CHANGE IN THE FREIGHT MARKET: TRENDS, DISRUPTORS & FAST ACT Joseph Bryan OHIO PLANNING CONFERENCE JULY 2016
Agenda Overview Distribution Networks Retail Home Delivery Intermodal Rail Developments CAV 3D Manufacturing FAST Act & FASTLANE
Supply Chain Trends: Last 3 Years Number of SKU's 80% 12% 8% Direct to Consumer Sales 75% 25% Exports as a % of Outbound Shipments 60% 20% 20% Degree of Automation 60% 25% 15% DC Operating Hours 55% 13% 32% Cross Dock Volume 50% 33% 17% Outbound Order Size 50% 20% 30% Inbound Order Size 44% 6% 50% Imports as a % of Inbound Shipments 30% 26% 44% Live Loading Trucks 20% 45% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Increasing Trend No Change Decreasing Trend Source: Tompkins International: Supply Chain Consortium
Supply Chain Trends: Next 3 Years Number of SKU's 85% 7% 8% Direct to Consumer Sales 100% Exports as a % of Outbound Shipments 60% 20% 20% Degree of Automation 80% 5% 15% DC Operating Hours 65% 13% 22% Cross Dock Volume 60% 33% 17% Outbound Order Size 30% 20% 50% Inbound Order Size 45% 10% 45% Imports as a % of Inbound Shipments 30% 26% 44% Live Loading Trucks 30% 35% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Increasing Trend No Change Decreasing Trend Source: Tompkins International: Supply Chain Consortium
Tripling of Distribution Centers 4 years ago 6.4 DCs 240,000 ft 2 2 years ago 12.6 DCs 218,000 ft 2 Today 18.1 DCs 190,000 ft 2 Drivers: Time to Market Warehouse Automation Source: Tompkins International: Supply Chain Consortium High throughput, high ceilings, 2/3 smaller footprints Effect: Different economic geography, different role for master DCs (e.g. Columbus)
Retail Home Delivery ecommerce compound growth rate 17% since 2000, vs. 3% for storefront retail Signals profound and costly shift in retail with large effect on freight patterns Storefront vs. on-line strategies being invented Transportation planning must keep pace with change Chart Source: Alix Partners analysis of US Census data
Home Delivery Market Dynamics Battle for convenience Store or collection point pickup vs. delivery to consumer door Same day and 1 hour delivery require local staging facilities Battle to capture and grow limited route density Free delivery option now standard; same day is competitive wedge Free delivery encourages household bulks (e.g. paper products, pet food) means more and larger delivery trucks Emerging afternoon delivery pattern Developing demography: e.g. on-line millennials; aging, less-mobile baby boomers Chart Source: Alix Partners
Growth in Home Delivery Product Types Alix Partners Consumer Survey, 2016 vs. 2014: Products bought for delivery in past 12 months
Some Implications Challenge and opportunity for community integration of freight Neighborhood conflicts and security concerns Consumer benefits of freight become visible Delays become visible, too Freight may begin to vote Venue for cleaner, safer trucks e.g. via alternative fuels, CAV technology Amazon becoming a freight carrier New air hub at Wilmington Internalizing and walling off economies Logistics system is strategic advantage And revenue stream, like cloud computing
Intermodal Rail Developments NW Ohio Hub CCX NC Hub CSX NW Ohio hub represents new operating model Enabled by new crane technology Greater (& green) terminal capacity Builds corridor density to go beyond point-to-point service Serves formerly underserved markets: 550+ Miles Network now expanding with new CSX hub in NC Location announced July 2016 Puts more lanes & markets in play More service options for OH
Connected & Automated/Autonomous Vehicles (CAV) Future clearly arriving Family of technologies Sensors, driver assist are here now Truck platoons in active test Signal prioritization available Capacity gains a major draw Safety the probable entry way for freight Other performance gains ride coattails Start in controlled environments Turnpike doubles to platoons is no leap of imagination 11
Manufacturing by 3D Printing Product Suitability for 3D Printing Source: GRA Supply Chain Pty Ltd 3D substitutes local production for longer distance transportation from plants and DCs Major effect on transportation demand for right products Works for: specialized products, urgent products, replacement parts, some component parts Low volume, moderate valued products that require high customization on short lead times And again, the future is arriving
On-Demand 3D Printing Manufacturing Network Distributed on-demand manufacturing joint venture launched 5/16 UPS (facilities & delivery); SAP (enterprise supply chain management systems) Fast Radius (fabrication design) Production at 60+ UPS locations, including Dayton (Oakwood) & Cleveland (Lyndhurst) Offers integrated supply chain solution: SAP customers optimize use of 3D option Production scheduled at appropriate location Next day UPS zone 1 (or air) delivery Leverages large number of SAP & UPS users Stimulates market trial & development
FAST Act Freight Provisions Funding expressly for freight created for first time through $300 bil. 5-year federal FAST Act $6.3 bil. National Highway Freight Program formula funds dedicated to freight $4.5 bil. Nationally Significant Freight & Highway Projects (NSFHP) competitive grant program $4.0 bil. for highway projects, freight and passenger $0.5 bil. dedicated to freight rail and ports Pace of change outstrips infrastructure: 18,000 TEU ship arrives in LALB 6 months before new 12,000 TEU Panama Canal locks open Yields $214 mil. OH formula freight funds, averaging $43 mil. per year Graduated amounts Up to 10% for freight rail and ports
Use of Ohio Formula Funds OH formula funds useable on network with 3 components: Primary highway freight system: 1,425 miles of OR interstates and intermodal connectors already designated by US DOT in 41,500 mile national system adopted in FAST Critical Rural Freight Corridors: 285 miles statewide, designated by ODOT Critical Urban Freight Corridors: 142 miles statewide generally designated by MPOs - but total presumably adjudicated by ODOT State freight plans required, including 5-year fiscally constrained investment plan with priority projects, approximating a 5-year adjustable freight STIP Identifies use of formula freight funds Project list may be updated more often than 5-year state plan cycle Critical corridor designations also may be changed
Primary Highway Freight System Ohio Roadway Freight Network
National Highway & Multimodal Freight Goals National Freight Goals Policies, operational improvements & investments for: Economic competitiveness Congestion & bottleneck reduction Reduced costs and improved year-round reliability Productivity gain - especially by high value job generators Safety, security, efficiency, resilience: urban & rural Network state of good repair Advanced technology for safety, efficiency, reliability Economic efficiency & productivity of networks Improve short & long distance freight movement: across rural, rural-urban, port/airport/gateway connection Flexibility for multistate corridor planning & organization Reduce environmental impacts Avoid burdens to states & local governments Most linked to National Highway & Multimodal Freight Networks
NSFHP FASTLANE Program NSFHP is for shovel-ready projects, mostly of minimum $100 mil. size Construction can start 18 months from obligation Set asides: 25% for rural, 10% for small projects $25 mil. minimum grant; $5 mil. minimum for small projects FAST Act creates National Multimodal Freight Network Highway freight network plus Class I rail systems, major ports and airports, some other Not tied to NSFHP but apt to influence awards NSFHP favors multi-jurisdictional projects Multi-jurisdictionality not required, but NSFHP is the one program encouraging and supporting them Awards subject to congressional disapproval by joint resolution within 60-day notice period Implication: political coalition probably useful in competing for awards
FASTLANE Opened in 2016 $759 Mil. awarded to 18 projects in July 2016: $683 Mil. for 11 large projects (largest $165 Mil., most $40-$60 Mil.); $76 Mil. for 7 small projects; $266 Mil. for rural projects (35%); $200 Mil.+ for freight $40 Mil. large rural WI project only award in Great Lakes region Little evident multi-jurisdictionality General project eligibility: Highway freight projects carried out on the NHFN Highway or bridge projects carried out on National Highway System (NHS) Rail-highway grade crossing or grade-separation projects Freight intermodal, rail and port projects ($ dedicated & capped) 2016 FASTLANE applications something of a free-for-all; 2017 and beyond will be planned and deliberate The time to be planning, designing, and partnering is now
Thank You! WSP Parsons Brinckerhoff Freight & Logistics BryanJG@pbworld.com