How Amazon's Super-Complex Shipping System Works - YouTube

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About 13 million times per day, someone clicks the order button on amazon.com.

Some days later, all, or at least almost all, of those 13 million orders arrive at their

destination.

But what happens in between?

How does Amazon get a package to you?

Well, it depends… a lot.

In fact, Amazon’s fulfillment system, their shipping system, is more complicated and convoluted

than that of almost any logistics company.

It’s far more complicated than that of UPS, or FedEx, or DHL, or any other major delivery

company.

In a counterintuitive way, this complicated and convoluted fulfillment system is a crucial

component of the secret sauce that’s driving Amazon’s success.

They’re striving to make the consumer experience simple through behind-the-scenes complexity.

So, back to the question: how does an Amazon package get to you, and the answer, it depends.

It depends first on who’s fulfilling the package—Amazon or the seller.

About one fourth of sales in the US are fulfilled directly by the seller, as most products on

Amazon are listed there by a third-party, which can send packages directly through UPS,

FedEx, the postal service, or another consumer delivery company if they choose.

Amazon has nothing to do with the fulfillment of those orders, and the process looks largely

the same as with any other e-commerce company.

What’s different is how the other three quarters of Amazon packages in the US get

to you—the ones that are fulfilled directly by Amazon.

The path that these take depends first on how big the package is.

You see, Amazon’s fulfillment centers are more-or-less split into three categories:

small sortable, large sortable, and large non-sortable.

That first category, small sortable, represents the bread and butter of Amazon’s business.

These are items that are less than 12 by 16 by 6 inches or 30 by 40 by 15 centimeters

in size, and about 25 pounds or 11 kilograms in weight.

The next category, large sortable, is basically anything larger than this up to a weight of

about 60 pounds or 27 kilograms.

Now, the reason for the split between large and small is because the fulfillment operations

of smaller items is much easier to automate—they can fit on conveyor belts and automated robots

and other tools that lower the company's reliance on humans.

For example, Amazon uses a robot called the Kiva which fundamentally changed the way the

job of the company’s pickers, the people who find and grab an item out of storage,

worked.

Previously, pickers would walk some 10 to 12 miles or 16 to 19 kilometers a day through

cavernous rows of shelves.

Now, at least in their most advanced fulfillment centers, a robot picks up an entire mobile

shelf, on which a required product is located, and transports it to the picker, who picks

it.

Essentially, rather than the picker going to the shelf, the shelf goes to the picker.

With these robots, one person can pick three to four hundred items an hour rather than

the one hundred or so that was possible on foot.

Of course, 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.

The fulfillment process for larger items, though, is just tougher to automate cheaply,

so the company chooses to segment the two processes out, and runs a far more manual

and distinct fulfillment system for larger items.

However, in most, but not all cases, the fulfillment centers for large and small items are under

the same roof, even if they’re operated completely independently.

Of course, the ideal scenario for Amazon would be to have every single item they sell in

every single warehouse, but that’s not realistic.

Therefore, they use predictive modeling to try to put items closest to those who are

likely to buy them.

The US 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 many ice scrapers for their

cars.

Meanwhile, in Fargo, North Dakota, demand for this item is almost certainly quite high.

It’s therefore no wonder why that, if you look at the data, the colder the city, the

faster you can get an ice scraper on Amazon.

That is Amazon’s predictive stocking at work.

While most examples of this system are far more nuanced and far less intuitive, the concept

is simple: their algorithms put products closest to the consumers most likely to buy them—something

only possible at this scale thanks to modern big-data analytics.

Of course, there’s then that third category of products—large non-sortable.

The distinction here is because Amazon likes to aggregate products together into as few

packages as possible—unsurprisingly, fewer packages equals lower costs.

So, both the sortable categories include anything that could possibly be packaged together in

a single box.

The largest items—say a 70 pound beanbag, for example—are shipped from the large non-sortable

fulfillment centers.

These facilities are even less automated than the large-sortable ones, 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 sortable fulfillment center in Thornton.

Now, some large items will go directly into the system of a third-party provider, typically

XPO Logistics, which would deliver these bulky items to their final destination, while others

will continue on in Amazon’s system.

The portion of large non-sortable items not sent to a third party logistics provider,

plus all the large and small sortable packages would next be sent to a regional sortation

center.

In Colorado, those two fulfillment centers send their packages to a single sortation

center, located just minutes away from the Aurora fulfillment center.

This is a massive facility, almost half a million square feet in size, with robots running

around, dropping packages into different chutes, which each represent a different grouping

of zip codes.

Now, not all the sortation centers are quite so automated, but each outputs the same thing—pallets

of packages going to roughly the same place.

What happens next, though, once again, depends.

A package heading to Miami, for example, would end up on a pallet with other packages for

Miami, which itself would end up on a truck carrying pallets for Tampa, North Carolina,

Houston, Baltimore, New York City, Connecticut and a few other 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 in “Prime Air” livery.

Now, Amazon Air started in 2015 with its lease of about 20 aircraft from Air Transport International

and has since grown to almost 70 aircraft—all leased from other airlines.

However, the company recently announced the purchase of their first 11 aircraft—also

767, bought from Delta and WestJet—meaning they’ll soon both own and operate their

own aircraft.

Those eastbound pallets would all be loaded around 4:00 am, before the aircraft’s scheduled

departure time of 4:54 am.

Now, anyone familiar with UPS or FedEx’s operations will know why this departure time

is strange.

If UPS was transporting this package to Miami, at least at its fastest speed, it would have

departed on an aircraft the previous night at 9:40 pm, been flown to Louisville, sorted

through the company’s hub, then flown to Miami, arriving at 5:50 am.

FedEx would have done roughly the same, just through Memphis instead.

That’s because FedEx, UPS, and most other major delivery companies are oriented towards

overnight delivery—they make a big chunk of their money charging big rates to take

a package from one part of the US one day and deliver it to another the next day.

Amazon, meanwhile, built their Prime brand off of the promise of two-day delivery—ordering

a package on a Monday and getting it on a Wednesday, for example.

While they’ve since strayed from the rigidness of that system, the fastest shipping they’ll

offer for an item not stocked at a local fulfillment center is two days, meaning they don’t have

to worry about being able to get a package from Denver to Miami overnight.

That’s why UPS and FedEx’s planes take off in the evening, while Amazon’s leave

in the morning.

So, that means it’s about 9:00 am by the time that Amazon Air plane from Denver gets

to Cincinnati airport each day.

Through the morning hours, a dozen or so aircraft land in Cincinnati, and this timing gives

the company a major advantage.

Cincinnati airport is also home to DHL’s main Americas hub, but DHL, like FedEx and

UPS, conducts its operations primarily overnight starting at around midnight, when dozens of

their aircraft from all around the world land and unload.

Over the next few hours, packages and pallets are sorted and loaded onto other aircraft,

which all tend to take off by 8:00 am.

That means DHL only really uses their facility during the overnight hours, so Amazon leases

it for daytime use.

While Amazon is building their own, larger facility at Cincinnati airport, this partnership

gave them a huge head-start.

So, each day, between 8:00 am and 4:00 pm, Amazon’s there, turning their planes around,

and sorting pallets from where they come from, like Denver, to where they need to go, like

Miami.

That Miami flight takes off each weekday at 2:15 pm, and then it lands in Florida just

before 5:00 pm eastern time.

Now, not every Amazon Air itinerary looks 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 across the country, only

20% of Amazon Air’s flights go through their main Cincinnati hub.

That’s because, with the orientation towards two-day delivery versus one, they just have

more time.

The more time means that, in order to service the entirety of Florida, Amazon only needs

to fly to three destinations—Miami, Tampa, and and Lakeland.

That’s because Amazon’s flights to these airports typically land by 5:00 pm, meaning

there’s a whole twelve hours before packages have to be at the local delivery center for

the final destination.

The entirety of Florida is within an eight-hour drive of Lakeland, meaning Amazon can deliver

to all of Florida by only serving effectively one, but in practice three airports.

Meanwhile, FedEx, for example, flies from Memphis to Fort Lauderdale, Fort Myers, Jacksonville,

Tallahassee, Tampa, and Palm Beach, then, from Fort Lauderdale, it operates feeder flights

on smaller aircraft to Key West and Marathon.

So, in summary, in order 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 greatly reduced by orienting for

two-day delivery, and this also means that Amazon doesn’t have to route every flight

via one main hub.

Because they operate to far 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 from or to just one city, a given

Amazon Air flight likely carries packages from or to a whole state or region.

Therefore, Amazon Air has flights from all these airports to Lakeland, meaning that,

while a package from Denver would have to route via Cincinnati, one from Los Angeles

or Dallas or Chicago could fly direct.

With a full hub-and-spoke strategy, like that of UPS or FedEx, a package would have to be

loaded and unloaded from aircraft twice, and sometimes more, while Amazon Air’s nonstop

flights only require loading and unloading once, which reduces cost, and can fly packages

direct, which also reduces cost.

This is how Amazon can transport packages by air more efficiently than UPS or FedEx.

The airplane, however, is just one of five routes that an Amazon package could take onwards

from the Denver sortation center.

For those that are to be delivered locally, in the Denver area, they’ll be driven to

one of four delivery stations for Denver.

There, they’ll be loaded into smaller delivery vans, operated by independent companies or

individuals contracted by Amazon, which will take the packages to their final destinations.

This is the one and only case in which an Amazon package is handled by Amazon logistics

from start to finish, and it’s generally how their packages are delivered within major

urban and suburban areas.

Only a slim majority of their overall package volume is delivered this way, though, as when

you leave major urban areas, things get a bit more complicated.

Now, a package heading outside the Denver area with a later delivery date, or with a

destination within the greater Rockies region, would end up on an Amazon-branded, but independently

operated semi-truck.

For example, packages to the Aspen area, about a three to four hour drive into the mountains,

leave at around 1:00 am each night.

Early in the morning, however, at around 5:00 am, they arrive at the local post office and

from there, they’re fully transferred into the United States Postal Service system for

final delivery.

You see, in less populous areas, like the mountains of Colorado, it just doesn’t make

sense for Amazon to operate their own last-mile delivery.

They need a certain amount of scale for that to be cheaper than the alternative, and, at

least right now, that scale is only possible in major metro areas.

Therefore, they need alternatives for smaller cities, towns, and rural areas, and that alternative

is more often than not the USPS.

That’s because the postal service charges very low rates for last-mile delivery, assuming

Amazon transports the packages to the local post office themselves.

While exact numbers aren’t publicly known, estimates indicate the USPS charges Amazon

about $2 per package for last-mile delivery—about half of what other delivery companies would

for the same service.

After all, the USPS services every address in America, so wherever Amazon needs to deliver,

the USPS is going there anyways.

That’s why for smaller places that still have a decent volume of packages, like mid-sized

towns and cities, USPS delivery is often the cheapest option for Amazon.

But then there’s that next step down—the most rural places in America.

Everything that can’t be cheaply delivered by Amazon or the USPS, typically because they’re

destined for low-density areas where you couldn’t even fill a truck to send to the local post

office, or because of capacity or speed reasons, is sent through UPS.

Right now, it’s believed that about 20% of Amazon’s packages end up delivered by

UPS.

In Colorado, a package destined for the most rural areas, like the western edge of San

Miguel County, for example, would take this route.

It would cost Amazon far more, and they’d likely end up losing money on the cheapest

items, but it’s what’s required for them to be able to service every address in the

US quickly.

No matter which of these routes a package takes, the end result is, at least hopefully,

the same—UPS, the USPS, or Amazon itself drops off a package at its final destination,

after a few days of travel across the US.

It’s a very simple process from a consumer perspective, but the behind the scenes is

incredibly complex.

The complexity is what’s needed, though, for a business who’s whole value proposition

is to get anything to your door quickly and cheaply.

The core of Amazon, their competitive advantage, is now logistics, to the point where many

experts believe that the company will start offering delivery as a service to other companies

in the coming years.

They believe that they’ve perfected their system enough that they’re going to take

on UPS and FedEx.

Of course, Amazon still has competitors, which are going after the company as aggressively

as ever.

Target, for example, has been able to build a delivery system with similar speed through

completely different means—ones that are far simpler.

They’ve essentially turned each of their 1,900 stores across every US state into a

fulfillment center.

They send employees out into the aisles who pick, pack, and ship online orders.

That means that their packages never have to travel very far at all, and so they can

take advantage of cheap and quick ground shipping from UPS, FedEx, and other more traditional

providers.

Some 80% of the company’s orders are fulfilled directly from its stores and now Walmart is

also adopting this direct-from-store fulfillment system as well.

So far, though, Amazon believes in their system of simplicity through complexity, and they’re

making moves to further expand the system within the US and emulate it in Europe, where

they recently opened their first air hub in Leipzig, and put their first two freight aircraft

online in November, 2020.

UPS, FedEx, and the other major consumer delivery companies are already well aware of just how

big a threat Amazon poses to them.

Amazon has managed to build a 21st-century logistics network using 21st-century techniques

and technologies, and, of course, part of the threat comes from the company’s market

dominance, but most is because Amazon is innovating in a way others aren’t.

The way FedEx and UPS move packages today is largely the same way 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.

This is all to say: if you’re worried about Amazon’s growing position as the one-stop-shop

for the world, be worried, because they’re only getting better at it.

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