C.8 – Distribution Facilities

Author: Dr. Jean-Paul Rodrigue

Distribution facilities are flow-based structures that aim to consolidate, sort, and deconsolidate cargo to more efficiently service urban markets.

1. Air Hubs

Distribution facilities are flow-based intermediate elements of freight distribution with the core purpose of routing cargo toward its destination, often using a hub-and-spoke structure. Cargo spends a limited amount of time within these facilities as their core role is around three interdependent flew-based functions:

  • Consolidation involves placing cargo loads together to generate a load unit large enough for a high-capacity transport mode offering direct service from one hub to another. This usually involves a shift from one mode to another.
  • Sortation. Routing cargo according to a defined destination can involve consolidation or deconsolidation.
  • Deconsolidation. Breaking cargo loads into smaller units that are suitable for a lower-capacity transport mode.

Distribution facilities do not perform storage or warehousing functions of any significance. Like fulfillment facilities, they tend to be located in suburban areas as they require a substantial footprint due to the volumes they handle. Air hubs and sortation centers are the two main types of distribution facilities.

Air hubs are facilities adjacent to airports designed to consolidate, deconsolidate, and sort air cargo. They are set on the principle of co-location, implying that they have direct access to runways and airport facilities for their cargo operations. These operations are based on the cross-docking principle and centered around handling air Unit Load Devices (ULD), which are containers designed to specifically fit into the bellyhold of aircraft. Once a cargo plane lands at an air hub, its ULDs are unloaded, and their contents are placed on conveyor belts to be sorted by destination. Then, cargo is consolidated into ULDs to be loaded on outbound planes.

Air services are usually organized as a hub-and-spoke network linking airports acting as origins or destinations to an intermediate hub. Major third-party logistics service providers (freight integrators) such as FedEx, UPS, or DHL generally provide these air cargo services through gigantic hub/sortation facilities covering the world’s largest markets. One of the world’s largest air hubs is Worldport, operated by UPS at the Louisville airport. The 5.2 million sqft facility is the hub of the whole UPS continental air cargo network. During peak hours, it can sort more than 400,000 packages per hour. The growth of e-commerce and city logistics has incited the growth of air cargo operations and opened opportunities for new entrants, such as Amazon Air, which began operating in 2016.

The Hub and Spoke Structure of Parcel Carriers
Hubs of Major Air Freight Integrators
Amazon Air Hub
Amazon Air Hubs Network

Although air hubs are not directly city logistics facilities, they exist to support specialized urban cargo demands. Air hubs emerge when large parcel volumes are generated, enough to justify investing in dedicated air cargo services and supporting facilities. This is what has happened in the e-commerce sector in recent years. While it still extensively relies on the air networks of FedEx and UPS, Amazon Air is developing a network complementing the lack of capacity between its e-fulfillment centers, which implies more direct services.

2. Sortation Centers

Sortation centers, which started emerging in the 2010s, play an essential role in accessibility to regional distribution and represent the first layer of city logistics. As cross-docking facilities, they work on a similar principle to air hubs. Still, their function is more oriented toward the sorting and deconsolidation of loads bound for a metropolitan area, supporting the distribution requirements of e-commerce. They handle cargo carried by road, implying that regional accessibility is an important location factor, but their average footprint allows for locations closer to central areas. Sortation centers increase the velocity of deliveries as well as reduce their cost and, as such, improve the competitiveness of e-commerce within city logistics. Cost reductions are mainly derived from the consolidation of cargo into larger loads and improved transit times.

When a metropolitan area reaches a specific volume of parcel deliveries, a sortation center can be set up to route cargo more efficiently. Loads bound to specific areas (such as ZIP codes in the United States) are broken down into pallets to be carried to last-mile facilities such as post offices and delivery stations. The introduction of sortation centers has led to a blurring of distribution channels since the routed cargo can be sent to a number of options for last-mile delivery. This can include own account deliveries, private operators, or postal services depending on local delivery options, such as the availability of delivery assets during the week (e.g. Sunday deliveries). Therefore, freight can be routed based on anticipated capacity. For instance, Amazon has established an extensive network across the major metropolitan areas in the United States.

Amazon Sortation Center
Amazon Sortation Centers Network

Bibliography

  • Bowen, J. (2012) “A spatial analysis of FedEx and UPS: hubs, spokes, and network structure,” Journal of Transport Geography, Vol. 24, pp. 419-431.
  • MWPVL International (2020) Amazon Global Supply Chain and Fulfillment Center Network. https://mwpvl.com/html/amazon_com.html.
  • Rodrigue, J-P (2020) “The Distribution Network of Amazon: Analyzing the Footprint of Freight Digitalization”, Journal of Transport Geography, Vol. 88.
  • Schwieterman, J.P. and J. Walls (2020) Insights into Amazon Air: 2020’s Transportation Juggernaut, Chaddick Institute for Metropolitan Development.