Amazon has been chartering private cargo ships and has been making their containers for years. The e-commerce giant has also been leasing plans to have more control on the shipping journey of their orders.
Now, as the supply chain is in chaos, Amazon's move helped them avoid the long wait times for dock space and workers at the busiest ports of Los Angeles.
Amazon's Investment in Shipping
Steve Ferreira, an ocean freight analyst, told CNBC that in Los Angeles, 79 vessels are sitting there up to 45 days just waiting to come into the harbor. The latest venture of Amazon shows that the vessels only waited two days in the harbor.
By getting their own cargo vessels to carry its orders, Amazon controlled where the orders go and it can avoid the long waiting time at the congested ports, especially during peak season.
Ferreira said that most ships take two to three weeks of delay. Amazon has taken advantage of some of the market's strategies to combat the current shipping crisis.
The e-commerce company saw an increase in its out-of-stock items by up to 14%. The average price saw an increase of 25% since early this year, according to CommerceIQ.
Margaret Kidd, the program director of Supply Chain & Logistics Technology at the University of Houston, said that consumers have been feeling price increases in everything they are purchasing. Basically, if there is an increase in the overall cost of transportation, it will be felt by the consumer.
Amazon is working to control much of its shipping process. The company spent $61 billion on shipping in 2020, up from under $38 billion in 2019.
According to SJ Consulting Group, Amazon is currently shipping 72% of its own packages. That is an increase of 47% in 2019.
The company is currently taking control of the first step of the shipping journey as it created its own cargo containers that are 53 feet long. The containers were manufactured in China.
The containers are now in short supply, with very long wait times. The prices surged from $2,000 before the coronavirus pandemic started, to $20,000 today. Ferreira said that Amazon has produced 5,000 to 10,000 of the containers over the last two years.
Ferreira said that when Amazon bring their containers to the port in the United States, as soon as they are unloaded, they get to be used domestically and in the rail system. They do not have to return to Asia like other shipping companies.
Exploring the Ocean Freight Business
Lauren Beagen, a maritime lawyer and founder of Squall Strategies, said that since Amazon created their own containers, they are guaranteeing the equipment is going to be available or them, according to Venture Beat.
Beagen was working at the Federal Maritime Commission when the company first registered with the agency in 2015, the first indication it was exploring its own ocean freight business.
In 2017, the company started to operate as a global freight forwarder via its Chinese subsidiary. It helped move orders around for its sellers in China who pay to be a part of the "Fulfilled by Amazon" program. Internally, this project is named by Amazon as Dragon Boat.
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Written by Sophie Webster