City Logistics Research: A Transatlantic Perspective (2013)

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44 Logistics Efficiency in Urban Areas Part 1 Alan C. McKinnon, Kühne Logistics University, Hamburg, Germany Téodor Gabriel Crainic, Université du Québec à Montréal, Québec, Canada José Holguín-Veras, Center for Infrastructure, Transportation, and the Environment, Rensselaer Polytechnic Institute, Troy, New York, USA IntroductIon Alan C. McKinnon Alan McKinnon began the session by saying that many would say that there is a lot of inefficiency in city logis- tics, but companies do not like to divulge that their vehi- cles are underutilized, even though that underutilization may not be their fault. He reiterated the theme of bound- aries, saying that if we want to measure efficiency, we have to define the boundary. The boundary could be the trip, the collection–drop point, the delivery network, the logistics system, the supply chain, the urban economy, the national market, or the world as a whole. Drawing the boundary will be critical. If the boundary is just the drop-off point, then efficiency rests with truck driver behavior. But if logistics is the boundary, then efficiency measurement must consider storage space utilization, management of inventory, materials handling, land use, and so forth. A supply chain boundary, in turn, means adding a multiple-company perspective. What metrics, then, should we use? McKinnon named several ratios. The numerator might include terms such as costs (of transportation, logistics, supply chain), time utilization, or ecoefficiency (energy and emissions). The denomi- nator might include terms such as number of delivered cases, consignments, vehicle kilometers, tonne-kilome- ters, or case kilometers. What are the key performance indicators? The bigger the boundary, the more trade-offs and conflicts among actors. There are many stakehold- ers, and efficiency must take into account both the public and private perspectives. McKinnon set forth the four issues that would be dis- cussed in this session: • Measuring efficiency and inefficiency, • What can be done to enhance efficiency, • The barriers and constraints to improving efficiency, and • The role of the public sector in giving companies incentives or using policy interventions to improve efficiency. MeAsurIng eFFIcIency And IneFFIcIency In urbAn FreIght trAnsport Téodor Gabriel Crainic Teodor Crainic opened by noting how essential trans- portation and logistics are to cities. Without transpor- tation, society as we know it would not exist; without logistics, the modern economy would not exist. In short, transportation and logistics are essential to most eco- nomic and social activities. Cities cannot survive without freight transportation. People would die of hunger or die in their own garbage. Urban freight transport is a neces- sity, even though it has negative effects on the quality of life and future generations as a result of emissions, noise, and energy consumption. Crainic further observed that people want the benefits of transport, but they do not want to tolerate the activities and inconveniences associated with it. Freight does not vote, but passengers do. Freight is a private-sector activity.

45logistics efficiency in urban areas: Part 1 Government does not worry about freight because freight movement is primarily handled by the private sector. The result is that government takes a rule-heavy approach to mitigate the impact of freight transport on citizens. Crainic discussed zoning access regulations. These regula- tions forbid heavy trucks from entering a city and regulate parking. The closer to the city center, the more restrictive the rules are against the size of vehicle that can enter, and the less parking is permitted. These zoning access regula- tions are necessary, but they are not sufficient, and some- times they are detrimental. Crainic continued by saying that urban freight is part of the larger global logistics picture, and it involves more than the last mile. The literature on urban freight focuses on inbound traffic and largely tends to ignore the other significant flows that take place in a city, namely out- bound traffic by producers, through traffic en route on major corridors, and traffic flows within the city that result from the city’s being a major activity center. Measuring Efficiency Freight is both efficient and inefficient at the same time. Freight is efficient in that it flows around the globe, sup- plying people, industry, and institutions. UPS and Wal- Mart say they are efficient: they deliver on time, at low cost. They make a profit while keeping prices low. How- ever, the system as a whole is inefficient from a systems perspective and cost to society. Resource utilization is low. For example, the average load factor of trucks in cities is 25%. There are other inefficiencies, too, such as duplication of warehouses, which results in underuti- lization of warehouse space. This inefficiency makes the system unsustainable in the long term, possibly even in the medium term. In terms of measuring efficiency, there are many measures, but the measures depend on what is being measured and who is doing the measuring. Companies measure costs, profits, and reliability of on-time deliv- ery and pickup services, but there are other measures of efficiency, such as congestion, emissions, overall pollu- tion, and noise levels. Carriers use measures such as time lost in traffic and the cost of this time. City governments have yet other measures, such as safety (e.g., fatalities and injuries). All these measures must be integrated into city (and state and national) planning committees and advisory commissions as well as into data collection and planning activities. How much is freight integrated into the DNA of city planning? Not much, Crainic said, jok- ing that it was “0.something.” Crainic referred back to the idea of a global city logistics performance index, which Jean-Paul Rodrigue suggested would be based on perceptions. But, Crainic asked, perceptions by whom? The corporate world sees that cities are not organized for their businesses to be as profitable as they could be, and this sector has little inter- est in the needs of passengers and bicycles. City planners have different perceptions. Citizens, especially pressure groups, have their own perceptions, as well. Efficiency is in the eye of the stakeholder, Crainic said. It depends on who is being measured, what is being measured, and what the goals are. The range of stake- holders includes producers and shippers; logistics-service providers and warehousing facilities; carriers, intermo- dal facilities, and distribution centers’ consignees (indus- try, retail, institutions, people); authorities (city and borough, state or province, and so forth); and people (as consumers, as citizens, and as special interest groups). People can be both consumers and citizens, but their behavior varies according to their roles. For example, people as consumers want to have goods close to them, at a good price, arriving on time. But people as citizens do not want the trucks that deliver the goods and cause congestion or noise. Citizens start pressure groups and become “NIMBYs” who say, “not in my back yard.” Challenges to Efficiency Crainic then discussed challenges. The main challenge is reconciling the efficiency requirements of the various stakeholders. Business models that foster efficiency for individual stakeholders and for the city system as a whole are needed. To create these new business models, Crainic recommended going beyond “urban freight transport” to “city logistics.” This change involves moving beyond a logistics system (shippers, shipments, carriers, service providers, vehicles, and consignees) to include a “public system” view operated as best fits the local culture, laws, and regulations. Another challenge is how to make the city a better place to live, work, visit, move within, and move through without penalizing its economic activities. We have to foster an efficient transportation system and make trans- portation become a mainstream part of urban design and planning. Crainic’s list of challenges included education, leader- ship, governance, legal and financial incentives, collabo- ration, innovation, data, evaluation and optimization and, finally, integration. He called for more research both within the discipline and in collaboration with other disciplines. The Physical Internet Crainic offered a quick illustration based on the physical internet metaphor. The digital internet has moved from numerous unconnected computers to an internet and

46 city logistics research: a transatlantic perspective worldwide web that consist of independent networks interconnected in a transparent way for the user. The digital internet involves transmission of standard format- ted information flows (data packets) in seamless transit through heterogeneous equipment, respecting standard protocols (TCP/IP). In the same way, the physical inter- net consists of independent networks interconnected in a transparent way for users. The physical internet involves transmission of standard formatted physical flows (mod- ular containers) in seamless transit through heteroge- neous intermodal facilities and transportation networks. More information on the physical internet concept can be found at http://www.physicalinternetinitiative.org/. The physical internet framework is scalable from intracity logistics to intercity, interstate, and eventually intercontinental networks. A simulation of the mobility web for the consumer industry in France (using retail- ers Carrefour and Casino, their top 100 suppliers, and road and rail integrated into a physical internet network) showed promising preliminary results based on existing infrastructures, facilities, demand patterns, and service levels. Specifically, the simulation showed an overall cost savings of up to 26% and a reduction of greenhouse gas emissions of about 60% as a result of consolidation and mutualization of facilities and flows. Modular, standard containers are a key factor in the savings and efficient flow of goods. Research Recommendations and Challenges Crainic concluded with a discussion of research chal- lenges and opportunities. The first research challenge is to create socially aware organizations and business mod- els that have solutions tailored to the culture and busi- ness. This solution involves understanding and modeling stakeholder behavior, governance, demand identifica- tion, partnerships and collaborations (supply models), and public policy. Data collection is another research opportunity, as is research to create evaluation models and tools. Cur- rently, the overall number of models and tools is lim- ited in scope and size. Most models take limited (or no) account of planning and advanced intelligent transporta- tion system (ITS) technology. Yet another research area is comprehensive urban transportation planning that integrates freight with people (private, public, alterna- tive) transportation, ITS, and land use. A research opportunity also exists in the combina- tion of system, service, and operational planning. New problems require new models, algorithms, and instru- ments. In particular, strategic planning needs a system design perspective that takes into account multilevel location routing, freight corridors, and fleet (resource) dimensioning. Tactical planning needs service network design encompassing schedules, time issues, and routing. Finally, operational planning, control, and management should allow adjustment of plans to accommodate vari- ations in demand and modify vehicle routing. Overall, Crainic said, the whole system needs to be able to deal with uncertainty and be resilient to shocks and changes. Finally, research into the physical internet and inter- connected logistics is needed because little has been done from an operations research perspective, and practically nothing has been done from a transportation point of view. The physical internet offers a perspective for bet- ter, more efficient, and more profitable transportation and logistics systems that will lead to better cities. The containers and automatic transfer equipment required for efficient operations are coming, Crainic believes, and the physical internet and smart city logistics offer great opportunities for synergistic research and development. opportunItIes For IMprovIng eFFIcIency José Holguín-Veras José Holguín-Veras began by defining the “freight sys- tem” as the conglomerate of all the economic entities involved in the generation, transportation, consumption, and transformation of cargo. Five key agents play a role in the freight system: 1. Producers, who manufacture or produce the goods; 2. Shippers, who send the goods; 3. Receivers, who use the goods transported; 4. Carriers, who transport the goods; and 5. Ancillary entities such as warehouses and distribu- tion centers. The first three agents listed are key to behavioral change, Holguín-Veras said. The freight system currently has low efficiency as a result of competitive market forces. For example, carri- ers are very efficient from a private point of view, but not necessarily efficient from a social point of view. The solu- tion, Holguín-Veras suggested, is to modify the markets through policy interventions. Surveys show that about 25% of the truck trips are empty and that average load factors in urban areas are 20% to 30%. Increasing this efficiency would translate into more livable cities and a more productive economy. Holguín-Veras next offered a case from the New York City metro area, in particular Manhattan, which has about 200,000 daily shipments that are delivered or shipped out. Many of these deliveries go to large establishments like the Empire State Building, which has 1,000 offices. Grand Central Terminal has 100 stores served by 300 to 400 trucks daily. What can be done

47logistics efficiency in urban areas: Part 1 to improve efficiency? Holguín-Veras listed eight inter- ventions, which can be grouped into four areas: supply interventions, operations, demand, and policy interven- tions. Specifically, infrastructure-related interventions focus on supply. The next five interventions are traf- fic management, logistics management, vehicle-related interventions and pricing, and taxation, all of which are operations focused. Sixth and seventh are demand management and land use management (and pricing and taxation again), which are demand focused. Finally, proper governance is important because it enables policy intervention. Traffic Management Interventions Holguín-Veras zeroed in on traffic management inter- ventions, which he identified as a key area in which more could be done. Traffic management interventions include the following: • Access time restrictions; • Vehicle size restrictions; • Truck and traffic route regulations (advisory, statu- tory, and freight routes); • Lane management (multiuse lanes and exclusive truck lanes); • Traffic signals and signs; and • General infrastructure investments. When using one of the first three interventions, it is important to consider it carefully, because many have failed and some of the implementations could make things worse if poorly applied. Pricing and taxation interventions also need to be carefully applied. For example, freight road pricing is of limited effectiveness to reduce congestion, but it could produce significant revenues to finance improve- ments. It is important to ensure that vehicle license fees reflect the externalities produced by vehicles based on their age and condition. The PierPASS program worked because the fees were charged to the receivers of the cargo, who decide on delivery times. The Muni Meters scheme in New York City, which changed the location of parking spaces, also worked and showed tremendous improvement. Before Muni Meters were implemented, trucks were paying from $500 to $1,000 per month in fines. Demand and land use management interventions include the following: 1. Promoting off-hour deliveries (OHDs) using incen- tives; 2. Fostering a mode shift whenever possible; 3. Promoting staggered work hours; 4. Fostering clustering of warehouses, terminals, and distribution centers; 5. Fostering the location of terminals at the fringe of urban areas; and 6. Relocating large generators of freight to locations where they can grow and create less impact. The last of these is the area with the greatest potential and, ironically, is the least-studied group. Convincing receivers to change behavior could transform entire sup- ply chains and put them on the path of increasing sus- tainability. Off-Hours Delivery in New York City Holguín-Veras offered a detailed example of an OHD project, a demand management intervention in New York City. The background of the project was that both theory and empirical evidence agree that cordon time- of-day pricing interventions are of limited effectiveness in moving urban delivery traffic to the off-hours. The results of the 2001 Port Authority of New York and New Jersey time-of-day pricing initiative showed that 20.2% of carriers changed behavior, mostly by increas- ing productivity (not by reducing facility usage). Only 9.0% of the sample increased rates, and increases were relatively small (about 15%), which meant that most of the truckers absorbed the extra costs. Of the carriers who did not change behavior, 69.8% indicated that their lack of change was due to “customer requirements”; that is, customers did not want to receive deliveries during off hours. There was almost no change in facility use. These results show that truckers are the weakest players in that they cannot change customer demands and they cannot pass on the costs to the customers. Holguín-Veras noted that London experienced similar results for its time-of- day pricing initiative. He concluded that such pricing schemes would have to charge exorbitant fees to bring about a change in behavior. Holguín-Veras explained that there is a market failure. Markets typically find the most efficient outcome, but when they do not, public sector intervention is needed. OHDs are beneficial to society on numerous fronts. They have huge environmental benefits because they result in less pollution, and carriers as well as regular-hour trav- elers (cars, buses, and trucks) all benefit by spreading deliveries to off hours. Although noise of delivery can be problematic, new research and development (such as the PIEK program in the Netherlands) have resulted in quieter vehicles and handling equipment. The main disadvantage of OHD, however, is that receivers accrue additional costs if they do not already have nighttime staff or cannot support unassisted nighttime delivery. The market failure in this case is that the savings that

48 city logistics research: a transatlantic perspective carriers gain through OHD is not large enough to com- pensate for the receivers’ costs. The solution, therefore, is either to compensate receivers for their additional costs or to develop technologies or systems that allow receiv- ers to accept OHD at lower costs. With funding from the U.S. Department of Transpor- tation (U.S. DOT), a pilot test was conducted to assess OHD performance. The project had five interlocking components. First, it required demand modeling, behav- ioral, and economic components, which included analy- ses of the most promising industry segments to target in the pilot and to analyze freight trip generation data. Sec- ond, the technology component included using Global Positioning System data to assess performance. Third, the network modeling component included a meso- scale traffic model to assess local impacts and a regional model to assess networkwide impacts. Fourth, industry and agency outreach was needed to get feedback from all involved. Finally, Holguín-Veras conducted a small pilot test, which turned out to be very cumbersome. Results from satisfaction surveys after the pilot test showed very favorable results. Vendors were happy, and participating drivers felt less stress and experi- enced fewer problems with congestion, parking, or travel speeds. The time needed to deliver goods and complete the route was reduced, and their feeling of safety improved. Indeed, average travel speeds more than doubled and service was more than three times as fast. At the end of the pilot, however, all of the receiv- ers doing staffed OHD reverted back to regular hours, while almost all of the receivers doing unassisted OHD remained in the off hours. The receivers who stayed with OHD said their main reason for staying with the program was the reliability of OHD. The economic impacts of the project revealed that implementing OHD policies in Manhattan leads to • Travel time savings to all highway users of approxi- mately 3 to 5 minutes per trip, • Travel time savings to carriers that switch to off- hours of about 48 minutes per delivery tour, and • Potential savings in service times (per tour) in a range of 1 to 3 hours. Depending on the extent of the policies, economic sav- ings are between $100 and $200 million per year in travel time savings and pollution reduction. In short, the pilot was a big success and was reported widely in the press. Time magazine listed the OHD proj- ect as a “Top 10 Ideas” project on March 25, 2013, and New York City adopted OHD as part of its sustain- ability strategy. Furthermore, in June 2012, the Federal Highway Administration and the U.S. Environmental Protection Agency (EPA) issued $450,000 in grants for small- to medium-sized cities to implement off-hours goods movement and delivery programs based on the New York City pilot. Numerous cities such as Boston, Massachusetts; Washington, D.C.; and Atlanta, Geor- gia, are considering OHD programs. Ongoing work after the pilot includes funding pro- vided by the U.S. DOT and its Research and Innovative Technology Administration for a larger implementa- tion project that focuses on enabling unassisted deliver- ies, namely technologies and systems that enable OHD without the need for staff at the receiving business and that address the liability concerns of receivers. The funding also targets large traffic generators: those large buildings that generate hundreds of truck trips a day. There are about 56 such buildings in New York City, and they generate 4% of truck traffic in the city. Add- ing in large establishments increases that number to 8% of truck traffic. These large establishments could imple- ment OHD very cost effectively without inconvenienc- ing receivers. One technique to enable unassisted OHD is that of “virtual cages” in which electronic sensors identify the delivery driver, record the times of access, and limit access to those areas where the driver needs to be. The chief conclusions of the project were that remov- ing the constraints imposed by receivers (either by pro- viding financial incentives or by using unassisted OHDs) works because it is more effective than freight road pric- ing and because it benefits all parties: regular-hour trav- elers, the environment, the business community, and the participants in OHD. Noise impacts can be mitigated by electric trucks and low-noise truck technologies and practices. OHD also has political appeal because it is implementable as a voluntary program. Recommendations for Research Holguín-Veras ended his session by listing areas of research needed. These research areas, which mirrored the eight intervention areas mentioned earlier in his pre- sentation, are as follows: 1. Infrastructure related, 2. Traffic management, 3. Logistics management, 4. Vehicle related, 5. Pricing and taxation, 6. Demand management, 7. Land use management, and 8. Governance. Infrastructure-related research could include freight demand modeling, behavior, economics, and game the- ory. Research Areas 2 through 5 above could include traffic models, consideration of tour behavior, eco-

49logistics efficiency in urban areas: Part 1 nomics, and policy. Research Areas 5 through 7 could include freight demand modeling, behavior, consider- ation of tour behavior, economics, and policy. Finally, governance-related research could include studying governance structures and multistakeholder decision making. QuestIons And AnsWers Cathy Macharis liked the different perspectives of stake- holders, which is exactly like the multiactor, multicrite- ria analysis (MAMCA) method. The global city logistics performance index could include the point of view of different stakeholders in assessing city efficiency. Crainic agreed the MAMCA tool would be a great tool to use. As an operations research person, he would add people to the equation and play with the number of stakeholders and their objectives to build in flows and feed the model. Birgit Hendriks said she was a big fan of Holguín-Veras’s OHD solution and asked who “sold” the solution to the establishments. Holguín-Veras replied that effecting changes in behav- ior is difficult, and there is much inertia. New York City was fortunate to have a commissioner who has been sup- portive. In his own opinion, Holguín-Veras said, incen- tives are needed. New York City has existing incentives to encourage economic development, as well as to reduce energy use. About $200 million in incentives is avail- able, so nighttime deliveries or other sustainable activi- ties could be part of these efforts. Similarly, the EPA has the SmartWay program to incentivize replacing truck engines with more efficient, less polluting ones. Night- time deliveries would solve a host of problems, reducing traffic during daytime hours and all the externalities that come from them. Environmental benefits would accrue to the whole network, not just Manhattan. Edoardo Marcucci said he liked Holguín-Veras’s approach and the need to understand behavior. He asked which analytical tools and methodologies Holguín-Veras used in the study to understand behavior. Holguín-Veras replied that he conducted a lot of basic research and modeled interactions of carriers and receiv- ers and the economic conditions to allow OHD to work. He conducted in-depth interviews and focus groups and used game theory to gauge which industry segments would be most inclined to participate. Incentives help effect behavior change. Participating companies gained public relations goodwill. He is now consulting with hotel properties in Manhattan and said that companies need to be rewarded for their good behavior. Companies who have a trusted vendor were the most likely to par- ticipate in OHD, he said. Ken Button followed up on the comment about behavior change, asking why the private sector did not participate more in these seemingly win-win solutions. Holguín-Veras replied that it took some years for him to understand this issue. Markets want the most efficient outcome. Analysis of OHD shows that it is more efficient than daytime delivery. So why don’t companies do more OHD? Holguín-Veras concluded that it has to do with the market fee that receivers have to pay. In OHD, they need staff in the off hours to receive the delivery. Because receivers are in a position to dictate when deliveries will come, they do not choose OHD because they do not want the added expense of nighttime labor. Carriers save money through OHD, but these savings are too low to compensate for the cost increases to receivers. OHD benefits society, so there would be an overall benefit if receivers did not have to pay the increased costs.