How Amazon’s New HQ2 in NY/VA Will Impact Logistics and Supply Chain
In early November 2018, Amazon announced plans for its two biggest economic projects in the entire country, stating that the twin projects would be developed in Long Island City in Queens, New York, and in Arlington, Virginia. Both sites will be considered by the company to be headquarters, and they will require approximately $5 billion worth of construction and other investments.
Between the two projects, Amazon is expected to receive upwards of $2 billion in tax incentives, with the majority of that contributed by the state of New York. The tax incentives hinge upon Amazon’s estimates that approximately 25,000 jobs will be created at each location, and if fewer jobs are created, the tax incentives would be reduced.
What is HQ2?
The short answer is that HQ2 is the name given to the twin headquarters project being undertaken in New York and Virginia, both of which would serve as supplemental headquarters to the current main operation in Seattle, Washington. The economic impact that these twin headquarters will have on their regions is staggering, and will likely be felt far beyond the buildings which actually house the new headquarters.
It is very likely that infrastructure will be upgraded in the New York City and Arlington areas to accommodate the vast increase in traffic generated by the incoming business. Since Amazon is the acknowledged leader in supply chain fulfillment for e-commerce, it is expected that companies in the regions housing the new headquarters will be able to piggyback off Amazon’s success to upgrade their own operations. Without question, the volume of freight will dramatically increase throughout these two regions, and probably in nearby regions as well.
Why Amazon has been so successful
Without fear of exaggeration, it can be stated that Amazon has literally overwhelmed the landscape of retail sales in this country by its bold implementation of supply chain strategies, coupled with its implementation of innovative technologies. In the period from 2004 to 2016, Amazon increased in size from a $7 billion operation to one which generates $136 billion annually, making it the fastest company to reach $100 billion in sales revenue in American economic history.
It is not inconceivable that Amazon could reach the $1 trillion annual revenue goal, and at its current growth rate, that could actually happen around the year 2027. For those who remember Amazon’s humble beginnings as an online bookseller, it has been an amazing transformation to see the company grow into the biggest force in all of retail. A big part of that tremendous success has been Amazon’s ongoing efforts to deliver products to its customers in the shortest possible time frame, all of which is attributable to its superb supply chain.
Unparalleled delivery strategy
Amazon Prime delivery service was announced in 2005, and this allowed customers to receive a guaranteed two-day shipping on hundreds of thousands of products available through Amazon, simply by paying an annual membership fee. The establishment of Amazon Prime was one of the key factors which pushed Amazon ahead of its competitors and allowed it to dominate the retail industry.
It’s true that other companies did eventually catch up and offer their own free two-day shipping service, but that triggered the next Amazon innovation, which was its Amazon Prime Now service. Originally the Prime Now service featured a one-hour delivery on some products, although that has since been modified to become a free two-hour delivery service.
Rival companies simply cannot maintain this kind of pace, because they lack the intricate supply-chain capabilities which Amazon is famous for. There is no other company in the world that can match Amazon’s sophisticated information technology, it’s strategic deployment of warehouses, its world-class inventory management, its industry-best transportation system and it’s ability to attract top logistics and supply chain talent. Taken together, these components add up to the greatest supply-chain system on the planet.
Amazon’s next great supply-chain innovation
It seems that all eyes are constantly on Amazon, especially the eyes of its chief rivals, because the retail giant constantly ups its game in response to changing market conditions, as well as in response to its own quest to dominate the industry. In the space of a single year, diesel fuel rose 40% and jet fuel costs rose 50%, which would ordinarily have been a crippling blow to a retailer dependent on a complex supply chain.
However, much of this logistics cost increase was defrayed by an increase in Amazon’s Prime membership, which rose from $99 to $119. But an even bigger change looms on the horizon – it now seems likely that Amazon will directly involve itself in the supply chain system. Up until now, Amazon has worked with third-party fulfillment companies such as FedEx, UPS, and the US Postal Service to have its billions of packages delivered on time to appreciative customers.
There are now signs that Amazon is gearing up to inject its own players into the mix, so as to administer supply-chain requirements itself, rather than through third parties. Amazon has been expanding its internal domestic network, as well as becoming more involved in the international freight market. Amazon already has 32 Boeing 767 – 300’s delivering packages to a number of locations, and this fleet will undoubtedly swell once Amazon’s new airport in Kentucky has been completed. This new level of control over their supply chain infrastructure will help them control and manage future growth.
The future for Amazon
Some insight can be gained into Amazon’s supply chain strategy by examining its most recent wave of new hires. Of its most recently listed 1,500 openings, more than 10% of those jobs were in the area of cross-border imports and cargo or freight expertise. This makes it clear that Amazon is ramping up its in-house expertise on the supply chain segment, especially for international markets, so that when it makes the plunge into supply chain operations, it will have the appropriate expertise on hand. Given the fact that Amazon is increasing the size of its air fleet significantly, ramping up its warehousing capabilities, and adding to its human resources pool, it becomes fairly obvious that the company is moving toward injecting itself into supply chain operations. The question now is not whether Amazon will become involved in supply chain operations, but when it will choose to do so. If its track record for success is any indication, it seems likely that Amazon’s foray into supply chain management will also be a game-changer that cements its domination as the world’s biggest retailer.