City Logistics Research: A Transatlantic Perspective (2013)

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28 Open Forum on Cross-Cutting Issues Alan C. McKinnon, Kühne Logistics University, Hamburg, Germany IntroductIon Alan C. McKinnon Moderator Alan C. McKinnon of Kühne Logistics Uni- versity began the open forum by reiterating that the symposium goal was to promote collaborative research between the United States and the EU on city logis- tics. He recounted that when he was asked to join the symposium planning committee, he looked at several hundred papers on city logistics to see how many were coauthored by a researcher from the United States and a researcher from the EU. He said few such coauthored papers existed, which presented an opportunity to begin such collaboration now. He posed the question, “How can we catalyze better research interaction?” He also mentioned another topic based on the pre- sentations heard thus far in the symposium: “Where do you draw the boundary around city logistics?” He noted that as yet there is no clear definition on city logistics, particularly on the interface of the movement of freight and the movement of people. In addition, online retail- ing is replacing cars with vans on the last mile, making freight movements that were previously latent in passen- ger vehicles more statistically visible. A second interface is that of intraurban and interurban freight, and a third interface is the disciplinary interface between engineers, economists, and planners. McKin- non mentioned that some disciplines are not well rep- resented in urban logistics, the discipline of behavioral science in particular. Behavioral science would provide insights into better understanding the decision-making process. He suggested that enlarging the number of dis- ciplines involved in the field, to gain insights from these perspectives, may be of benefit. A final theme that struck McKinnon from the first day of the symposium was the issue of data sharing raised by Caitlin Rayman of the Federal Highway Administration (FHWA), namely, the extent to which companies would be willing to share their data with researchers. Related to that question, he asked how much interest companies take in the fruits of academic research. For example, the academic community has generated many vehicle rout- ing research papers, McKinnon noted, but is there much uptake? Is the lack of uptake due to academics not com- municating about the papers, or companies not taking an interest? open ForuM dIscussIon Chris Kozak of Wal-Mart said that some areas of data and proprietary items are certainly sensitive, but he gave an example of how Wal-Mart has shared data with MIT, which has resulted in significant benefits. Wal-Mart calls this the “MIT model”; it was developed in partnership with MIT to determine the best workload for Wal-Mart’s trucks. Wal-Mart had worked on the problem internally, but then it partnered with MIT to develop this model for workload allocation. The model is being used today to manage Wal-Mart’s $2 billion spending on transporta- tion. There are definitely opportunities like this, Kozak said, for mutual benefit. He stated his interest in Wal- Mart’s further participation in such research projects, as shown by his attendance at this symposium. He added that Wal-Mart will likely not be a leading-edge company

29open forum on cross-cutting issues but will be testing and learning and would be open to being a participant in further research. Genevieve Giuliano commented that the Schemes and Technologies for Enhancing Urban Distribution session fascinated her because Part 1 and Part 2 were so differ- ent. Part 1 was about an external agency trying to invoke change, and Part 2 was about internal change. Giuliano noted that when innovations are discovered, they are not widely implemented by industry. She saw four rea- sons for this. First was a lack of information: a company may not know that there is a better way to route trucks. Second, some innovations require cooperation: if X, Y, and Z worked together, the solution would work, but X, Y, and Z do not cooperate. Third, cost advantages may not be internalized. Fourth, perhaps there is a lack of competitive pressure for companies to take action. Giuliano suggested that one of these four reasons—or perhaps one not yet articulated—could help research- ers understand why strategies such as consolidation or alternative fuel strategies have not been more widely adopted. For example, an additional reason may be that costs and benefits have not been properly enumerated. Understanding adoption is part of the needed research: to determine, in a systematic way, which strategies meet the test of adoption. McKinnon echoed the need to understand why there has not been more uptake of innovations if they offer a genuine benefit. In situations such as those that Cathy Macharis described, in which academics worked with companies and demonstrated real benefits, why were the innovations not more widely adopted? He asked Macha- ris if she had thoughts on this. Cathy Macharis, drawing on her example of green vehicle adoption, explained that lack of uptake could be attrib- utable to a combination of reasons. One reason may be that green vehicles are simply more costly right now than traditional vehicles. Another reason could be a lack of competitive pressure, but she saw that situation chang- ing given goals such as CO2-free cities by 2030, which will challenge companies to find solutions. Those solu- tions will bring them a competitive advantage, because if they do not find solutions, they may find themselves out of business. She urged researchers to show the impact of innovations, both to the environment and to profit- ability, to provide decision makers information to make good choices. In examples like the TNT mobile depot, five main stakeholders were involved, but implementa- tion took even more actors. For example, because the location was in a historic place, the Institute of Historical Places had to grant permission. In addition, the Com- mune of Brussels had to grant permission for parking. The police department was yet another actor. All of these actors have to move in the right direction. Collaboration is needed to make innovation work. Rosário Macário saw several problems in city logistics. The most important problem was the significant differ- ences between the actors. On the one hand is the private sector, which is very sophisticated and well developed, already using leading-edge technologies. On the other hand is the public sector, which should be taking on the role of a facilitator but is unprepared to do so. This leads to a huge imbalance between the actors and results in communication problems. The two sides do not under- stand each other. Academics are in the middle, but due to their obligations, they tend to dedicate their resources to research. They do innovative and brilliant things, but ultimately those things enlarge the communication gap that already exists. Macário suggested that academics reconsider their role in innovation. When they work in the field, they understand the situation and see the lack of trust between actors, which is the factor that makes it so difficult to bring the actors together. She suggested bring- ing academia, industry, and the public sector together, and urged academics to reflect on whether they should reorient part of their resources to bridge this gap in order to produce more innovative, but more balanced, commu- nication between the actors. She saw this reorientation affecting research and interventions, and that academics should research not only technology and physical objects but also institutional processes and communication. Carlo Vaghi, who is from Europe, thanked participants for the U.S. perspectives they offered. From Giuliano and Laetitia Dablanc’s presentation (Approaches to Manag- ing Freight in Metropolitan Areas), he saw the compari- sons of city logistics measures applicable to the EU and the United States. He noticed that the measures applica- ble to Europe and the United States were the technology- driven ones, such as truck efficiency, cleaner vehicles, and more Internet and communications technology. Could that mean we are surrendering to the congestion factor of urban distribution? Another interesting point Vaghi saw was that consolidation centers were described as a stand-alone measure, but in the EU almost all con- solidation centers seem based on a regulatory scheme. In Europe, implementing consolidation centers is a com- plicated and articulated measure requiring many stake- holders. In contrast, consolidation centers in the United States are considered to be only a measure taken by pri- vate industry. The EU has public–private centers that are run with the hope of reaching a break-even point so that they require no more subsidy. If a city issues a tender to select an operator to run a consolidation center, then the center becomes a partially public center.

30 city logistics research: a transatlantic perspective Vaghi also asked whether it was valid to assume that consolidation centers can be viable without strong regulatory schemes and incentives. He asked what participants thought of the assumption taken by third- party logistics providers that dropping goods off at a consolidation center shifts the least profitable deliver- ies to the public, making the public shoulder the cost, which would not be true if consolidation centers oper- ated without subsidies. Birgit Hendriks responded to Vaghi’s questions by say- ing she would present a case about the Binnenstadservice on the second day of the symposium that addresses these points. She added that, having worked in several fields in addition to logistics, she saw logistics research as being less market driven; that is, less funded by companies. In medical research, 95% of the proposals were market driven and funded by the market. She stated that logistics research should be more market driven: if companies are paying for the research, they are interested in it. José Holguín-Veras challenged the assumption that the private sector is inefficient. He thinks it is efficient, but from a private-sector point of view, not from a social point of view. From a social point of view, the private sector generates externalities. So the issue is how to help move the private sector toward overall efficiency with- out hampering economic activity. Sometimes an inter- vention can have a counterproductive effect and actually create a market failure. In order to move the market toward better social performance, Holguín-Veras continued, researchers need knowledge about the behaviors of the agents, par- ticularly about their interactions. The question is how to help the chain of decision makers move toward the appropriate decision. Researchers need to understand the economic interaction between these agents, and they need to understand behavior. Once researchers under- stand behavior, the question is what policy levers should be pulled. That is the essence of a research program: understand the interactions, the behaviors, and what to do from a public policy point of view. If an idea is good for society but is not in the basic interest of the com- pany, the company will not implement the idea. That is the fundamental dilemma researchers need to address, Holguín-Veras said. McKinnon suggested that Michael Browne comment on the question, because he chairs the Central Lon- don Freight Quality Partnership, which brings together various stakeholders. He asked Browne whether it was easy to introduce new initiatives in central London and whether there was an understanding of stakeholder behavior and how it could be influenced. Michael Browne said that people like to have a simple solution. The Central London Freight Quality Partnership started off with a problem that had been causing a lot of tension between the private sector and the local authorities in the center of London: the pen- alty charges for parking. Delivery drivers were park- ing in the wrong place in order make deliveries, and they were being fined for doing so. But they needed to do their jobs, so they continued parking in these places and paying fines. The problem was so exten- sive that London had a so-called “Millionaires’ Club” of businesses who were paying more than £1 million in fines per year. It was a significant problem and led to animosity between the public and private sectors. However, by working together in public–private part- nerships like the Central London Freight Quality Part- nership, in which some neutrality is involved, solutions can be found. Indeed, over the last 4 years of the part- nership, many solutions have been found, and the fines have been significantly reduced. Today, the discussion is much more positive about what they could work on together. Browne returned to his initial point, how- ever, that everyone would like a nice, simple solution, but in reality there is no single simple solution. What is needed instead is a blend of complicated solutions. Per- haps the role of academics could be to better package and explain the solutions, detailing their advantages and disadvantages. Ian Wainwright said that trying to explain logistics to people in public policy often results in blank stares. One of the issues is to make sure everyone speaks the same language, as Macário mentioned, and understands the efficiencies and what is driving behaviors, as Holguín- Veras said. Customers drive logistics behavior based on what they will pay for the goods in the shop or for the contract (e.g., for a construction site). The customer drives behavior through the supply chain, but everyone is making their own individual decisions on an economic basis throughout the supply chain. Moreover, urban freight involves more than retailers. Consider Regent Street in London, Wainwright said. It is one of the three premier shopping streets in London, but only 29% of the deliveries on that street are for the retailers: the rest is for offices, restaurants, and so forth. So, city logistics is not just about retailers, but also about all the other functions that happen in cities. McKinnon noted certain biases in city logistics, such as a bias toward retailing. Of all the economic activities in the urban sector, the retail sector has been most heavy researched. Within retailers, do we include cafés and res- taurants? Jean-Louis Routhier made the point that most of the freight trips in Paris were related to these quasi- retail activities. But what about the other economic activities in urban areas that generate freight? They have probably been underresearched over the years.

31open forum on cross-cutting issues Ken Button noted that the symposium’s private-sector presentations had an international perspective, not just the United States or EU. This is a product of globaliza- tion, he said, and information in the private sector travels faster than it does in the public sector. Speed is a neces- sity; businesses that are behind the curve in the private sector are out. The private sector has to move quickly. The public sector, in contrast, is mandated to talk with everyone, which slows it down. Button disagreed with Browne’s point on the need for complexity. He cited the tremendous benefits the United States achieved with legislation like the Motor Carriers Act. This act freed the market and resulted in huge economic benefit as well as huge environmental benefit. In the 1970s, before the act, the same propor- tion of freight was carried by rail in the United States as in Europe: about 4% to 5%. In Europe, it remains at 4% to 5%, with the rest of freight moving by road and some by coastal shipping. In the United States, in con- trast, 45% of the freight goes by rail. This increased use of rail has brought tremendous economic and environ- mental benefit, and it was done not with complicated models, but with a simple institutional change. Finally, given the symposium goal of more interaction among academics and the professions and government, Button suggested reexamining earlier initiatives and learning from them. McKinnon mentioned a paradigm shift, and posed the question of whether 5, 10, or 15 years from now there would be a transformational shift in city logistics. Per- haps three-dimensional printers or other transformation technology would change the way products are moved or not moved in urban areas. Another point, based on Macário’s comments, was whether academic research in city logistics leads or lags behind the trends and develop- ments. McKinnon’s suspicion was that it lags. Perhaps academics have not been as creative as they might have been. Perhaps they have remained in a more supportive role, looking at the implementation and evaluation of new developments rather than taking the lead. Alessandro Damiani lauded the contribution of the practitioners in the symposium, saying that they brought substantial value to the discussion. He noted that there was an assumption that practitioners neither pursue nor use research. However, what else has UPS been doing the last 15 years but collecting and analyzing data for the best way to optimize its operations? Shouldn’t that be called research? He believed that a lot of in-house research was being done. He posed the question of what academia could do—either in terms of content selection when setting research priorities or in terms of consortia formation—that would encourage greater relevance and bring about more collaboration. McKinnon asked whether companies could handle research for themselves, and if so, whether the role of academic research should be more at the macro level than the micro level. Edgar Blanco mentioned the importance of defining “city scale” when talking about logistics. A city over 60,000 inhabitants is called a city, but it does not really have the logistics problems that New York City or Tokyo, with their huge populations, do. The scale of the city matters in terms of the strategies, approaches, and data relevant to it. Another issue is the market, that is, the demand for research. Cities in emerging markets face huge pressure to do something about logistics. In Europe, the market demand is for historic preservation and the environment, so the market is there and has shaped the kind of research going on in Europe. In the United States, there has been little on the policy side. So the question is, where can city logistics research have the most contribution? In the developing world and in big cities with lots of regula- tions, companies like Wal-Mart are interested in what is going on. They know how to do business in the United States, but they are interested in Bangkok and India and China, and they know much less about what to do in those countries. Finally, teaching and education are an important component. Blanco is teaching a logistics class to urban planners. They had never heard of logistics. So the education component is another point to discuss, he suggested. McKinnon thanked Blanco for bringing in the global perspective and emerging markets. As emerging markets think of green freight, they are looking to the developed world to give them ideas as to how they could reform city logistics. So research has a role to play there, as well. Hervé Levifve commended Routhier for his contribu- tions to policy for the city of Paris. Without Routhier’s data, new policies would not have been adopted in Paris. Maria Boile summarized what she heard today: private companies optimizing their businesses, but only focusing on their operations. Holguín-Veras mentioned making companies aware of social benefit and how compa- nies could do better in supporting social benefit. Huge amounts of data are needed to build a complex picture, and very complex models are used. Boile believes that from an academic point of view complexity is needed, because researchers need to see how systems interact. Even if the models do not make the very accurate predic- tions that would be ideal, those models are still needed. Perhaps the solution—to help communicate the com- plexity—is to have an index that would make it easier to comprehend. She mentioned the logistics performance index (LPI) that the World Bank uses to assess how well a country or region does. The LPI is composed of five to

32 city logistics research: a transatlantic perspective six elements. The elements are not simple, but they are comprehensible. One of the elements is customs, which both the private sector and the public sector can under- stand. Urban logistics needs this kind of index, some- thing like an urban LPI, with feeds from the models or from the complex data, something that would make it easier to compare regions and identify where there is room for improvement. McKinnon said the key thing to note about the LPI is that it is a perceptual index. The LPI asks for the opin- ions of freight forwarders. So it raises the question, who would be on the panel that would judge the quality of logistics in different cities? Téodor Crainic echoed the need for more education about what city logistics is to people outside the field. He preaches city logistics to operations research people and continually people ask, “What’s that?” He noted that little behavioral modeling is being done on freight and even less on city logistics. The field needs to be publish- ing more papers and more applied research to get more uptake and notice from industry. He also suggested that if there were more academics in the field, some could focus on pushing the envelope of how big a problem they could solve and how many attributes could be put in. Regarding the U.S.-EU disparity in the use of rail for freight, Crainic pointed out the continental differences. The United States has vast expanses of land and needs to move imports from China thousands of miles to cities like Chicago. The United States also ships millions of tons of coal by rail, as well as exports of grain and min- erals. He also pointed out that the United States lacks a carrot and a stick, like the EU goal of CO2-free cities by 2030. In the United States, the general public’s knowl- edge about carbon or particulate matter is limited. Edu- cation, private initiatives, and an exchange of students among academic institutions are needed. Rolf Schmitt offered some statistics about goods move- ment in the United States. First, he said that despite what is said about all the goods from China moving across the United States, the amount of material related to export and import only accounts for 10% of the total amount of goods that move in the United States. That figure may be low due to the way the measurement is done, but it is nonetheless much less than 25%. Second, he said that coal, gravel, and other bulk prod- ucts represent two-thirds of the tonnage moved in the United States, although only 20% of its value. So a lot of the transport system is involved in moving bulk, and it is not all long-distance bulk: half of the tonnage moved in the United States travels less than 100 miles. Third, within urban areas, he agreed the problem was not just retail; much of the freight is construction materials. A study done on freight needs in Baltimore, Maryland, revealed that the number two need was high-quality refrigeration, because the biggest economic activity there was Johns Hopkins Hospital. Transport requirements for hospitals are very different and have special needs. Fourth, Schmitt echoed the point that the U.S. expe- rience is different from the European one because of geographic differences. The continental United States is 3,000 miles across; consider how many cities and coun- tries in Europe you would cross in 3,000 miles. He was curious how the EU measures moves between cities now that it is one entity and no longer has customs data. The United States spends $25 million every 5 years on the Commodity Flow Survey to benchmark what moves in the United States. It then spends a few million more dollars to build on the data and provide estimates for the things the survey misses. It is a big, expensive proposition, he said, and yet it still does not get down to the neighborhood level, so it does not capture the urban scene. A big challenge in the United States is that the government provides the national picture, but states and localities must measure what is going on at the local level. McKinnon asked Schmitt what improvements he antici- pated in data collection and analysis for urban areas in the United States in the next 5 to 10 years. Schmitt replied that FHWA tracks half a million trucks via GPS to measure the speeds on the Interstate systems. It pings the trucks, gets the locations, calculates the distance, and calculates the speed. The problem with technologically based monitoring such as this, compared with traditional surveys, is that the data are on much smaller slices of the world. FHWA can tell you that a vehicle was traveling X miles an hour at spot Y, but it does not know what was in the truck. In fact, the driver may not know what was in the truck. Even the carrier may not know, if the container came from someone that was loaded by a third-party logistics firm. In short, much better data exist on much smaller slices of the world, and the challenge for the future is how to link all of these nar- row slices to get a full picture. Robert Skinner commented that research oriented to helping the public sector is not as sharply defined as research in the private sector. In the private sector, the objectives seem crystal clear: efficiency, cost cutting, and changing logistics to support a new strategy, as Wal-Mart is doing to introduce services to areas they were not serv- ing before. In contrast, what are the goals of research to solve broader societal problems? Is research simply mak- ing smaller incremental changes to reduce the number of vehicle miles traveled and thereby reduce the conse- quent CO2 emissions, or is there a broader strategy to make urban areas more livable by bringing in goods and

33open forum on cross-cutting issues services more efficiently? It would be helpful, in these broader strategies, to define the objective of the research more sharply. McKinnon commented that in the EU there is an objective to “achieve essentially CO2-free city logistics by 2030,” which has been declared as an EU Commis- sion policy objective. Perhaps the United States does not create targets such as this. Stane Božicnik noted that one of the main contributors to congestion in city logistics is the length of time the delivery vehicle needs to stop when it is delivering goods. He suggested including technical development in the research to focus on speeding up all the elements neces- sary for the delivery process in city centers. That could be an aim for practical research. Second, he suggested using BESTFACT as a model to develop a database of Euro- pean and U.S. best practices. It would be useful, and the implementation lag would be short, so it could be very efficient. Third, he suggested that city logistics include the transport of passengers, not just freight, in its analy- sis. Enlarging the scope to include both freight and pas- sengers would result in more optimal solutions. Finally, Božicnik voiced support for two items mentioned earlier, those of education and of integration of urban planning into city logistics theory and practice. Michel Savy commented on the need for public–private sector cooperation. Both parties need each other, he said. Access to a public space depends on traffic management and parking management. The private sector also needs support from the public sector so that real estate prices do not expel logistics farther and farther from the city. Academics could be useful in the interactions between the public and private sector, acting as translators and intermediaries to facilitate the dialogue, particularly between such entities that have very different horizons and views but must learn to work together. Heike Fläemig called for identifying the system bound- aries of city logistics and clarifying what the targets of improvement are. She noted that lower transport costs may actually increase traffic and result in more exter- nalities that then cannot be put back on the companies. Researchers should help solve this gap. Second, she said that just as private companies have different strategies for delivering different types of goods, cities need dif- ferent strategies for solving different urban problems. Given all the different functions that take place in the city, a single solution does not work for everyone. The task for researchers is to create structure and clarity so that politicians can understand when researchers come up with a solution to a specific problem. McKinnon ended the session with the issue of semantics: in the discussions today, urban freight has been equated with city logistics, but transport is merely one part of city logistics. City logistics also involves materials handling, storage, and limited space for parking near shops. As Fläemig said, optimizing city logistics does not necessar- ily reduce freight transport or result in fewer externalities. It is a boundary issue: Is it logistics or urban freight? Mc- Kinnon felt that public authorities think of it as freight, but companies think of it as logistics. There is a mismatch of views, so defining the respective terms is important.