• HAMBURG| 26 SEPTEMBER 2013

Professor Alan McKinnon

Kühne Logistics University

Hamburg

TREFF 2014 Conference

Gothenburg

27th August 2014

European Logistics

Forecasts and Speculations for 2030

KÜHNE LOGISTICS UNIVERSITY HAMBURG

A private, independent, state- recognized university – founded in 2010

A university with expertise in logistics and management

2 MSc, a Bachelors, an executive MBA and a PhD program – 180 students

17 resident faculty plus contributions from a group of external professors

mega-trend

game-changer

Megatrends

5

80

130

180

230

280

Road tonne-kms

forecast

actual

Based on linear relationship with GDP and 3% / ann growth rate

year

Past attempts at long term forecasting of the growth of road freight movement

Source: Adams 1981

‘The new Department of Transport forecasts when

projected far enough into the future present the

country with a stark choice between an absurd

number of vehicles and vehicles of absurd size’

John Adams 1981

Forecast Change in CO2 Emissions from Different Types of Road Vehicle: 2010-2040

Source: UK Dept for Transport, 2013

7

0

20

40

60

80

100

120

140

160

180

200

Bulgaria

Poland

Germany

EU27

UK

Belgium

Relationship between GDP and Freight Tonne-kms in EU Countries

Ratio of freight tonne-kms to GDP (index values 2000 = 100)

Source: Eurostat 2014

Technology

Infrastructure

Market

Behaviour

Energy

Regulation

Modal split

Utilisation

Fuel efficiency

Energy mix

categories of external factor decarbonisation lever

TIMBER framework

for assessing the effect of external factors on the decarbonisation of logistics

Projected CO2 impacts of road freight vehicles technologies (UK)

Source: Ricardo study for UK Dept for Transport

Teardrop Cheetah

DolphinBoat-tails Trailer under-tray

Over cab spoiler

Improving the Aerodynamic Profiling of Trucks: 360o perspective

Mercedes Concept Truck Walmart

concept truck

Market Mega-trend: Growth of Online Retailing

0

10

20

30

40

50

60

70

80

90

100

2004 2005 2006 2007 2008 2009 2010 2011 2012

Percentage of individuals purchasing online

UK EU

Source: Eurostat, 2012

Forecast of Online Retail Sales in EU 17 2009-2014

omni-channel logistics

Average Household Consumption of Products and Packaging (UK)

Source: Incpen

Impact of Demographics on the Quantity of Freight to be Moved

Decline in average household size

Reshoring of Manufacturing to the EU

EU manufacturing wages still on average 15 times higher than those in China

Wage inflation in China

0% 10% 20% 30% 40%

product quality

delivery speed and reliability

supply chain disruption risk

erosion of labour cost saving

Reasons for reshoring

300 UK manufacturers survey by UK Engineering

Employers’ Federation 2013

Reshoring of European Manufacturing?

Retail distribution centre assembly plant supplier warehouse

Pre off-shoring Post off-shoring

Extent of any net reshoring ?

Effect on the configuration of global supply chains?

Likely to increase the freight transport intensity of the European economy?

Restructuring of Logistics Systems within the EU?

Potential for future centralisation of production and warehousing?

At an advanced stage within countries, but at an EU level?

Source: Prologis, 2013

centralisation deecentralisation % of DCs serving areas of

differing geographical extent

16

De-materialisation of the EU Economy?

18

Higher proportion of income spent on services: many services less logistics-intensive

Major improvements in ‘material efficiency’:

• Increase modularisation and remanufacturing: more ‘closed loop’ supply chains?

• Digitisation of physical products: entertainment, news and educational content

• Designing products with less material: miniaturisation, product downsizing

3D printing: just how transformational will it be?

3-D Printing / Additive Manufacturing / ‘Fabbing’

19

Technologies on the Gartner Hype Cycle 2010

3D Printing

Gartner Hype Cycle 2013

Rapid prototyping Component manufacture Dental / body parts

Over-hyping of consumer applications?

Constraints on the Mass Use of 3D Printing

Home-made toys – entry point for the domestic market?

• Very expensive relative to scale economies of batch production

• Need to attach high value to customised products

• Technical difficulty in producing all but simple parts

• Limited range of materials used – constrains functionality

• Layering and bonding process causes intrinsic weakness

Role for LSPs in the 3D printing market

Printing of spare parts may transform service logistics Inventory management algorithms for spare parts rendered obsolete?

Thoeretically, one day Amazon might just sell the design file for a product, and the

consumer would print the design file at home with a 3D printer in the comfort of his or

her living room. Presumably, these consumers would also be purchasing their 3D

printers and 3D printer filament from Amazon’s 3D Printer Store.’

Washington Post 13th March 2014

Jeff Bezos owns both Amazon and the Washington Post

Future Development of Last Mile Logistics

development of unattended

delivery infrastructure

entry of FMCG manufacturers

into the online market manufacturer HomeDistribution

Centre

E-fulfilment centre

Superstore

retailer

switch from vans to self-

employed couriers

trip chaining reduces marginal costs

redefines interface between personal and freight movement

same day delivery: Shutl Amazon Prime – delivery by drone

Home Delivery by Drone ?

Surveillance of transport terminals Intra-logistics

11 reasons why distribution by drone is unlikely to work

Very limited range – in the absence of a battery miracle Impossible inventory trade-off between product range and decentralised distribution Very high energy-intensity - energy cost per order exorbitant Lacks the scale economies of hub-spoke distribution and last-mile groupage Requires very high-precision GPS to pinpoint domestic delivery points Household reception system very difficult and costly to standardise and operate No backloading of an extremely expensive transport mode Accident / liability risk: to people, aircraft etc Security risk: ideal target-practice for guns and air rifles Virtually no-one will value same-day delivery that highly – except super-rich niche Authorities very unlikely to approve use of urban air-space by delivery drones

Breakthroughs in the Electrification of Freight Transport?

Source: International Energy Agency, 2009

decarbonisation of electricity grids Siemens E-Highway test-track nr Berlin

Dual Carbon Battery

Very high energy-density

20x faster recharge than lithium iron

Only uses carbon

3000 recharges per life cycle

Much safer than conventional batteries

partnerships

alliances

consortia

1980s

1990s

2000s

2010s

2020s

CPFR = collaborative planning forecasting and replenishment CTM = collaborative transportation management

Evolution of Logistical Collaboration: from rhetoric to reality?

vertical collaboration

ECR CPFR

Shippers

horizontal collaboration

opportunistic

systematic

network based

CTM

Carriers

Starfish CO3

30

Rationalisation by Collaboration

geography

Source: Cap Gemini (2008)

Horizontal Collaboration:

5- dimensional diffusion

31

1. Separate delivery operations 2. Groupage through 3PL

3. Collaborative synchronisation

Kg CO2 / tonne

1. Separate delivery 43.8

2. Groupage 27.3

3. Collaborative synchronisation 20.3

Nestle – Pepsico Horizontal Collaboration in Benelux

Source: Jacobs et al 2014

Collaborative bundling of freight to meet modal shift targets

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2009 actual without target with target

Road

Rail

IWW

% o

f to

nn

e-k

ms

Target: EC White Paper target for 30% of freight tonnes moving over

300km to move by rail or inland waterway

Without target: Business-as-Usual projection of modal split

Based on analysis by Tavasszy and van Meijeren (2011)

Will these targets ever

be achievable without

extensive horizontal

collaboration?

Shapley Value

Gain sharing calculator

Supply Chain Orchestration and Gain Sharing

Impending

paradigm shift

to ‘collaborative

commons’ ?

‘Physical encapulation’ of goods in a new generation of modularised containers’

applying the networking of principles of the internet to the physical movement of freight

longer term vision of ‘network-based’ horizontal collaboration ?

The Physical Internet (not the Internet of Things)

Source: Montreuil, 2012

22% less freight tonne-kms

15% greater efficiency

20% higher vehicle loading

50% less CO2

Endorsed by the new European

Technology Platform for Logistics

(ALICE)

Source: Ballot Long term vision or fantasy?

June 2014

World Oil Price

$ p

er

barr

el

Future Trend in Oil Prices

Source: Forbes, 2014

To stay with carbon emission limits consistent with maximum 2o C temperature rise by

2100: 70-80% of known reserves of fossil fuels must remain in the ground

Possible scenario: Imposition of binding carbon reduction targets + confidence in GHG

mitigation policies depresses the value of fossil fuel assets

Strong incentive to exploit these assets asap – collapse in their price – final fossil fuel

‘binge’ - era of cheap oil – deters switch to low carbon alternatives in the logistics sector

The Scale of the Climate Change Challenge

37

Source: Clark, 2013

Bn tonnes o

f C

O2 p

er

annum

Climate change likely to prove to be non-linear, requiring more rapid adaptation

Big increase in % of infrastructure budget going on climate-proofing

Step-change in Frequency, Intensity and Duration of Extreme Weather Events

Solar flares

Kühne Logistics University – the KLU Wissenschaftliche Hochschule für Logistik und Unternehmensführung Grosser Grasbrook 17 20457 Hamburg tel.: +49 40 328707-271 fax: +49 40 328707-109 e-mail: Alan.McKinnon@the-klu.org website: www.the-klu.org

Professor Alan McKinnon