Amazon Logistics: US Network Buildout & Rationalization

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How much advantage Amazon gets over others in this part of the process over competitors?

You have to have scale in order to do this, because if you're a smaller retailer, it doesn't make sense to have yet another node within the supply chain. This concept really only applies to the top five or six retailers out there, because it does add another touch point. You have to ship it from the port to the IXD building, then from the IXD building to the fulfilment center. There's an extra leg of transportation and an extra warehouse that you're introducing to the supply chain. But yes, it does create a tremendous competitive advantage because, if you didn't have this in place, you would have far more inventory that would have to be held throughout the network, because you need to purchase and transfer goods from China to North America in full container load quantities in order to get the best possible freight rates. You would not be able to achieve that if you were purchasing container loads into all of the different fulfilment centers or, in the case of Walmart, regional distribution centers, so it creates far more efficient purchasing practices and reduced inventory levels across the entire enterprise.

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At the fulfilment center, what are the decision trees? UPS can pick it up and ship it to a customer. What percentage goes via UPS? What percentage goes through Amazon's own network?

80% of the packages, we think, are flowing into the sortation centers, which is the first port of call for a package that's being handled by either Amazon or the USPS. There's a middle mile that's typically involved here where a full truckload is moved between the fulfilment center and the sortation center at night. All the packages are unloaded to a massive conveyor type system. Think of it as a racetrack that's at the sortation center. Nowadays, there's automation here being applied through Amazon Robotics, but the idea is that the packages are sorted out by zip code, and palletized. Packages that are destined to rural zip codes, that Amazon doesn't deliver to, end up being transported from the sortation center to the USPS post office and each post office is responsible for a bank of zip codes.

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