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Higher, Further, Faster

Logistics is the mainspring of the fourth industrial revolution

An ordinary fruit yoghurt from a Stuttgart dairy: The strawberries originate from Poland, the bacteria culture from Schleswig-Holstein, and the aluminum cover from the Rhineland. By the time the yoghurt appears on the supermarket shelf, trucks have covered 9,115 kilometers throughout Europe. Spatial planner and traffic expert Stefanie Böge has conscientiously calculated these immense routes in the context of a comprehensive study.

The distances our consumer goods travel, whether pineapples from Costa Rica or Valentine's roses from Kenya, are increasing every year. Even an ordinary North Sea shrimp clocks up a journey of around 6,000 kilometers by the time it lands on a plate in a Schleswig-Holstein fish restaurant—after peeling in Morocco!

"From an ecological point of view, ever shorter delivery times are a problem, because it deprives us of all potential for optimization," says Michael Ten Hompel, Professor for Materials Handling and Warehousing at Dortmund Technical University and Managing Director of the Fraunhofer Institute of Material Flow and Logistics.

Interview with Michael ten Hompel

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Logistics Professor Michael ten Hompel on the transport systems of the future, the need for cross-company data exchange, and communicating with smart shelves

How can the industry do its job not only as fast as possible, but also save resources? That's not easy. Because the demands placed on logistics are rising enormously. While the global freight volume was still at 70,894 trillion ton-kilometers in 2010, it will more than quadruple by 2050 according to OECD forecasts.

Everything has to be available just in time—certainly for producers, but also for consumers. Because a consumer who is always online with his smartphone, going on a shopping spree whenever and wherever he likes, also expects everything ‘now’.

How to transport the future

Drones are still science fiction in the transport business. But as many as 33 percent of Germans think it would be fantastic if their packages got to them by air mail in future (Photo: plain picture)

"Immediacy" is the magic word for this new, machine-driven impatience. Forwarding agents, courier services, sea and airfreight companies need to run their business ever more efficiently and flexibly, so that everything is available in a jiffy, i.e. immediately.

But how can logistics experts cope with this mammoth task? What potential solutions does digitization provide? How are trucks going to get through congested cities in future? How to reach the consignees of shipped goods on the first delivery attempt? And finally: How can all these processes be designed so sustainably that they don't create even more emissions to pollute the environment?

Questions that provided ample topics for discussion in Munich recently at the world's leading trade fair for logistics, mobility, IT and supply chain management. "We bring together all the key players in the logistics industry so they can present their solutions to the challenges of the future" says Stefan Rummel, Managing Director of Messe München and responsible for the Transport Togistic show, among others.

”We are an extremely important impetus for an industry that represents our country’s third-largest economic sector, with a turnover of almost 260 billion, behind the automobile industry and retail."

Interview with Stefan Rummel

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All key players in the logistics world have been represented at this trade show for years, including of course the subsidiary of Deutsche Bahn, DB Schenker, with more than 68,000 employees in over 140 countries, one of the giants of the industry.

With a man at the helm with his finger on the pulse of the times: CEO Jochen Thewes summoned 120 top managers of his company on the margins of an executive conference in Dortmund in early February, where he emphatically brought home to his colleagues that nothing which was once big is certain to stay that way in the long run. Specifically, why should digitalization, which is currently turning entire business sectors upside down, spare the logistics sector of all things?

“Not a single board meeting passes without this topic being on the agenda, where we try to assess what the threats are and which new opportunities it offers."
Jochen Thewes, DB Schenker

There is no shortage of options. The Schenker managers have just invested about 24 million euro in the UShip freight exchange, headquartered in the USA—a kind of uber-platform for the forwarding industry, which auctions off transport jobs via mobile terminals.

Advantage railtrack: At EUR 1,166 per transported ton, trains are the cheapest transport carriers. On ships, a ton is priced at EUR 1,978, on a truck at EUR 2,820 on average. (Photo: getty images)

It is by no means the only digitalization offensive that is disrupting the industry. Kühne + Nagel (KN) in 2014 launched a fully digitalized platform solution for the booking and tracking of air and sea freight shipments named "FreightNet", which will soon be available also for land transport.

Under the label "td.Basic", Lufthansa Cargo markets a particularly inexpensive transport option for bulk haulage, which can only be booked online. And DB Schenker signed a cooperation agreement with truck manufacturer MAN at Transport Logistic just recently. Together, they want to develop the operation of fully networked truck convoys, which are to run on the A9 between Munich and Nuremberg on a trial basis as of 2018.

Self-driving trucks on German freeways

Experts call this new technology platooning, which allows several trucks to ride safely bumper-to-bumper on public roads, connected by electronic shafts and car-to-car communication. The first truck sets the speed and direction, the others follow in its slipstream, without man having to intervene, unless in emergency situations and when explicitly requested by the system.

All truck manufacturers are currently engaged in pilot projects for this traffic concept of the future, not just MAN but also Daimler, Volvo, Scania, DAF and Iveco. Because platooning holds enormous advantages. "We expect a reduction in fuel consumption by up to ten per cent, lower CO2 emissions, better utilization of road infrastructure and improved road safety," says DB-Schenker CEO Thewes.

However, for the fully networked, and, in a next step even self-driving trucks to move beyond the test phase and become common on our roads, new legal regulations are needed. Political decisions strongly influence the business of logistics experts, and not always to their advantage, especially not in air cargo. But wherever speed is of the essence, there is no way around aircraft. Unfortunately, it doesn't always take off as fast as the parties involved would like.

We are just no longer competitive, and precisely through regulations which we have imposed on ourselves", Lufthansa Cargo CEO Peter Gerber

A night flight ban can be circumvented

In Frankfurt, Munich and Düsseldorf, the three most important German hubs in international passenger and freight traffic, operating hours during the night are largely restricted.

But a closed airport can be flown around just as easily as an annoying thunderstorm. If the parameters do not suit in Frankfurt, Munich or Düsseldorf, the freight is simply taken to Amsterdam or Paris by truck, where aircraft are allowed to take off and land around the clock.

When you are in a hurry, you soon find an alternative, even without going abroad. Frank Rausch, CEO of Hermes Germany GmbH, therefore decided years ago to make the Leipzig/Halle airport the central air cargo hub for his company, in addition to Frankfurt. Today, the formerly rather insignificant airport handles a freight and mail volume of more than one million tons annually, ten times as much as in 2007, thanks to night flights being allowed. This places Leipzig second behind Frankfurt in the German airfreight business.

A bellyful of cargo

Angela Titzrath, the new CEO of Hamburger Hafen und Logistik AG (HHLA), is facing a strategic disadvantage of a different kind. The River Elbe is simply too shallow for the latest-generation container giants. The plan to further excavate the shipping channel to enable navigation of freighters with a draft of up to 14.50 meters, has been postponed. According to a ruling by the Leipzig Federal Administrative Court in early February, the Hanseatic port city has to improve its proposal in terms of environmental conservation aspects.

HHLA manager Titzrath had certainly hoped for a better outcome. But the port of Hamburg, she says, will by no means face "an uncertain future". With very good connection to the hinterland, high clearance quality and use of state-of-the-art technology, the port managers from Hamburg will continue to play a leading role in the future.

Major support is provided by the specialists of IT service provider Dakosy. It is not for nothing that customers praise the company's "Port Community System" as the "brain of the port", because this platform links all of them together: forwarding agents, shipping companies, line agents and customs authorities. "With our system, all data on a shipment can be captured and verified", says Dakosy CEO Ulrich Wrage.

"Only this seamless, fully digital data flow creates the transparency that is needed to keep a port the size of Hamburg running." Ulrich Wrage, Dakosy

The cargo manifest, previously phone-book-thick paper bundles, are now compressed into computer files, accessible for all involved and traceable step-by-step. It enables the responsible parties to always know the current location of a container and which work process must follow next in importing or exporting.

Up to 8,000 trucks daily head for the piers in Hamburg, a truck avalanche on a gigantic scale. A software solution named "smartPort logistics" (SPL), developed in cooperation with SAP and Telekom is now providing all stakeholders with accurate information: waiting times at the loading terminals, construction sites or traffic jams en route, bridge opening hours and vacant parking spaces can be retrieved via the telematics units in the vehicles, smartphones and tablets.

This example impressively demonstrates that there is no way forward in the modern world of logistics without sophisticated technology and cross-company data exchange, either in the port industry, on the road or in the air. Frankfurt Airport for example is now using a community system called "FAIR @ Link", which aims to further improve the data flow between companies, also developed by IT specialist Dakosy.

"The current situation rather reminds me of the situation 15 years ago when the Internet hype began," says Michael ten Hompel, logistics expert

"A basic understanding of information technology and its programming is as important today as reading and writing," says logistics Professor Michael Ten Hompel. "Anyone who does not understand this is unable to master the most important raw material of the digital revolution."

Transported into the future

Ten Hompel has a very clear picture of where the sector is heading in mind: it is the Internet of Things which will radically change the industry in the coming years. Once the world of devices is fully established, nothing remains as it once was. Cyber-physical systems will then virtually act independently:

With autonomous vehicles navigating through the warehouses, and intelligent crates that communicate with each other thanks to cameras and sensors, finding their way to the destination almost by themselves. "All of this is ready to go. Only the thought barriers in the minds of the decision makers are still stifling the inevitable", says ten Hompel.

"The technology to launch this fourth industrial revolution already exists." It is also sorely needed. Experts of the Society for Consumer Research (GfK) expect that by 2025, the online share of total retail sales will almost double—to reach 15 percent. That means still more work for the courier, express and parcel services, which are currently racing each other for the famous last mile.

Online order, immediate delivery

With traditional delivery vans, but also with cargo bicycles like the ones used back in Grandpa's day, to make headway at all in gridlocked cities. After next- and same-day-delivery, suppliers are now promising delivery service within mere 60 minutes.

Amazon, the world's largest online retailer, has now entered the delivery business itself. On the northern outskirts of Berlin, in a hall of the former Borsigwerke, currently 150 employees are packing 10,000 packages daily, 24 hours, six days a week, which are then delivered within a very short time by regional logistics partners. “With online purchasing and delivery from a single source, we are even closer to the customer,” says Bernd Schwenger, Amazon's Managing Director Logistics, Germany. "We are learning every day at the front door."

What exactly Amazon wants to learn there isn't hard to guess. When is the customer usually at home? Which bell is the right one? And where in the neighborhood can the messenger deposit the goods when no one opens?

Anyone who orders on the Internet knows the problem: shoes, DIY products or clothes are quickly ordered at a mouse click, but delivery is a long time coming. For this reason, the only e-commerce providers who will remain successful in the long run, are those who find new ways to take their products to the customer quickly, reliably and cost-effectively", says Bernhard Rohleder, Managing Director of digital association Bitkom.

"The more sophisticated the logistics, the larger the share of goods ordered online will become." Bernhard Rohleder, Bitkom

The established courier services however won't be giving up without a fight. Although Amazon still handles much of its logistics in Germany via DHL, DPD or Hermes, who knows if this will continue to be the case? Hermes, in any case, has already reacted to the American giant's foray.

After testing the use of parcel deliveries by robotic vehicles in Hamburg, Hermes has recently increased its minority shareholding in same-day delivery specialist Liefery, a Frankfurt start-up. Co-founder of the company is Franz-Joseph Miller, a man who is very well acquainted with ultra-short delivery times. For Lufthansa Cargo, he has already built up the express freight expert time:matters.

The greatest difficulty: on-time delivery

In more than 60 cities, Miller's couriers are already delivering packages with a fleet of bicycles, compact cars and vans. The company currently handles 500,000 shipments a month; with a sales volume that has grown more than tenfold in 2016 compared to the previous year.

In a world where everybody wants everything as soon as possible, only providers who can offer the best logistical service will stay ahead in the long run. Everyone in the industry knows that. The only question is whether—after delivery within a day or within just one hour—how do you improve on that?

But it almost looks as if even that is not in the realm of the impossible. "Anticipatory Shipping". That's the name of the process that Amazon CEO Jeff Bezos is pursuing. The idea behind it: even before the customer clicks on the "buy" button, the merchandise matching his profile is to be on its way to him.

Because thanks to big data, evaluation of order histories, the exchange and return behavior of customers and their wish lists on the website, Amazon already knows what people want before they even order. It remains to be seen whether, at the end of the day, customers will really appreciate that.