The pandemic has led to various supply chain disruptions and labor shortages in the last 18 months. These issues have only escalated in the past few months, hitting a range of industries. The International Monetary Fund slashed its 2021 growth forecast for the U.S. by 0.1% percentage point compared to its July outlook, to 6%, citing rising inflation and supply disruptions.
But while the rest of the world is darting around trying to pivot plans and deal with the supply chain crisis, Amazon made some moves way earlier that enable them to make deliveries on time.
Reasons causing supply chain disruptions
1.Port congestion is an issue faced by shippers, manufacturers, and retailers alike. As recently as August, China shut down the Ningbo-Zhoushan port, the 3rd largest global port, because of a COVID outbreak. The 1st week of November alone saw 79 vessels sitting in the Los Angeles and Long Beach ports, waiting for 45 days in harbor.
2.Meanwhile, a Moody’s report sheds light on driver shortage, calling it the weakest link in the supply chain network. Carriers in key segments are struggling to fill seats emptied over and over by drivers seeking a better deal down the road. Driver churn at large carriers is over 90% now.
Despite these odds, Amazon could avoid the long wait times for dock space and workers at the country’s busiest ports of Long Beach and Los Angeles. Amazon has developed an advanced logistics operation for timely deliveries that makes this possible.
The vast network of ports, container vessels, and trucking companies that move goods globally is badly tangled, and the cost of shipping is skyrocketing. This is troubling news for retailers and holiday shoppers. Despite supply chain concerns affecting them during the holiday season, Amazon has some effective strategies to overcome these odds. So how does Amazon send deliveries on time in such a scenario? Let’s find out.
How Amazon is beating the supply chain disruptions?
1. Investing in their own ocean freight business
As early as 2015, Amazon entered the ocean freight business to control various aspects of its supply chain. They customized all elements in the supply chain for their needs by spending some big bucks on unique plans.
Amazon started operating as a global freight forwarder through a Chinese subsidiary in 2017, helping move goods across the ocean for its Chinese sellers, who pay to be part of the “Fulfilled by Amazon” program. The e-commerce giant spent more than $61 billion on shipping in 2020, up from just under $38 billion in 2019.
Currently, Amazon is shipping 72% of its packages, up from less than 47% in 2019. They did this by manufacturing and using their own 53-foot long cargo containers in China. These containers allow them to ship their freight and use their shipping networks. This ensures that they control the equipment and delivery times. With nearly 5,000 to 10,000 such containers manufactured in the last couple of years, Amazon also has the advantage of moving freight for other manufacturers or shippers if needed. Once these containers arrive in the US, Amazon can even use them for internal freight and trucking, making them a profitable long-term investment.
The company also leases its private cargo ships. These private vessels simply avoid the congested ports and go to less crowded ports to unload their cargo. Amazon battles port congestion effectively by owning the logistics part of their business, thus ensuring that they make deliveries on time.
2. Choosing diverse modes of freight
Apart from ocean freight, Amazon also ships by rail and air. Their private cargo ships avoid congested ports and dock at smaller or less popular ports. They then truck the freight down to different parts of the country. Amazon does not just rely on the roadways, though.
The company also employs the national rail network to ship their freight. Finally, for some of the higher-margin goods, Amazon is directly using airplanes. Having reportedly leased at least 10 long-haul aircraft, the company can bring smaller amounts of freight directly from China to the USA. One of these aircraft, a Boeing 777, can carry up to 220,000 pounds of cargo.
According to capacity estimates from Ocean Audit, the small 1,000-container freighters chartered by Amazon and other players can hold 180 times that, with the largest cargo ships carrying over 3,600 times what the planes can hold.
3. Attracting labor with incentives
Human resources and driver shortage are a tough strain on the supply chain. But Amazon has a strategy in place to battle this personnel shortage too. They are offering sign-on bonuses of up to $3000 this year to all the seasonal workers they’ll hire this year.
With plans to hire 150,000 workers this holiday season, Amazon will hire 50% more people than last year. Despite the huge workload and the speed at which deliveries need to happen, these seasonal workers are packing, loading, unloading, and operating at 250 new facilities Amazon claims to have opened in the USA in 2021.
This also shows that Amazon planned to deal with one more supply chain roadblock – warehouse backlog and management.
Clearly, Amazon has taken vertically integrating their supply chain to a whole new level. The company recognized early on that order fulfilment and customer service are the key milestones they need to stay on top of. They cleverly understood that effective warehouse management would help them make deliveries on time. Amazon achieved this by owning a lot of assets in the pipeline, right from chartering their own vessels to owning vehicles, warehouses, as well as investing in process automation and innovation.
With a rapidly growing fleet, their own logistics operation across the globe, and an e-commerce platform with extensive coverage of products and sectors, Amazon puts gifts under our trees even before Santa comes to call.
Meanwhile, when companies do not have the size and reach of Amazon, shipping goods to different parts of North America may fall back on a dependent trucking brand with a developed network and the latest technology, like Gillson Trucking.
One of Inc 5000’s list of fastest-growing companies in North America, TeamGillson, provides various trucking options. Using the latest technology allows Gillson Trucking to provide customers with fast, safe, and eco-friendly freight shipping options. Contact Gillson now to know more or get a quote.