How Amazon's Super-Complex Shipping System Works

This video was made possible thanks to Hover. Professionalize your web presence with a custom domain and email address for 10% off at hover.com/Wendover. Approximately 13 million times a day, someone clicks the order button on

amazon

.com. A few days later, all, or at least almost all, of those 13 million orders arrive at their destination. But what happens in the middle? How does Amazon get a package to you? Well, it depends… a lot. In fact, Amazon's fulfillment

system

, its

shipping

system

, is more

complex

and involved than almost any logistics company. It is much more complicated than UPS, FedEx, DHL or any other major delivery company.

Counterintuitively, this complicated and convoluted fulfillment system is a crucial component of the secret sauce that is driving Amazon's success. They strive to simplify the consumer experience through behind-the-scenes

complex

ity. So, back to the question: how does an Amazon package get to you? The answer depends. It depends first on who fulfills the package: Amazon or the seller. About a quarter of sales in the US are made directly by the seller, as most products on Amazon are listed by a third party, who can ship packages directly through UPS, FedEx, the US Postal Service or another consumer delivery company if you choose.

Amazon has nothing to do with fulfilling those orders and the process is virtually the same as any other e-commerce company. What's different is how the other three-quarters of Amazon's packages in the US get to you: those that Amazon fulfills directly. Which path they take depends primarily on the size of the package. You see, Amazon fulfillment centers are roughly divided into three categories: small sortable, large sortable, and large unsortable. That first category, small and classifiable, represents the lifeline of Amazon's business. These are items that measure less than 12 by 16 by 6 inches or 30 by 40 by 15 centimeters and weigh about 25 pounds or 11 kilograms.

The next category, classifiable large, is basically anything larger than this up to a weight of about 60 pounds or 27 kilograms. Now, the reason for the divide between big and small is that smaller item fulfillment operations are much easier to automate: they can fit on conveyor belts and automated robots and other tools that reduce the company's dependence on humans. For example, Amazon uses a robot called Kiva that fundamentally changed the way the company's pickers, the people who find and remove an item from storage, worked. Previously, pickers walked 10 to 12 miles or 16 to 19 kilometers a day through cavernous rows of racks.

Now, at least in its most advanced logistics centers, a robot picks up an entire mobile shelf, on which the required product is located, and transports it to the picker, who picks it up. Basically, instead of the picker going to the rack, the rack goes to the picker. With these robots, a person can pick up between three and four hundred items per hour, instead of the hundred that was possible on foot. Of course, having fewer humans in the mix is ​​good for Amazon, given the amount of criticism it receives for its treatment of workers, and also because humans, even low-paid ones, are expensive.

However, the fulfillment process for larger items is more difficult to economically automate, so the company opts to segment the two processes and run a much more manual and distinct fulfillment system for larger items. However, in most, but not all, cases, fulfillment centers for large and small items are under the same roof, even if they operate completely independently. Of course, the ideal scenario for Amazon would be to have every item it sells in every warehouse, but that's not realistic. Therefore, they use predictive models to try to bring items closer to those likely to buy them. The United States is far from homogeneous, so demand for different products varies from place to place.

For example, in Miami, people probably aren't looking to buy a lot of ice scrapers for their cars. Meanwhile, in Fargo, North Dakota, demand for this item is almost certainly quite high. So it's no surprise that if you look at the data, the colder the city, the faster you can get an ice scraper on Amazon. That's Amazon's predictive average in action. While most examples of this system are much more nuanced and much less intuitive, the concept is simple: its algorithms bring products to consumers most likely to buy them, something that is only possible at this scale thanks to analysis modern big data.

Of course, there is the third category of products: the great ones that cannot be classified. The distinction here is because Amazon likes to aggregate products in as few packages as possible; Unsurprisingly, fewer packages equal lower costs. Therefore, both classifiable categories include anything that can be packed into a single box. Larger items (for example, a 70-pound bean bag) are shipped from large, non-sortable fulfillment centers. These facilities are even less automated than large sorting facilities and even include workers who create custom boxes for odd-sized items. In Colorado, for example, this is a completely separate facility, located in Aurora, from the sorting logistics center in Thornton.

Now, some large items will go directly into the system of a third-party supplier, typically XPO Logistics, who will deliver these bulky items to their final destination, while others will continue in Amazon's system. The portion of large unsortable items that are not sent to a third-party logistics provider, plus all large and small sortable packages, would then be sent to a regional sortation center. In Colorado, those two fulfillment centers send your packages to a single sortation center, located just minutes from the Aurora fulfillment center. It's a huge facility, almost half a million square feet in size, with robots running around, dropping packages down different slides, each representing a different set of zip codes.

Now, not all sortation centers are this automated, but each one produces the same thing: pallets of packages that go to approximately the same place. But what happens next, once again, depends. A package bound for Miami, for example, would end up on a pallet along with other packages bound for Miami, which in turn would end up on a truck carrying pallets to Tampa, North Carolina, Houston, Baltimore, New York, Connecticut and some others. cities and states to the east. This truck would then drive the 15 minutes to a waiting 767 cargo plane at Denver International Airport branded "Prime Air." Now, Amazon Air started in 2015 by leasing about 20 aircraft from Air Transport International and has since grown to nearly 70 aircraft, all leased to other airlines.

However, the company recently announced the purchase of its first 11 aircraft (also 767, purchased from Delta and WestJet), meaning they will soon own and operate their own planes. All those eastbound pallets would be loaded around 4:00 AM. m., before the plane's scheduled departure time of 4:54 a.m. m. Now, anyone familiar with UPS or FedEx operations will know why this departure time is strange. If UPS were transporting this package to Miami, at least at its fastest speed, it would have left on a plane the night before at 9:40 pm, flown to Louisville, passed through the company center, then flown to Miami, arriving at 5:50 am.

FedEx would have done pretty much the same thing, only through Memphis. That's because FedEx, UPS, and most other big delivery companies are geared toward overnight delivery: They make a lot of their money by charging high fees to take a package from one part of the United States one day and deliver it elsewhere the next day. Meanwhile, Amazon built its Prime brand on the promise of two-day delivery: ordering a package on a Monday and receiving it on a Wednesday, for example. While they have since deviated from the rigidity of that system, the fastest

shipping

they will offer for an item that is not stored at a local fulfillment center is two days, meaning they don't have to worry about being able to receive a package from Denver to Miami overnight.

That's why UPS and FedEx planes take off in the afternoon, while Amazon planes leave in the morning. So, that means it's around 9:00 AM. m. when the Amazon Air plane from Denver arrives at the Cincinnati airport every day. During the morning hours, about a dozen planes land in Cincinnati, and this timing gives the company a big advantage. Cincinnati Airport is also home to DHL's main American hub, but DHL, like FedEx and UPS, conducts operations primarily at night starting at midnight, when dozens of its planes from around the world land and unload. world. Over the next few hours, packages and pallets are sorted and loaded onto other planes, which typically take off at 8:00 am.

That means DHL only uses its facilities during nighttime hours, so Amazon rents them out for daytime use. While Amazon is building its own larger facility at the Cincinnati airport, this partnership gave them a big advantage. So every day, between 8:00 a.m. and 4:00 p.m., Amazon is there, turning its planes and sorting pallets from where they originate, like Denver, to where they need to go, like Miami. That flight from Miami takes off every weekday at 2:15 p.m. m. and then lands in Florida just before 5:00 p.m. Eastern time. Now, not all Amazon Air itineraries are like this.

In fact, while UPS and FedEx route almost all of their flights through their Louisville and Memphis

super

hubs, or through some of their secondary hubs around the country, only 20% of Amazon Air flights pass through their hub. Cincinnati Main. This is because, with the orientation towards two-day delivery versus one, they simply have more time. Longer means that to serve all of Florida, Amazon only needs to fly to three destinations: Miami, Tampa and Lakeland. This is because Amazon flights to these airports typically land at 5:00 p.m., meaning it takes twelve hours before packages need to be at the local delivery center for the final destination.

All of Florida is an eight-hour drive from Lakeland, meaning Amazon can deliver throughout Florida effectively serving only one, but effectively three airports. Meanwhile, FedEx, for example, flies from Memphis to Fort Lauderdale, Fort Myers, Jacksonville, Tallahassee, Tampa and Palm Beach, then, from Fort Lauderdale, operates secondary flights on smaller planes to Key West and Marathon. So, in summary, to serve all of Florida, this is what FedEx has to do and this is what Amazon has to do. The required number of destinations for full coverage is significantly reduced by moving towards two-day delivery, and this also means that Amazon does not have to route all flights through one main hub.

Because they serve many fewer destinations, it's much easier for Amazon to fill a plane from California, for example, exclusively with packages destined for Florida, since while a given UPS or FedEx flight carries packages to or from a single city, a certain Amazon flight An air flight is likely to transport packages to or from an entire state or region. Therefore, Amazon Air has flights from all of these airports to Lakeland, meaning that while a package from Denver would have to go through Cincinnati, one from Los Angeles, Dallas or Chicago could fly directly. With a full hub and spoke strategy, like that of UPS or FedEx, a package would have to be loaded and unloaded from the plane twice, and sometimes more, while Amazon Air's nonstop flights only require loading and unloading once, which which reduces the cost. and can fly packages directly, which also reduces costs.

This is how Amazon can transport packages by air more efficiently than UPS or FedEx. The plane, however, is just one of five routes an Amazon package could take from the Denver sortation center. Those that will be delivered locally, in the Denver area, will be taken to one of four Denver delivery stations. There, they will be loaded into smaller delivery vans, operated by independent companies or individuals contracted by Amazon, who will take the packages to their final destinations. This is the only case where an Amazon package is handled by Amazon logistics from start to finish, and this is generally how your packages are delivered within major urban and suburban areas.

However, only a small majority of the total package volume is delivered this way, asWhen you leave the major urban areas, things get a little more complicated. Now, a package headed out of the Denver area with a later delivery date, or with a destination within the Rocky Mountain metropolitan region, would end up on an Amazon-branded, but independently operated, semi-trailer truck. For example, packages to the Aspen area, about a three- or four-hour drive into the mountains, leave around 1:00 a.m. each night. However, early in the morning, around 5:00 a.m. m., arrive at the local post office and from there are transferred in their entirety to the United States Postal Service system for final delivery.

You see, in less populated areas, like the mountains of Colorado, it simply doesn't make sense for Amazon to operate its own last-mile delivery. They need a certain amount of scale to make it cheaper than the alternative and, at least right now, that scale is only possible in major metropolitan areas. Therefore, they need alternatives for smaller cities, towns, and rural areas, and that alternative is usually the USPS. This is because the postal service charges very low fees for last mile delivery, assuming Amazon transports the packages to the local post office. While exact numbers are not publicly known, estimates indicate that USPS charges Amazon about $2 per package for last-mile delivery, about half what other delivery companies would charge for the same service.

After all, the USPS serves every address in the United States, so wherever Amazon needs to deliver, the USPS will go there anyway. That's why for smaller places that still have a decent volume of packages, like mid-sized towns and cities, USPS delivery is usually the cheapest option for Amazon. But then there's that next step down: the most rural places in America. Anything that Amazon or USPS can't deliver cheaply, usually because they are destined for low-density areas where you can't even fill a truck to ship to the local post office, or for capacity or speed reasons, is shipped to via UPS.

Right now, it is believed that around 20% of Amazon packages end up delivered by UPS. In Colorado, a package destined for more rural areas, like the western end of San Miguel County, for example, would take this route. It would cost Amazon a lot more and they would probably end up losing money on the cheaper items, but it's what they need to be able to quickly serve all addresses in the U.S. No matter which of these routes a package takes, the end result is , at least hopefully, the same: UPS, USPS or Amazon itself delivers a package to its final destination, after a few days of traveling through the United States.

It's a very simple process from a consumer perspective, but behind the scenes it's incredibly complex. However, complexity is what is needed for a company whose value proposition is to get anything to your doorstep quickly and affordably. Amazon's core, its competitive advantage, is now logistics, to the point that many experts believe the company will begin offering delivery as a service to other companies in the coming years. They believe they have perfected their system enough to take on UPS and FedEx. Of course, Amazon still has competitors pursuing the company as aggressively as ever. Target, for example, has been able to build a delivery system with similar speed through completely different, much simpler means.

They've basically turned each of their 1,900 stores in every US state into a fulfillment center. They send employees to the aisles who pick, pack and ship online orders. That means your packages never have to travel very far and can therefore take advantage of fast, affordable ground shipping from UPS, FedEx, and other more traditional providers. About 80% of the company's orders are processed directly from its stores and now Walmart is also adopting this direct-from-store fulfillment system. So far, however, Amazon believes in its system of simplicity through complexity, and is taking steps to further expand the system within the US and emulate it in Europe, where they recently opened their first air hub in Leipzig and They put their first two cargo planes online in November 2020.

UPS, FedEx, and other major consumer delivery companies are already well aware of the major threat Amazon poses to them. Amazon has managed to build a 21st century logistics network using 21st century techniques and technologies, and of course some of the threat comes from the company's market dominance, but most of it is because Amazon is innovating in a way that others don't. The way FedEx and UPS move packages today is largely the same as they did decades ago, but Amazon's system is only possible through innovations that allow them to manage such a massive, complex and convoluted system.

All of this is to say: if you're worried about Amazon's growing position as a one-stop shop for the world, worry, because they're getting better and better at it. What the rise of Amazon demonstrates more than anything is that, like it or not, online is the new mainstream. So, just as you would worry about how your storefront looks on the high street, you should worry about how your web presence looks. Now, in the case of email, having a non-personalized address is equivalent to having a dirty sign: it

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