Amazon's Distribution Facilities: An Emerging Geography of E-commerce

Amazon has become the largest online retailer in the United States, supported by a substantial growth in the distribution facilities that are required to meet the demands for e-commerce in terms of procurement, inventory management and parcel distribution. As of early 2019, Amazon was operating more than 390 facilities in the United States alone (see map below).

E-Commerce Facilities Operated by Amazon in the United States, late 2018. Source: MWPVL International.

These facilities have a functional specialization that includes:

• Inbound cross-dock centers. The purpose of these large-sized distribution centers is to sort the inbound flows coming from vendors to regional e-fulfillment centers. Since many suppliers are abroad, a large quantity of cargo arrives in containers through ports. So, these facilities tend to be located close to major container port or intermodal rail facilities as import containers are brought in to be unloaded and their contents stored. The inventory is held until required by e-fulfillment centers, mostly in the form of consolidated loads of various items.
• E-fulfillment centers. Accounting for the most significant footprint, the purpose of e-fulfillment centers is to process and fill online orders. E-fulfillment centers are specialized by the type of items they handle, particularly in terms of size. Therefore, small sortable e-fulfillment centers handle items that can be combined into a small box or envelope of less than 18 inches. Large sortable are for items that can be combined into a large box of more than 18 inches and still be able to be handled by standard sortation equipment such as conveyor belts. Large non-sortable are individual items that are too bulky or heavy and that require to be handled separately (e.g. fork lift). There are also e-fulfillment centers specializing in apparel, footwear, jewelry, dry groceries and perishables. The location of the fulfillment centers is related to the distribution of the American population but not necessarily based upon optimal regional market accessibility. Reducing land rent costs and tax expenses, particularly sales taxes, is a core locational driver. The footprint of e-fulfillment centers has become stable at around 1,000,000 square foot per facility. So, as demand increases, Amazon does not expand the size of existing facilities, but build additional ones to expand market coverage and reduce lead time.
• Sortation centers. The purpose of these distribution centers is to sort parcels coming from e-fulfillment centers towards smaller destination units such as postal codes. They can either be brought to a local post office or to a delivery station. These facilities are used to allocate which distribution system (United States Postal Services, UPS, FedEx) parcels are going to be sent through for the last mile.
• Delivery stations. Facilities often designed for the last step before final delivery and are located within metropolitan areas. They sort parcels according to well defined delivery areas that are serviced by contracted delivery companies. These facilities are also being used for the delivery of fresh goods. A large number are rented distribution centers of small size or reconverted facilities. Amazon is simply seeking to find an available footprint having accessibility to a metropolitan area, or part of a metropolitan area.
• Prime parcel hubs. Specialized distribution centers carrying a limited line of items that can quickly be delivered, often in less than two days. Items held in inventory are selected on the basis on their high and relatively predictable demand. They are also known as Amazon Prime facilities and tend to be located in the largest metropolitan areas. Several are co-located with e-fulfillment centers so that they get quickly replenished, but are operated independently.