Logistics Facilities Supporting E-commerce

Logistics Facilities Supporting E-commerce

Source: Adapted from Rodrigue, J-P (2020) “The Distribution Network of Amazon: Analyzing the Footprint of Freight Digitalization”, Journal of Transport Geography, Vol. 88.

The growth of online retail sales incited the development of new logistics structures through a process of functional specialization, particularly since e-commerce is based on parcel deliveries. This implies the setting of seven particular types of facilities, each addressing the freight distribution of parcels at a specific scale and scope.

  • Inbound cross docks are facilities usually located near major intermodal terminals such as ports and rail yards for the purpose of de-stuffing international containers containing imported goods. The inventory is stored until needed and sent to e-fulfillment facilities in full truck loads. The facilities are usually configured with bay doors on both sides and are functionally similar to transloading facilities but service exclusively e-fulfillment centers.
  • E-fulfillment centers are large facilities assembling individual online orders (half a million to one million square feet). Due to the high number of items that are held in inventory, such centers tend to have high racks storage. In recent years, many of these facilities have become partially or fully automated, with robots able to quickly retrieve orders from storage and place them into backs that will be used to assemble parcels (envelopes or boxes of different sizes). The mere size of these facilities and the number of delivery vehicles accessing them incite their setting in low land cost locations that remain accessible to highways. Since orders are shipped through parcel services, access to a major parcel hub is an important locational attribute. With a sufficient scale, an online retailer can have a specialization of its fulfillment centers according to product category and size (if it fits in a parcel or not).
  • Fast delivery hubs are designed to service the growing requirements for fast deliveries, usually within 48 hours. To do so, these small to medium-sized facilities are located within large metropolitan areas and maintain an inventory of a limited number of high demand items. The inventory is therefore pre-positioned ahead of the expected demand and made available immediately for delivery upon order.
  • Air hubs are facilities adjacent (co-located) to airports designed to transfer parcels to and from air cargo services with regional fulfillment and sortation centers. These services are usually organized as a hub-and-spoke network linking major metropolitan areas to an intermediate hub. Major third-party logistics service providers such as FedEx, UPS, or DHL are usually providing these air cargo services. Amazon Air is currently developing an air network as the giant online retailer generates volumes sufficient enough to justify investing in dedicated air cargo services.
  • Parcel hubs and sortation centers arrange shipments by their regional/local destinations and tend to be large-sized facilities (half a million square feet). They are designed to sort parcels bound to an area by smaller units, such as postal code, and also include sorting packages coming from different e-fulfillment centers. From the sortation center, parcels can be sent to local postal offices for last-mile delivery or to subcontracting delivery companies. Due to their sortation function, these facilities rely on the cross-docking model where inbound flows arrive on one side and outbound flows on the other. Further, depending on the strategy of the online retailer, they call also act as e-fulfillment centers (parcel hubs), particularly for goods that are in high and regular demand. Like e-fulfillment centers, low land cost is an important locational attribute, but the facility is located with the aim of maximizing accessibility to a regional distribution system.
  • Parcel delivery centers (stations), urban logistics depots, micro-hubs are medium-sized or small-sized cross-docking facilities mostly to sort parcels to be placed on specific local delivery routes. Since the deliveries are mostly within an urban setting, the parcels are usually loaded into delivery vans or other specialized urban delivery vehicles (electric vans and increasingly cargo-cycles). These facilities are usually in the immediate periphery of an urban area. In European cities, they are increasingly located inside central urban areas, in underground car parks or former gas stations for example.
  • Pickup locations and local freight stations are used when deliveries are not made directly to the customers’ residences. These small scale facilities, located at accessible high-density locations, are serviced with urban adapted vehicles. In most cases, a store-like facility is used, but an emerging trend has been the usage of freight stations composed of locker banks where customers can pick up their parcels by using a code (e.g. credit card, QR code).

In standard e-commerce distribution chains, e-fulfillment facilities are usually owned by the online retailer while parcel hubs, sortation centers, and parcel delivery centers are usually owned by third-party logistics providers. However, consolidation (vertical integration) trends are emerging as large online retailers are opening their own sortation centers. Some are also getting involved in the transportation segment of their distribution with urban delivery vehicles and trailers to move cargo between e-fulfillment and sortation centers.