The lessons of integration

posted on 29th May 2019
The lessons of integration

DHL is introducing new handling technology to harness e-commerce growth across its logistics platforms, with air freight connectedness front and centre, reports Mike King

The recent and rapid expansion of international e-commerce demand has resulted in surging flows of parcels and freight of all dimensions and weights across transport modes and trade lanes. And, with customers demanding rapid delivery, air freight has been the big winner. Indeed, e-commerce has quickly become a mainstay of the global air cargo industry and is forecast to be a prime driver of growth in the years ahead.

However, while cross-border e-commerce is creating multiple opportunities for supply chain stakeholders, the challenges of harnessing the latest technology to meet complex and demanding B2B and B2C expectations are substantial. For the largest integrators such as DHL, the need to optimize multiple-commerce parcel, express and freight flows in ways that satisfies end users and generates internal synergy adds further complexity to the logistics mix.

Multi-pronged approach

Certainly, Deutsche Post DHL Group has made maximising the revenue potential of e-commerce across its diversity of businesses a key target and is taking a multi-pronged approach to achieving its aims, both in terms of establishing optimal processes across its various divisions and via the introduction of new technologies at sorting and warehousing stations and hubs.

Establishing a coherent structure has been a priority. Last year this saw the Group’s Post – eCommerce – Parcel (PeP) division refocused on the German post and parcel business and renamed Post & Paket Deutschland. This allowed its international parcel and e-commerce businesses – previously known as DHL Parcel Europe and DHL eCommerce – to be set up as a standalone division branded DHL eCommerce Solutions led by Corporate Board Member Ken Allen.

Steps are now being taken to increase cooperation between the company’s various arms that handle e-commerce. John Pearson, CEO of DHL Express, told CAAS that generating synergies between DHL’s air, express, supply chain and freight operations would be critical. As far as he is concerned, which division handles the cargo and how it passes through DHL’s internal global network is less important than getting the customer interface correct.

“It’s less a synergy thing, more a fact that all elements of the supply chain are covered by us,” he said. “Ken is working on the whole e-commerce solutions strategy – fronting up to a customer with all the divisions behind him saying: ‘Here’s our e-commerce platform and here are the solutions we can give you as the retailer’.”

Leipzig operations

Peter Wiegand, vice president for operations at DHL’s Leipzig hub, explained to CAAS in more detail what the strategy looks like in terms of internal processes. “As the Deutsche Post DHL Group, we have always worked together across divisions to ensure optimal use of the capacities across our logistics channels,” he said. “For example, in order to make the best use of our resources at DHL Express, we make spare capacity in our dedicated air fleet available for purchase by other companies. This allows us to increase efficiency and profits. The main customer for our spare capacity is DHL Global Forwarding. This is just one of many ways that we work together across business units to increase our efficiency and quality.”

DHL’s Leipzig hub (LEJ) is one of its largest, covering 1.2 million sqm and with 87,000 sqm of warehousing supporting a 1,600 metres x 400 metre apron. At present it handles 2,000 tonnes per working day and offers a sorting capacity up to 150,000 packages per hour.

Large Automated Conveyor System

Wiegand said the majority of LEJ’s sorting processes are already fully automated. Central to the logistics of LEJ is LACS (Large Automated Conveyor System). “Automation is an important part of ensuring the efficiency of our work, and our DHL Hub Leipzig uses a LACS, which gives a competitive advantage because this is the first system [set up] for previously non-conveyable bigger pieces,” he said.

“LACS is something which can be installed in any other place with similar requirements – that is, a high number of non-conveyable pieces and limited operational time window. It is foreseeable that other mega hubs will deploy such a system in the future. However, a critical mass is needed to make sure that the investment pays off.”

Automation and digitalization drive synergy across the group, the company says, including the application of the ‘best in class’ handling of DHL Express to larger shipments at key hubs and by speeding delivery to final customers. “We are taking advantage of the opportunities offered by automation and digitalization for our customers as well as to improve our internal logistics processes,” Wiegand explained.

“At LEJ, our digitally controlled scanning and distribution systems are linked together to automatically control the assignment of shipments to individual delivery routes and vehicles.”

LEJ Hub is now using auto sort systems for small parcels, parcels and pallets. “LACS has been developed and piloted at LEJ Hub and has been live since 2017,” he added. “Automated guided vehicles (AGVs) are the next area we are looking at.”

Wiegand believes digitalization and automatization will help address workforce shortages as a result of demographics in Europe and the US. “The investments in new technologies, such as collaborative piece-picking robots, artificial intelligence applications and self-driving vehicles not only result in huge productivity gains, they also offer exciting opportunities for the logistic workforce,” he said.

“Increasing volumes, customer requirements and – depending on the region – a shrinking workforce caused by demographic effects make automation necessary.

“Digitalization makes the logistics industry more attractive for a new profile of employee, helping us attract and retain new talent. The value of our existing employees is also enhanced through additional qualifications and training that equips them to work with the most advanced technologies. Lastly, robots take over repetitive and physically demanding tasks, which is especially helpful for ageing workers.”

DHL is now examining how best to use robotics to break down ULD pallets and containers as part of its technological drive. “DHL Express is always looking for opportunities to implement new technologies in our daily business,” said Wiegand. “At LEJ Hub, we tested a video-based facilitation of ULD pallet build up. But robots for break down or build up do require standardized packages and ULDs. We believe that robotics can support workers but won’t be able to replace manual work.”

Tracking devices

Asked how DHL Express uses tracking devices on its ULD pallets and containers, Wiegand said since 2015 several tests and trials on different devices from different suppliers had been conducted to verify functionality. “We are currently in the process of identifying and selecting a solution which fulfils DHL’s requirements as well as the rules and regulations of Aviation Authorities such as FAA and EASA and the airlines the ULDs are travelling on,” he added. “We expect to start implementing a solution later in 2019. Additionally, we are working on localizing roll containers with electronic tools/aids.”

Although some leading airlines and ULD pooling companies are now beginning to introduce tracking for air freight units, he said this was not a competitive threat to DHL. “DHL Express has for many years a well-established automated process of tracking without the need of location devices on the individual ULDs,” he said. “This process is supported by manual activities where necessary to increase accuracy.

“This automation is not common everywhere in the industry. Therefore, this may be seen as an advantage to DHL Express. Having this process in place and not having the urgent need to fix a large gap with regards to ULD tracking, DHL Express is in a comfortable position to be able to select the best solution for ULD tracking according to our requirements without the need to compromise on functionality.

“I believe this is an advantage and will stay an advantage when further improving processes, not just for ULD tracking but further integrating ULD data with operations, through the use of individual tracking devices on ULDs.”

Customer or competitor?

Airport capacity in the Amazon era

Greg Hewitt, president of DHL Express US, was a disappointed man as the peak season loomed in the US late last year. As demand soared, he had hoped to use a B767 freighter from Hong Kong into JFK before heading on to Miami. This would have enabled DHL to serve the North East US market direct from Asia. However, five days into the service the slot was pulled, meaning there was no North East stop. This entailed cargo being shipped to Miami and re-routed from there, driving up the pricing point and losing time.

Such is the difficulty of working at capacity-constrained US airports where it is not always clear when and where a slot is open. Hewitt was happy with how DHL had coped, noting that “the DHL Express network offers the flexibility to work around any capacity constraints”.

He continued: “We have regular flights operating at most major US airports, including ATL, JFK, LAX, MIA, ORD and our main Americas Hub in CVG, which allows us to find the routings and schedules that best meet our customers’ expectations.”

However, as some of the largest tech companies start building their own logistics networks, competition for freighter capacity at some airports in the US is set to ratchet up.

Amazon as ‘customer’

Asked if leading e-tailers such as Amazon were now viewed less as customers and more as competitors – for slots and capacity as much as for customers – as they expanded their own logistics networks, Hewitt was adamant that Amazon remained firmly in the ‘customer’ category.

“In my position in the US where I don’t offer a domestic service offering, when you look at some of those companies building out some of their infrastructure in local markets to help meet their demands and their needs for domestic capability, they’re not a competitor to me,” he said.

“You use Amazon as a good example. They’re a very important customer of ours; we do a lot of their inbound and outbound and international volume. We work with them as a strategic partner in Cincinnati where we manage a day sort for their domestic air network. So, for me they are very much a great customer and someone that we work with. And their rise or move to introduce new forms of last mile delivery and get close to customers doesn’t put pressure on my network or capability, so I’m in a good position.

“I think when you look at DHL overall, certainly in other markets where maybe we were doing the domestic work for them, if they continue that path in other markets, we’ll have to be able to adapt much like UPS, FedEx, USPS are having to.

“We recognize that we might not carry all of that volume for that final mile that we enjoyed before. But for me, they’re good at growing and have been a great customer of ours.”

Hewitt also said Amazon’s move into air freight with its 2016 deal with Atlas Air and ATSG did not signal that integrators had failed to provide the service and capacity levels the e-retail giant required.

“They will have come to the players on those lanes and asked for that capacity and capability,” he explained. “The question would be, ‘would any of us accept the risk of building out the infrastructure with only the type of freight or cargo agreements we have today that allows moves and switches’? I think it’s an indication that maybe some of the domestic players were not prepared to take that risk and make that investment without a certainty around the volume and an ironclad contract.

“I think when they were not prepared to do that, Amazon said we can’t take that risk, we need to continue to grow, we need to make sure that we’ve got the production and then they set themselves up for it.”