Economies of Density: A Study of Amazon's Fulfillment Center Network

In case you want to read the full paper: https://www.aeaweb.org/conference/2017/preliminary/paper/GR9...

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.