The logistics sector is the flywheel of the economy. Freight companies must become increasingly efficient to ensure industrial production lines don’t come to a standstill. A look at why logistics is becoming the key sector of the digital age
Germany’s roads were used to transport 3,961 million tons of goods in 2016.
A simple fruit yogurt from a dairy company in Stuttgart: The strawberries are from Poland, the bacteria culture is from Schleswig-Holstein and the aluminum lid is from the Rhineland. Trucks have to drive all across Europe before that simple yogurt makes it onto your supermarket shelf: a distance of 5,664 miles. That is what regional development planner and traffic expert Stefanie Böge once calculated while working on an exceptionally elaborate study.
And this is just one of countless examples. The distances our consumer goods travel, whether pineapples from Costa Rica or valentine roses from Kenya, are becoming longer each year. Even a common North Sea crab has accumulated around 3,700 miles by the time it lands on the plate of a fish restaurant in Schleswig-Holstein after shelling in Morocco.
“From an ecological standpoint, the increasingly shorter delivery times are a particular problem because they rob us of any potential for optimization, says Michael ten Hompel, Professor for Transport and Storage Studies at the Technical University of Dortmund, and Managing Director of the Fraunhofer Institute for Material Flow and Logistics.
“However, we should also not forget that the actions of the logistics companies are by no means an end to themselves. Instead, they are working by order of a shared-labor global economy that makes it possible for our modern world of consumption to even exist.”
Storing is Silver, but sharing is golden.Logistics professor Michael ten Hompel on the transport systems of the future, the need for cross-company data communication and smart shelves as conversation partners
Consequently, the key question is how the industry can carry out its orders as quickly as possible and in a manner that spares resources to the greatest possible extent. Not an easy task, especially when the demands on logistics specialists are increasing enormously. While the global volume of freight was just 48,558 trillion ton miles in 2010, OECD forecasts predict that it will be more than four times that amount by the year 2050.
Everything now needs to be available just in time. Of course, that’s what producers demand, but it’s also what the consumers want. If you are always online with your smartphone and go shopping when and where you please, you will expect to get everything here and now.
Drones are still science fiction in the transport business. However, 33 percent of German citizens already think it would be great to have their packages delivered by airmail in the future.
“Immediateness” is the magic word for this new, technology-driven impatience. Haulers, courier services, and sea and air freight companies must constantly carry out their work more efficiently and flexibly so that everything is available in the blink of an eye. And preferably as quietly as possible and certainly without any annoying delays.
But how are logistics specialists supposed to handle this humongous task? What approaches for finding solutions does digitization provide? How are trucks supposed to make it through metropolises with all the traffic congestion? What can be improved on the famous final mile so that shipments of goods reach the receiver at the first delivery attempt? And, last but not least: How can these processes be designed as sustainably as possible so that we don’t burden the environment with yet more emissions?
These questions regularly provide ample fodder for discussion—at transport logistic, the world’s leading trade fair for logistics, mobility, IT and supply chains in Munich. “We gather together all of the most important players in the logistics industry here so they can present their solutions for the challenges of the future,” says Stefan Rummel, Managing Director of Messe München and the man responsible for transport logistic, among other things.
We are an extremely important trendsetter for an industry that, with a turnover of close to 260 billion euros, is the third-largest area of business in Germany, behind the automotive sector and trade.Stefan Rummel, Messe München
Every company of distinction in the world of logistics has been present at the trade fair for many years, including, of course, the subsidiary of Deutsche Bahn, DB Schenker. It is one of the major players in the sector, with 75,000 employees in more than 130 countries.
And a man at the helm who sees the writing on the wall. Since assuming office in the fall of 2015, DB Schenker CEO Jochen Thewesmade it emphatically clear to his colleagues that, just because something was once great doesn’t mean that it stay that way forever.. Why should the disruptive power of digitalization, which is in the process of upending entire industries, spare the transport sector of all things? There is no Executive Board meeting in which the topic is missing on the agenda and we endeavor to explore: where are the dangers, where does it offer new opportunities," he says.
The opportunities are plentiful and the Schenker managers have already made use of some. Already in early 2017, they invested around 24 million euros in UShip, a freight exchange headquartered in the USA that functions like an Uber for the transport business. Transport orders can be sold by auction on mobile devices and every customer obtains full transparency of capacities and prices. The Americans have been successful with this business model in over 19 countries, with almost all the business in the consumer sector.
However, DB Schenker’s entry may change this very soon. The Deutsche Bahn subsidiary’s own Drive4Schenker platform is now also based on UShip technology. There are approximately 30,000 partners in the European network who will be able to recognize in real time where there is still additional cargo on their routes and better utilize their capacities in future. “That will make our transport management quicker, easier and more efficient, and also help us, as market leaders in European land transport, handle even larger volumes of freight,” says Thewes.
And that is by no means the only digitization offensive currently rocking the industry. As early as 2014, Kühne + Nagel (KN) set up “FreightNet”, a fully digitalized platform solution for the transportation industry, initially for booking and tracking consignments of air and sea freight deliveries, which is now also available for land transport.
Recently, Lufthansa Cargo began marketing a cost-effective product in the mass goods business called td.Basic that can only be booked electronically. And DB Schenker itself cooperates with truck manufacturer MAN on the development of fully networked truck convoys, which might soon revolutionize the flow of traffic on the highways.
Specialists refer to this new technology as platooning. It enables multiple trucks to drive very close behind each other, connected by means of electronic drawbars and car-to-car communication. The first truck determines the speed and route, while the other trucks follow in its slipstream. This all takes place without any human intervention, except in an emergency or when the system explicitly requires it.
Alongside MAN, other truck manufacturers are meanwhile conducting their own pilot projects, including Daimler, Volvo, Scania, DAF and Iveco. Platooning offers enormous advantages for all stakeholders. “We expect this concept to deliver a reduction in fuel consumption of up to ten percent, lower CO2 emissions, much better utilization of road infrastructure capacity and, ultimately, improved traffic safety,” says DB Schenker CEO Thewes.
However, new regulations will be needed before the fully networked truck—which may eventually even become self-driving—can proceed from use on a trial basis to commonly accepted operation. While the German Parliament in March 2017 passed an amendment to the Road Traffic Act, according to which the operation of motor vehicles with highly or fully automated driving function is generally permitted, some essential questions remain unresolved to this day.
When the autopilot system assumes full control of the vehicle, how is the algorithm supposed to instantly decide what is right or wrong in a crucial situation? Should it drive the vehicle against a wall and accept the death of a passenger or should it run over a pedestrian instead?
General political conditions have a strong influence on the business of logistics, not always to the advantage of the industry, and especially not in air traffic. Compared to total tonnage, in Germany, just two percent of all overseas exports are handled by airfreight. Measure that against the value of the goods, however, and the situation is different, with 30 percent of exported goods leaving Germany by airfreight.
Whenever speed is of the essence, such as when a spare part from mechanical engineering production is needed urgently in a remote country overseas, there simply is no alternative to air transport. The problem, though, is that airplanes can’t always take off as quickly as those involved would like.
Because of rules and regulations that we have imposed on ourselves, we are simply no longer competitive enough.Lufthansa-Cargo-Chef Peter Gerber
Compared to total tonnage, just two percent of all overseas exports are handled by airfreight in Germany, but that leaps to 30 percent when compared to the total value of goods. Airfreight costs over 80,000 euros per ton.
In Frankfurt, Munich and Düsseldorf, Germany’s three major hubs in international passenger and freight traffic, the operating times are largely restricted at night, because inhabitants plagued by noise insist that it doesn’t really matter if goods leave the airport at 3 am or 6 am. This won’t cause freight to disappear into thin air, they say.
While that may be true, airport operators take an entirely different view. In addition to disrupting logistics chains with increasingly complex interdependencies, a closed airport is just as easy to fly around as an annoying bad weather front. If the general conditions in Frankfurt, Munich or Düsseldorf are not suitable, goods will simply be transported by truck to Amsterdam or Paris, where planes can take off and land 24 hours a day.
Those in a hurry can quickly find alternatives, both at home and abroad. Accordingly, the managers of German retail and logistics service provider Hermes decided many years ago to make the Leipzig/Halle airport the central airfreight hub for their company, in addition to Frankfurt.
The airport in eastern Germany, which used to be a minor player, today handles a freight and mail volume of 1.2 million tons per year—ten times more than in 2007. With that, Leipzig now ranks second behind Frankfurt in the German airfreight business, which looks set to remain the most important hub for the foreseeable future. Half of the goods that Lufthansa, for example, ships throughout the world are transported as “belly cargo” under the decks of passenger planes. And these planes mostly take off and land in Frankfurt.
A transport ship with 19,000 containers has an amount of goods on board that would fill more than 9,500 trucks with a loading volume of 44 tons each. This corresponds to a truck convoy 590 miles long.
The managers of the Hamburg harbor and logistics corporation, HHLA, have to deal with a strategic disadvantage of a completely different sort—the Elbe river is simply too shallow for the latest generation of container giants.
Enemies and supporters have endlessly argued about the planned deepening of the fairway. Only now the dredging work begins—16 years after the city of Hamburg first submitted the application to the Federal Ministry of Transport. In the future, freighters with a draft of up to 48 feet will be able to reach the terminals independently of the tide, rather than having to dock at the ports in Rotterdam or Antwerp, as in the past.
Relieved, Hamburg's First Mayor Peter Tschentscher states: "The fairway adaptation of the Elbe will make our port internationally more competitive and promote container handling in Hamburg." Tschentscher's optimism is not unfounded. With its excellent hinterland connection, a high quality of clearance processing and the use of cutting-edge technology, the Hamburg port managers have proven in the past that they play a leading role in the industry.
They are strongly supported in this effort by IT service provider Dakosy. Customers justifiably refer to the company’s Port Community System as the “brain of the port,” because this platform interlinks each party in a network: land, air and sea transport companies, and customs agencies. “Our systems are able to collect and examine all of the information relating to transport,” says Dakosy CEO Ulrich Wrage.
Only this uninterrupted, fully digitized flow of data can produce the transparency needed to operate a port of Hamburg’s size.Ulrich Wrage, Dakosy
Cargo declarations, formerly a set of papers as fat as a telephone book, are now compressed into computer files that are accessible for all those involved and can be tracked every step of the way so those in charge always know where a container is at any given time and which procedural step comes next in the import or export process.
This database integrates seamlessly into the IT traffic-control systems in the port area and on the Elbe River, making the industrial location of Hamburg what it is today: a transshipment hub for goods totaling 135 million tons in weight a year—more than twice as much as in 1990.
Up to 8,000 trucks drive to the piers in Hamburg daily to bring or pick up containers. This would result in a gigantic backlog of traffic that would helplessly clog the limited port area if it weren’t for a few clever conductors working in the background. To use the existing infrastructure more efficiently, a software solution developed in collaboration with SAP and Telekom called smartPort logistics (SPL) now supplies all those involved with customized information.
Such as waiting times at the transshipment terminals, construction sites, traffic jams, bridge opening times and parking availability—all accessible via telematic units in the vehicles, as well as on smart phones and tablets. It is a system that ultimately benefits everyone: the truck drivers who can reach their destination without detours, the dispatchers who can ship more goods, and the port traffic manager who can analyze and plan the flow of transport even more accurately.
This example convincingly demonstrates that sophisticated technology and data communication, both within and outside companies, are absolutely essential in the modern world of logistics, be it in ports, on roads or in the air. Accordingly, Frankfurt airport uses the FAIR@Link community system—also developed by IT specialist Dakosy—which intends to further improve the flow of standardized data between companies.
The current situation reminds me a lot of 15 years ago, when the Internet hype began.Michael ten Hompel, Logistics Professor
“Today, a basic understanding of information technologies and their programming is as important as reading and writing. In a world where every business model involves software, digital illiterates can no longer make responsible decisions alone. Those who lack digital expertise do not possess the most important raw material of the digital revolution.”
Ten Hompel apparently already has the home stretch in mind. The Internet of Things will radically change the industry in the years ahead. Once the world of devices is fully established, things will never be the same again. Cyber-physical systems will then act quasi-independently: with autonomous vehicles steering through warehouses and smart crates which communicate with each other thanks to cameras and sensors and finding their way to their destination almost on their own. “These developments are already in the starting blocks. Only the decision makers are not able to free their minds and it is slowing down the inevitable,” says ten Hompel. “In any case, the technology needed to start the fourth Industrial Revolution already exists,”
And it is urgently needed. Consumer market research institute GfK expects the online share of total retail turnover to almost double to 15 percent by the year 2025. That means even more work for the courier, express and parcel services, who are fighting fiercely over that last mile, attempting to make their way through congested cities with traditional delivery vehicles, or even cargo bicycles like in grandpa’s day. After guaranteeing next-day and same-day delivery, transport companies quickly jumped to promising delivery within just 60 minutes. And it’s not just the established companies racing to do so.
Amazon, the largest online business in the world, has now entered the delivery business itself. With online purchasing and delivery from one source, the company is even closer to its customers, learning right on their doorsteps,”
When is the customer most likely to be at home? Which is the right doorbell? And where in the neighborhood can the goods be delivered to if nobody answers?
Anyone who orders online is familiar with the problem: shoes, home improvement articles and clothing can be ordered quickly with the click of a mouse, but then they have to wait for the goods to arrive. Only the e-commerce companies that find “new ways to deliver their products to the customer quickly, reliably and in a cost-efficient manner will be successful in the long term,” says Bernhard Rohleder, General Manager of the Bitkom digital association.
The more sophisticated the logistics, the greater the share of goods ordered online.Bernhard Rohleder, Bitkom
Of course, the established delivery services will not give up without a fight. Granted, Amazon continues to handle a major share of its logistics in Germany by using DHL, DPD and Hermes, but who knows how long things will stay that way? Hermes has already reacted to the advance of the Americans. After the trial of robotic parcel delivery vehicles in Hamburg, the company managers increased their minority share in the same-day delivery specialist, Liefery, a Frankfurt start-up, to a majority share in the meantime.
The co-founder of Liefery is Franz-Joseph Miller, a man with an expert knowledge of ultra-fast delivery times. In the past, he already built up the express freight expert, time:matters, for Lufthansa Cargo—a company that specializes in international emergency and spare parts logistics. “The speed you need” is not an empty company slogan, but rather a promise that has been bringing the company above-average growth rates. Its turnover in 2018 was 121.5 million euros, an increase of another 12.5 percent more compared to its 2017 record year.
Companies like Liefery now want to transfer this success to the end customer business as well. Because in a world where everything is supposed to be available to everyone, only the companies that can offer the best logistics will be able to stay ahead of the competition in the long run. Everyone in the industry knows that. The only question remaining is whether there will be room for an improvement on same-day or same-hour delivery.
And it almost looks like even that is no longer impossible. Anticipatory shipping refers to a process pursued by Amazon’s CEO, Jeff Bezos, for which he filed a patent years ago. The idea behind it: Even before the customer clicks on the order button, the goods they want should already be on their way to them. Because thanks to big data, the analysis of previous orders and the return behavior of customers, along with the wish lists on its website, Amazon already knows what people want before they even place their order. The only question is whether all customers will really appreciate that in the end.
By Stefan Schmortte. The article was first published in our Messe München Magazine 01/2017.