The future of logistics
Interview with Rod Frankin by Mauro Meggiolaro
1. Which is the state of logistics in Europe? Which are the main challenges the sector is facing?
The European players in the logistics sector are very competitive at global level. Most part of the 10 biggest logistics companies in the world are based in Europe (DHL, Kühne & Nagel, DB Schenker, etc.). This may lead us to say that logistics is really advanced in the continent and, to some extent, it is. However, this is a relative discussion and if we look down to the daily challenges the sector is facing we can identify a number of problems that still need to be solved.
First of all, we are a long way away from the original vision of the European Union, as outlined in the Treaty of Rome of 1957, that was meant to uniform transportation services within member countries. Today we still have a number of different regulations that make the European logistic markets inefficient, or much less efficient as it could be. See for example the limits that are still imposed to cabotage, i.e. the transport of goods or passengers between two places in the same country by a transport operator from another country. EU countries are still trying to protect their domestic operations, building walls to prevent competition from Eastern European freight companies or, in general, from the immediate neighbouring countries.
Another big problem is the structural difficulty to attract talents or qualified workforce such as drivers for trucks or warehouse workers, since these jobs are often considered, and in part are, repetitive or arduous. And finally we have an infrastructure problem: European transport networks are urgently needing an upgrading: roads and bridges are decaying, the rail system has long been neglected and today public budgets are very tight as a consequence of the last financial crisis.
2. How are new technologies transforming the sector?
There are at least four technological advantages that may radically transform the sector over the next five years and should be embraced by logistics operators and governments. The first one is autonomous technology applied to transportation. Autonomous vehicles will be a reality very soon though one of the big challenges I see is the co-operation between different truck manufacturers: Volvo, Daimler, Man are already producing self-driving vehicles but these have to be co-ordinated and synchronised so that the platooning system can work efficiently. There's a lot of work to do but I also see significant advances.
The second advantage is the automation of warehouses thanks to a large use of warehouse robots. This trend has particularly developed since 2012, when Amazon bought the robotics company Kiva Systems for $775m, and is crucial especially for e-commerce companies, where picking, the most expensive part of warehousing, is being completely automated.
The third advantage is the massive amount of data that freight companies can benefit from, not only to improve their operations but also to develop new services and projects for their clients. DHL and Kühne and Nagel, for example, are currently investing in data analytics centres that, crunching their own big data, are able to predict macroeconomic developments. Such predictions can then be sent to financial operators such as banks or even hedge funds.
And, finally, the fourth advantage is cloud computing, that is facilitating all the developments I have mentioned so far and will make it easier and cheaper for middle sized logistics companies to leverage on technological infrastructures. And this was unthinkable until some years ago, when only big players could invest in very expensive technologies.
3. Can you explain what your "physical internet" project is about?
It’s an idea focused on the physical realisation of the digital internet to create an open global logistics system of physical, digital, and operational connectivity that will change how goods are moved anywhere in the world. Today everything is instrumented, we too. Everyone of us is carrying mobile phones, our movements can be tracked via the internet and the same applies to goods, services, household appliances. So why can’t movements of packets or containers be organised in analogy with the internet? Why can’t all steps of a delivery communicate with each other automatically and more rapidly than they are doing now?
We are seriously trying to understand how to do that, translating the idea of the "internet of things" into logistics. Of course, a real development of the "physical internet" will be possible only after introducing proper control mechanisms. For the digital internet this has happened in 1982 thanks to the development of the TCP/IP protocol. We should study a similar control mechanism for the physical internet too, otherwise we'll continue to operate in a sort of Far West.
4. The logistic sector urgently needs investments to support a competitive trans-European economy. Where should the investments be focussed?
I think that we should distinguish between what the public institutions and the private capitals should do. First of all, the governments should invest much more in technological education. Thanks to driverless trucks, delivery drones and the industrial internet of things, the logistics sector, often criticised for its reluctance to embrace new ideas, is finally getting recognised as the leading edge of how we can solve practical problems through technology. However, we need the right people to drive this change, we need a savvy group of individuals who can handle our digital future. It's true that young people are spending much of their time on their smartphones, but unfortunately very few of them know how their phones really work, how apps are developed. This must change very soon, otherwise we will have a number of open books on how to handle new developments in logistics but an insufficient amount of people able to read and implement them.
Moreover, governments should invest in infrastructures. We need at least €11tn of cumulative investments in infrastructures in Europe by 2050 and this not only for efficiency reasons but also to curb CO2 emissions. We can’t imagine a transition to an electricity or hydrogen fuelled future without a well functioning and widespread electrical grid or hydrogen delivery systems. Last, but not least, Brussels should really invest all its efforts in breaking down all remaining border related barriers. Protectionism is the worst enemy of any possible development of European logistics.
5. Where should private capital be invested?
The industry should invest more in new technologies. Some companies, such as DHL, DB Schenker or UPS are already very creative in testing different ways of moving goods. They invest in vehicle technologies, planning software, in the equipment of delivery people, so that they can be as efficient as humanly possible. But these are still exceptions. And while big players are beginning to awaken to technology, the vast majority of the industry is composed of medium-sized players that are aware of the change but are not doing anything about it. However, as I mentioned before, this may rapidly change through the relatively reasonable costs of cloud computing services.
6. You are convinced that cities will play a crucial role in the future of logistics. Why?
Well, first of all because, by 2050, 3/4 of the world population will live in urban areas. Moreover, an increasing number of people will pay for the instant delivery of goods and this will potentially increase unbearable pollution and congestion. To prevent this to happen, city governments and the freight industry need to start working together as soon as possible, for example creating mobile pick-up and drop-off points outside city centres, while managing the delivery of goods in the downtown areas through electric vehicles or bicycles.
This is being experimented in Hamburg or Paris, just to make an example. Hamburg, the second-biggest city in Germany is planning to ban all cars from the city by 2034. City-based logistics is where money will be made in the future and this will lead to more sharing between freight companies. But regulatory bodies will need to force change through adequate incentives.