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.
One of the most thorough explainer videos I've seen on the supply chain chaos from the POV of Amazon and Amazon sellers. Found project "Dragon Boat," to be one of the most interesting insights. Amazon is doing over 10k containers a month with small and medium Chinese FBA sellers. That's a lot of volume. I wonder how the crackdowns on Chinese sellers over the last few months has impacted that volume.
Shameless plug, but our Head of International Transportation was quoted about midway through the video at 8:26 and a few more times later on. He was an inaugural member of the Federal Maritime Commission's National Shipper Advisory Committee, one of 12 importers next to senior folks at Amazon, Target, Home Depot, etc. that advise on shipping policy. He's trying to represent needs of FBA sellers, so if you have any pain pints (I know we all do) please don't hesitate to reach out!
The real question is why does it take them 6 week to transfer your inventory once it's in their warehouse.
This is a really informative, insightful, and interesting video. This should be up-voted and viewed by anybody even mildly interested in the recent supply-chain issues and, more importantly, Amazon's response to them.