How Will Technology Support the Future of Goods Distribution in Cities?What you need to know about the technology transforming how we deliver goods

Copyright © 2020 Theorem, LLC. All rights reserved.

By Alex Finnemore, Head of Revenue, Theorem and Matthew “Chef” Kwatinetz, Founder, Q Partners

Contents

Executive Summary 3

Distribution challenges: Feeding our need for speed 4

Driving Innovation: Opportunities for tech and logistics join forces 9

Executive Summary

Better still, it can be at our front door in what

feels like a split second. We’ve grown so used to

this dizzying speed that we may find ourselves

staring aghast at our screens, frustrated if

delivery dates exceed 24 hours. Oh, and delivery

is usually free. But is this really sustainable

for distributors, online retailers, and the cities

struggling with gridlock, road safety, and poor

air quality? How can technology transform

delivery logistics to become increasingly

efficient, adaptable, and eco-friendly?

If you work in logistics, shipping or urban

planning, you’ll know that cracks are beginning

to show in goods distribution. The number

of people living in cities has ballooned to an

unplanned-for peak. From crowded downtown

areas to leafy suburbs, aging infrastructure

is simply overwhelmed. While this isn’t

From food to furniture, gifts to gazebos, there’s not much we can’t buy online and have delivered these days.

exactly a new problem, issues like choked

road networks and ports are giving logistics

providers serious headaches when it comes

to meeting demanding delivery timelines.

Technology—along with rehabilitated

infrastructure, forward-looking legislation,

and investment—will play an important role

in helping companies deliver products in a

way that alleviates congestion, manages

waste responsibly, and provides reasonable

working conditions for employees.

In this white paper, we’ll get to the heart of the

challenges facing goods distributors. We’ll

look more closely at the opportunities that

exist for public and private sectors—and the

technology predicted to play a pivotal role

in reshaping urban distribution systems.

3Thought Leadership Technology for Smart Cities

Distribution Challenges: Feeding Our Need for Speed

Can anyone remember what we did before same-day delivery? Did we really wait for one, maybe two, days to receive orders?

Now, just one click from the comfort of your sofa

and your organic oat milk and kimchi magically

wing their way to your doorstep within the hour—

at no extra cost. 60 sweet minutes. We’re not

gonna lie, it’s the holy grail. But when consumer

expectations set the pace for faster delivery

times, can our distribution networks keep up?

As consumer demands escalate, the

number of goods available online soars and

correspondingly orders rise, companies face

an uphill battle. Let’s take a closer look at the

top four challenges facing distribution and the

opportunities to enhance efficiency while running

sustainably responsible business models.

Parking violations from delivery drivers in 2018.

471kOf warehouse space is being built in New York alone.

MILLIONSQ FT2

Packages go missing in New York City everyday.

90k

4Thought Leadership Technology for Smart Cities

Rising Cost Per Unit: The Price of a Promise

How can online retailers afford to deliver

goods within tight timelines at no extra cost,

regardless of where customers live? They

can’t. We’re in a bubble driven by sky-high

tech valuations and competitive pressures.

Escalating traffic congestion, inflation, volatile

fuel prices, inefficient delivery models, and

environmental constraints mean that costs

per unit distance are skyrocketing. Margins

are being squeezed and the pressure to pass

the cost on to customers is mounting.

Unsustainable valuations drive unsustainable guarantees.

This leads to the consolidation of companies

and likely a fixed charge for delivery, an annual

fee (like Prime) or increased cost of goods.

Increased cost of delivery due to timing.

In an effort to remain competitive, many

e-commerce businesses throw in free

shipping on returns in addition to deliveries.

It’s a cost that could reach $550 billion

in 2020 in the US—75% more than four

years ago.1 Add to that, investment and

maintenance of new storage facilities, lost

inventory, overtime wages, restocking fees,

and the cost of delivery is crushing.

Hidden cost of rising package theft.

One in three of us living in the US have reported

having at least one package stolen.2 Over 90,000

packages go missing in New York every day.

Package theft is fast becoming an epidemic with

thieves tailing delivery trucks and swiping goods

fresh from the doorstep.

The problem is prompting companies to dream

up creative measures that will stop package

swipers in their tracks. One forward-looking

private solution is Amazon Key, a delivery

service that lets you give remote access to

delivery drivers so they can leave your package

safely inside your home. Other ideas include

home-based networks of package-receivers,

hub lockers, and advanced real-time tracking.

5Thought Leadership Technology for Smart Cities

Infrastructure: The last-mile challenge

Cities have changed. Rapid urbanization,

creeping city boundaries, a gnawing

geographical gap between central warehouses

and customers, more products making their way

online—when it comes to delivery, infrastructure

is at breaking point. Yet we still expect lightning

delivery times from Amazon and Uber Eats,

regardless of whether we’re downtown or in

semi-rural areas. Take Hawaii, where Amazon

Prime is impossible to maintain due to being

an island in the middle of the Pacific. However,

access issues aren’t restricted to islanders...

Congestion

Cities the world over face road congestion

from hell. Last year, commuters in Boston

alone logged a miserable 164 hours in

traffic jams.3 It’s easy to see how delivery

drivers face near-impossible obstacles to

meeting deadlines. Fleets of delivery trucks

are venturing into residential streets that

weren’t designed to accommodate them.

Lack of curbside access also forces them

to double-park illegally, blocking bus and

bike lanes. Together, they amassed over

471,000 parking violations in 2018.4

Transloading

Dedicated sites in congested areas that

enable distributors to break down large loads

from single trucks into smaller ‘last-mile’

trucks suited to city streets simply don’t

exist. Distributors want to establish locations

in inner cities where the final delivery miles

can be completed by bikes and carts. This

way, not only do they take up less space,

but they also reduce the cost per unit.

Warehouses and shared spaces

In a bid to reduce road miles and alleviate

pressure on wheezing infrastructure, retailers

and distribution businesses are rethinking

industrial and retail space in cities. As

real estate is freed up by retailers moving

online and autonomous vehicles reduce the

need for parking lots, distribution facilities

warehouses pop up in their place. A whopping

two million square feet of warehouse

space is being built in New York alone.5

Distributors are increasingly relocating

inventory from international storage spaces to

a network of hyper-local last-mile warehouses

and neighborhood trans-load facilities in order

to satisfy one-day and one-hour orders that

would otherwise be impossible to fulfill.

6Thought Leadership Technology for Smart Cities

Growing cities: Size matters.

The future belongs to big cities. For the last 15

plus years, the world has been undergoing a

mass migration to cities with a shift from 56%

to 70% of the world’s population expected

to reside in urban areas by 2050.6 We’ll have

more major cities as small and mid-sized cities

grow to retain a competitive advantage.

Taking the lead on innovation

You may think that the task of decongesting

roads should fall to the city, state or federal

government. Yet basic transportation theory

teaches us that however much a road is widened,

commercial activity will fill it to capacity and then

some. Moreover, this problem is exacerbated

by the increasing scarcity of transload

facilities (or the prohibitive cost of using them)

that can lead to unexpected outcomes.

Consider the full-sized tractor-trailers that

increasingly populate the streets of NYC, parking

illegally to deposit a single pallet (or less) at a

cafe or restaurant. There’s no question that while

this distribution solution may be economically

efficient to a single retailer, it can’t be the

most efficient approach for the larger system

or environment. It may be complicated, but

we must find ways of overcoming inertia and

forging partnerships as keys to moving forward.

Issues of scale

Big cities have their own distribution challenges

but they do have the advantage of achieving

scale. You might argue that in our New York

example, the city government has a vested

interest in providing distributors with an

alternative delivery mechanism. Then again,

since cities are unable to move as fast or

as boldly as the private sector, it may be

preferable for innovation to come from suppliers

or groups of suppliers working together.

Small cities have a larger challenge. Even if

they have the desire and internal capacity to

attack this problem, their consumer markets

don’t offer sufficient volume to achieve scale on

a single city basis. And let’s face it, even if one

small city were to pioneer a solution through

partnerships between its peers, what’s the

likelihood of this being replicated across the

country, in every market, in a manner predictable

enough for commercial certainty and use?

7Thought Leadership Technology for Smart Cities

Counties are unlikely to have the internal

resources to roll out a solution of any magnitude.

For states, the issue is unlikely to receive priority

over more pressing policy issues (like affordable

housing, health care, environment) and

budgetary constraints. The federal government

won’t touch it as it exceeds the scope of its

traditional reach and powers. A scalable solution

requires a new player, or conglomeration

of players, to solve the problem of scale in

small cities—and congestion in big ones.

Drowning in waste: The problem with packaging.

The environmental cost of feeding our growing

appetite for instant gratification is fast becoming

a major issue. Residents of New York now

receive 1.5 million packages every single day,7

triple the amount delivered in 2009. The rise in

the number of goods being delivered and the

related packaging statistics are shocking:

• US-wide, USPS, FedEx, and UPS deliver around 165 billion packages every year—the cardboard from which translates to roughly 1 billion trees8

• A year’s worth of freezer pack trash from meal kit companies weighs in at 192,000 tons a year, equivalent in weight to 100,000 cars9

• By 2050, it’s predicted there’ll be more plastic in our oceans than fish10 (not all the product of online retail, but it’s a contributing factor)

What’s with the over-the-top packaging

anyway? The fact is, online orders involve

more touchpoints than traditional retail items.

They’re also likely to get dropped. A lot. So,

your single bottle of shampoo comes in an

absurdly proportioned box you could fit your

dog in, surrounded by those curious-looking

air cushions—simply to ensure it arrives in

mint condition. Online retail is only growing

so we need to tackle this problem now or

find ourselves knee-deep in garbage.

8Thought Leadership Technology for Smart Cities

Driving Innovation: Opportunities for tech and logistics join forces

It’s time to get smart. From underground retail and storage to fleets of drones, innovators are dreaming up ways to harness technology to

to improve mobility, waste management, and

delivery intelligence. Every problem is an

opportunity in disguise. Quite simply, there’s

never been a better time to form creative

alliances to shape the future of distribution.

Incremental tech like better tracking, self-

driving trucks, and 5G connectivity are all

valuable solutions that will help us optimize the

distribution channel in cities of the future. It’s the

space with the greatest growth potential. Best of

all, you don’t need to be a key player in logistics

or distribution to make your mark in the industry.

Collaboration between public and private sectors

—including technology partners—will be key

to innovating on an unprecedented scale.

Six areas of opportunity where tech is helping

companies and city leaders rethink distribution

networks and meet challenges head-on:

Marine highway

Trucks driving from anywhere in the US to

Long Island, New York have to venture through

Manhattan to reach their destination. Given

the congestion, that’s nuts. More broadly,

since most major hubs across the Northeast

are connected by water, cities have partnered

with the Maritime Administration (MARAD)

to explore how the marine highway could

help alleviate pressure on the roads.11

9Thought Leadership Technology for Smart Cities

While one of us worked on this when working

for NYC and would like to claim credit for

incredible creativity, it’s not a new idea. Years

ago there were over 400 ferries in New York—

passenger and freight. The question is, can the

channels and the United States Army Corps

of Engineers (USACE) keep pace with the

increased use of waterways across the seasons?

Waste Management

The cardboard economy is giving consumers

guilt pangs. Big online retailers have introduced

envelopes for small items, started shipping

products in their original packaging to

avoid additional boxing, and introduced so-

called sustainable packaging initiatives in

anticipation of consumer pressure. Plenty

of companies are busy experimenting

with materials to create reusable, 100%

recyclable bags and shipping pouches.

For reusable packaging to really take off, we

need to overcome a few logistical challenges.

It requires an infrastructure overhaul that

could be off-putting to speed and efficiency-

loving e-commerce giants. But the rise of

the sharing economy and increased pressure

from consumers indicates that we’re on the

brink of a new dawn of reusable packaging.

Moreover, these efforts could generate new

jobs, creating a double bottom line pressure

for companies to find similar solutions.

10Thought Leadership Technology for Smart Cities

Real-time tracking

Advanced real-time tracking will be a game-

changer for the goods distribution industry.

While real-time tracking of containers has begun

in places like Rotterdam and Staten Island,

there’s a huge opportunity for the development

of better systems, including using the Internet

of Things (IoT) via blockchain.12 When we know

where everything is at all times we can optimize

the existing infrastructure and delivery path.

With same-day and one-hour delivery windows,

the need for better tracking has vastly increased.

Real-time track-and-trace technology, cloud-

labeling, anti-counterfeit packaging are all

helping to streamline distribution channels.

Going Underground

Space is scarce and megacities need to

rein in their expansion and make creative

use of existing land. One answer is to

move retail and storage facilities, waste

management, even vehicles underground.13

In December 2019, Elon Musk unveiled a

1.8km tunnel in Los Angeles dug using low-

cost, fast-digging technology—the first step

in a plan to develop high-speed subterranean

transport networks. While this idea might

seem far-fetched, so too must have those of

the first planners of Chicago’s double-level

distribution system, or Boston’s “Big Dig.”

Driverless Trucks

Autonomous vehicles (AVs) are going to be

part of the digital transformation of cities,

and delivery trucks are no exception. The US

Postal Service and UPS, for example, teamed

up with trucking startup company TuSimple,

with the latter trialing self-driving delivery

trucks in Arizona last year.14 Perhaps most

useful in coast-to-coast scenarios, driverless

trucks are expected to speed up deliveries,

reduce fuel expenses and pollution, improve

safety, and address driver shortages.

11Thought Leadership Technology for Smart Cities

Leapfrog Technology

Incremental technology is great, but the

current logistics landscape presents a classic

opportunity for leapfrog technology15 companies

to displace the large incumbents today and

offer real opportunities for disruption—if the

execution works. Here are a few examples:

3D printing: In a world where consumers would

jump at the chance to have items teleported into

their homes (for free, of course), one answer

could be 3D printing. Why not print the items

you need from the comfort of your own house?

If this still feels like science fiction, check out

the US Postal Service report, “If It Prints, It

Ships: 3D Printing and the Postal Service.”16

Delivery drones: Amazon, UPS, Alphabet,

and others are revving up to launch their drone

delivery services. Uber Eats will trial its food

delivery drones—notable for a rotating wing

design—in San Diego later in 2020. The drones,

with a cargo capacity sufficient to carry a meal

for two, are the latest to receive the thumbs

up from the Federal Aviation Administration.

Uber is taking matters one step further and

working on an air taxi prototype, with Bell

and Hyundai also getting in on the act with

splashy announcements at CES this year.17

Safety is the number one issue. Drones will

be expected to meet the lofty standards

of commercial aircraft,18 whereby only one

critical system failure in one billion flight

hours is tolerated. As they increase in

size, drones pose a greater risk and, thus,

will need to prove reliability. Other issues

like collision avoidance and privacy laws

are going to be significant hurdles.

The Power of Partnerships

Technology is providing vital opportunities

for the public and private sector to join forces

and initiate change. It could mean distribution

companies sharing supply chain networks

or working alongside one another in retail

and industrial spaces. It could also mean

government-funded city-wide initiatives that

give us deeper knowledge about the overall

ecosystem in the form of big data, or a bold start-

up devising solutions to beat package theft.

With the right tech partner, organizations can

act swiftly to design and build a better goods

distribution system—benefitting the quality of

life for millions (if not billions) of people. It’s just a

matter of the right ideas and the right execution.

12Thought Leadership Technology for Smart Cities

Alex Finnemore Head of Revenue, Theorem

After years in academia, with a physics Ph.D. from Cambridge University, Alex has an incredible depth of technical knowledge. With a background in product management, software development, and research, Alex has led a range of projects from mobile financial tools in Africa, next-generation solar cells and materials, to disrupting logistics companies, and transforming the insurance industry. He’s driven to help Fortune 500 companies and start-ups grow by solving complex business challenges through the development of new product opportunities and business models, focusing specifically on strategy and execution.

Matthew “Chef” Kwatinetz Managing Partner, Q Partners

Between 2014 and 2020, Chef was an Executive Vice President for Asset Management for NYC’s Economic Development Corporation, where he managed 65M square feet of commercial, industrial and infrastructure assets. He also served as the director of Port NYC, inclusive of container terminals, short term rail, freight assets, and marine terminals. In that role, he oversaw the largest expansion of passenger ferry service in US history. Prior to NYC, Chef worked for Mayor Deke Copenhavor in Augusta, GA, where he founded an economic development non-profit, Augusta Regional Collaboration Corporation. He currently works for Q Partners, a boutique public/private advisory business.

Theorem routinely works with leading Fortune 500 companies and start-ups to introduce and improve agile processes that help them respond to often unpredictable feedback generated during projects.

As part of our mission to replace the

traditional consulting ecosystem with an

effective framework for innovation, we

create customized programs designed

to meet your specific needs.

Our team of experts brings decades of

hands-on experience to each project,

creating the foundation for responsible

enterprises in a wide array of industries.

hello@theorem.co

1-888-969-2983

Theorem.co

Let’s Talk

1. Orendorf, Aaron, “The Plague of E-CommerceReturn Rates”, Shopify, 7 Feb, 2019

2. Schoolov, Katie, “With Package Theft atan All-Time High, Amazon and Others AreFighting Back”, CNBC, 11 Jan. 2020

3. Gorzelany, Jim, “Do You Live In The City WithThe Worst Traffic?”, Forbes, 11 Feb. 2019

4. Haag, Matthew & Hu, Winnie, “1.5 MillionPackages a Day: The Internet Brings Chaos toN.Y. Streets”, New York Times, 28 Oct. 2019

5. Haag, Matthew & Hu, Winnie, “1.5 MillionPackages a Day: The Internet Brings Chaos toN.Y. Streets”, New York Times, 28 Oct. 2019

6. Tabary, Zoe, “Urban Humans”, Place

7. Haag, Matthew & Hu, Winnie, “1.5 MillionPackages a Day: The Internet Brings Chaos toN.Y. Streets”, New York Times, 28 Oct. 2019

8. Peters, Adele, “Can Online RetailSolve its Packaging Problem?”,Fast Company, 20 Apr. 2018

9. Bird, Jon, “What a Waste: Online Retail’s BigPackaging Problem”, Forbes, 29 Jul. 2018

10. Nair, Chandran, “Imagine Amazon Minus AllThat Plastic”, Washington Post, 12 Feb. 2018

11. “Maritime College Hosts ConferenceAbout Marine Highways”, MaritimeCollege, State University of New York

12. Horwitz, Lauren, “IoT in Supply ChainNeeds Blockchain to Fully Mature”,IoT World Today, 11 Jan. 2020

13. Tabary, Zoe, “Urban Humans”, Place

14. Legate, James, “UPS Has BeenTesting Self-Driving Tractor-Trailers”,Fox Business, 15 Aug. 2019

15. “Leapfrogging”, Wikipedia

16. “If It Prints, It Ships: 3D Printing andthe Postal Service”, United StatesPostal Service, 7 Jul. 2014

17. Goldstein, Michael, “New Crop of E-VTOLAircraft Appears at CES 2020 But QuestionsRemain”, Forbes, 15 Jan. 2020

18. Wyman, Oliver, “Why The Skies Aren’t FilledWith Delivery Drones...Yet”, Forbes, 7 Oct. 2019

Sources