Amazon Is Creating a National Inbound Network
A new type of facility, the national Inbound Cross-Dock, that has appeared in 2024 plays a key role in the buildout of Supply Chain by Amazon and also aids their regionalization strategy.
In his 2023 letter to shareholders, Amazon CEO Andy Jassy noted that “Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there’s more upside for us.”
As promised, Amazon has been hard at work creating an entirely new inbound receiving network—something that is only beginning to be mentioned in the press, and which, to my knowledge, hasn’t been yet covered as a systemic development.
In Q1 of 2024, they had precisely 2 Inbound Cross-Docking Facilities (IXDs) over 1 million square feet in size, according to MWPVL: one was co-located with a Kariba facility, and one an “upstream storage” facility in PA—certainly no normal IXD. As we explain in our “Brief Primer on Amazon’s Distribution Network,” IXDs are the first step in Amazon’s distribution network, the place where goods are received and prepped for Fulfillment Centers (FCs). They are meant to be true cross-docks, not storage facilities: goods are received through one set of bay doors, and go right back out to FCs on the other side of bay doors. Most are in the range of 600,000 square feet.
Yet just in the last couple of months, I count twelve such IXD facilities of either 1 million or more square feet that have opened. No doubt there are more in development that are not on this list. Supply chain analyst Marc Wulfraat believes that Amazon will build 24 of these in total. IXD growth will account for an outsized share of the overall growth of Amazon’s footprint in 2024.
These facilities are new kinds of IXDs that Amazon is rolling out: national IXDs (or nIXDs). What have served thus far as IXDs will transition to being regional IXDs (or rIXDs), tasked with stocking a set turf of FCs in their region.
What then is the purpose of these new nIXDs? According to Wulfraat, they are a key component in the buildout of Supply Chain by Amazon:
A lot of the large domestic vendors of branded products that ship on Amazon are now moving goods into these nIXD buildings, which are essentially large, holding tanks for inventory—many thousands of pallet positions per building.
Supply Chain by Amazon is the company’s effort to become an end-to-end logistics service for its vendors: they pick up inventory directly from seller manufacturers, cross borders, store and replenish inventory—they do it all. It poses a massive challenge to larger retailers, in that the smaller foreign vendors that typically deal with a Walmart or a Target can compete in the American market more directly. The larger nIXDs can, in theory, serve to handle the extra inventory that Supply Chain by Amazon requires.
Wulfraat also ties the development of these new facilities to Amazon’s regionalization strategy: after the pandemic splurge, Amazon realized it needed to rein in shipping costs, and so divided up the United States into eight regions. The company aims to have as many orders as possible fulfilled by stock within any given region, so as to cut down on the distance a package needs to travel, and more specifically to cut down on its air cargo volume (by far the most expensive way for a package to travel is on a plane).
Previously a vendor might ship its goods to one IXD, which would then disburse to nearby FCs, which in turn would have to find a way to get a package on one side of the country to the other side, if need be. The nIXDs minimize long range FC fulfillment by parsing inbound goods amongst rIXDs around the country, spreading goods around the country on the front end (when they can move them about in full truckloads and more slowly) rather than having to deal with long range fulfillment on the back.
Thus far, according to various Reddit posts, the nIXDs seem to be aiding the regionalization strategy more than they are Supply Chain by Amazon, as I haven’t heard of any of the above facilities truly acting as the kinds of “holding tanks” described by Wulfraat. But they certainly have the space for storage, and change is the rule at Amazon.
If they do end up serving more of a holding function, the nIXDs will look much like Walmart’s Import Redistribution Centers, which were developed in order to consolidate overseas shipments and supply their Regional Distribution Centers. One important thing to note here as the war between Amazon and Walmart escalates is that Amazon is still a relatively small importer, and thus it lacks the ability of a Walmart (year after year the largest importer in the country) to dictate carrier rates and to squeeze every node in the supply chain. Perhaps this is one reason why its nIXDs are not yet holding inventory.
Just as Walmart has a great deal of work to do to catch up with Amazon’s last-mile game, so too does Amazon still have quite a slog to compete with Walmart as an importer with its inbound operations. Various reports indicate that Amazon’s new IXD facilities are experiencing a rough start. But maybe the regionalization savings will be enough to justify the nIXD rollout regardless of whether or not Supply Chain by Amazon takes off.