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Alan McKinnon – Professor of Logistics


Current issues in logistics and transport

Reflections on Chinese Logistics

Few nations are as dependent on logistics as China. As the workshop of the modern world and with by far its largest population, it has to move, store and handle a bewildering amount of stuff. According to my calculations, based on Chinese government data, the country’s transport system moves around 32 tonnes of freight per person per annum. Multiply that figure by the 1.38 billion people who live in China and you get a sense of the country’s logistical challenge. It generates around 25 times more freight movement per $ of GDP than the UK, reflecting both its much greater size and very different economic structure. Given this high level of freight transport intensity, it is hardly surprising that logistics expenditure accounts for around 16% of China’s GDP, roughly twice the equivalent US figure.

On a recent visit to China I gave a speech on logistics skills at a conference organised by the Chinese Federation of Logistics and Purchasing in Nanjing. The CFLP had just published its annual report on logistics education in China. This indicates that in 2015 a total of 979 logistics courses were offered by 785 universities and colleges across the country. A total of 85,438 students were enrolled on these courses! The vocational and higher education systems have clearly geared up to supply the vast number of qualified managers that will be required to run China’s bourgeoning logistics system.

Capacity building in logistics education is paralleled by the growth of Chinese research on supply chain management. In a newly published paper, Prof Xiaohong Liu and I examine the theoretical foundations of this research in a review of 150 articles on Chinese supply chains published in sixteen journals between 2000 and 2014. This revealed a heavy reliance on Western business theories and limited evidence of China-based researchers ‘attempting to customise them to the Chinese context or to construct new ones’.

This is a pity as there are distinct features of Chinese business practice, most notably Guanxi (networks of personal relationship and social influence), which differentiate the management of Chinese supply chains from that of Western countries. Guanxi may be conducive to the adoption of new models of collaboration in the logistics sector which will be needed to achieve a step-change in asset utilisation. It has been estimated that 40% of truck-kms in China are run empty, creating a big opportunity to cut the amount of truck traffic generated by the 6 trillion tonne-kms of freight movement on Chinese roads each year. Given the huge scale of Chinese logistics, seizing this opportunity would yield enormous economic and environmental benefit.

This is one of the ambitions of the growing green freight movement in China. From humble beginnings in a World Bank-funded green freight scheme in Guangdong in 2008 a nationwide China Green Freight programme has developed. This is funded by the national government and backed by NGOs, such as Clean Air Asia and the Smart Freight Centre, and by foreign development agencies like GIZ. In its Intended Nationally Determined Contribution (INDC) statement to the UN COP21 Climate Change conference in 2015, the Chinese government committed to ‘accelerate the development of smart transport and green freight transport’. The pressure is now on to deliver on this promise.

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Life without Lorries – 12 years on

This is National Lorry Week in the UK when the population is urged, by the Road Haulage Association, to ‘love the lorry’. Affection may be too much to expect, but certainly the aim of improving the image of the lorry, and the haulage industry as a whole, is very laudable. People must be reminded just how vital a role they play in supporting our economy and way of life.

Although the RHA calls this the 2nd annual  National Lorry Week, there was one back in December 2004 organised by Commercial Motor magazine.  Back then I was commissioned by CM to write a report predicting what would happen if all the lorries in the UK stopped running.  How long would it take for the economy to collapse?   The resulting report called ‘Life without Lorries’ and a subsequent US journal paper called ‘Life without Trucks’ generated a lot of interest.  The study was subsequently replicated in Sweden and used (or mis-used) several times by UK trade unions to show how devastating a national lorry driver strike could be.

The evidence that I assembled from nine major sectors suggested that severe disruption would occur in only four days. Factoring panic buying into the scenario could cut this figure by a day or more.  My estimate was based on the amounts of inventory in critical supply chains, the positioning and replenishment of that inventory and the relative dependence on road transport.

If I were to conduct a similar analysis today would much have changed? Would the UK today be any less vulnerable to a total dislocation of its road freight system?   I think that, if anything, the situation would be worse.  In many key sectors the ‘just-in-time’ principle is being even more assiduously applied. Inventory has become more centralized and supply lines have lengthened.  This is reflected by an increase in the average distance moved by each tonne of road freight from 87km in 2004 to 92kms in 2015.

Although between 2004 and 2013 (the last year for which we have consistent modal split data) the amount of freight movement in UK-registered trucks actually fell by 7% their share of total tonne-kms increased from 64% to 71%.   This is not to belittle rail’s achievement since 2004 in capturing significant amounts of ‘fast-moving consumer goods’ traffic from companies like Tesco and ASDA.  But this is almost all intermodal traffic dependent on road feeder movements at one or both ends of the railway trunk-haul which would cease in the no-lorries scenario.

The rapid growth of online retailing over the past decade will have had little impact, because the upper links in e-tail supply chains are just as reliant on lorries as those supplying shops.

There are three sectors in which the impact of a road haulage shutdown will have diminished: fuel supply, postal services and banking.

I estimated in 2004 that after five days without trucks 40% of the nation’s car fleet would have run out of fuel.   The total annual distance travelled by cars in the UK in 2014 was almost exactly the same as in 2004, but average fuel efficiency substantially improved. Over this period the average mpg of new cars rose by 38% for petrol vehicles and 31% for diesel ones.  If the road-based fuel supply system were paralysed, the fuel already in car tanks would support more motoring today than in 2004.

The internet has substantially reduced our dependence on road-freighted postal services. Between 2005 and 2014/15 the number of letters handled annually by the Royal Mail dropped by a third from 19.7 to 12.6 billion. The growth of online banking and credit card use will also have reduced the physical movement of money by road across the so-called ‘cash in transit’ network.  The postal and banking sectors, however, generate only a tiny fraction of truck traffic and are unusual in handling products that can easily be ‘dematerialised’ for electronic distribution.

For almost all other products there is at least one link in the supply chain that requires physical movement by a lorry. We may not love it, but we should recognize the central role of the lorry in the life of the nation.

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A global carbon reduction target for freight transport?

The so-called ‘science-based’ approach to setting carbon reduction targets for business is gaining traction. In my opinion, it should really be called the ‘climate science-based’ approach as its origins lie in climate modelling, in particular calculations of the maximum amounts of greenhouse gas (GHG) that we can emit to stay within a 2o C temperature increase by 2100. Other aspects of the target-setting process are more in the realms of social science and require much higher levels of subjective judgement.

The Science Based Targets (SBT) initiative is nevertheless to be welcomed as it aims to bridge the gap between corporate efforts to reduce carbon intensity and the planetary imperative of cutting total emissions. Even quite large reductions in carbon intensity can be wiped out by increases in the level of activity. So companies must accept that absolute reductions will be needed, possibly enforced by regulation at some point. This presents major analytical, commercial, managerial and political challenges.

Arguably these challenges will be greater for freight transport than for many other sectors. The SBT initiative could find ‘no activity information’ for freight in the two main reports, by the IPCC and IEA, on which its sectoral analyses are based. It therefore used monetary surrogates and treated freight as a residual sector whose emissions were calculated by subtracting those of other forms of transport – a somewhat crude method of emission target-setting.

Data limitations also frustrate efforts to conduct a ‘marginal abatement cost’ analysis for freight transport to measure the relative cost of saving a tonne of GHG in this sector. This too is problematic as MAC estimates help to determine how big each sector’s contribution to total GHG should be. Available evidence suggests inter-sectoral variations in decarbonisation costs will be large and freight will be at the upper end.

The close inter-dependence between freight transport and many other sectors further complicates target-setting. For example, geographical patterns of production and trade are likely to change over the next 35 years to reflect spatial variations in the rate at which electricity decarbonizes, the climate changes, water reserves are depleted, population migrates etc. As the servant of other economic and social activities, freight transport will have to adjust to these external forces. It is possible that to help other sectors meet their carbon targets and adapt to climate change, freight volumes will have to rise, even more than predicted.

So setting an absolute carbon reduction target for freight transport in isolation would seem very questionable. Indeed it could be counter-productive if it resulted in quantitative controls being imposed on logistical activity which prevented other sectors from attaining their GHG reduction or climate adaptation goals. It is not yet possible to estimate by how much meeting these wider goals will inflate the rates of freight traffic growth factored into current forecasting models.

Nor is it clear how the business community will react to the setting of an absolute carbon reduction target for the freight sector. If a consensus emerged that it could be achieved entirely by reductions in carbon intensity, an amplification of current decarbonisation efforts might suffice. ‘Roadmapping’ exercises are underway in some countries, such as the UK, Germany and the Netherlands, to see how far phased deployments of a broad range of technological and operational measures might take us along the decarbonisation pathway.

It may not be far enough. The carbon reductions expected of the freight sector by 2050 may be so deep that the growth of freight movement may have to be suppressed. It is then that absolute targets will bite and new mechanisms will need to be found to allocate the available freight carbon credits among sectors, transport modes, carriers, regions etc. This is still a distant prospect, but setting ‘science-based’ targets for absolute reductions in freight-related GHG emissions puts us on a trajectory that will lead in this direction.

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Truck platooning – niche or norm?

Truck platooning is currently a hot topic in the road freight sector. Last month’s European Truck Platooning Challenge, organised by the Dutch government, generated a good deal of interest and provided more evidence that the concept is at a high level of ‘technological readiness’. It basically involves connecting several trucks electronically into a convoy, thus reducing the gaps between them from 50-60 metres to 15 metres or less.

This, it is claimed, addresses several of the major problems facing the road haulage industry.

By collectively improving aerodynamics it cuts all the vehicles’ fuel consumption, saving money and reducing emissions of CO2 and other pollutants. Fuel savings as high as 10-20% are being quoted.

It could also help to alleviate the current shortage of truck drivers. Although all the vehicles in a platoon would still have drivers, they could take their rest breaks in the cabs of trucks electronically controlled by the lead vehicle in the platoon. By squeezing vehicles more tightly into motorway lanes, platooning would use road space more intensively thereby easing traffic congestion.

One can quibble about the magnitude of these benefits and the offsetting cost and risk factors but that is not the main focus of this blog.

Having read much of the literature on platooning, I am still not clear how it would work in practice. The trials show ready-formed platoons running smoothly along the road between two points. If this becomes that standard operational model, will we need to establish truck parks at strategic motorway intersections where lorries can congregate as part of a platoon-formation process? This will require land and infrastructural investment. It will also interrupt freight journeys and add costly waiting time to delivery operations. Will the platoons then remain intact until they reach the next staging post or will it be possible for individual vehicles to ‘detach’ from the convoy and leave the motorway at an intervening intersection? If the vehicle in question is in the middle of the platoon how will this decoupling actually work and how will it affect the dynamics of the general traffic flow?

More questions arise about the business aspects of platooning. It is not clear who will manage a platoon, decide which should be the lead vehicle and compensate its operator for taking on this responsibility. To incentivise companies to assume the lead vehicle role there will have to be some transfer of benefit from the operators of the other vehicles in the convoy. What mechanism will be used to redistribute the benefits accruing from fuel and labour cost savings across vehicles in the convoy? This issue won’t arise where all the trucks in a convoy belong to a single company. Research in the US has suggested that the first commercial applications of platooning are likely to be of this type. In most countries this will confine platooning to a very small number of big carriers, those with a sufficient density of trips on particular corridors at particular times to make platooning economically viable. If a corridor was sufficiently long and had the right intermodal connections, the carrier might find it preferable to transfer the convoy to the rail network and transform it into a freight train.

At a later stage in the development of platooning one can envisage alliances of hauliers building convoys on heavily-trafficked corridors using online platforms to synchronise vehicle movements. How far would a truck have to travel along one of these corridors, however, to justify the additional effort, time and cost expended in joining a platoon? As the average tonne of freight moved by road in the UK in a heavy goods vehicle travels only 91 kilometres (57 miles) and much of that distance is not run on motorways, I foresee limited uptake of platooning in this country. While it may remain a niche activity for road hauliers in a small country like the UK, it could well become the norm for long-haul trucking in much larger states.

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Adapting Transport Systems to Climate Change: EU-US Symposium

On the 16 and 17 June I had the pleasure of chairing a symposium in Brussels on the adaptation of transport systems to climate change and extreme weather, jointly organised by the European Commission, the US Transportation Research Board (TRB) and US Department for Transportation. This brought together 45 top specialists in this field from the US and Europe for a couple of days of brainstorming and networking.

The scene was set by keynote addresses from two very distinguished speakers.

Professor Don Wuebbles of the University of Illinois, who is currently on assignment to the White House as an advisor to President Obama on climate change, presented a wealth of up-to-date data showing very clearly the extent of global warming and the primary role of human activity in causing it. Climate change is well underway, its pace is accelerating and evidence of its devastating impacts is mounting. Transport systems are highly susceptible to these impacts.

The second keynote was delivered by Jan Hendrik Dronkers, the head of Rijkswaterstaat, the Dutch government agency responsible for road and water infrastructure. Protecting the built environment against natural forces is one of the Netherland’s core competences. In the absence of dykes, two-thirds of the country would be under water. So it makes sense to look to this country for advice on how to protect transport infrastructure from extreme weather events.

During the symposium delegates discussed three types of event: rising sea level / storm surges, excess precipitation / river flooding and extreme heat / droughts. With the help of real-world and hypothetical case studies, they examined what can be done before, during and after such events to make transport systems more resilient.

A detailed summary of the symposium discussions will be published by the TRB around the end of the year. I can very briefly mention a few of the key points that arose. One was the need to upgrade methods of risk management in the transport sector. The vulnerability of our transport infrastructure has to be carefully assessed and mapped, taking account of inter-connections with other critical infrastructures, particularly the electricity grid and communication network. As transport becomes more electrified, automated and web-enabled these infrastructures are becoming more tightly coupled.

Vulnerability assessment is only part of a wider process of adaptation planning which is still at a relative early stage in its development. It has been partly constrained by the inability of climate models to furnish transport engineers with data of sufficient spatial granularity to ‘climate-proof’ infrastructure at the local level. Thankfully, significant progress is being made in the so-called ‘down-scaling’ of climate data.

While we were discussing these issues the latest set of global climate data was released indicating that May 2016 was the 13th month in a row of record average global temperature, something which has ‘provoked a stunned reaction from climate scientists’ .  If this continues, the climatic adaptation of our transport systems will have to be accelerated and recalibrated to accommodate more extreme conditions.

The research challenges that this poses demand greater international collaboration. Judging by the comments and commitments made at the Brussels symposium, we can expect closer Trans-Atlantic research co-operation in this rapidly expanding field.

The report of this symposium was published in December 2016

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Globalising Green Freight Transport

Over the past three months I’ve had the pleasure of discussing the ‘greening’ of freight transport with senior people in government and business in many East African and South East Asian countries. I have been greatly heartened by their commitment to the cause of cleaning-up the movement of freight.

There is now wide acceptance that trucks are to blame for much of the air pollution in these countries and that freight transport is going to be one of the toughest sectors to decarbonise. There is also an eagerness to learn lessons from Western countries about how to devise and implement green freight programmes.

Organisations such as the Smart Freight Centre, GIZ, the World Bank, Asian Development Bank, UNCTAD and UNEP are doing a good job in disseminating knowledge and best practice and I’ve been doing my bit to help. This experience has made me all too aware of three basic issues.

First, in the ‘green freight world’ there is certainly no one-size-fits-all. Strategies to cut freight emissions have to be tailored to local circumstances: to the level of economic development, the maturity of the logistics market, the state of the transport infrastructure, the quality of the fuel, skill levels, business practices and what, euphemistically, might be called the degree of regulatory compliance. Bribing officials to turn a blind eye to vehicle overloading or the belching of black smoke from truck exhausts is endemic across much of the developing world. In the course of greening freight transport one cannot hope to correct wider societal ills, but a more subtle use of carrots and sticks is required in those countries where corruption is rife.

Second, developing countries whose logistics systems are at an earlier stage in their evolution have the opportunity to avoid some of the environmental pitfalls that now afflict the developed ones. For example, centralising inventory in distribution centres far removed from the nearest railway line or canal can create long-term logistical ‘lock-in’ to road transport. This subsequently constrains one of the most effective of all green freight options – switching transport mode. The relentless pursuit of just-in-time replenishment has also left many logistics systems more environmentally damaging than they need to be. Emerging markets don’t have to follow the same logistics development pathways as Western countries: they can learn from their experience and try to embed environmental sustainability into their logistics planning at an earlier stage.

The third issue relates to the international trade in second-hand trucks. As road transport accounts for the vast majority of the world’s freight movement and related environmental damage, the state of the global truck fleet is critical. Developed countries’ share of that fleet is relatively young, regularly upgraded with the latest technology, subject to the highest emission standards, well maintained and running on high quality fuels and infrastructure. These countries’ trucking sectors partly achieve their relatively high fuel efficiency and environmental performance by off-loading older and dirtier vehicles to carriers in developing countries who lack the capital to buy new ones. This geographical cascading of vehicles diffuses technologies, admittedly at a much slower pace than in the West. In green logistics terms, however, this practice leaves a lot to be desired. The trucks acquired from Europe, North America and Japan are often poorly matched with the delivery ‘duty cycles’ in the importing countries. Maintaining them is impaired by a lack of spare parts and qualified mechanics and they are often ill-equipped for the levels of overloading and poor road pavement conditions they encounter in the developing world. Companies managing this trade in second hand vehicles and the governments that regulate it have important roles to play in the greening of freight transport worldwide.

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EU Referendum: a logistics perspective

The UK’s EU Referendum is now just over a month away and opinion polls suggest that support for the ‘Remain’ and ‘Leave’ campaigns is quite finely balanced.  As a so-called Brexit is seen as a real possibility, its implications for different sectors of the economy and society are now receiving greater scrutiny.  I would like to reflect briefly on three of the key arguments advanced by the ‘Brexiteers’ from a logistical perspective:

1.  The UK has given up too much control of its economy to the EU:
Much of this control has been transferred by company acquisitions rather than government policy, as is well exemplified by the logistics sector. Much of the ownership and control of logistics systems serving the UK now resides outside the country and this will continue whether we are in the EU or not.  European logistics conglomerates, such as Deutsche Post DHL, DB Schenker, Kuehne+Nagel and Maersk are major players on the global logistics stage, of which the UK is but a small part.  In 2014, the World Bank ranked the UK’s logistics performance 4th in the world, clustered at the top end of the league table, with Germany, the Netherlands and Belgium.  Any loss of economic control does not seem to have adversely affected our global standing in logistics.

2. EU regulations are excessively constraining UK business:
The EU ‘subsidiarity’ principle devolves much of the responsibility for freight transport regulation within national borders to individual member states.  EU transport regulations relate mainly to cross-border movements, where international standardisation is clearly important, and to fair competition between domestic and foreign-registered carriers, something that benefits UK logistics companies operating in continental Europe.  Many British hauliers would actually like greater harmonisation with other EU countries on matters such as fuel duty and truck size and weight limits.

3. The free movement of people in the EU is bringing too many migrants to the UK:
Other EU countries, particularly the eastern European states that have joined since 2003, have been a healthy source of labour for the UK logistics sector.  According to the Road Haulage Association, the UK is short of around 45,000 truck drivers.  As Barclays-Moore Stephens [1] point out ‘an EU exit could exacerbate the current driver shortage by putting barriers in the way of UK operators using overseas workers’.  They offer this as a reason for 92.9% of ‘over a hundred senior decision-makers from across the logistics industry’ that they surveyed wanting the UK to remain in the EU.

In a much larger survey of 676 members of the Chartered Institute of Logistics and Transport [2], 65% believed that ‘those activities encompassing logistics, transport and supply chain will have a stronger future if the UK remains in the EU’ with only 16% disagreeing.  This result is hardly surprising.  As 45% of the UK’s trade is with the EU and UK supply chains are densely interwoven with those of our EU partners, the logistical case for ‘staying in’ seems to me to be very solid.

1 Barclays-Moore Stephens (2015) ‘The UK Logistics Confidence Index H2 2015’
2 https://ciltuk.org.uk/News/LatestNews/TabId/235/ArtMID/6887/ArticleID/8801

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Distribution by drone – will it ease urban traffic congestion?

DHL has just updated its Trend Radar[1] report in which it forecasts the impact of new logistics technologies.  The 2016 report is more positive than the last one in 2014 about the delivery of parcels by Unmanned Aerial Vehicles (UAVs), or drones as they are now more popularly known. It, nevertheless, concludes that they ‘still require a bit more time before mainstream  adoption’. Their likely impact on logistics over the next 5 years is rated ‘medium’.  DHL acknowledges that ‘while UAVs won’t replace traditional ground-based transportation, they will provide value in areas of high traffic congestion and in remote locations.’  I can see how drones will allow parcels to hover above congested roads and get to their destinations more quickly, reliably and directly.  I’m not so convinced by DHL’s claim that ‘by potentially reducing the amount of vehicle movements, UAVs can provide traffic congestion relief to densely populated cities’.

Some simple arithmetic suggests that to achieve a noticeable reduction in urban traffic levels, the sky above our towns and cities would have to fill with drones.  Let’s compare conventional home delivery by van with distribution by drone. A typical van delivering non-food items to homes in the UK can deliver around 120 parcels in an 8 hour shift.     A drone, on the other hand, delivers one parcel at a time.  It is not known how many deliveries a drone would be able to make per hour.  This will depend on the density of delivery locations, the size of catchment area served by the drone despatch depot and the speed of the handling operations at both ends of the flight.  One delivery per hour would seem a reasonable estimate.  This suggests that it would require 15 drones to replace a single van.

Imagine that we wanted to substitute drones for vans in sufficient numbers to reduce urban traffic levels by 1%.   According to the government’s Road Traffic Statistics[2], in 2014 there were 163.4 billion vehicle-kms of traffic on urban roads in the UK.  We would aim to reduce this by 1.634 bn vehicle-kms per annum by removing many of the vans from the urban road network.  It is difficult to calculate exactly how many vans this would be because of data limitations, but one can make some crude estimates.   The average van travelled 13,700 kms in 2014.  Assuming that this average applies to vans making parcel deliveries in urban areas, we would have to replace 119,270  vans with drones to cut traffic volumes by 1%.  With a drone : van substitution ratio of 15:1, we would have to deploy around 1.8 million drones over our towns and cities – to achieve only a marginal reduction in surface traffic levels and congestion.  Even if the vans being replaced are used twice as intensively as the UK average (travelling 27,400 kms per annum) and the substitution ratio is only 10:1, we would still need 600,000 drones.

Most urban dwellers and city planners would baulk at the environmental and safety implications of having their air-space invaded by such large swarms of drones, particularly if the resulting ‘congestion relief’ on the ground was barely perceptible.

[1] Click for link to DHL Trend Research paper

[2] Click for link to UK government statistical research page

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Supply chain collaboration – overcoming scepticism and building momentum

Back in 2004 a large survey of supply chain managers by Accenture identified ‘collaborating with multiple partners’ as their greatest challenge.  It remains a major challenge.  Over the intervening period, numerous examples have emerged of big companies sharing logistics assets and thereby saving money, reducing emissions and often improving service quality.   The most celebrated of these collaborations have been in the ‘fast-moving consumer goods’ sector between companies such as Unilever and Kimberly-Clark, Nestle and Pepsico and P&G and Tupperware. Given the rich potential benefits of such collaborations, their rate of formation has been disappointingly slow.  There is evidence, however, that momentum is building.

Among the companies attending the ECR / IGD conference on ‘Reducing Wasted Miles’ on April 21 in Nottingham there was certainly strong commitment to explore new opportunities for collaboration[1].  This latest ECR / IGD campaign joins many earlier initiatives by ECR, ELUPEG, Lean and Green and the EU-funded project CO3 to get companies to work together.   I see these programmes as moving us from the first ‘opportunistic’ phase of supply chain collaboration, which relied on chance encounters between like-minded logistics managers, to a ‘systematic’ phase when companies routinely seek out possible logistics matches  more strategically.  This requires a change in the corporate mindset and a recognition that merging logistics operations offers greater efficiency gains than anything that a single company can do on its own.

In a presentation to the ECR / IGD conference I argued that mindset was one of six conditions beginning with the letter M which must be met to foster logistical collaboration.   Others include motives, which are still primarily commercial but acquiring a green hue, metrics, which must be defined in a way that accurately and fairly tracks the performance of a collaboration and the models the now exist to help optimise  costs and benefits among partners.  Ministries also have a role to play in ensuring that competition law doesn’t obstruct logistical collaborations which are patently in the public interest.  Finally, collaborative initiatives must be well aligned with market trends and properly engage logistics service providers, allaying any fears that they might have that collaboration simply involves shippers ganging up to squeeze their margins.

If there were a seventh M, it would be momentum, because too often in the past efforts to promote collaboration have petered out leaving managers sceptical about its longer term prospects.  This time should be different. We are now entering the Sharing Economy, when the sharing of assets is becoming a guiding economic principle at all levels from the individual citizen to the global corporation. We now have the analytical tools to model, plan and manage collaborations along and between supply chains.   And above all we have the favourable experiences of growing numbers of companies that have ‘taken the plunge’ and become keen advocates of the new collaborative paradigm.

[1] http://igd.com/reducingwastedmiles

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Next big thing in the sharing economy?

Co-authored with Wolfgang Lehmacher, Head of Supply Chain and Transport Industry, World Economic Forum USA

Crowd shipping image

Reproduced from World Economic Forum blog, June 2015. World Economic Forum logo

Yesterday we were driving cars to reach work, to go shopping, or leave on vacation. But all of that might change in tomorrow’s sharing economy. Many of our fellow drivers have become “chauffeurs for hire” on platforms like Uber or Lyft. However, is another revolution just about to take off: “crowd-shipping”, whereby every day drivers turn into micro DHL or UPS couriers?

The sharing economy enables new ways of transportation by connecting those who need parcel deliveries with those who are on the road. The main drivers of so called “crowd-shipping” are the rapid growth in online retailing, the desire to find new ways of overcoming the traditional problems of ‘last mile’ delivery and increasing interest, in some socio-economic groups, in supplementing earnings with casual work. Global B2C online sales are expected to grow from $1 trillion in 2012 to around $2.4 trillion by 2017. In China alone the number of packages transported by express delivery surged by 820% in the six years ending 2014. Across the globe capacity of ‘last mile’ delivery systems will have to expand enormously to cope with the expected volume growth.

Crowd-shipping offers a means of better exploiting our under-utilized cars through picking up and dropping off parcels along the routes people are taking anyway. How does the model work? People offering to carry parcels (which we will call ‘couriers’) and those wishing to use the service download the app and register with the website, for example with a Facebook link. The user enters details of the parcel, its collection and delivery points and, in some cases, the amount they are prepared to pay for delivery. Potential couriers then bid for the work, competing on delivery time and cost. The user decides which bid to accept. The online platform gives the successful courier a parcel number, address details and access to a messaging service for communication with the user. Once the parcel is delivered, the recipient confirms receipt through the platform and the courier’s account is credited with the agreed fee.

Companies providing online platforms for crowd-shipping differ in their market focus, although the described way of operating is similar. Some platforms cater more for professional couriers: for example, it is estimated that, ‘at Zipments 95% of couriers are professional delivery folks with more than four years of experience’. Others like Rideshare, MyWay and Shippies rely on ordinary people. Deliv tends to specialize in deliveries from shopping malls of products that were either bought there or purchased online on a ‘click and collect’ basis.

In the United States or China for example, governments adopt to a large extent a fairly liberal policy to logistics innovation, though the German government’s decision to ban Uber illustrates how a web-based application can be outlawed for essentially commercial reasons.

The legacy of the financial crisis in many countries has forced a lot of people to search for new ways of generating extra income or subsidising their travel costs. Crowd-shipping allows us to carry and deliver parcels at highly attractive prices with low incremental burden on the environment, by people who can earn some extra money and, possibly, the satisfaction of supporting their local neighbourhood.

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© Professor Alan McKinnon 2024

Kuehne Logistics University


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© Professor Alan McKinnon 2024


Kuehne Logistics University




Contact me

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Web design by Wordspree