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're doing over 10,000 Containers per month of the small- and medium-size Chinese exporter. 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.

This season, a handful of other major retailers - Walmart, Costco, Home Depot, IKEA and Target - are also chartering their own smaller vessels to

bypass the busiest ports and get their goods unloaded sooner. And sometimes repurposing ships usually meant for other jobs.

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 containers.

John Esborn has been in the supply chain business for 40 years, streamlining logistics for Wayfair and now Perch, an Amazon aggregator.

You've got those fringe vessels that used to be $10,000 a day. They're now $150,000. And you can't do like a one-month lease. Everybody's got a

captive audience now, right? And so now you've got to lease that thing I've heard for as much as four years.

To understand why extravagantly expensive deals to charter smaller, older vessels makes sense right now, let's talk about different size container

ships and why some ports are backed up while others aren't. A traditional 20-foot container is referred to as a TEU or 20-foot equivalent unit,

although most containers used today are 40 foot, equivalent to two TEUs. Cargo vessels are measured by how many TEUs can fit on board. Ultra-large

container ships bringing goods to the U.S. from Asia can carry up to 20,000 TEUs and they're primarily limited to ports on the West Coast because they

can't fit through the Panama Canal. Although freight rates are at a record high, prices are lowest on these big shared vessels, making them popular.

And only certain ports can handle vessels that size. That's why 40% of shipping containers entering the U.S. pass through the ports of LA and Long

Beach, causing a backlog. Smaller cargo ships that can fit through the Panama Canal carry as little as 1,000 TEUs and cost about double the price

of moving cargo on the larger shared vessels. But the flexibility to dock and unload quickly at any number of ports may translate to on-time

deliveries.

When leasing a ship that can only carry about 1,000 containers, you're actually paying twice as much to move your containers. But what choice do

you have as a retailer?

You don't want to be the person that doesn't have goods on the shelf, right? You don't want to be the CEO that's explaining to Wall Street that

you made that decision or didn't have those goods. So we're moving our hottest-selling items this time of year that also bring the highest

margins.

For those high margin goods, there's another way Amazon is bypassing ports altogether. Since 2016, Amazon has been building its Amazon Air cargo

fleet, saying it'll reach 85 leased and owned aircraft this season. They fly out of 42 U.S. airports, totaling at least 164 flights per day, with

some additional flights out of Canada and Europe. Now amid the current challenges, Amazon is reportedly looking to lease at least 10 larger

long-haul planes that can hold 25% more volume and have traditionally been used to fly across the North Pacific, getting goods from China to the U.S.

One of the converted Boeing 777s can carry 220,000 pounds of cargo, equivalent to the cargo that can fit inside about 5.5 fully loaded 20-foot

containers. Most of 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.

Wouldn't it be easier just to move all that product, say from Asia to the U.S. in a cargo plane? No, it can cost over a million dollars in certain

cases to lease and fly a cargo plane. It's a very, very expensive endeavor.

They were flying hot tubs, which is crazy. I mean, can you imagine hot tubs on freight aviation? The demand was so high that they were able to mark up

the goods enough, people were willing to pay the extra surcharges for that cargo movement.

Another strain on the supply chain that's gotten costlier 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. That might be signing bonuses, higher pay.

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. You know, they've got these containers coming in

the last second, man, they want to unload those goods and get them on the shelves in the fulfillment centers as quickly as possible.

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.

Their goal is this: be within 10 to 15 minutes of 100%, or at a minimum 90%, of the population in the United States to where they can make

deliveries to basically all the customers and deliver just about anything.

While Amazon may be well positioned to avoid the worst of it, the global supply chain remains vulnerable to future backlogs and shortages.

Okay, here we go.

In November, President Biden signed into law a $1.2 trillion infrastructure bill that aims to help, with $17 billion for improvements at ports and $66

billion toward freight and passenger rail over the next five years. In October, he also unveiled a plan to run operations at the ports of Los

Angeles and Long Beach 24/7.

In total, that will almost double the number of hours that the port is open for business from earlier this year.

It's wonderful to have 24/7 as one of the solutions, but what does that mean? I mean, now it just means that the next part, maybe the warehouses,

are going to be overflowed with all these goods that are coming in.

24/7 port operations and chartering private vessels also worsens another related problem: the massive amount of carbon created by all this

congestion.

When you have more smaller ships carrying only 1,000 cargo containers, you're generating much more emissions from having more smaller ships, that

frankly have less efficient engines than these massive cargo ships.

One solution may lie in greater collaboration.

At any given time, there are tractor trailers moving back and forth on highways that are only a quarter loaded. And right beside it is another

truck and trailer going to the exact same location. If you combined supply chains, if you collaborate, you would be removing thousands of trucks from

the road.

Two of the country's biggest importers of goods by container ship have already started collaborating on the last-mile portion of their supply

chain. Home Depot is outsourcing its same- and next-day deliveries to Walmart in New Mexico, Texas and Arkansas. As for Amazon, shipping for

third parties is already part of its strategy to keep scaling its massive logistics empire.

One of the next phases that Amazon could potentially get into is actually selling container space to the Fords, the GMs, the Chryslers of the world.

What Amazon's going to do is say, look at the capacity we have. We have planes that are only going to be 25% full or 50% full. We will sell that

capacity to our competitors, to other companies. That then pays for the operational costs. It's really smart on Amazon's part how they've been

doing this.