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Jennifer Symoun
Good afternoon or good morning to those of you to the West. Welcome to the Talking Freight Seminar Series. My name is Jennifer Symoun and I will moderate today's seminar. Today's topic is The Growth of E-Commerce and its Freight Transportation Impacts.
Before I go any further, I do want to let those of you who are calling into the teleconference for the audio know that you need to mute your computer speakers or else you will be hearing your audio over the computer as well.
Today we'll have two presenters:
Anne Strauss-Wieder has over 35 years of experience in supply chains and freight movement, economic analyses, and policy and project development. She works closely and collaboratively with private sector stakeholders and public sector interests to ensure that supply chain projects reflect market realities, emerging trends and customer needs. She has also facilitated the productive integration of freight operations with community goals and economic development, as well as means for addressing key issues facing the freight industry. She continuously analyzes industry trends and trend breakers and develops forecasts for all aspects of freight movement and distribution.
Adam Robinson oversees the overall marketing strategy for Cerasis, a top North American 3PL with on over the road transportation management. Mr. Robinson works with the business development department to create messaging that attracts the right decision makers, gaining inbound leads and increasing brand awareness all while shortening sales cycles, the time it takes to gain sales appointments and set proper sales and execution expectations.
Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. If during the presentations you think of a question, you can type it into the chat area. Please make sure you send your question to "Everyone" and indicate which presenter your question is for. Presenters will be unable to answer your questions during their presentations, but I will start off the question and answer session with the questions typed into the chat box. If we run out of time and are unable to address all questions we will attempt to get written responses from the presenters to the unanswered questions.
The PowerPoint presentations used during the seminar are available for download from the file download box in the lower right corner of your screen. The presentations will also be available online within the next few weeks, along with a recording and a transcript. I will notify all attendees once these materials are posted online.
Talking Freight seminars are eligible for 1.5 certification maintenance credits for AICP members. In order to obtain credit for today's seminar, you must have logged in with your first and last name or if you are attending with a group of people you must type your first and last name into the chat box. I have included more detailed instructions in the file share box on how to obtain your credits after the seminar.
For those of you who are not AICP members but would like to receive PDH credits for this webinar, please note that FHWA does not formally offer PDHs, however, it may be possible to receive PDHs for your participation in Talking Freight if you are able to self-certify. To possibly receive PDHs, please download the agenda from the file download box and submit this agenda to your respective licensing agency.
Finally, I encourage everyone to please also download the evaluation form from the file share box and submit this form to me after you have filled it out.
I'm now going to turn it over to Anne Strauss-Wieder of A. Strauss-Wieder, Inc. to get started.
Anne Strauss-Wieder
Thank you, Jennifer. The way that we source products has changed. A large part of that change has occurred because of technology. Technology has enabled us to access a greater number of suppliers, to price compare and source products from different locations and have them delivered to our doorstep. At the same time our demands as consumers has been reshaping the retail supply chain. The retail supply chain is a great example of how quickly supply chains embrace and then react to changes in their customer demands. This is also a great example of a trend breaking situation; a situation that has happened in the past no longer predicts what happens in the future. Today over the next few minutes I'll be talking about why we should focus on retail sales when we talk about freight transportation. Also, what exactly has been changing and how the supply chain has been reinvented. All we have to do is look around us to see how retail has changed. The picture at the top right was the grand opening of the Randall Park Mall in 1996 and how it looked in 2011. The industry is changing and we all know that. So why is it important? Instead of going to brick and mortar stores, goods can be coming from a distribution or fulfillment center to our homes. They may be originating in a different way, and their uses are changing. Our personal travel is also changing, instead of going to the store the package is coming to us. We have a greater variety of shippers and it's easier to expand market reach. We have emerging transportation priors, including Google and Amazon and we've seen technology application, whether on our mobile phone or perhaps a drone. And we also see what happens to those companies that cannot adapt quickly to these changes as we saw by the announcement of Radio Shack last week. So let's go into what's happened in retail and that picture on the left may be what a lot of peoples doorstep has looked like during the Christmas season. We know e-commerce is growing but there's new terminology we should all be familiar with. First is Omni Channel. There are at least three different ways goods can be purchased, whether in a brick and mortar stores, mail order catalogs that date back over a century, and of course through the internet or other mobile devices. Most have been successful, all work in unison to reach the greatest array of customers and to use the synergies. For example, being able to buy online and return at a store or perhaps pick up at a store a store for a local distribution. The next is M-commerce. Though most people have smartphones but rarely use it to make a phone call. These smartphones enable us to do everything from check, scan a price, see if that looks like the best thing. This also enables customers to track where we are and to target their advertising to stimulate demand. I suspect there are some people who are listening to this talking freight seminar and ordering from amazon. If you are, it shows what the current state of retail is. So that's referred to as M-commerce. Finally, Social Commerce which is talking about products through blogs there's an entire micro-market for the information collected on the web. It's not everything, but it's about 30% of what we do. We use a lot of brick and mortar stores. We may have our goods delivered by PeaPods from a supermarket or if we're not home and don't have someone to get our package, we may prefer to pick up our Amazon package at a free locker that could be at a Dunkin' Donuts in Jersey City or someplace close to your home. Stimulating demand is another way the industry is changing, a move to get to as many customers as possible. That includes moving into new locations. Wal-Mart developed a format for going to urban locations. The picture on the top right is about a 100,000 foot Wal-Mart at a store in downtown D.C., and the top one on the right is a smaller not print in a major chain, an express from target. Then there are a lot of pop-ups during the holidays. This goes way beyond Halloween costumes. Finally, retail stores, particularly Aeropostle, which does not have backroom storage space, it's all sale space. They turn over their inventory every two weeks. If you do not buy it, the product will not be there. So let's think about these marketplaces and the fact that there are no backroom storage spaces, only sales floors. So let's look behind the curtain at how the retail supply chains have evolved, whether it's starting on the left with Kiva Robots, within the warehouse to expedite the movement of goods. The appearance of Amazon trucks in the marketplace or perhaps eventually drones for delivery of products.
First, let's talk about distribution centers, DC's for short. Starting on the far left is a typical distribution center. Goods come in, value is added and product it moved out. To the right and this is a 2 million square foot Ikea distribution facility in southern New Jersey. Again, look at the right side of the facility. Those multicolor boxes, those are international containers coming into the facility, stored and moved to the different Ikea stores in the area. On the left-hand side obviously, the truck trailers and loading docks for moving those products out. Let's lack at an e-commerce fulfillment center which is what we call center. They have a fulfillment center that's operating 24/7 can have one or more employees per thousand square feet. So here's a building in Virginia, an amazon fulfillment center. One of the big differences can be seen on the right-hand of that rectangular shape. There's a lot more parking for associates, a lot more workers. Then on the left side, the truck area, more space to store trailers. The differences are dramatic in terms of building design. In typical warehouses, maybe one parking space per 5,000 square feet but in a fulfillment center, there's roughly one parking space per 2,000 square feet or less. In terms of truck trailer storage in a secured area instead of having one additional trailer space for every loading dock, it's two or three trailer spots within the secured area for each of those loading docks, so moving a lot more products through, using a lot more workforce, particularly when we get to the peak season. So perhaps we don't see as many people on the sales floor, but if the brick and mortar stores aren't there, there are a lot of workers in these fulfillment centers. And we can see just how these have grown, just a quick map of amazon's fulfillment centers, 38 and counting along with what's called sortation facilities. They receive outbound, sort them very much the way a FedEx raising does, down to zip code level, bypass the carriers and direct shipment to the individual zip code areas. That last mile is also shifting since we, as consumers, are demanding speed to market. When we click on the screen, we want that product right away. Amazon Prime has been a tremendous benefit to Amazon. There was a great story on NPR this week on how Prime has increased the options for people in Alaska and rural areas. We're demanding speed to market and that's also affecting modal decisions. Starting on the top right, that's Macy's in Manhattan. It's also a mini fulfillment center now because from that store customers can come and pick up products they ordered online or get same day delivery. Similarly, on the bottom left, Google is with Barnes & Noble and now offer a same day service. So the use of brick and mortar, that is part of the e-commerce fulfillment. Instead of going to the supermarket, a supermarket will pick up what's requested, put in a bag and delivered to your residence. No guarantee the person delivering it will unpack the bag, but you are not going to the supermarket. Instead of that personal trip, a van is coming to you. So a lot of the convenience we seek we now see in the e-commerce arena.
Now we can talk about how a surge can be a harbinger of things to come and how supply chain companies respond when there has been a crisis, and the 2013 holiday season, you can plainly see from the quote here, that it was considered a failure by many companies because there were people who did not receive their products in time for the holidays, but there were some promises that perhaps were a little ambitious, as noted here from UPS. More than 70 online retailers said that if you order products in 2013 by 11 p.m. on the 23rd, you'd have it by Christmas Eve on the 24th. Even with the thousands upon thousands of workers hired, the equipment online, the system could not handle it. The system was also hampered by winter storms, but in the retail industry if you miss a delivery that is a cardinal sin. That's the game plan and most companies make most of their profits during the holiday season. Let's fast forward to 2014. Both shippers and transportation providers added tremendous capacity in a very short period of time. For example, as shown before, Amazon opened 15 distribution facilities and vastly increased the number of their fulfillment centers. UPS, within less than a year, designed built and made fully operational a brand-new 400,000 square foot facility in Texas as well as deploying dozens of pop-up mobile distribution centers to help facilitate the movement of goods through their system. UPS also decided to run at full network capacity the day after Thanksgiving when it traditionally operated on a reduced schedule but they needed to expand capacity, so not just in capacity, but using existing capacity in new ways. There's also managing of demand, working collaboratively with the major shippers saying we have force volume limits. The system cannot handle it. So this meant there was an earlier cutoff for deliveries, which they were adhered to. The same kind of issues did not occur for 2014. So we know that we're seeing a trend breaker. We all know that we're buying more online than ever before. We're seeing what's happening to malls and stand-alone retail stores. We see what's happening with retail chains. That doesn't mean that our demand for product is diminishing. It means that we're sourcing them from different locations. We're seeing a reallocation and some changes in the physical layouts of fulfillment centers. Speed to market is very important - we want it now. We're impatient consumers in the U.S., so we're seeing a lot more pickup and delivery than ever before. We're seeing emerging technologies and this is an example. We know that things are competitive; perhaps not as much as Wal-Mart, but we do know the retail industry will be continuing to reshape itself in the years to come. With that thank you very much and I look forward to addressing your questions after our next speaker.
Jennifer Symoun
Thank you, Anne. We'll get to the questions after Adam's presentation. We'll move on to our second presentation by Adam Robinson of Cerasis.
Adam Robinson
Thank you, my name is Adam. I'm marketing manager for Cerasis, primarily focused on transportation management. We advocate for our shipper customers and our select carrier partners. We're the middleman between those two entities. As we're seeing it, e-commerce is a big consideration moving forward for both shippers, manufacturers and retailers as well as carriers. The main thing driving that and it's something that Anne so eloquently put is the amazon effect. Jeff Bezos opened it in Seattle and now it's the largest company in the world. The concept was simple initially. Giving the chance to shop online and e-commerce was born. Since then, things have changed. The proliferation of the internet is part of our daily lives. It's focused on customer experience. Speed of internet connections dramatically increased. Who's getting online and how they're getting there is different. So it's important for young people more than it was just 15 years ago. And that has brought about from a shopping experience convenience and low prices which were the driving forces for e-commerce in the early days to today where they are catering to every kind of shopping experience, creating a lot more challenges. So here's a brief look at how direct to order fulfillment that amazon has mastered and the expectations that amazon has created. Prime, which Anne had said, the breadth of inventory, the same day pickup, the changing of the last mile, often called just in time or on demand. There's also an expectation that all parties involved, the consumer, shipper, most companies and transportation providers and the network as a whole, they have high expectations and they don't have 20 years to master this anymore. Amazon has created an expectation that all companies will just have to be as good as them. So that's tough to keep up with. So shippers and all those involved in e-commerce are turning to technology from transportation priors such as 3PL's but direct carriers, large carriers are putting together e-commerce options such as the Conway's of the world and more. That way we can make it continue to work well for everyone because if none of those players are able to play their role effectively using technology, which is the whole key, then the whole network suffers and the consumer hurts.
So briefly, a little bit about the ditches in the supply chain from then and now. There's the unique challenge of having it arrive in bulk. The receiving bulk order and inventory and the stock keeping units as individual products and just as a refresher, they're often called skews, the identification codes portrayed as a machine readable bar code. So some of these facilities that Anne referenced, have to find a way to standardize business processes to have real time access to inventory move often. This involves multiple and dozens of suppliers and warehouses, an extensive number of sales channels, whether that's mobile, your standard web browser or traditional retail. What this causes, is the chance of error and misplaced orders to be much higher just like the holiday season in 2013.
For freight shipping and transportation management in the early days of e-commerce, it was about the convenience of ordering a product from home. No driving to the mall, no waiting in line. You're living life waiting for the package to be delivered to your doorstep. Shippers used snail mail. Phone calls were the main method of communication with customers and order delivery times were in the weeks instead of the days. Free shipping quickly became a tool that brought in competitor's customers sense there weren't many carrier options and no additional costs like sales tax existed. Order delivery was slow and customers didn't expect it right away. They understood that. Now that's different. E-commerce merchants collect sales tax. There are a lot more options, a lot more modes and the ever popular free shipping is the furthest thing for the truth for the shippers and retailers. Other than giants like Amazon, have the option to operate multiple distribution centers. Instead, they've been turning to technology provided by carriers or 3PL's. In developed economies, e-commerce logistics represents the latest change in physical transportation networks, which have evolved substantially over the last 40 years. Currently it remains the case as e-commerce continues to grow. Multichannel shippers are beginning to work out what this will entail for their distribution network infrastructures. Most retail stores were replenished from direct stores. In the '80s retailers centered through distribution centers. In the '90s, global sourcing took off and containerized imports. Around the year 2000, e-commerce was leading the way in establishing networks, the Amazons of the world.
Now that we have a little bit of background we'll talk about the demand for four different types of logistic functions. In the former times when they were distributed in the postal parcel network, E-commerce has led to four functions. One is the mega-fulfillment. They were either operated by the retailer or a logistic service prior and are typically 500,000 square feet or 1 million square feet or large are and they operate 24/7. We also have parcel hubs and sortation centers with the final delivery being to the customer's home or designation collection point. Parcel delivery centers which handle the last mile and finally, this is the key, seamlessly integrated technology where shopping carts connect the API, XML so shoppers are getting the price quote of shipping items which would be suited for modes less than truckloads, Transportation Management System (TMS). So all parties have that ability to organize and track shipment no matter what mode including online order status and documentation. Online dispatched documentation and invoices, which is a bill of lading and freight invoices and for payments by the carriers to the shipper and a seamless interface that goes to a shipper's enterprise resource system or other technology. Alerts for critical information via text or mobile apps and information systems reports on past data analysis, delivery history for continual improvement. So the carrier and transportation network is now dependent on technology to achieve these functions. Now let's talk about the benefits of e-commerce and technology for shippers, carriers, 3PL. There's improved communication, more transportation into the supply chain, improved customer satisfaction. Cost reduction, improvement in efficiency, on-time delivery and improved collaboration. We'll talk about that in a little bit more detail in a moment. So now let's talk about the rise of e-commerce in manufacturing or in general. As retailers were the first adopters, manufacturers have also started to use e-commerce, increasing the use of services like last mile and just in time, meaning there are more different types of modes and different types of transportation providers on the road. So a summary article out of managing automation based on the industry barometer study notes that industrial manufacturing sector is leading the economy out of recession. They are selling into new industries, new products ands and leveraging the internet to pick up business as a growth driver. Of the nearly 1200 respondents of the survey, 71% said their online strategy is critical. Three years later in that same study recovery out of the recession was not necessarily the main focus anymore but, instead, maintenance and sustainable growth, and so one major finding from the study is websites are soaring in the role that they play for business manufacturing. For 2013 nearly three times as many manufacturers or 62% compared to even 2012 said their websites will have the most impact on securing more business. In 2012, respondents ranked the company's website six and now its number one. So they've gone from thinking about implementing or an online strategy to now seeing the industrial space executing applications as a way to grow. Three years, and this is the speed at which things move, from thinking about it to actually doing it. So retail is there. Now we're also seeing those who are in the business to business sector putting shopping carts online. You can think of maybe an automotive aftermarket distributor, and they have traditionally had their companies who are sending them products and their customers were ordering products regularly it was like amazon and early retailers in the '90s saw. However, there's a lot of resource and body that is go into doing that. By implementing a shopping cart you decrease the amount of resource needed or communication needed to place that regular order off of a chat log or send it -- catalog or send it to the distributor from the OEM. Examples of really outstanding manufacture ergs with good e-commerce offers, one of the earliest ones is Dell. They did not put their products into retailers right away. They offered direct to consumer as one of the first OEM's to do so online. You could custom order your Dell computer and it would come right to you. Other shiny examples are apple, Samsung and GE. So, with all that said, the benefits to those folks are direct access to customers. Besides having higher profit margins, they will interact with the customers and let you learn from them. Whereas a manufacturer that maybe went it a distributor before played the game of telephone and were not able to it rate based on real time feedback. A larger arena yields more sales possibilities. Although you have to be cognizant of the distributors, you can side step them by offering your product to a different market or different geography as online allows you to compete outside your traditional network. It gives the ability for shippers to innovate. It allows you to free from the constraints. If you have an idea, it's not as risky to put it online and see the feedback. E-commerce allows a lot of companies to scale. It's not just like a new product; it's not as risky to start a venture. If it does not go well, you may not have the investment of a huge brick and mortar store or leases locked in for 12 months. Also, as you open up new channels and higher profit margins, our other traditional systems will benefit from the learnings of e-commerce practices, so you continue to get better and that harkens into improved efficiencies. We had spoken of, a system like an e-commerce shopping cart to an enterprise resource planning and other systems. So you can realize these efficiencies and cut out waste because there's a direct tech they logical waste on what inventory you have to what people are actually purchasing. You're not over ordering or your cash is not tied up in inventory. The next two, improved brand awareness and analytics. As you're opening up the new markets, you're reaching more people. They're able to share your information on social media as well as different channels and search engines. It allows you to bring in new customers that way. You can see the new data. You can connect all the dots and automate some of these processes and look at the data and say where can we improve and bring more value out of the e-commerce side of our business. Now we'll talk about the impact of e-commerce on freight carrier and the transportation network. Last year when UPS' CEO David Abney said in an interview he bought his first book from amazon about 15 years ago. Amazon's power to drive down shipping costs, UPS' average revenue on each internet related package is continuing to drop. Even though net income last year was the highest ever, profit margins on deliveries in the U.S. have been flat, which is a sign that online sales aren't helping the bottom line. UPS, according to tracking software, says they deliver 42% down from the company's 55% in 1999. The numbers add up to one of the biggest challenges in the company. The company is trying to squeeze cost out of the network and drum up more revenue. The CEO said the rise of e-commerce has challenged some of our traditional ways of doing business, the way it dispatches drivers, loads trucks and earns money. They have to spend time changing the paradigm of their own network and the people they work with. He went on to say for now on UPS must slash its cost at a faster rate than the continuing decline in revenue. So UPS will start charging by the size rather than the weight alone. In our industry that's called dimensional weight pricing. Actually that went into effect for UPS on December 29th of 2014 and into effect for FedEx on January 2nd. So what weight pricing does is it creates a billable weight based on package volume or the amount of space a package occupies in relation to its actual weight. It's based on basically the space it takes up so it's a better utilization of a carrier's truck or space or airplane. It's the cost for carriers to insure they don't lose money on lightweight packages either. Today weight applies to both air and ground services for the major carriers. Carriers in transportation companies, like the shippers that we talked about earlier, will need to employ scalable technology to have visibility at a moment's notice. This is going to be true even more and more and there will be the need to have more collaboration amongst different partners but also even competitors because, like I said earlier, if FedEx and UPS are not delivering, it's a bad expectation for the consumer and decreasing the ability for e-commerce to be continuing in long term future if we don't have confidence in the ability for it to deliver. So it's very vital that we understand these challenges. One of the things we haven't really discussed is the security of deliveries. As we bring in new things like amazon drones or I saw myself during the holidays, UPS was on golf carts and sometimes they just leave it on your doorstep and it's there for the public to take, that's another challenge for freight carriers to figure out. Not only security of those things but security of the technology they're using. I already talked about the challenges. What are the benefits for transportation providers and carriers when this comes to e-commerce? Well, when they use integrated technology, there's more seamless communication. They're able to communicate between different constituents a lot easier, increasing collaboration, which then leads to a more powerful transportation network in general. The more connected we are, just like the trend in manufacturing of the internet of things, the more efficient we all are and we can reduce costs, decrease errors which leads to more profit. It also may lend to more competition, collaboration and innovation. The transportation industry itself or electricity is deregulated; it brings in a bunch of new ideas. At the same time when there's more technology, the better utilization of capacity through intermodal communication. So with different technology, we're not going to hit the capacity crunch like we're seeing now in transportation as badly because with different pricing models or data showing us different things with tech follow jip and really leaning on transportation that we're not wasting gas, and not wasting space. Therefore, costs are continuing to reduce. So that will allow everyone to remain profitable and continue to invest in their business to meet the demands of consumers, shippers and 3PL's. So now what is a 3PL's roll in all of that? Technology is something we're able to provide off the shelf and easily deployable. It's very important to have consistency in the onboarding of customers. When we work with carriers, it is our goal to make sure that they are brought in with us in the shipper. So it's a very collaborative long term win-win outcome. You have heard of bested outsourcing. That means people come together for a win-win situation. It's a platform that is used now by 3% of the e-commerce shopping carts that exist today in the world. It's primarily driven by retailers, but Magneto is a framework where you can use extensions. They're often called plug-ins or wedge jets as well. That allows functionality to not spend too much development resources and creates consistency within the shopping cart environment. So our extension allows Magneto shopping carts to call it our system amend pull up the rates of over 25 different carriers. It's integrated into the EDI or web services so everybody is able to have that automatic tracking and tracing. So that's the 3PL's role in having the providers and the shippers come together and create that technology to give visibility and information so everyone is able to meet expectations of the consumer. Everything is rapidly moving toward a multi-channel commerce model, an Omni channel model that integrates with several channels into a single unified ecosystem. Those companies which achieve effective applications stand to have a competitive advantage over those who are stuck in a brick and mortar world. Looking ahead, leading companies will take the concept a step further and they will be in all channels but they first have to figure out the channel at a time. They will do it through technology that develops seamless shopping across all of those platforms. Carriers are already offering technology through some applications and software. So it will be creating more profitability with fewer errors. In the end 3PL's will bring the gap in order for all customers to come out win-win. Thank you!
Jennifer Symoun
Thank you, Adam. We will now move into the Q&A session and I will start with some questions that came in during Adam's presentation while it's still fresh in everybody's mind. Dr. Alexis Bateman at MIT's Center for Transportation & Logistics has compared the CO2 emissions consequences of online vs brick-and-mortar retailing. Preliminary results show that online may be less CO2-intensive, but it all depends on how you shop-some people do a lot of in-person shopping before they make an online purchase. What other research onto the emissions consequences of changing distribution patterns due to the rise of e-commerce has been done? Do major package delivery companies' investments in trip planning software and cleaner vehicles for urban trips come close to holding the line on emissions?
Adam Robinson
Well, I think the concern is a sustainable supply chain. I think it's was it Abby who asked this question. I think you hit on one of the things that's assumed because it's online it's green. I think Anne alluded to this. There are a lot more different types of cars and vehicles and modes of transportation that are now on the road. It's a decrease in folks going to brick and mortar, probably not because just like the Macy's fulfillment center or the Google partnership with Barnes & Noble, people are still getting in their cars and going to the stores. With those things combined there could be the potential for the opposite that there is more car been dioxide into the air. It's important that a lot of the main carriers who are starting to lock at different types of fuel, alternative fuel like the natural gas and I can't think of the acronym off the top of my head, are trying to say, yes, we need to look at alternative fuel for that. So I think it's an increasingly important concern and it's not an assumption that we should take for granted.
Anne Strauss-Wieder
Adam mentioned the last mile delivery. UPS, U.S. Postal Service, and they experience with vehicles which electric or compressed gas. We see this already. Adam also mentioned dim pricing, dimensional pricing. And paper has been an issue from an environment standpoint and the distribution centers have been on the forefront of reducing the amount of those products. Anyone who receives pan amazon shipment now will notice how carefully it's packed. Staples in particular, are doing boxes specific to the order. It's a reflection of dim, but it's also a reflection that less paper costs less money.
Jennifer Symoun
Thank you. Adam, another question for you: What is the breakdown on ships to distribution centers in terms of trucking versus freight rail?
Adam Robinson
Well, I'm not sure of the breakdown and I don't have any hard numbers in front of me. We primarily do not deal with rail but one of the things that a lot of LTL carriers where we do have a lot of experience or doing are intermodal. Because of the complexities needed, you know, I'm sure that there is also an increased use in pram. Now with the decrease in fuel costs as of late, we might see a decrease in using rail, because rail was seen as an increase in use as fuel prices continued to increase because it was bit cost effective from time to time. So I don't have a great answer to your question.
Jennifer Symoun
Thank you, Anne. How would the 2025, 30% e-commerce break down?
Anne Strauss-Wieder
It's a very interesting question, particularly with the rise in free shipping because typically if someone located in a rural area with less accessibility, transportation costs would be higher and the transportation options would be lower. Perhaps sometimes with the U.S. postal service, for example in Alaska, having to use air because of the way the freight flows in that area but free shipping changes the playing field, so I think it offers a lot more options and what modes are available in that area. I think overall, it's hard to say a breakdown between urban, suburban and rural. This is a trend breaker on how everyone shops and anyone who is a millennial or knows a millennial know they use their phones for a lot or than telephone calls these days.
Jennifer Symoun
Another question for you: It sounded like we replaced brick and mortar with SB jobs. What is the share of domestically proud goods versus those made overseas?
Anne Strauss-Wieder
Yes, that's another global ship. It's in that we're replacing a facility in China with one in Mexico or the U.S. but the realization of a trend of diversification of production locations. It could also be a bifurcated process whereby goods are produced to a certain point at these locations and the final customization occurs at fulfillment centers. So if it's a bifurcation, that's where we see 1 employee or more in thus foot. Production sites, that's fitting in with speed to market and trying to locate some of those facilities closer to customers, particularly in high turnover like apparel. That may be closer than before or heavier products as well.
Jennifer Symoun
Thank you. Another question for you: What about urban areas when a last mile truck trip is replacing a pedestrian trip for one via transportation?
Anne Strauss-Wieder
Well, we seem to have a plot more delivery vans, also use of cur are riers on bike -- couriers on bikes. I don't know that it replace as pedestrian trip -- replaces a pedestrian trip. It enables us to do more than one thing at once.
Jennifer Symoun
All right. And I think Adam, the next question is for you. Do the brick and Moore tarp and omni channel secure lockers work for reverse logistics such as returns as well?
Adam Robinson
You know all these companies have seen the value of reverse logistics. It's something that has to be planned by the company a long time in advance and with amazon with it -- when this comes to these lockers, it does require a bit more work but like many of the companies that have mastered reverse logistics, G mobile is one. In the labeling they built in some really good systems that once you have an initial label, they have the information on it and there are instructions that if you would like to return this or channels of communication via support online or through chat or phone or whatever communication through your app, whatever way you want to do it, they have it where you simply often rip off the original label and underneath is the return label, so they already have the technology and processes in place and those extend to those lockers and that's vital to the customer experience and vital that the strategies and processes are in place whether Amazon locker or Betty Boops fashions online. If they aren't, they're behind the eight ball and it will diminish their ability to sustain a new channel.
Anne Strauss-Wieder
Reverse logistics is a way we can see the Omni command Nell in motion because there are those retail chains that have brick and mortar stores and e-commerce, so you may be able to buy something online and then return it to a store. Usually that return area is at the way back of the store with the hopes that either on your way to return it or of a you return it you'll by something else, but in terms of e-commerce there are third party companies that handle returns as well as some of the larger chains may have those returns channeling to a very specific facility for disposal. Amazon notes they do have products after being returned at a reduced price.
Jennifer Symoun
Thank you. Another question and this one is for both Anne and Adam, have you discussed the importance of the security of internet and e-commerce?
Anne Strauss-Wieder
That's the reason for the rise in lockers. Who wants these packages left at the doorstep? In terms of securing the supply chain, even before we talk about security threats, we talked about what's commonly called shrinkage or things falling off the back of the truck and that's much harder to happen these days. First a lot of the trucks have GPS monitors and the routes are put into place. There's geo-fencing around there. If the truck deviates from a GPS standpoint, alarms at different levels go off. In terms of scanning packages at various points in the production line, through a fulfillment center and on to a truck, it's tracked every point of the way. You can see very specifically where something is these days so a lot more security it makes sure there's less shrinkage and goods get there not only as promised but in the condition promised as well. Adam?
Adam Robinson
I think you said it well, the security and supply chain network. Supply chain mitigation is on the forefront of any director's mind. There are providers that are coming on board to help with those kinds of things, especially in the electronics division or the business continuity type of thing. They match the consumer's expectation. That's what it boils down to. As far as security on the internet, it's just like when this comes to reverse logistics. These are things you have to consider when you do choose to go Omni channel. It's a way of life. Who would want tools to replace their Bank of America card any time whoever gets hacked next. I would have to change a thousand areas of auto pay and actually my internet gets shut down. And that happened to me. So, one, governments need to do a very good job at educating the private and public sector in regard to these types of realities and we cannot be afraid to talk about this 800 ton elephant in the room. We address. It you step back and consumers are going to appreciate the security that you offered them. So be up front about it and talk about it. It's just like the war on drugs. It's not going to go away unless we actually talk about it.
Jennifer Symoun.
Anne, the question is for you. Which type of new store format is most likely to move into mid-size and smaller cities?
Anne Strauss-Wieder
I think the retailers are considering the best way of getting all consumers. Wal-Mart gave a good presentation with a very wide range of formats that they're experimenting with obviously, from the very large scale stores to small per stores. The example I gave Target that goes from the super store and the smaller footprints. There are also examples of a Wawa's or some of the very small convenience stores emerging with other uses like gas station as a way of bringing consumers. I think you'll see variability in the marketplace sized to that population and what options are available to them.
Adam Robinson
Sure. I can tell the companies who are lacking in investing in technology. There's probably not a lot we can do. Customers and companies are cause looking for convenience, online ordering, especially because of the smartphone usage that no one makes phone calls on like Anne said, and are going to increase. So that convenience trumps almost common Spence security at times. One of the things we cannot fail to understand is that we have to do everything on the front end to protect ourselves because consumers are going to continue to demand convenience and so it will only increase, so I don't know how it's affecting it. It probably had a minor blip but in the rising use of e-commerce, it will probably be a blip for a moment as long last companies don't put something in place to combat it. If they don't, it could decrease it but I don't see it getting in the way.
Anne Strauss-Wieder
Not really. Again, technology is evolving so rapidly. Some of the issues we just discussed just apply to e-commerce. It's including most of our financial transactions, so I think that stores, even within the supply chain industry, the security of transactional and transportation information is being looked at very heavily in all regards.
Jennifer Symoun
Two questions about transportation infrastructure. One is in terms of investment and transportation, what are the recommendations and then how is the growth in freight transportation impacting the roadway infrastructure. So I will put that out to the both of you for thoughts.
Adam Robinson
Well, there are a couple of things affecting road capacity. First of all, we haven't brought it up before within the context of this conversation is the current truck driver shortage and with that truck capacity shortage, so that is one of the reasons we're seeing a lot of growth in intermodal rail and optimizing truck rail as much as you can in systems that match truck trips so there are no empty trailers moving around. There's a real attempt, especially under a mandate of free shipping to optimize as much as possible so now that the U.S economy is roaring back, we are seeing a lot more trucks on the roads but there is an optimization. We're also seeing distribution centers crop up along each of the coasts. If we see distribution centers in northern, central New Jersey, fed bit port of New York and New Jersey are than goods coming across the country. Similarly, if goods are coming in from Asia, they're going to a distribution center on the west coast. We have cross border movement as well. Generally maintaining the lowest possible transportation cost.
Jennifer Symoun
I have another question for both of you. What initiatives are carriers implementing to offset the profit margins caused by free shipping? Are the increased costs passed on, tied to across product cost for their customers?
Adam Robinson
That's a fantastic question, one that the reason why we developed an end to end LTL. Really what it was, they could pick out some items and maybe had a shopping cart. Once it came to shipping and selecting carriers, call this number to arrange freight shipping. That's a bad customer experience. The reason, there weren't enough tools that allowed you to have the option of many carriers. Now with technology look what it allows to do is give the merchant or the shipper visibility into the true real cost of the carriers since those rates are already determined and set in with the carrier. Once you have the origin destination and the specs of the freight, then you can actually know the real cost and that gives the control back to the shipper because they are then able to ascertain. We know what our freight costs will be based on our skews, our products and we have the real rates. We can choose whether free shipping is something we can afford and if they have more understanding it makes them more competitive. You can also, with that same system give visibility to the customer. Right now if you go on Amazon it's transparent to the company. I can choose between UPS, USPS or FedEx. So they can then determine if they want to pay the cost or not. So with that control it allows the shipper to then understand and have full transparency say into that. With free shipping, it will it make it competitive enough to have a loss. Then it's a marketing cost for you as opposed to a transportation cost.
Anne Strauss-Wieder
Free shipping seals the deal. As Adam said, it can be a marketing cost, and I think amazon and others recognize the they are probably losing more money on those shipments to rural and less accessible locations but they are securing customers for the long run, so that's important as well. So that's a consideration.
Jennifer Symoun
Another question for both of you: Will retailers and other companies that do not have extensive brick and mortar networks, do they Maryland fie to place facilities closer to market and allow for quicker product fulfillment?
Anne Strauss-Wieder
Well, we can look at Amazon. Amazon is not just a ship are. They are really a hybrid shipper and third party logistics prior because we can all put our things on Amazon marketplace and make use of their extensive fulfillment centers to basically bring ourselves closer to the marketplace. That's one way the smaller companies can go into that but generally and this is in response to speed to market as well, we see a lot more both large are fulfillment centers as well as infill facilities in urban areas how companies spread out. This may be where a 3PL gets involved. A company will put part of their inventory close if you have no back room. If you're a Bed, Bath and Beyond, you're going to have some sort of storage facility somewhere nearby that's holding that inventory for you.
Adam Robinson
You might think of the restoring movement where products might be made in China, but with e-commerce and last mile and consumer demand, you might have an assembly plant or a distribution center closer to your customer. It allowed them to meet the demand of the customization. They couldn't hold a lot of inventory because of the custom orders. Motorola put in employees in America. So we are seeing some of that, especially with the customization from the consumer side.
Jennifer Symoun
Thank you. One more question here. Is the e-commerce shopping carts available only to larger businesses or small ones?
Adam Robinson
It's less risky to have as many resources as possible. Companies from large and small can get an off the shelf content management system or platform like a Magneto and use plug-ins, extensions to add on to that to give the functionality of an e-commerce concerns as well as being able to take your product inventory and skews and match them up to carrier API's and web services through that application. So there's technology that's easy and deployable at very low cost for any company of any size.
Jennifer Symoun
Another question just came. What is the impact for comprehensive planning for zoning, local retail, leveraging existing infrastructure at locations?
Anne Strauss-Wieder
Well, this is a whole different topic for talking freight because we've seen some major changes in how real estate is used. Some of this has to do with the millennial generation deciding where they recover to work, a move more toward urban areas. We've seen kind of the office building in the middle of the suburbs not being as desirable as one in a more vibrant urban setting. Malls, there really is an issue right now. In terms of repurposing them within the real estate community, there have been a number of options that have come up. One had looked interesting was repurposing. Some of them are medical facilities and doctor's offices but it does raise issues for local economic development and communities who really pride the use of office retail over industrial activity. So there really needs to be a diversification. They are becoming very attractive for communities. Big box retail, we're really not seeing the demand level that we used to. Again, talking from a real estate investment, they really have some issues right now all right.
Adam Robinson
No I think that's a very interesting topic, though, very die versus topic as Anne said how we as a society change brick and mortar and the rise of e-commerce is a big part of the technological change as a whole to the way we communicate, do real estate, purchase things, et cetera, so I think we'll have to look at our infrastructure and the facilities in real state differently than we have before. We'll have to collaborate. It will be interesting to watch. That's an interesting question. Time will tell.
Jennifer Symoun
Thank you all for attending today's seminar. The recorded version of this event will be available within the next few weeks on the Talking Freight website.
The next seminar will be held on February 18 and will be about Analyzing Regional and Interregional Freight Movements and Infrastructure Investment Decisions. Registration is not yet available but I will send a notice out through the Freight Planning LISTSERV once registration is open.
I encourage you to join the Freight Planning LISTSERV if you have not already done so.
