Amazon was smacked with a $280 million lawsuit alleging it left a Vietnamese warehouse storage container manufacturer high and dry by cutting back orders after the supplier aggressively scaled its production capacity to meet the tech titan’s demands.
Binh Thanh Import Export Production & Trade Joint Stock Co., which does business under the name Gilimex, provided Amazon’s robotics division with its Fabric Pod Arrays (called “FPAs” or “pods”) from 2014 to 2022.
Gilimex’s pod supply to Amazon ballooned from 47,161 to 1,117,036 during the stretch, but in April this year, the supplier alleged—without any warning that demand was drying up—the e-commerce giant cut its forecast demand to 760,000 FPA units for September 2022 through August 2023, in addition to any purchase orders that had been placed already.
Nearly two months later, Amazon allegedly cut the projected pod quantities again to less than a third of the previously anticipated volume. Amazon accordingly instructed Gilimex to effectively cease production and return any unused raw materials.
“When Amazon’s forecasts for pod purchases abruptly dropped, Amazon failed to provide any advance warning, and refused to accept pods that Gilimex built in reliance on earlier forecasts and experience, compensate Gilimex for raw materials purchased in reliance on such forecasts and experience, or provide Gilimex any time to gradually ramp down production, resulting in the immediate and virtually total destruction of Gilimex’s business,” the complaint reads.
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An Amazon spokesperson declined to comment on the lawsuit.
The suit is another example of the tenuous relationship between buyers and suppliers that the Covid-19 pandemic exposed, as more companies tried to adjust purchasing and distribution terms amid rapid fluctuations in product demand.
From 2014 to 2022, Gilimex spent approximately $70 million to expand its manufacturing capacity for the steel and fabric storage pods, which Amazon uses to organize inventory in its own warehouses. The bulk of spending occurred in 2020 and 2021 during the Covid-19 pandemic, when the supplier spent “tens of millions of dollars” to build three new factories dedicated solely to Amazon FPA production.
Gilimex also agreed to spend millions more to convert its three existing manufacturing facilities to production solely for Amazon, hiring a workforce of more than 7,000 employees.
In the process, Gilimex says it was forced to sever business ties with its other large customers, which included global retail companies like Ikea, Decathlon and Columbia Sportswear, to focus exclusively on its relationship with Amazon. Each of these customers historically accounted for $40 million to $50 million in Gilimex’s annual revenue.
The suit, filed in New York State Supreme Court, alleges breach of contract, breach of fiduciary duty, unfair trade practices and negligent misrepresentation.
Gilimex appeared to take a major financial hit in the short term without the revenue stream from Amazon. Local Vietnamese media reports say Gilimex’s third-quarter revenue stood at 213 billion Vietnamese dong ($9 million), plummeting 83 percent quarter-over-quarter and down 66 percent compared to the same period in 2021.
Revenue from Amazon peaked at $146.6 million in 2021, before plunging to $94.3 million in 2022 amid the strained relationship.
Throughout the lawsuit, Gilimex levied other significant criticisms, such as being required to incur more costs to enable its employees to live on factory premises, building dedicated spaces for employees to sleep, eat and shower—all to keep factories operational during the high-demand during the pandemic.
“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 laborers literally risked their lives on a daily basis to make such record growth a reality,” according to the complaint.
Gilimex also said it entered an agreement in January 2021 that was “overwhelmingly favorable” to Amazon, adding that it only agreed to sign out of fear that Amazon would cut its pod orders if Gilimex did not adhere to the terms.
The company also accused Amazon of refusing to discuss a way to gradually ramp down production in good faith during two meetings in June, even locking Gilimex’s CEO and management team out of Amazon’s offices in North Reading, Mass. in July after the Gilimex team had traveled from Vietnam.
In total, the $280 million in damages includes approximately $55 million in the value of Gilimex’s inventory of over 400,000 pods; $68 million worth of raw materials and components secured by Gilimex that cannot be returned to its suppliers; and $30 million of unrecouped investment in manufacturing facilities “built at Amazon’s urging.”
Gilimex is tacking on $37 million in damages that would be incurred by Gilimex to convert its six FPA manufacturing facilities to manufacture for other buyers (if Gilimex can find new ones). The supplier is also accounting for $90 million in lost profits it says it will endure while it works to secure new customers.
Amazon reportedly settles E.U. antitrust case
While Amazon is embroiled in yet another controversy, the company appears to be nearing the end of one of its major antitrust battles. The e-commerce giant has reportedly reached a deal with European Union regulators in which it would give rival products equal treatment on its coveted “buy box,” skirting a potential fine in the process.
As part of the settlement, Amazon would let sellers under its Prime label choose any logistics company and negotiate terms directly, instead of having to use Amazon’s logistics services like Fulfillment by Amazon.
The concessions, which Amazon first offered in July, would close the book on two separate probes filed by the European Commission in November 2020. The probes were related to the company’s use of non-public data as well as possible preferential treatment of Amazon’s own retail goods to those of its third-party sellers.
The Financial Times first reported on the news, saying that the European Commission plans to announce the deal on Dec. 20. The FT report said the date could still change.
In making these concessions, Amazon would avoid formal charges of breaking E.U. antitrust law, preventing the firm from having to pay a fine that would amount to 10 percent of its total global sales.
The move would represent a big win for E.U. legislators as it could serve as a blueprint for the tech titan’s compliance with the new Digital Markets Act (DMA), a piece of legislation aimed at curbing the power of Big Tech companies.
In particular, the DMA sets out new obligations on large online platforms to give equal treatment to data, preventing companies from ranking their own first-party products ahead of competitors on their own marketplace—a practice Amazon has long been accused of across markets, whether it be in the United States or overseas.
Amazon didn’t confirm the FT report to Sourcing Journal, calling it “speculation,” but a company spokesperson provided a statement previously published over the summer, when it first proposed its concessions to the European Commission.
“While we have serious concerns about the Digital Markets Act unfairly targeting Amazon and a few other U.S. companies, and disagree with several conclusions the European Commission made, we have engaged constructively with the Commission to address their concerns and preserve our ability to serve European customers and the more than 225,000 European small and medium-sized businesses selling through our stores,” the Amazon spokesperson said. “No company cares more about small businesses or has done more to support them over the past two decades than Amazon.”
The commitments will be enforced for five years, and have been “market tested” with rival companies, according to the report.
‘Thank my driver’ Alexa campaign over in 48 hours
Drama at Amazon typically extends to its labor force as well, with the company launching a “thank my driver” promotion on Dec. 7, the same day from Washington D.C. Attorney General Karl Racine filed a lawsuit against the e-commerce giant for allegedly stealing tips from its drivers.
The suit revolves around the 2015 launch of Amazon Flex, which allows independent contractors to deliver Amazon packages in their own vehicles for $18 to $25 an hour.
The lawsuit alleges that, at first, Amazon Flex drivers would receive tips, which the checkout process added for customers as a default. But in 2016, the company quietly changed its rules to direct those tips into paying the drivers’ salaries. In promotional materials, Amazon still assured customers and drivers that 100 percent of the tips would go to drivers, despite the money being used instead to subsidizing the company’s overall driver labor costs.
The Federal Trade Commission brought the same claims against Amazon in 2019, leading to Amazon’s agreement two years later to reimburse $61.7 million to Flex drivers. At the time, Amazon agreed to let drivers keep 100 percent of the tips they make unless management received explicit consent from drivers to change the formula.
But Racine’s lawsuit is more focused on the potential violation of consumer protection laws—in particular, the Consumer Protection Procedures Act (CPPA)—instead of the impact on the drivers themselves.
“While Amazon later paid restitution to drivers as part of an FTC settlement, it has not paid any civil penalties in connection with the misrepresentations and omissions it made to consumers with respect to these deceptive tipping practices,” Racine said in the complaint.
Racine already sued Amazon unsuccessfully in 2021 for what he alleged was anticompetitive pricing agreements across both the company’s third-party sellers and first-party, wholesale suppliers.
As part of the curiously timed “thank my driver” promotion, Amazon delivery drivers received a $5 tip—paid for by the company—for the first 1 million consumers who commanded their Alexa-enabled devices to “thank my driver.”
Less than 48 hours after the promotion started, Amazon met the 1-million-driver limit.
The top five drivers who received the most “thank-yous” earned $10,000 to keep and $10,000 to give to charity.
Consumers still have the option to thank their drivers via Alexa, but drivers no longer will receive the tip.