E-Commerce and Small E-Commerce and Small Package Shipments in Los Package Shipments in Los AngelesAngeles

Randolph HallRandolph Hall

Manish Bansal, Kapil KumraManish Bansal, Kapil Kumra

University of Southern University of Southern CaliforniaCalifornia

StatisticsStatistics

Air Shipments grew (93-97):Air Shipments grew (93-97):• 43% in tons43% in tons• 56% in ton-miles56% in ton-miles• 51% in value51% in value

Parcel Shipments grew (93-97]Parcel Shipments grew (93-97]• 25% in tons25% in tons• 37% in ton-miles37% in ton-miles• 40% in value40% in value

But …But …

Air Shipments Account for .2% of all Air Shipments Account for .2% of all ton-mileston-miles

Parcel Accounts for .7% of all ton-Parcel Accounts for .7% of all ton-milesmiles

Traditional rail and truck account for Traditional rail and truck account for 38% of ton-miles each38% of ton-miles each

Segment is Important Because of Value Segment is Important Because of Value and Criticality of Shipments + Growthand Criticality of Shipments + Growth

HomeGrocer.com

Traditional Grocery Traditional Grocery ShoppingShopping

Product Information: Product Information: • Advertisements (TV,direct-Advertisements (TV,direct-

mail,inserts,in-store]mail,inserts,in-store]

• Inspection at the StoreInspection at the Store SelectionSelection

• Integrated with PickingIntegrated with Picking WarehousingWarehousing

• At store + distribution centersAt store + distribution centers

Traditional (continued)Traditional (continued)

Picking/PackagingPicking/Packaging• Customer at StoreCustomer at Store• Bagger at CounterBagger at Counter

PaymentPayment• At Counter (cash,charge,debit)At Counter (cash,charge,debit)

TransportationTransportation• Customer (usually by car)Customer (usually by car)

E-Commerce Grocery E-Commerce Grocery ShoppingShopping

Product Information: Product Information: • Advertisements (TV,direct-Advertisements (TV,direct-

mail,inserts,in-store]mail,inserts,in-store]

• Generic Images on Site/DescriptionsGeneric Images on Site/Descriptions SelectionSelection

• Fill-out Forms/Download from HistoryFill-out Forms/Download from History WarehousingWarehousing

• Distribution Center OnlyDistribution Center Only

E-Commerce (continued)E-Commerce (continued)

Picking/PackagingPicking/Packaging• Employees at Distribution CenterEmployees at Distribution Center

PaymentPayment• Internet ChargeInternet Charge

TransportationTransportation• Employees by TruckEmployees by Truck

What’s Good and Bad?What’s Good and Bad?

The GoodThe Good• Real Estate SavingsReal Estate Savings• Delivery Efficiencies from Combined LoadsDelivery Efficiencies from Combined Loads

The BadThe Bad• Customer Cannot Inspect ProductCustomer Cannot Inspect Product• Picking/Selection Become DecoupledPicking/Selection Become Decoupled• Trips to Market Not Very Costly to Trips to Market Not Very Costly to

CustomersCustomers• Lacks ImmediacyLacks Immediacy

Industry SegmentsIndustry Segments Integrated ProvidersIntegrated Providers

• SameDay, Kozmo, WebVan, HomeGrocer,SameDay, Kozmo, WebVan, HomeGrocer,• Streamline,UrbanFetchStreamline,UrbanFetch

Fulfillment Fulfillment • Amazon, eToys, Various Catalogue CosAmazon, eToys, Various Catalogue Cos

Sales.Match-makingSales.Match-making• Automobile selling, price quotingAutomobile selling, price quoting

Transportation Services+Logistics Transportation Services+Logistics • FedEx,UPS,USPS,Airborne,Emery,DHLFedEx,UPS,USPS,Airborne,Emery,DHL

Integrated ProvidersIntegrated Providers

Grocery Services (WebVan,PeaPod)Grocery Services (WebVan,PeaPod)• Many SKUsMany SKUs• Specialized VehiclesSpecialized Vehicles• Sophisticad WarehousingSophisticad Warehousing• Route in Advance with Time WindowsRoute in Advance with Time Windows

Immediate Gratification (Kozmo)Immediate Gratification (Kozmo)• Simple Operation, Few SKUsSimple Operation, Few SKUs• Quick ResponseQuick Response• Orientation: meals, videos, etc.Orientation: meals, videos, etc.

Integrated (continued)Integrated (continued)

Business Oriented (SameDay)Business Oriented (SameDay)• 3rd Party Logistics Provider3rd Party Logistics Provider• Contracted Warehousing, DistributionContracted Warehousing, Distribution

Fulfillment ModelFulfillment Model

Consumer web interfaceConsumer web interface Integrated with warehouse Integrated with warehouse

picking/packaging operationspicking/packaging operations Centralized warehousing (national Centralized warehousing (national

or large region]or large region] Reliance on for-hire package Reliance on for-hire package

carriers for delivery to customercarriers for delivery to customer Sometimes Very Small OperationsSometimes Very Small Operations

Sales/Match-makingSales/Match-making

Customer Interface to Product Customer Interface to Product InformationInformation

Specification of ProductSpecification of Product Instant Price Quote, or hand-off to Instant Price Quote, or hand-off to

dealerdealer Variety of delivery mechanisms, Variety of delivery mechanisms,

often negotiated (sometimes pick-often negotiated (sometimes pick-up]up]

Transportation ServicesTransportation Services

Multi-layered NetworkMulti-layered Network Integrated Ground/Air OperationsIntegrated Ground/Air Operations Variety of Service LevelsVariety of Service Levels Negotiated Price AgreementsNegotiated Price Agreements Logistics Services Provided to Logistics Services Provided to

Some Customers (fulfillment, Some Customers (fulfillment, warehousing, etc.]warehousing, etc.]

Network LayersNetwork Layers

Pickups (drop,on-call,scheduled,drop Pickups (drop,on-call,scheduled,drop box]box]• Local Terminal; Sort ConsolidateLocal Terminal; Sort Consolidate

–Shuttle to AirportShuttle to Airport–Airport Terminal: Sort, Airport Terminal: Sort,

ConsolidateConsolidate»Transport to Hub Transport to Hub » Sort, ConsolidateSort, Consolidate

UPS HubsUPS Hubs

Louisville: 215,000/hourLouisville: 215,000/hour Ontario,Hartford,Columbia,Rockford,Ontario,Hartford,Columbia,Rockford,

Dallas,Philadelphia: 303,000/hour Dallas,Philadelphia: 303,000/hour CombinedCombined

All Major Airports in SoCal UtilizedAll Major Airports in SoCal Utilized Combinations: 36 pairingsCombinations: 36 pairings Cannot Generate Enough Traffic: Cannot Generate Enough Traffic:

Smaller airports through LouisvilleSmaller airports through Louisville

ChallengesChallenges

Short Time Window: Short Time Window: • About 14.5 hours, west-cost pickup About 14.5 hours, west-cost pickup

(5:00) to east coast delivery cut-off (5:00) to east coast delivery cut-off (10:30](10:30]

Handling StepsHandling Steps• Up to five sorts, processingUp to five sorts, processing

Transport StepsTransport Steps• Up to six vehiclesUp to six vehicles

Transportation Transportation AlternativesAlternatives

Scheduled CarrierScheduled Carrier• Sometimes faster, cheaperSometimes faster, cheaper• Sometimes more flexible on sizeSometimes more flexible on size

Ground Package CarrierGround Package Carrier Ground LTL,TL ServicesGround LTL,TL Services Courier (typically short distance]Courier (typically short distance] Freight Forwarder/ConsolidatorFreight Forwarder/Consolidator

LAX Cargo StatisticsLAX Cargo Statistics

2nd Largest in Country (behind 2nd Largest in Country (behind Memphis)Memphis)

2.1 Million Tons in 19992.1 Million Tons in 1999 78% of Regions Air Cargo78% of Regions Air Cargo 194 Acres/2.1 Million Sq. Feet on-site194 Acres/2.1 Million Sq. Feet on-site Additional 4 million Sq. Feet off-siteAdditional 4 million Sq. Feet off-site 50% of Traffic is International (Japan is 50% of Traffic is International (Japan is

largest partner)largest partner)

LAX Cargo TrendsLAX Cargo Trends

Year AirMail Tons Air Freight Tons Total Tons 1989 145,946 1,049,974 1,245,920 1990 154,254 1,130,119 1,284,373 1991 162,840 1,095,580 1,258,209 1992 162,840 1,202,317 1,365,157 1993 173,827 1,288,503 1,462,330 1994 186,878 1,516,567 1,703,445 1995 193,747 1,567,248 1,760,995 1996 194,091 1,696,663 1,895,754 1997 212,410 1,852,487 2,064,897 1998 264,473 1,787,400 2,051,873 1999 253,708 1,912,147 2,165,885

Largest LAX Cargo CarriersLargest LAX Cargo Carriers

1. Federal Express 346,310 18.11% 2. United Airlines 155,201 8.12% 3. Korean Air 120,972 6.33% 4. American International 95,190 4.98% 5. American Airlines 73,965 3.87% 6. Delta Air Lines 71,816 3.76% 7. Northwest Airlines 62,883 3.29% 8. Lufthansa German Airlines 58,331 3.05% 9. Japan Airlines 49,961 2.61% 10. Eva Airways Corporation 49,942 2.61% SUBTOTAL 1,084,570 56.72% ALL OTHER AIRLINES 827,577 43.28%

TOTAL 1,912,147 100.00%

Other Regional AirportsOther Regional Airports

OntarioOntario John Wayne/Orange CountyJohn Wayne/Orange County BurbankBurbank Long BeachLong Beach San DiegoSan Diego PalmdalePalmdale OthersOthers

Why Do Carriers Use LAX?Why Do Carriers Use LAX?

Central for RegionCentral for Region Infrastructure for Cargo Handling Infrastructure for Cargo Handling

(forwarders,warehousing,etc.](forwarders,warehousing,etc.] Ability to Handle Large AircraftAbility to Handle Large Aircraft Customs FacilitiesCustoms Facilities Integration with Passenger Integration with Passenger

OperationsOperations

Regional Planning IssuesRegional Planning Issues

Can LAX and Ontario Absorb Can LAX and Ontario Absorb Growth? (flights and real-estate]Growth? (flights and real-estate]

Congestion in Vicinity of LAX; Congestion in Vicinity of LAX; Meeting Connections for OvernightMeeting Connections for Overnight

Would Sending Freight to Would Sending Freight to Palmdale, Help or Hurt?Palmdale, Help or Hurt?

Neighborhood EffectsNeighborhood Effects

Ongoing WorkOngoing Work

Surveys with Freight Forwarders, Surveys with Freight Forwarders, Ground Transport Providers, Ground Transport Providers, AirCargo CarriersAirCargo Carriers

Modeling Sorting, Regional Modeling Sorting, Regional Transport ProcessesTransport Processes

TAD Air Cargo Web SiteTAD Air Cargo Web Site

ConclusionsConclusions

Web Enables New Types of Web Enables New Types of CompaniesCompanies

Substantial Growth in Package Substantial Growth in Package Shipments, Due to Bypassing Shipments, Due to Bypassing Retailer in Supply ChainRetailer in Supply Chain

Package Growth Leads to Greater Package Growth Leads to Greater Demands on Air Cargo SystemDemands on Air Cargo System

Significant Regional Planning IssuesSignificant Regional Planning Issues