Amazon’s post-Covid-19 cutbacks draw ire of Vietnamese supplier

SEATTLE – Amazon.com faces a US$280 million (S$377 million) lawsuit from a Vietnamese manufacturer of warehouse storage systems that alleges the e-commerce giant abruptly scaled back orders after online spending growth cooled in 2022, leaving the manufacturer saddled with excess production capacity and raw materials.

Gilimex said it was a key partner of Amazon from 2014 to 2022, investing tens of millions of dollars in manufacturing facilities to build the steel-and-cloth storage pods used to organise inventory in Amazon warehouses.

Those pods are carried by robots, speeding up the fulfilment of online orders so workers do not have to race around the sprawling facilities on foot. 

The lawsuit provides a rare glimpse into Amazon’s relationships with suppliers needed to fuel its rapid expansion during the pandemic and how those suppliers often took big risks.

The Ho Chi Minh City-based company said it swelled to more than 7,000 employees across multiple factories to produce more than one million warehouse storage units annually.

Production for Amazon increased by 20 times during the eight-year relationship. The partnership was built around trust, according to the 32-page complaint, with Gilimex relying on the accuracy of Amazon’s forecasts to make adequate investments to meet demand.

Gilimex said it had a longstanding agreement with Amazon regarding transparency about anticipated demand so that it could secure materials, factory capacity and employees to fulfil Amazon’s growth, which soared during the pandemic as many people sheltered at home and spent money online.

But Amazon in April and May “immediately changed and reduced the projected demand” for the remainder of 2022 and 2023 to a small fraction of previous forecasts, according to the lawsuit, which was filed on Monday in a New York state court.

Amazon had no immediate comment.

The dispute highlights how the abrupt change in spending habits as pandemic-related restrictions eased has rippled through global business relationships. Bloomberg reported in May that Amazon was looking to sublet excess warehouse space following a pandemic overbuild. The company this autumn began eliminating experimental projects and laying off workers in cost-cutting that is expected to continue into 2023.

Amazon was Gilimex’s biggest customer, with orders totalling US$146.6 million in 2021, said the lawsuit.

Gilimex sidelined other big customers, including Ikea and Columbia Sportswear, to meet Amazon’s demand, according to the lawsuit.

Meeting Amazon’s needs during the pandemic required Gilimex to relocate production and packing facilities to continue manufacturing through Covid-19 outbreaks and navigate around government safety measures.

“Thus, while Amazon enjoyed unprecedented increases in revenue during the pandemic due in large part to the explosion in online ordering by consumers from the safety and comfort of their homes, Gilimex management and labourers literally risked their lives on a daily basis to make such record growth a reality,” according to the complaint. BLOOMBERG