[Note from editor: originally published on AEC Labs]
Earlier this summer, I participated in an internal AECOM client event that discussed the future of “integrated” mobility hubs in different types of geographic locations (urban, suburban, and rural). What is an integrated mobility hub? It’s our working definition for real estate or infrastructure development that incorporates mixed uses, smart-city technology, public spaces, and multi-modal transportation options, from autonomous vehicles and buses to ride-sharing alternatives, scooters, and drones.
At the event, I spoke specifically about e-commerce applications, public-private partnerships, and how certain kinds of P3 models might be used to foster the development of these hubs. The agenda for my talk was straightforward and as follows:
- Why does talking about e-commerce at an event on urban planning make sense?
- Second, why is solving for the “last mile” problem in e-commerce so important to the future of fulfillment mechanisms?
- How are stakeholders trying to solve for the last-mile problem, both currently and in the future? And how could that influence planning for integrated hubs, regardless of their geographic location?
- Finally, to try and tie it all together, I suggested that P3s could play an active role in building out the fulfillment model of the future across various types of integrated hubs.
I thought it would be worthwhile to transform my talking points from the event into a longer form article here at AEC Labs, so here we go!
Data on E-Commerce: Market Size, Fulfillment, & Shipping Costs
But first some data to answer why e-commerce should be included in any conversation about in the future of “integrated” mobility hubs. It’s simple, really, and perhaps obvious: e-commerce keeps growing! From less than 2% of all retail sales in 2000 to over 11% in Q4 of 2018.
But e-commerce fulfillment is super expensive, not to mention the cause of significant, negative externalities like stressing existing infrastructure and environmental degradation. (For example, in Europe, more than 50 percent of road transport fuel is combusted in urban areas.)
We’re already seeing backlash to increase in urban e-commerce delivery with diesel bans in central European cities (like London) and the renewed push for congestion pricing in Manhattan.
Yet e-commerce isn’t going away. In fact, 75 percent of all adults who shop online say they’d even pay a premium for expedited shipping (which is driving Amazon’s and Walmart’s offer of 1-day shipping). But for every $100 in sales, e-commerce providers are spending $20 on logistics. So something must give to get packages to customers more quickly.
E-commerce Logistics Overview: Why Focusing on the “Last Mile” is Critical for Integrated Hubs
How does e-commerce work? Take a look at this neat graphic below (credit – DHL) at the e-commerce fulfillment supply chain detailing a provider’s warehousing operations, outdoor logistics (ports, airports, etc.), line-haul transportation, and of course the last-mile.
These modes are all important and can intersect in interesting ways in a multi-modal integrated hub. But let’s focus on the last mile of delivery. Why? There are two key reasons: First, the last mile is where much of the innovation is happening in e-commerce logistics right now – it’s the most expensive part of the supply chain (53% of all e-commerce delivery costs are incurred in the last mile; overall shipping costs were 12% of Amazon’s net sales in 2018, totaling $28B, up from $1B in 2007).
Second, it’s also the customer-facing segment of the supply chain. Satisfying diverse customer expectations around flexibility, security, and convenience in how their packages are delivered across the last mile is therefore critical.
All of these customer concerns, then, must be addressed – in a cost-effective way – in an integrated hub – regardless of whether the hub is located in an urban, suburban, or rural setting. This is the last-mile problem in a nutshell.
Solving for the Last Mile – The Gig Economy (Current State)
So how are providers solving for the last-mile problem today, and what might that means for integrated hubs of the future? Before we get there, we need to consider the first mile in the fulfillment chain (i.e. the warehouse that stores the goods).
Providers are constantly trying to shorten the last mile by bringing their first-mile warehouse fulfillment operations closer to population centers. For example, Amazon started out with 1 FC: today, there are 787 of them! I see this shift as being a key aspect of how e-commerce will intersect with integrated hubs. More on this later.
But back to the last mile: historically, e-commerce providers like Amazon and others have relied on third-party deliver partners like the US Postal Service, FedEx, and others to meet their last-mile needs. Not only is this yielding super expensive, but it also surrenders the provider’s control over the customer experience at the point of delivery (which is of critical importance for Amazon, for example, which famously will always “start with the customer” and work backwards when trying to solve any problem).
That being said, here are a few multi-modal examples that providers are using right now in a variety of geographic delivery settings to address the last-mile problem that might be deployed more broadly within the integrated mobility hub paradigm:
Amazon’s “Flex” program: this is an Uber-like program that uses independent contractors to pick up packages with their own vehicles and deliver them to customers.
Curbside pickup solutions: a projected $35B retail fulfillment channel by 2020, players from Amazon and Walmart to Kroger and Target are all experimenting with various curbside pickup options to drive down their last-mile delivery costs for online orders. Walmart expects all 3100 of its stores to offer curbside pickup by 2020, with nearly 25% of all of its customers using this fulfillment option.
“Locker” solutions: Amazon and DHL are both experimenting in this space, where customers can pick up their package from a centralized, fixed location. In urban locations, this is makes a lot of sense. Amazon Key is a new offering where Flex drivers will deliver packages to your car trunk!
Bike and scooter solutions: DHL offers a “cubicycle” delivery program in core European city locations, with many other providers too.
It’s easy to imagine some (or all) of these mechanisms deployed as part of an integrated mobility hub’s last-mile e-commerce fulfillment supply chain. But all of them rely on manual processes and, well, humans, who at the end of the day are expensive. So what comes next?
Solving for the Last Mile – AVs & Robots (Pilot Phase State)
These fulfillment models are interesting and always evolving, but there are even more interesting technologies under development that will fundamentally change the e-commerce supply chain model and, in turn, integrated mobility hubs.
Going in order along the fulfillment supply chain:
Robot-staffed warehouses: to stow, pick, and ship inventory (this of course is already happening at Amazon through its Kiva/Robotics subsidiary), bringing products closer to customers and driving down last-mile delivery costs at the starting point of the fulfillment chain.
Autonomous line-hauling: autonomous freight trucks could in theory operate more frequently, safely, and deliver packages more quickly thanks to higher potential speeds in dedicated AV lanes (like one that’s been proposed along the I-5 corridor between Seattle and Vancouver.)
Autonomous multi-modal vans: these could drive themselves to central urban/suburban settings and, combined with either locker solutions, drones, or smaller AVs, perform last-mile delivery in a variety of geographic settings.
Other last-mile and middle-mile delivery robots: some with ranges of up to 50 miles are currently in various phases of testing (like the Swiss startup Teleretail and Amazon’s Scout robot).
New technologies across all of these fulfillment supply chain chanels could all help drive down last-mile delivery costs and interact with new warehousing models in powerful ways.
Solving for the Last Mile – “Thinking Big” (The Future State)
Finally, what’s coming next? “Fantastic future fulfillment solutions” are probably much closer than we think, and planners will need to consider them in the context of an integrated mobility hub solution.
But these aren’t just drones – which are already widely deployed in China, particularly in rural areas, where JD.com is delivering packages up to 1-ton in weight through its commercially licensed drone program.
The way goods are stored before delivery could also change drastically in the future. These figures are from actual Amazon patent applications:
Floating FCs: a blimp warehouse 45,000 feet up in the air could also descend to 2K feet, stock drones for last-mile delivery, or even be summoned to provide supplies for specific events.
Underwater FCs: instead of taking up costly urban real estate, the FC would be submerged in a body of water.
“Drone tower”: could serve urban locations, with drones buzzing in and out of the FC “hive,” delivering packages to customers in relatively close proximity to the tower.
We’re likely way off from this. But illustrative of innovation and tech that could power the integrated hub of the future.
Public-Private Partnerships and Integrated Hubs: The Next Frontier
So how will we build the infrastructure to support these futuristic multi-modal e-commerce supply chains? Like much domestic infrastructure, while we’re waiting for the federal government to step with a financing plan, it appears that state and local governments will need to continue picking up the slack. And part of that will mean a continued focus on public-private partnerships to deliver 21st-century infrastructure.
For the integrated mobility hub, this means a couple of things. First, state and local governments will need to continue partnering with the private sector on “soft” P3 initiatives, similar to how Dallas’s Innovation Alliance, Columbus (Ohio), and other cities are deploying similar programs across the country. These initiatives are designed without risk transfer and are meant to test new technologies and ideas in specific neighborhoods within the urban fabric.
Second, the P3 industry will need to figure out ways to bring private capital to the table to finance smart-city infrastructure projects. Part of that effort will require developing revenue streams for these new technologies.
It’s both a frightening and an exhilarating time to be thinking about these issues in the context of the AEC and infrastructure industries. The future of e-commerce fulfillment will be automated, it will be multi-modal, and it will consider environmental externalities (customers – particularly millennial customers – are demanding it). It will also give the customer choice and flexibility over how, when, and where their packages are delivered, regardless of where the customer is located geographically.
This means that future real estate development will need to support multi-modal infrastructure that enables a diverse range of delivery mechanisms like those described above. For the integrated hub, this presents a real opportunity to rethink development patterns and the infrastructure that supports them.
[Note from editor: originally published on AEC Labs]
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