Bob Trebilcock: Welcome to The Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eshkenazi, CEO of the Association for Supply Chain Management, and Bob Trebilcock, Editorial Director of Supply Chain Management Review. Remember that Abe and Bob welcome your comments. Now to today's episode.
Bob: Hello and welcome to today's episode of The Rebound. It's time to pay attention to urban logistics. I'm Bob Trebilcock.
Abe Eshkenazi: I'm Abe Eshkenazi.
Bob: Joining us today is Catarina Carvalho. Catarina is the Americas East Cities Logistics and Ops Leader for Arup, a global collective of designers and engineering and sustainability consultants. Catarina, welcome.
Catarina Carvalho: Hi, Bob. Hi, Abe.
Bob: We're glad to have you. Excited to talk about this, Catarina. I live in a neighborhood just outside of Chicago. If I'm up on the roof deck at the end of the day, I can see a miles-long stream of bumper-to-bumper traffic crawling out of the city as people try to get home. Meanwhile, the side streets like the one I live on are clogged with a countless number of Amazon, UPS, USPS, and FedEx delivery trucks. I'm sure I'm leaving out a couple of other names in there.
Now it would be easy for a listener to say, "Hey, Bob, that's what you get for living in a big city. Traffic comes with the territory." There are implications for supply chain managers. Just on the George Washington Bridge, traffic delays are estimated to add up to $38 million a year in logistic costs. Other fun facts from the Wall Street Journal, nationwide in 2018, congestion costs the trucking industry $74.5 billion and leads to about 1.2 billion hours of delay annually. I'm still trying to get my head around those.
Add the dramatic increase in parcel deliveries associated with e-commerce. It's no surprise that cities, especially in Europe, are limiting when trucks can come into the city, what types of vehicles can be used for delivery. Those limits could be coming to your neighborhood soon. It really is time to pay attention to urban logistics. Catarina, first question. I've never heard of Arup before you and I had a get-to-know-you call, but your firm has some really impressive projects. Give us the three-sentence description of what you do and also your role there.
Catarina: Our primary goal is to develop truly sustainable building environments. We are a team of 18,000 designers, advisors, experts in the technical field, and we work across 140 countries in all aspects of the building environment, as you can think about bridges, buildings, tunnels, airports, rail stations, power plants. A lot of the things that you will need in your everyday life to live within a city. We are dedicated to shape a better world. That's our motto is Arup shapes a better world.
This means that in all the work we do, we aim to identify the balance between the needs of a growing world population and the finite capacity of our planet. As a leader for city planning and design in East Americas, I personally am responsible for bridging sustainable and resilient places for all people within supply chain and logistics. I help clients respond and adapt positively to the urban space, and this has been what I have been doing for the last years, and that I'm really excited to be here today to tell you more about it.
Abe: Catarina, let me follow up on your point here about people in the megacities that you're just describing here and the population movement historically, or, recently we've seen the emergence of larger cities, people moving into the cities. Even if we've seen some slowdown during the pandemic, it still is a significant trend. Give us the big picture. Is it just about jobs? Are there other trends that you're seeing that's creating the need or the movement into the cities?
Catarina: That's right. Megacities are on the rise. By megacities, the definition is cities with over 10 million people living within that urban space. We have currently 33 megacities in the world, and we are expected to add almost half more, 40 more by 2050. That puts a lot of pressure and constraints in this space. I should say that right now, part of the rankings we have only New York and LA as a megacity, but Chicago is about to join by 2050.
Outside megacities, it's important to notice as well that other cities in the U.S. will continue to grow and currently, we will have something around 80% of all population living in the urban space and that is going to increase by about 90% by 2050. That's a lot of pressure on this highly constrained environment. This raises challenges in terms of traffic, congestion, Bob was just sharing some of the things he's seeing in Chicago, but also about the expansion of lands.
Currently, the urban land consumption estimated that will be needed in the future outpaces population growth by as much as half, which means that for supply chain, that adds a lot of challenges in terms of increased demand for deliveries. We are very familiar with that challenge. Competitive use of land for transportation. In dense urban spaces, you will see competition for parking spaces, bike lanes, pedestrian spaces. Even retail, they now have a lot of outdoor seating. Of course, a lot of congestion, pollution, and the community impact in how we live in the urban space and experience living in cities.
Some examples in New York will definitely relate to the package increase. We are expected to be at this point by the last estimates, almost above 2.5 million package deliveries a day. That's a really big number. I just heard today from a government official that actually of these daily packages, 90,000 are actually lost on a daily basis. That's a lot of strain and constraint within the urban space. We also talked about congestion. Bob just opened the session mentioning how George Washington Bridge is America's worst bottleneck with an average speed as much as 20 miles per hour at peak times. This is one of the most significant accesses to the city in terms of freight.
Then of course, talking about transportation is realizing that in a city like New York, for example, above 90% of all freight comes via road. There are no more roads expected to be built in the next couple of decades. What do we do? There's no more space for it. That poses really interesting questions in terms of how can we leverage rail? How can we leverage waterways? What else can we do to have a higher control and manage all of these urban logistics? At the same time, continue to improve the experience of all these people that are moving into the cities and then expect to have higher living standards as they do have today.
Bob: Catarina, you just talked about two different things, the infrastructure side and the transportation side. Let's explore those a little bit. I'll start and ask you about the infrastructure side. We know from a commercial standpoint or an industrial standpoint, companies want to get closer to the customer. They're now eyeing urban areas for manufacturing and distribution nodes. I'm sure there's also an impact on commercial buildings. How are organizations and cities thinking differently about the buildings they're either building or retrofitting?
Catarina: That's right. The effects of the pandemic, the new city regulations, particularly in relation to climate, every company also have commitments in terms of sustainability goals, the changing expectations on the urban environment experiences, office experience changed itself as well. All of these forces are coming together to drive transformation in the building stock, particularly in cities. To give you an idea, for example, right now, according to the Urban Green Council, we have in New York City, more than 50,000 buildings being retrofitted just to better align with the sustainability goals and new regulations. That's a lot of construction and retrofit to happen in such a very dense urban environment.
As we look into what's going on in the urban space as we see it today, there are a couple of challenges that we have seen that are coming together in the way we live and design cities. Number one is increased awareness of supply chain impacts. It's really interesting because companies that have large footprints in cities, but that don't have supply chain as their core businesses, historically have not given much thought to it. Have not invested in understanding their impact and thinking how do they run their operations if it's not their core business?
That is really changing now and everyone is taking very seriously how they are impacting communities, how they are impacting cities, and how to transition to decarbonizing their operations. That's one of the things that we are seeing that we have never seen before. This is one of the reasons why Arup actually came to have as a service, my own team, right? We now offer logistics to the urban space because people care about it, even if they're not in the core business of supply chain. The second thing we are seeing is for the first time-- well, let's say not the first time, but we have seen now, more and more, that operational considerations are coming across in how we prepare designs for buildings. In the past, it was very much something as a second thought. Right now, clients are much more engaged in discussing operational models of their future buildings. How is it going to be used?
That allows us to design spaces at Arup that enable goods to flow quicker, safer, with less handling, with reduced packaging, with less material use, and making sure that inside the building, we optimize that experience as much as we can for also who will be managing the facilities at the building level. That's the second trend that we're seeing, a lot of more focus in operations.
The third one. This one is something that I'm fascinated about, that I have done a lot of work on. It's a topic that is very dear to my heart, is actually urban consolidation centers. We are seeing a tremendous increase in demand for feasibility studies across all sorts of industries, from aviation, to rail, to tech, to education, to healthcare, all sorts of industries are now thinking if they have a large footprint in cities, should they be consolidating deliveries outside the city? That is a concept, and that is thinking that is really relevant to help decarbonize the last mile.
Consolidation centers enable a high-level of serviceability, alleviate community impacts, help organizations deliver further the sustainability goals, foster stronger relationships with communities as they generally are outside the city centers, and allow to have an impact in communities that don't have access to downtowns or not as often, reduce truck traffic, reduce, of course, the obstructive curbside, minimize impact for pedestrians, for cyclists.
In essence, distribution centers that are meant to serve consolidation in the urban environment can really pave the way to more sustainable and resilient supply chains. That is one of the trends we have seen on the rise that people are considering and willing to make an investment in those types of facilities to actually improve how they are impacting the communities and the cities, themselves.
Then the last one, and it's something that is emerging. There's a lot of conversations.
There's a couple of examples in situations, which we have worked with clients on implementing some of this, is around circular economy concepts. We have worked, for example, on feasibility studies for technologies around waste management, around buildings. For example, with a technology like aerobic digester, you can actually process organic waste in ways that the output of that technology is actually green energy.
You can actually use that energy in your building, but also compost that can actually be used as a fertilizer and be donated to local communities in agriculture to further produce food that will eventually be bought by buildings and part of the amenities for the employees. We're seeing interesting examples of circular thinking and how to leverage some of these resources in mixed-use commercial buildings and put them to use and apply some of these. I would say these are, in a nutshell, most of the significant changes in what we're seeing in the commercial space that are emerging in the city environment.
Abe: Catarina, let's dig in a little bit more on the transportation side. You referenced last-mile delivery, the development of the distribution centers. We can't forget consumer expectations and their desire to get everything now. What are cities doing to alleviate the congestion that's being driven by these last-mile deliveries as well as the impact on supply chains? You just referenced not a lot of organizations pay attention to their supply chains at the end. What are we doing in that regard?
Catarina: It's a really good question because I think as we think about the problem in the urban environment for these last-mile deliveries, it's not going to be a one-size-fits-all solution. It will always be a blend of different programs and different incentives and sometimes even some regulation from cities to have a little bit more control around the transportation freight that comes into the urban environment. I'll give you some examples of some of the things we are seeing.
Number one is off-hour delivery programs. We are seeing incentives and we are seeing clients as well studying possibilities of using lockers and cages and other ways to actually receive their goods without needing to do those deliveries during the peak hours at a city environment. That's one of the programs we are seeing. Cities are studying a lot in Europe but also starting to come here to the US, micro hubs and how to use micro hubs not only to reduce the size of those last-mile vehicles but actually to try to make those vehicles as much as possible carbon-free vehicle, electric vehicle, e-cargo bike.
We have seen that this is one of the hot topics in the city environments -- how do you deliver that last mile? Of course, there are as well options that are not necessarily going to use the road space. We think companies like Amazon and Walmart that have announced significant investments in trying to study, for example, drones. We have seen, actually, New York City piloting something like that with Port Authority across the Hudson River. There are a couple of options that have been explored in the urban space.
We have actually worked with New York City some years ago in a delivery management plan just to focus on last mile. The report is full available online, offers recommendations that can improve safety, efficiency, and sustainability within the city. We do believe that some of the solutions will require a strong partnership and collaboration across different stakeholders. I think part of the solution to the urban spaces is not going to be anyone figuring it out alone.
It will require neighborhoods, communities, companies, governments, nonprofits coming together to resolve what we can do best. How can we decarbonize and give back space to pedestrians, space for better living, because everyone wants their packages, but no one really wants to give away their parking space for a curb delivery. There are some trade-offs and there is education that will need to go on the transportation portion that I think is still needed. It's a work in progress.
Bob: Catarina, you've talked about a couple of things. One, a couple of strategies, the consolidation centers as an example, some of the things that are happening around transportation, circular supply chain regulation. I'm a supply chain manager that comes to you. I want to start thinking not so much about today, but three, five years out. What would you recommend that I start paying attention to as I think about what my supply chain or what my strategies need to be for the future?
Catarina: There are a lot of changes happening in our industry from technology, sustainability, consumer behavior changed. Cities of the future are now expected to be something different. These are just to name a few of the changes we are seeing. Learning how to adapt to all of these trends that are coming our way is going to be critical because they're just starting to emerge. This is going to be something that all of us, supply chain professionals will need to come across and to learn how to adapt.
I think that some of the strategies that supply chain managers can follow to positively contribute to more sustainable urban operating environments. Everyone can actually help deliver that vision. Some of the strategies include things like, for example, demand management, continue to improve product information available to consumer is going to be critical to reduce returns, to help people making those decisions before they actually decide to have something shipped to them in the urban space.
Enhancing the experience of online shoppers is another one, so that we don't come across a wrong expectation when we actually receive the product in hand. This will reduce and will significantly impact some of the return rates that we are seeing that in US are as high as 30% for cities like ours. That's really, really challenging, as you think about it. That's one thing that I think supply chain managers can act on, demand management and the experience of buying.
The second thing is around logistics. Increasing the collaboration with vendors, with distributors, with clients and seek to consolidate deliveries to urban spaces through facilities like the consolidation center we just spoke before, some cross-docking facilities to consolidate the amount of deliveries coming into cities is going to be really important. Maybe at some point in the future, that doesn't become something that you can do, but something that you must do in highly constrained environments. That's another thing that I think right now supply chain managers can start thinking about, is consolidating those deliveries, even across your neighbors, outside their own business. That will mean that there will be some innovation of new business models, meaning that if you are in the neighborhood that you can possibly aggregate the deliveries of something, some other business that is around you or a community, maybe that were some thinking, and maybe there is an innovative way, maybe there are new collaboration platforms that would allow you to actually be of a positive impact, not just your business, but actually to your neighbors in the areas within you operate. That's the second one around logistics.
Then the last one, I would say it's around distribution. The way supply chain managers can impact distribution is, for example, the obvious one is adopting smaller and zero-emission vehicles for the last mile. That would mean the cargo bikes, for example, that seems to be particularly effective way to transport things that are able to be in the order of magnitude around 125 kilograms. They can be unloaded faster. There are benefits that are not related with sustainability and the negative impact, but actually operationally will be an enhancement to you. That's something else that I think the supply chain managers can start to incorporate in the way they plan for last mile.
Then of course, promoting more awareness, education around pedestrian, cyclist safety, and experience of all of those communities that live in cities, which includes most of us, and try to understand that all of these distribution means that we use have an impact on how we live in cities. That there are ways in which we can potentially do things a little bit better, not just for our business, but also for the people we serve in the cities.
Abe: Catarina, you mentioned innovation and technology. Obviously, you can't have a conversation with any company or supply chain professional right now that doesn't talk about digital transformation and the impact that technology has. For instance, one of your colleagues just did an interview with the Wall Street Journal where there was a discussion around autonomous vehicles. Of course, you can't have a conversation about technology without AI being brought into the discussion here. From your perspective, where does technology fit within the discussion that we're-- on this topic here?
Catarina: Just like everyone else, we are hearing a lot of interest around AI and adoption of technologies. We haven't seen it applied in the urban space at scale and in full, as we're probably going to see in the next couple of years, but we are starting to see some trends on how to leverage that. I'll give you, for example, a super simple example that is super impactful. We were actually just discussing it today here in New York during Climate Week, how sometimes some quick wins can actually have a really big impact.
Let's say waste management. There is a massive amount of waste that is produced within a city space, especially if we think about all the high rises that you have. Generally, contracts with haulers are time-based, are scheduled-based. You will, for example, have a contract that will say, "Can you please pick up my waste once a week?" That doesn't need to be like that anymore.
You can actually add sensors to some of your waste facilities and your waste storage bins, and you can identify when exactly do you need that pickup to happen and leverage that and have a model that might need much more coordination from the hauler in terms of the pickups, but somehow avoids coming too often if you are not ready yet to actually, to the capacity that you have of storing waste. That's an example that we're seeing simplistically where technology has been adopted and that people see a business case. They say, "Aha, I see it. There is a business case for this. I can do it. It's easy."
Then, of course, we can think about something much more sophisticated. I was just mentioning before Port Authority in New York and New Jersey tested a drone for deliveries and it flew from Greenville Yard in Jersey City to actually 65th Street in Brooklyn. Literally, it just came from one way all the way to the other way. It just transported a box of scout cookies, which was really cute. The reality is that trip only took 15 minutes. If you were to do that same trip by land, that would be something 25 miles.
As you think about technology, you look into these examples and you say, well, absolutely, why not do this? Why not do this more? There are so many other comes that come into play in terms of regulation, safety, all the competitive forces and stakeholders that want a place and the space in cities that make some like that more like a vision and definitely something we will see more and do, but not yet a large-scale reality.
In the city space, we start trying to see things coming small within the buildings where there is a business case, it's hard to make it happen. I think we're going to see it in the last mile being adopted in the coming years as regulation gets in place, as new technologies get to be proved outside such dense environments. That's going to be an exciting thing to be part of.
Abe: Catarina, I can't thank you enough for sharing your insights. Obviously, a number of topics that we need to keep on our radar and our agenda in terms of our discussion. That is all the time that we have today. Again, a special thanks to our guests, Catarina from Arup. Finally, a special thanks to you for joining us on this episode of The Rebound. We hope you'll be back for our next episode for The Rebound. I'm Abe Eshkenazi.
Bob: I'm Bob Trebilcock.
Abe: All the best, everyone. Thank you.
Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.