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Amazon is expanding its logistics empire like never before to prepare for this holiday season and it still may not be enough (AMZN)

Published by Business Insider on Sun, 29 Nov 2020

<p><img src="https://static4.businessinsider.com/image/5e8ec5438427e9121d30e203-2400/amazon warehouse.jpg" border="0" alt="Amazon warehouse" data-mce-source="REUTERS/Lucas Jackson/File Photo" data-mce-caption="The inside of an Amazon fulfillment center in Robbinsville, New Jersey on December 2, 2019."></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>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.</p><p>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.</p><p>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.</p><p><u></u>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 <a href="https://mwpvl.com/html/amazon_com.html">MWPVL</a>. A year ago, by MWPVL's count, those totals stood at 1,068 facilities and just shy of 249 million square feet.</p><p>The spokesperson told Business Insider that Amazon has expanded its logistics network square footage by around 50% this year.</p><p>That's before taking into account its vast fleet of delivery trucks and planes, and of course, workersall of which have seen their numbers grow significantly this year.</p><p>The pandemic-fueled boom in online shopping is predicted to continue into the holiday shopping seasonparticularly in places like the US where <a href="https://www.businessinsider.com/category/coronavirus'r=ts-sub">the virus is still widespread</a> and in-person shopping presents a more significant health risk. The <a href="https://nrf.com/media-center/press-releases/nrf-expects-holiday-sales-will-grow-between-36-and-52-percent">National Retail Federation</a> 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.</p><p>Amazon's existing dominance in e-commerce has helped it benefit enormously from this trend: the company reported <a href="https://www.businessinsider.com/amazon-earnings-q3-2020-revenue-eps-profit-analysis-2020-10'r=ts-sub">$96.1 billion in revenue</a> 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.</p><h2>Amazon's expanding footprint</h2><p>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.</p><p>Between January and October, Amazon hired 427,300 workers, bringing its total global workforce to 1.2 million, <a href="https://www.nytimes.com/2020/11/27/technology/pushed-by-pandemic-amazon-goes-on-a-hiring-spree-without-equal.html">The New York Times</a> reported Friday. That's a 50% increase from the <a href="https://www.sec.gov/ix'doc=/Archives/edgar/data/1018724/000101872420000004/amzn-20191231x10k.htm">798,000 workers</a> Amazon employed as of December 31, 2019.</p><p>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, <a href="https://www.aboutamazon.com/news/operations/turning-jobs-into-careers-and-creating-even-more-opportunities">the company announced</a> it's looking to bring on 100,000 seasonal workers this holiday season.</p><p>What's less clear is how many of&nbsp;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.</p><p>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.&nbsp;</p><p>Frontline employees working for Amazon have repeatedly <a href="https://www.businessinsider.com/amazon-walmart-fedex-target-instacart-whole-foods-workers-strike-coronavirus-2020-4" data-analytics-module="body_link" data-analytics-post-depth="60" data-uri="e308c2e5785cb7f012b3a98837ea4e79">gone on strike</a>,&nbsp;<a href="https://www.businessinsider.com/nyc-mayor-orders-investigation-amazon-warehouse-worker-firing-coronavirus-protest-2020-3" data-analytics-module="body_link" data-analytics-post-depth="60" data-uri="63e38e650e045b20716554313f8dcdd9">filed whistleblower complaints</a> with regulators, and <a href="https://www.businessinsider.com/amazon-class-action-lawsuit-alleges-racial-discrimination-covid-19-response-2020-11'r=ts-sub" data-analytics-module="body_link" data-analytics-post-depth="80" data-uri="7f4ff8e7e95f5c0207c2f9375aa31539">sued the company</a> to draw attention to what they say are unsafe working conditions during the pandemic, and the company has admitted that at least <a href="https://www.businessinsider.com/amazon-19000-covid-19-cases-among-us-frontline-workers-report-2020-10'r=ts-sub">19,000 workers have tested positive for COVID-19</a>.</p><p>"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.</p><p>"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.</p><p>Amazon said that it has invested millions in pandemic safety measures and it values the health and safety of employees.</p><p>After <a href="https://www.businessinsider.com/amazon-one-day-shipping-improves-after-covid-delays-2020-8'r=ts-sub">struggling with widespread delays</a> earlier in the pandemic and <a href="https://www.businessinsider.com/amazon-faces-risk-of-prime-day-shipping-delays-logistical-challenges-2020-10'r=ts-sub">pushing Prime Day to October</a>, Amazon has invested in additional logistics infrastructure as well.</p><p>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 <a href="https://www.bain.com/insights/retail-holiday-newsletter-amazon-primes-for-another-happy-holiday-prosperous-new-year">Bain &amp; Co</a>.</p><p>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.</p><p>"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.</p><p>"[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."</p><p><strong>Read more: </strong><em><a href="https://www.businessinsider.com/amazon-one-day-shipping-improves-after-covid-delays-2020-8'r=ts-sub">This chart shows Amazon's one-day shipping has significantly rebounded, but many sellers still face long delays getting their own shipments to warehouses</a></em></p><h2>Outsourcing, insourcing, last-mile</h2><p>The true extent of Amazon's hiring spree and logistics ramp upand whether it's ready for the holiday rushis 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.</p><p>"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.</p><p>Jindel told <a href="https://www.nbcnews.com/business/consumer/fedex-ups-face-shipageddon-potential-shortfall-7-million-packages-day-n1243981">NBC News</a> that UPS and FedEx are expecting shortfalls of 7 million packages per day.</p><p>Amazon has become increasingly self-reliant in recent yearsMWPVL 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 <a href="https://www.bloomberg.com/news/articles/2020-09-16/amazon-plans-to-put-1-000-warehouses-in-neighborhoods">Bloomberg</a>.</p><p>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 <a href="https://www.businesswire.com/news/home/20201123005679/en/Amazon-Offers-New-Ways-to-Track-Receive-and-Pick-Up-Holiday-Orders-to-Keep-this-Holiday-Season-%E2%80%9CSpoiler-Free%E2%80%9D/">press release</a> encouraging customers to pick up packages from its hub locations/alternative pick-up locations."</p><p>"This tells me that they, like UPS and FedEx, are facing capacity issues which in turn will result in delays," she said.</p><p>Several Amazon merchants told <a href="https://www.bloomberg.com/news/articles/2020-11-25/amazon-merchants-say-deliveries-of-some-products-are-delayed">Bloomberg</a> 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.&nbsp;</p><p>"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.</p><p>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.</p><h2>Managing expectations</h2><p>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.</p><p>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 itpredictability and certainty of when they're going to get it, that has equal value."</p><p>Amazon and other logistics companies have also had several months of operating at peak volume to help them prepare.</p><p>"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.</p><p>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."</p><p><a href="https://www.businessinsider.com/amazon-logistics-empire-faces-toughest-challenge-black-friday-pandemic-holiday-2020-11#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/melissa-maker-clean-your-home-quickly-cleaning-expert-2017-4">A cleaning expert reveals her 3-step method for cleaning your entire home quickly</a></p>
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