In my last article of 2018, “Which Trends Will Change the Rules of Logistics in 2019?”, I talked briefly about urban logistics and megacities. I want to dedicate my first article of the year to take a closer look at the specific consequences of urbanization and how they can be approached.
Rapidly evolving technologies are making the market surrounding logistic solutions quite a competitive one, this is especially true for solutions that are built to ease the tense traffic situations in megacities. But beyond the business implications of growing profitability in urban environments, industry leaders have a responsibility to think sustainably when tackling megacity challenges. How can we cater to the expectation of services such as same-day-delivery, without overcrowding roads in residential areas and narrow shopping districts? And who are the major players that need to master urbanization logistics issues?
Megacities: engines of the global economy
For many years most of the world’s steadily growing population has settled in cities. At the current rate of urbanization, two-thirds of us will be city dwellers by 2050. There are currently 33 megacities worldwide – these are predicted to grow to 48 by the year 2035.
Megacities are more than just concentrated population centers; they are engines of the global economy. Statistics show that cities generate disproportionately higher per-capita economic output in comparison to the rest of the country. London, for example, accounts for 32 % of the UK’s national GDP produced by only 23 % of the population.
The challenge of being too big to fail
Like engines, megacities are at constant risk of breaking down. They need skilled and ongoing maintenance, and as the data above shows, the stakes are too high for them to fail to support their millions of inhabitants and thousands of businesses, as well as their country’s economic health.
Moving thousands of people and products effectively from A to B on a daily basis is an incredibly complex exercise, both financially and environmentally. The narrow networks in city centres that are fed by newer, larger roads or motorways simply cannot cope with the ever-increasing volume of traffic and threaten both productivity and livability.
Because they are living in these centers of innovation and business, urban dwellers naturally have high expectations of their consumption demands being met – and the scale of demand for logistics services is vast. The Future of Urban Mobility study by Arthur D. Little suggests that demand for goods mobility in urban areas worldwide will multiply by three from 2010 to 2050. Frost & Sullivan similarly estimate that logistics spend in cities globally could grow at a healthy rate of 10% CAGR; and from 2016 to 2025, global urban logistics spending will more than double from USD$4.1 to $9.6 trillion. While all of this may be good for business, it puts even more pressure on inner-city logistics. So how can this be solved?
Developing urban logistics solutions
Effective urban logistics cannot bank on just one single solution but needs to concentrate efforts on a full suite of solutions, spanning multiple logistics activities and stakeholders. Here are the four key approaches that in my opinion will make the difference:
1. Customer-centric delivery solutions
One solution is to increase the options for delivery when a customer is not at home, simultaneously reducing traffic and improving customer service. Possibilities here include giving one-time courier access to your home or the back of your car via a smart lock system and increasing the number of easily accessible pickup locations. There is also some activity around carrier-neutral parcel lockers in several parts of the world. In Singapore, for example, there is a nationwide pilot for a common parcel locker system with 15 logistics firms and industry partners. It is meant for customers to collect parcels at their convenience, even if these items come from different online merchants and are delivered by different companies.
2. Asset pooling solutions
I am convinced that one of the biggest levers is urban asset sharing. Companies can share assets such as warehouses – see my article on The Smart Warehousing Cloud – and fleets to improve utilization and reduce pressure on city infrastructure. Examples include urban consolidation centers – DHL has piloted and now operates multiple centers where inbound shipments are consolidated and then just a single van is needed for final delivery to all inner-city retail stores. In the UK, by operating a Heathrow consolidation center that serves all of the airport’s retailers and food and beverage outlets, CO2 emissions are down by 70% and truck numbers by 50%. However, to expand initiatives such as these requires government direction; it is unlikely to happen naturally.
Nighttime presents additional opportunities for sharing. Some cities are running night delivery projects in defined locations to reduce vehicle numbers and increase vehicle utilization. Barcelona, for example, has piloted night deliveries to grocery stores, and during the 2012 Olympic Games, London mandated night delivery for food/beverage vendors and retailers.
3. Data-driven approach
The world’s largest and busiest cities are already making use of artificial intelligence (AI) in order to analyze, predict, and optimize traffic flows. For example, China’s ride-hailing company Didi partners with 20 mainland Chinese cities to use AI to adjust signal timing for more than 1,300 traffic lights.
Anticipatory shipping is also becoming reality, enabled by a data-driven approach. Retailers are analyzing demand patterns and moving inventory closer to residential areas, even before the customer actually places their order. This allows for same-day delivery services. Data can help cities in many other ways: The Spanish municipality of La Rinconada, Seville has adopted Vodafone smart city solutions in waste management, using sensors to monitor the available capacity of containers and to optimize collection routes.
4. Sustainable logistics solutions
As logistics business leaders, we need to show the way to a more sustainable future and lead by example. I think it is essential to adopt solutions that leverage greener sources of energy to reduce environmental impact and fuel consumption. At Deutsche Post DHL Group, we continue to develop and deploy our own sustainable inner-city fleets, including our StreetScooter electric vehicles and our Cubicycle pedal-powered delivery bikes.
Many companies are now harnessing green energy for inner city deliveries. For example, China’s largest retailer JD.com has rolled out a fleet of 50 solar-powered delivery vehicles in Beijing.
The French retailer Monoprix has been dispatching goods to its inner-city stores in Paris via sustainable transportation flows. Products are initially transported by train, operated by the state-owned railway company SNCF, from a distribution center located 40 km outside the city. On arrival into Paris, these goods are offloaded to LNG (liquefied natural gas) vehicles for last-mile delivery.
Urbanization is transforming the role of cities in the global economy today and will continue to change logistics at an ever-increasing rate. There are significant challenges but by seizing new opportunities logistics players can grow business sustainably and profitably in dense city areas.
We as business leaders in logistics will succeed by developing, piloting, and rolling out a comprehensive suite while leveraging synergies with city administrations and governments. This will promote a symbiotic logistics environment in each urban area, which is crucial to the success of a megacity.