
Economies of Density: A Study of Amazon's Fulfillment Center Network - sndean
https://www.nber.org/papers/w23361
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wurzelgogerer
In case you want to read the full paper:
[https://www.aeaweb.org/conference/2017/preliminary/paper/GR9...](https://www.aeaweb.org/conference/2017/preliminary/paper/GR9RTndF)

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saosebastiao
Shipping distance isn't the only factor in shipping costs, and reducing
shipping distances can sometimes have the effect of increasing other
costs...and thus cannot be compared in isolation of those other costs.

For example, reducing shipping distances increases the number of locations
where inventory must be kept, which increases safety stock, which reduces
inventory turns. Also, as inventory becomes more fragmented, you can increase
split shipments which can have a huge upwards pressure on total shipping costs
because of the marginal cost savings of adding an item to a box (ex. a
shipment of a small item may cost $3 but you can add a large item to the
shipment for only $0.50 more).

And at the end of the day, there are marginal returns to reduced shipping
distances, because the majority of shipping costs are borne by the last mile.
Much of this is obscured by carrier retail pricing, which commands a premium
for distance. But as negotiating power increases, realized carrier pricing
much more closely aligns with carrier cost structures. And those costs are
driven heavily by the last mile, which isn't going away even with the most
feasibly localized inventory you can imagine.

