The Future of Urban Freight: The Latest Smart City Logistics Trends
By Sara Spector
Four years ago, the 2016 MHI Annual Industry Report explored the emergence of Smart City Logistics and the potential for digital, connected technologies to address the significant challenges posed by urban freight in an e-commerce world. Fast forward to 2020 and the impact of this issue has only intensified, specifically,
- Increasingly dense urban populations, with the United Nations’ latest projections finding that 55% of the world’s population currently lives in urban areas, a number expected to increase to 68% by 2050; and
- Continued growth of online sales, which increased 10.4% in 2018 to $682.8 billion over the previous year—and were forecast by the National Retail Federation to repeat that growth pattern in the same 10-12% range in 2019.
Thanks to the precedent set by Amazon for free next-day or same-day deliveries, retailers—whether e-commerce or omnichannel— have been compelled to absorb those costs. Plus, the dramatic uptick in single-item deliveries to multiple addresses contributes to increased urban congestion from trucks making more last mile (and last 50 feet) deliveries to residences and businesses within city limits. This also leads to additional noise, pollution, parking and safety issues.
With Pitney Bowes’ annual Parcel Shipping Index finding that an average of 38 parcels were shipped per person in the U.S. in 2018, an 8% increase over 2017, these two mega-trends are on a collision course, said Alan Amling, fellow at the University of Tennessee’s Supply Chain Institute. Prior to his recent retirement, Amling served as vice president of corporate strategy for UPS, where Smart City Logistics initiatives fell under his purview.
"The urban freight challenge for retailers and carriers is that consumers’ same-day or next-day expectations leave less time to consolidate deliveries. But consolidation is what drives down costs," he explained. Indeed, Business Insider research found that last mile delivery costs represent 53% of the total cost of shipping a parcel.
Four years ago, the MHI Annual Industry Report predicted that urban delivery costs and city lifestyle challenges—and the desire to reduce them—would compel businesses, municipalities and academia to form partnerships dedicated to the development of Smart City Logistics solutions. Also anticipated was increased investment in the NextGen technologies that enable those solutions. Here, an evaluation of where urban freight is today, the digital innovations behind those trends, and what the future of Smart City Logistics might hold.
Having served as the lead researcher of the MHI Annual Industry Report for the past six years, Thomas Boykin, leader of Strategy and Operations for Supply Chain and Manufacturing at Deloitte Consulting, anticipated that Smart City Logistics collaborations (and resulting advancements) would be further along since 2016 than they currently are.
The current state of urban freight
"As the report advised four years ago, supply chain leaders should be collaborating with urban planners, city leaders, educational institutions, and even leaders from other potentially competing companies to develop solutions to Smart City Logistics challenges. However, progress has been slow," he noted. "Results from recent MHI innovation surveys suggest that only 12% of companies have actively begun to seek out such collaborative partnerships as part of their development strategy."
European cities remain far ahead of those in the U.S. when it comes to tackling urban freight challenges, Boykin added. "That’s largely because they have much smaller spaces in which to navigate, and they’ve also had to grapple with the problems of congestion for a considerably long time."
Based in Germany, Bettina Tratz-Ryan, analyst vice president at Gartner who researches intelligent urban ecosystems, has a front-row seat to those developments.
"Last mile logistics innovation in Europe differs from that of the U.S. in that European cities often have aging infrastructure that goes back to Medieval times. Here, the focus is on finding solutions that utilize smaller delivery form factors with lower emissions, because of the lack of parking spaces for urban delivery and a larger focus on climate issues," she said, adding that translates into pilots focused on using smaller, human- or electric-powered vehicles to more quickly deliver a variety of goods.
"In Europe, because the density of the cities is much smaller, we’re seeing the most urban delivery developments in downtown areas. And, because of the size and location, there’s also a more manual, analog approach to exploring what’s physically possible," Tratz-Ryan added. "Local governments have the ability to say, we don’t want a big truck in this area, so we’re seeing bike carriers, hand trucks and parcel lockers augmented by a mobile app or locationbased service. In the U.S., because the cities are so much larger, there’s more technology-driven piloting, such as with autonomous vehicles and drones."
Anne Goodchild, professor of civil and environmental engineering at the University of Washington in Seattle, and director of the school’s Supply Chain Transportation and Logistics Center, agrees that Europe has made significantly greater strides than the U.S. in terms of coordinated Smart City Logistics management and response. However, "the environment is different in the U.S. Here, we’re more focused on consumers, and we’re moving much faster than Europe when it comes to offering fast, timely and convenient deliveries," she said.
What has happened, Goodchild continued, is the rise of a tremendous amount of experimentation in specific urban areas throughout the country where last mile and last 50 feet delivery challenges are felt most acutely: New York City, Los Angeles, San Francisco and Seattle.
"Smart City Logistics is in a period of fertility as companies are feeling their way through adaptation, change and the different possible technologies that can be applied on the supply chain side," she said. "We’re seeing a ton of experimentation to evaluate what’s possible and where are the market opportunities. What are consumers demanding and willing to pay for, and how can we meet that demand both cost-effectively and profitably? That’s where we are."
For example, Goodchild noted that there’s been a lot of new start-ups specializing solely in logistics services dedicated to last mile and last 50 feet delivery management. These third parties offer a plethora of solutions for faster and more successful delivery to urban customers, including micro-node fulfillment warehouses located within city centers, completely outsourced management of integrated inventory, and hands-on delivery solutions within city centers.
"I see more and more of this integrated supply chain management for the last mile, where these third-parties are supporting day-to-day operations with fulfillment and inventory management in addition to providing flexible warehouse space," she explained. Other experimental solutions that have begun to gain traction in select markets include alternative delivery modes, such as lockers, electric-assist cargo bikes, crowd-sourced deliveries and curbside material handling where non-professional couriers connected via an app meet a truck at a designated location to pick up parcels they then walk to their destinations.
Amling has also observed the same trends, particularly the increased use of secure delivery lockers throughout multiple urban locations. "That has huge implications for urban logistics because it means the driver is now delivering multiple packages to one location as opposed to making individual deliveries to multiple locations."
In the U.S., carriers such as UPS and FedEx and large retailers like Walmart and Amazon are particularly motivated to deliver parcels to a single, secure central locker destination to cut these handling costs. "Major parcel handlers often pay millions of dollars in fines annually for double parking in urban cores because there’s simply no other way for them to make deliveries. That’s why you see so many proprietary lockers in retail stores and other locations," Amling said.
"The key word there is proprietary. But outside the U.S. it’s not that way. In China, for example, lockers are retailer and carrier agnostic. That means they get considerably more utilization because there’s more opportunity to use them—and consumers have gotten used to them," he explained.
The digital technologies making urban freight deliveries smarter
Alongside the experimental solutions that have emerged to address urban delivery challenges, so too have integrated applications of NextGen technologies, noted Boykin, who said that no single digital innovation can solve these issues alone.
"Rather, it’s the collection and distribution of digital information that holds the key to addressing Smart City Logistics challenges. Solutions that harness the power of sensors, robotics, automation, the Internet of Things (IoT), artificial intelligence (AI), machine learning (ML) and wearables collectively will greatly improve supply chains’ service to customers in cities without adding to the difficulties of city life," he said.
One area of extensive activity within Smart City Logistics developments is the use of sensors and communications technologies to more accurately map the last mile, added Goodchild.
"The goal is to get very detailed, and sometimes three-dimensional or even dynamic, visual mapping to push the supply chain further into the actual delivery point. Consider Google maps; you plug in an address and it takes you to that coordinate. But it doesn’t take you to the front door, or the loading dock or the parking spot," she said.
With digital mapping, however, vehicles could be directly guided—in realtime—to specific delivery coordinates as they communicate where they are and what packages are onboard. Having that data in real-time enables analytics and AI to make adjustments according to a variety of pre-determined parameters, such as vehicle speed, congestion, availability of parking, prioritization of delivery service level agreements, and so on. "All of these technologies working together as a suite are what will allow urban deliveries to become smarter and more responsive," noted Goodchild.
Due to the costs of pricier square footage in urban areas and of duplicate inventories stored in multiple locations, a combination of AI and ML is critical for managing the expenses associated with micro-fulfillment centers, added Amling.
"Yes, they enable the storage of fastermoving products closer to consumers to cut delivery costs, but to really optimize that inventory mix and physical location, retailers need to utilize technology like AI and ML," he explained. "Doing that well involves collecting all the information, not just about their product sales but also about macro-economic indicators and other influences that may drive purchases."
The higher the expectations of the consumer, the fewer the opportunities for finding efficiencies, Amling said. "When you’re talking retail deliveries in urban areas, you can’t have a one-size fits-all supply chain. It’s really incumbent upon all companies to become data-driven, because that’s the only way to make the correct choices and execute the right move for their business," he said. Tratz-Ryan noted that in Europe, 3D printing is being applied to solve timeliness of delivery and inventory management issues simultaneously. She noted that an automobile manufacturer has been installing 3D printers in certain dealerships to create replacement parts on site and as needed. "It’s ideal for repairs after crashes, because so many auto parts today—like bumpers—are made of plastic materials that can be 3D printed quite efficiently."
"THE GOAL IS TO GET VERY DETAILED, AND SOMETIMES THREE-DIMENSIONAL OR EVEN DYNAMIC, VISUAL MAPPING TO PUSH THE SUPPLY CHAIN FURTHER INTO THE ACTUAL DELIVERY POINT."
—ANNE GOODCHILD, UNIVERSITY OF WASHINGTON
Predictions for the future of urban deliveries
The future of urban deliveries remains somewhat murky as the solutions and technologies are deployed to facilitate this aspect of Smart City Logistics.
Amling believes companies will continue to pilot alternate versions of the solutions—and their enabling technologies—that are emerging today.
"No matter how good your analytics, AI and ML are, retailers and carriers will have to continue to experiment with a variety of options," he said. "Because nobody can predict customer behavior. Will they accept crowd-sourced urban deliveries? Will they be willing to pick up a delivery at a locker? Many of these Smart City Logistics models require the consumer to do something different than what they’re doing today, so all these potential solutions have to be tested before you go in with both feet."
Boykin anticipates that pilots of Smart City Logistics solutions will help to stimulate adoption of key innovations that underpin NextGen supply chains. "This will ultimately solve not only lastmile, but all-mile logistics issues," he said, predicting that last-mile package delivery success rates will rise from 60% to over 90% as winning solutions are discovered and implemented.
That increase in success rate will be, in part, attributable to an overall reduction in traffic congestion, continued Boykin. "I foresee the use of multiple technologies, including locations services and IoT communication, to reduce the safety distances between vehicles equipped with sensors. That will increase the capacity of city roads and increase flow."
He also expects consumers to embrace non-proprietary urban consolidation centers as pick-up points for deliveries, and of neighbors helping neighbors by using trip-chaining technologies to retrieve shipments as they pass by a pick-up station on their way home.
"Ultimately, no one entity or organization will be able to solve these complex urban delivery problems on their own. It will take unprecedented levels of collaboration across and between businesses—including competitors—governments, city planners and educational institutions. All will be needed to arrive at sustainable solutions to these emerging problems," he said.
Tratz-Ryan agreed, noting that many municipalities started their Smart City Logistics initiatives focused on livability issues, with urban freight being something of an afterthought. "Many cities started early on defining what made them a Smart City from a technology perspective through IoT deployments. They looked at traffic management, and smart lighting, and waste management. But these are all individual silos without a big win for urban ecosystem partnerships," she noted.
"What cities have that every potential ecosystem partner—industry, retailers, real estate developers—wants is data. If data is the fuel for prosperous ecosystem development, then cities first have to provide data policies and a governance framework that defines what they want to see, then work with partners to create the innovative solutions," continued Tratz-Ryan. "Otherwise we just have ongoing pilots. They’re nice shiny objects, but they really don’t scale."
Boykin added that companies and communities seeking a model partnership dedicated to solving Smart City Logistics issues specifically should look to the Urban Freight Lab (UFL) in Seattle, a consortium of public sector and private industry that operates under Goodchild.
Since its launch in 2016, the UFL has grown from four to 14 corporate members. It brings together executives representing retailers, truck freight carriers and parcel companies, technology companies supporting transportation and logistics, multifamily residential and retail/commercial building developers and operators, and the City of Seattle Department of Transportation. Each participant pays a fee which funds applied research projects specifically focused on improving the operations of urban goods delivery systems.
"Last year, we researched a pilot locker system on city property that depended on several entities’ participation, including the city, delivery partners, and building residents and management," she explained, noting that the findings demonstrated both success and the benefits of the locker solution.
For its next project, the UFL is shifting to the other end of the Smart City Logistics spectrum, piloting a micro-node consolidation warehouse study—not instead of lockers, but as a complementary possible solution.
"No single solution will work for every metropolitan area: Will a community accept garage delivery? Will consumers be willing to travel to a locker or to meet a robotic delivery device at the curb? Will electric-assist cargo bikes be able to navigate a city that has steep hills? Certain solutions may work in some places and not in others," concluded Goodchild. "The future of the last mile will not see a single solution winning but will instead be characterized by a variety of solutions."