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Electronic Retail as a Force in Freight Transportation & Regional Development

Posted By Administration, Monday, April 24, 2017

Peter Hylton, PhD Candidate
School of City & Regional Planning
Georgia Institute of Technology

Whether they followed this particular story or are just hearing about it, planners have reason to notice Amazon’s decision to create a cargo airline called Prime Air, currently operating six aircraft with another 40 on order. It is not that Amazon itself is all that important—one company rarely is—even though it employs 300,000 people and ships goods to hundreds of millions of customers. Rather, Prime Air illustrates how the fast-growing electronic retail (e-retail) logistics industry is reshaping not just personal shopping trips and residential package delivery, but also freight transportation and the profile of economic opportunities in metro areas.

Amazon’s first ‘Prime Air’-painted aircraft
Photo credit: Scott Eklund / Red Box Pictures via GeekWire

E-retail has for several decades allowed customers to buy from anywhere through the internet and receive their goods through delivery. Planners quickly recognized e-retail’s potential to reduce personal shopping trips, displace commercial real estate, and increase truck frequency near homes (for example, Mokhtarian 2004; Rotem-Mindali and Weltevreden 2013; and Zhang, Zhu and Ye 2016). Yet, these important customer-facing impacts are just the tip of e-retail logistics’ effects.

From the retailer’s perspective, we see that e-retail logistics responds to a different set of transportation and fulfillment demands compared to traditional brick-and-mortar (B&M) retail. While B&M retail has fairly regular, predictable, and leisurely paced deliveries from suppliers or warehouses to a relatively small number of stores, e-retailers must make deliveries much faster and with shorter notice to many more final destinations, normally the customers’ address. Faced with such a complex optimization problem, e-retailers are investing millions of dollars in physical fulfillment centers to hold inventory and ship out orders. The requirements are different from the B&M warehouses that they replace, and their location and transportation modes often are too.

My studies show some of the regions that will have to adjust to the pros (e.g., jobs and tax revenues) and cons (e.g., high truck volumes) of e-retail logistics, and many are near airports. Out of a sample of the 28 of the largest e-retailers whose facility locations are shown below, 22% of their total fulfillment capacity in the contiguous U.S. is within 10 km of just 13 airports. In other words, airport regions containing 0.016% of the land are attracting 22% of fulfillment capacity. What makes this small fraction of American airport regions different than the rest, and what does it mean for our cities?

Fulfillment center locations overlaid with selected airport regions
Source: Created by author

This question brings us back to Prime Air. Early this year, Amazon announced an agreement with Cincinnati/Northern Kentucky International Airport (CVG) to build a massive package sorting and air cargo hub at the airport, employing nearly 3,000 people. Is it any coincidence that the airport region already has a large and growing e-retail logistics industry, along with regions like Indianapolis, IN; Louisville, KY; Dallas-Ft Worth, TX; and Atlanta, GA? Anecdotal evidence and professional publications have highlighted characteristics of regions and airports that can make them propitious for e-retail logistics, factors like air cargo hubs, sufficient airport capacity, good highway coverage, existing logistics clusters, and proximity to customers. These are among the factors I am currently analyzing.

The answers matter for planning. As a 2015 report by the Airport Cooperative Research Program (ACRP) stated, e-retail is one of the major influencers of air cargo demand. Airport planning departments must understand how attractive they can be to the e-retail logistics industry to accurately forecast how much (if any) of the e-retail cargo growth they may gain.

Surface transportation departments should also care about e-retail since only a small fraction of goods move by air, typically the most valuable or time-sensitive. The rest move by truck, and e-retail logistics’ spatial concentration means that a few small regions are likely to disproportionately bear the burden of providing the roads.

Finally and perhaps most importantly, e-retail affects communities’ economic vibrancy. E-retail tends to be labor-intensive, and the most automated fulfillment centers hire laborers and engineers while the least automated can hire well over a thousand blue-collar workers. Even highly automated fulfillment centers provide tax revenue usable for local services. That is why some regions have economic development programs consisting of conferences, incentives, or special district plans to attract logistics in general or e-retail in particular.

So, next time you receive a package from Amazon, Zappos, 1-800 Contacts, or another e-retailer, look at the shipping label and notice where your items came from. It’s not just a supply chain question; e-retail is acting on our cities.

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