https://www.businessinsider.com/amazon-logistics-empire-faces-toughest-challenge-black-friday-pandemic-holiday-2020-11?utm_source=feedly&utm_medium=webfeeds
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- Amazon has massively scaled up its workforce and logistics network to respond to the surge in online shopping during the holiday season due to the pandemic.
- The e-commerce giant has hired more than 400,000 employees, grown its delivery fleet to include a total of 80 planes and 50,000 delivery trucks, and has expanded its warehouse space by more than 50%.
- But Amazon still faces some major challenges, including high worker turnover rates, capacity issues, and unknowns surrounding COVID-19.
- Visit Business Insider's homepage for more stories.
As Black Friday kicks off the holiday shopping season in the US, few companies have had to prepare quite like e-commerce and logistics giant Amazon.
An Amazon spokesperson told Business Insider the company is confident in the capacity it has added and its delivery speeds while still being able to keep employees safe.
But the unprecedented nature of the COVID-19 pandemic and its impact on online shopping means even with those preparations, Amazon's logistics empire will be in for one of its toughest challenges yet.
Amazon has built one of the world's largest logistics networks, currently operating 1,466 facilities globally that span more than 326 million square feet, according to logistics consulting firm MWPVL. A year ago, by MWPVL's count, those totals stood at 1,068 facilities and just shy of 249 million square feet.
The spokesperson told Business Insider that Amazon has expanded its logistics network square footage by around 50% this year.
That's before taking into account its vast fleet of delivery trucks and planes, and of course, workers — all of which have seen their numbers grow significantly this year.
The pandemic-fueled boom in online shopping is predicted to continue into the holiday shopping season — particularly in places like the US where the virus is still widespread and in-person shopping presents a more significant health risk. The National Retail Federation expects holiday sales this year will grow by as much as 5.2% this year even amid massive economic turmoil and a spike in unemployment.
Amazon's existing dominance in e-commerce has helped it benefit enormously from this trend: the company reported $96.1 billion in revenue during its third quarter, up 37% from the same quarter in 2019. But the increased demand has also driven up Amazon's costs, up 34% to $89.9 billion in those same time periods, including what it says have been around $4 billion in COVID-19 related costs this year.
Amazon's expanding footprint
Ahead of this holiday season, Amazon, as well as its delivery and shipping partners, sellers, and competitors, have had to scramble even harder to ramp up capacity than in previous years.
Between January and October, Amazon hired 427,300 workers, bringing its total global workforce to 1.2 million, The New York Times reported Friday. That's a 50% increase from the 798,000 workers Amazon employed as of December 31, 2019.
An Amazon spokesperson told Business Insider that it has hired around 250,000 workers within operations roles alone since February to deal with increased demand. On top of that, the company announced it's looking to bring on 100,000 seasonal workers this holiday season.
What's less clear is how many of those operational employees have stuck around. Multiple warehouse workers told Business Insider that it's rare to see coworkers last more than six months in the job due to the grueling conditions.
A recent investigation by Reveal found that the serious injury rate at Amazon's warehouses in 2019 was 7.7 per 100 employees, or "33% higher than in 2016 and nearly double the most recent industry standard," and that Amazon is aware of its safety issues and has misled the public on the topic.
Frontline employees working for Amazon have repeatedly gone on strike, filed whistleblower complaints with regulators, and sued the company to draw attention to what they say are unsafe working conditions during the pandemic, and the company has admitted that at least 19,000 workers have tested positive for COVID-19.
"The turnover rate is ridiculous, like, I've never seen a turnover rate like that in my life," a longtime HR professional who worked at Amazon's fulfillment center in Charlotte, North Carolina, from April to September, told Business Insider, adding that her HR team was severely understaffed to handle the wave of new hires.
"It's tough to ramp up on such short notice with the [current] working environment and the ability for recruiting is very limited," SJ Consulting Group president Satish Jindel told Business Insider.
Amazon said that it has invested millions in pandemic safety measures and it values the health and safety of employees.
After struggling with widespread delays earlier in the pandemic and pushing Prime Day to October, Amazon has invested in additional logistics infrastructure as well.
Amazon has added "2,200 delivery trucks, further reducing dependence on other carriers, which are anticipating delays and increasing surcharges in November and December," according to a report from consulting firm Bain & Co.
An Amazon spokesperson said its delivery service partners operate more than 50,000 branded last-mile delivery vans, and that the company has leased 12 Boeing 767-300 cargo jets, bringing its fleet to more than 80.
"There's a lot of capacity that has been added. The question is, is that capacity going to show up on time, and is that going to be enough to deal with the volumes that all of these guys are expecting?" Morgan Stanley analyst Ravi Shanker told Business Insider.
"[Amazon has] been able to run at peak-season volumes for most of the year, which obviously is a pretty unprecedented situation," he said, adding that "historically, peak season has been a 30% to 40% volume boost versus the rest of the year. The question is, does that hold true this year as well, and I think that's the biggest unknown at this point."
Outsourcing, insourcing, last-mile
The true extent of Amazon's hiring spree and logistics ramp up — and whether it's ready for the holiday rush — is hard to know in part because of its dependence on third parties, such as its delivery service providers and other major shipping companies like UPS and FedEx, all of whom are facing their own capacity challenges.
"No matter how much Amazon is adding, they still have to rely on other people to provide drivers and trucks that are in short supply," said Jindel, the consultant for SJ Consulting Group.
Jindel told NBC News that UPS and FedEx are expecting shortfalls of 7 million packages per day.
Amazon has become increasingly self-reliant in recent years — MWPVL estimates it's on track to ship around 67% of orders through its own logistics network this year and eventually increase that to 85%, according to Bloomberg.
However, Cathy Robertson, founder and president of Logistics Trends and Insights, told Business Insider that she had "a bit of concern due to [Amazon's] recent press release encouraging customers to pick up packages from its hub locations/alternative pick-up locations."
"This tells me that they, like UPS and FedEx, are facing capacity issues which in turn will result in delays," she said.
Several Amazon merchants told Bloomberg earlier this week that some products are taking more than a week to deliver to US customers that would normally take one to two days, and that they've been forced to fulfill orders themselves out of a concern that Amazon's warehouses have hit capacity.
"How well they move their own packages within their logistics network and how much they move in their network will be watched carefully," Robertson said.
Amazon has spent billions this year on adding last mile and delivery capacity, as well as increasing inventory closer to customers, a spokesperson told Business Insider.
Managing expectations
Jindel said shippers, sellers, and e-commerce companies alike have been trying to train consumers to shop earlier this year to avoid a backlog at the end of the year, and Jindel said that consumers are increasingly valuing predictable shipping times over speed.
Amazon customers are "perfectly okay with things taking two or three instead of one or two days," Jindel said, adding that "speed, while it's of value, people like to have it — predictability and certainty of when they're going to get it, that has equal value."
Amazon and other logistics companies have also had several months of operating at peak volume to help them prepare.
"Back in March, nobody knew what to expect. This was a completely new playbook and everyone was kind of floundering a little bit. Now, all these guys are going in eyes wide open," he said.
But ultimately, Shanker added, the biggest challenge Amazon faces "is the challenge that they and anybody else has faced all year, which is the fear of the unknown."
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