Modern supply chains are an outstanding example of efficiency. As such, they have made possible the economic globalization and prosperity that have marked the last several decades of world history. Efficient supply chains bring to market an incredible array of goods and, in doing so, have helped to elevate the standard of living of low-income families, ranging from coffee growers in Ethiopia, to honey producers in the highlands of Guatemala, to rice farmers in India.
Despite their unprecedented levels of overall efficiency, today's supply chains continue to face huge challenges in the cities and metropolitan areas where they operate: congestion, pressures for increased environmental sustainability, the need to mitigate global warming and climate change, and the desires of urban communities for enhanced quality of life. In our opinion, overcoming these challenges is beyond what the private sector—or any other stakeholder group—could achieve on its own. The public sector cannot address these challenges alone, nor can local communities or the supply chain and logistics services industry. Public-private-community collaborations are the only way to succeed.
We have been involved in just such a project in New York City, popularly known as "The Big Apple." This initiative, called the Off-Hour Delivery Project, has been successful in helping shippers and carriers avoid congestion and reduce transportation-related pollution, as well as in improving the quality of life in the area where it has been implemented. In this article, we will first describe some of the conditions that are putting pressure on supply chain operators to address those concerns, and why the current approach—the public sector issuing mandates and the private sector adapting to them—is ineffective. We'll then explain how and why the Off-Hour Delivery Project came about, how it works, and why we believe it can serve as a model for other cities.
The challenges of urban delivery
Very few people would be surprised to hear that urban congestion adds trillions of dollars in costs to the world economy and does untold damage in terms of pollution, emission of greenhouse gases that contribute to climate change, accidents, and livability. The masses of delivery vans and trucks of all sizes that bring supplies to our cities are forced to travel at low speeds and in stop-and-go conditions that significantly increase the direct costs to the carrier and the amount of pollution their vehicles produce. Because of the lack of suitable parking in cities, drivers typically have to double-park out in the street while making deliveries, or they must park far away from the receiver's location. The additional physical effort involved means that drivers must reduce the amount of cargo they can carry in one trip from the truck to the receiver's premises. This situation also increases the amount of time required to make deliveries as well as the amount of time vehicles will have to remain parked at the curb or double-parked.
Additionally, the unreliable travel times that accompany congestion force receivers to maintain wasteful inventory stocks in order to protect themselves from short-term shortages of supplies. They also lead carriers to maintain buffer times to ensure that deliveries can be made in compliance with the hours-of-service regulations that govern drivers' work periods, which in turn leads to underutilization of their assets. Moreover, congestion increases the risk of accidents as well as the risk of conflicts among delivery trucks, pedestrians, bicyclists, and other forms of passenger transport.
Although this describes typical conditions in modern-day cities, these problems are as old as cities themselves. Consider that more than 2,000 years ago Julius Caesar, in his Lex Iulianis Municipalis, banned deliveries during daylight hours to reduce congestion in ancient Rome.
In spite of these negative byproducts of freight transportation and distribution, the economic importance of supply chains is undeniable. Without the continuous flows of supplies into our cities, urban living would not be possible. Our estimates provide an indication of the staggering amount of cargo that enters urban areas today. If we weighed all the cargo (excluding solid waste) entering and exiting a metropolitan area and then divided the resulting total weight by the total population, we would find that, on a per-capita basis, a resident of New York City produces about 50 kg/person-day; a resident of Bogota, Colombia, produces about 25 kg/person-day; and a resident of Port-au-Prince, Haiti, would account for a more modest 8 kg/person-day. The higher the income, the larger the amount of cargo generated.
What is all that cargo for? These are the supplies needed by the manufacturing economy (80 percent of manufactures in the United States are produced in metropolitan regions), regional trade systems, and local consumer economies. The shift of urban economies to the service sector does not seem to reduce the amount of cargo generated. A case in point: New York City generates about the same amount of cargo today as it did 50 years ago, when it had an economy primarily based on manufacturing. The chief implication is that increases in income will lead to increases in the amount of cargo to be transported. If the historic trend of rising incomes holds, then distributing supplies in cities will get even harder because more cargo will have to be transported within pretty much the same networks.
At the same time, providers of all forms of freight transportation services are under growing pressure to reduce energy consumption and other byproducts, such as air pollution, noise, and conflicts with pedestrians and bicyclists. The industry is also expected to meet increasingly strict expectations in terms of safety, cost, speed, and reliability of deliveries. It will be difficult to comply with these conflicting demands, and something has to give.
In the past, the transportation and logistics industry has responded to similar challenges by redesigning its operations to adjust to the new set of constraints, and by striving to achieve a higher level of efficiency. However, there is a limit to efficiency increases. Sooner or later, a point will be reached where the current paradigm of public-private sector relations—where the public sector regulates and the private sector operates—will have to give way to something different. We hope that the new paradigm will be one that is based on multi-stakeholder collaboration. This new paradigm should be centered on the implementation of innovative operations that enhance economic efficiency and productivity while also fostering environmental sustainability, safety, quality of life, and environmental justice (by minimizing environmental impacts that disproportionately impact disadvantaged communities). As this article will show, it is indeed possible to achieve all of that.
Target the cause, not the symptoms
The fundamental role of public sector policy is to foster the most efficient use of human, economic, and environmental resources. A key mechanism for reaching this goal is to eliminate the "market failures" that prevent the private sector agents from achieving the best outcome for society, the one that maximizes economic welfare. Quite frequently, these market failures are produced by the presence of economic externalities, which are those impacts that are not directly felt by the participants in the economic transaction. For instance, when we drive we do not consider the congestion that we produce, which is only felt by the drivers behind us. Considering that negative externality in our decisions would lead us to drive less. As long as the cost of removing the externality is smaller than the associated economic benefits, eliminating or reducing the externality makes economic sense.
The public sector approach in this regard has been to enact policies, incentives, and regulations that target the delivery vehicles that produce the externalities. However, our research has conclusively proved that in many cases the behaviors that produce the externalities are the result of decisions made by the receivers of the supplies. In such cases, focusing only on the carriers does not necessarily lead to the elimination of the externality, because the root decision is being made by someone else. In other words, targeting the symptoms does not eliminate the problem, as the carriers are only the physical expression of the activity.
Let's consider a couple of examples: truck parking and the congestion produced by truck traffic. Truck parking in urban areas is an enormous issue for delivery companies on account of the parking tickets and fines they receive (which in New York City average between US $500 and $1,000 per truck, per month) and the time they lose when trying to find suitable parking spaces. This is also a major problem for cities, as the net effect of trucks double-parking or circling around the block searching for parking is increased congestion and pollution.
The parking problem typically results from the combined effects of an inadequate supply of loading areas or truck parking spaces and a very heavy concentration of deliveries in relatively narrow periods of time. The former is the fault of cities failing to allocate curb space for deliveries, while the latter is the result of the receivers' time-of-delivery decisions. The carriers are simply caught in the middle. In the Manhattan section of New York City, for instance, there are 10 ZIP (postal) codes where the demand for parking spaces to make deliveries exceeds the linear capacity of the streets. This would be true even if passenger cars and buses were not allowed to use the curb! About 95 percent of deliveries there are made between 6 a.m. and 7 p.m., while only 5 percent are made between 7 p.m. and 6 a.m. This situation is evident in Figure 1, which shows Manhattan's parking occupancy, daily deliveries and truck trips, and number of business establishments by ZIP code.
A similar situation occurs in regard to traffic congestion. Most citizens are quick to blame truck traffic for the congestion in urban networks (notwithstanding the fact that trucks typically represent less than 10 percent of the total vehicle traffic). Congestion pricing frequently is suggested as the best way to encourage carriers to send their trucks into the city during less congested hours. But, as research has revealed, raising tolls does not lead to changes in the time of travel. The reason is simple: Trucks are traveling during the congested hours of the day because their customers demand it. The carriers are so afraid of losing business that in most cases they do not pass the toll costs on to their customers. After the Port Authority of New York and New Jersey put in place a time-of-day pricing initiative in 2001, only one out of nine motor carriers was able to pass on the added toll costs to their customers. Moreover, the passed-on costs were too small to influence a behavior change on the part of receivers. As a result, the expected reduction in truck traffic did not materialize. The same happened in London after congestion pricing was implemented there.
These examples reveal that, while the carriers do have control over some aspects of their operations, they must be responsive to the wishes and expectations of their customers, whether receivers or shippers, or they will not be in business for long. But there is a viable alternative. Our research has clearly demonstrated that inducing changes in behavior on the part of receivers could do wonders to increase the profitability, sustainability, and economic productivity and efficiency of carrier operations as well as the livability and quality of life of the urban communities where the trucks operate. The important role that receivers play is the result of: (1) their physical locations, at the heart of the congested areas; and (2) their power in determining the time and frequency of deliveries.
This recognition of the critical role of receivers leads to a key question: If influencing the receivers could have such an impact, why haven't shippers and carriers induced receivers to change their behavior? There are two key reasons. First, in competitive markets, receivers have multiple options to choose from. If vendors or carriers are perceived to be "too pushy" about changing the timing of deliveries, receivers may react by simply replacing them. Second, the only mechanism that carriers have for influencing receivers is to offer lower shipping rates. However, with "free shipping" offers and already razor-thin profit margins, any discounts the carrier could offer are likely to be too small to make a difference. Essentially, shippers and carriers are in no position to influence the behavior of a meaningful number of receivers.
Without any doubt, the public sector is the one best positioned to influence receivers' behavior. Why should the public sector take such a step? Simply put, because this is the best opportunity local government has to reduce urban congestion and pollution; enhance livability, environmental justice, and quality of life for its citizens; increase sustainability; and foster economic productivity and efficiency. Let's look at the Off-Hour Delivery (OHD) Project pioneered in New York City, which continues to have a significant and beneficial impact on all of those factors.
How—and why—the program works
The OHD Project is an innovative receiver-centered freight program. This initiative relies on incentives (financial or otherwise) to induce receivers to accept deliveries in the off hours (7 p.m. to 6 a.m.). Since the incentives remove the receivers' opposition, and the carriers generally are in favor of off-hours deliveries, entire supply chains can switch to the off hours.
Starting as a small research project in 2002, the OHD project is transforming urban freight policy and has won the enthusiastic support of the private sector, which is collaborating in its implementation. Leading partners include: the Manhattan Chamber of Commerce, the New York State Motor Truck Association, the New Jersey Motor Truck Association, the Waldorf Astoria hotel, food and beverage distributors Sysco and Beverage Works, and retailers Whole Foods, Foot Locker, CVS, and Duane Reade, among many others. As part of this research project, more than 400 establishments and companies in Manhattan have switched their deliveries to the off hours. This change is larger than that produced by the implementation in 2001 of higher tolls during peak delivery hours, a measure that was bitterly opposed by the private sector.
The OHD project has been implemented in stages. After a successful pilot that concluded in 2010, the United States Department of Transportation's Office of the Assistant Secretary for Research and Technology sponsored a "launch" phase in June 2011. We called it a launch phase because the project was intended to start the implementation, which could take years to complete.
There are two modalities by which off-hour deliveries can be received: (1) staffed, meaning that someone who works for the receiving business is present to inspect and sign off on the deliveries; and (2) unassisted, or unstaffed, indicating that the supplies are left at the establishment without the need for someone to be present. Both modalities were tested during the pilot phase of this project, but the project provided the receivers with an incentive of US $2,000 dollars if they committed to trying unassisted off-hour delivery (UOHD) for three months. At this stage, only unassisted deliveries were considered because they do not require an ongoing incentive.
During the pilot phase, unassisted OHD performed extremely well. In most cases, the receivers granted access to the carriers by either giving them keys to their receiving areas or by having them use electronic keypads to gain entry. One interesting example of the technology that can facilitate unassisted off-hour deliveries is that of a retail store in a commercial mall in Boston, Massachusetts, that receives merchandise in a "virtual cage"—a section of the store delimited by laser beams that activate an alarm if touched.
In the pilot phase, half the participating establishments used staffed OHD while the other half used UOHD. At the end of the pilot, all establishments using staffed OHD reverted back to day deliveries when the incentive period ended, because they could not afford the staffing expense without the incentive. In contrast, all but one of the establishments using UOHD decided to stay in the program.
Participants had expressed some concerns about unassisted deliveries. But having tried it without any disaster befalling them, the managers at those companies were won over by the superior reliability of UOHD, which enabled them to always receive their supplies on time, reduce their inventory stocks because safety stock is not needed, and save on delivery costs because the vendors transfer some of their savings to the receivers. The case of a small salad restaurant is illustrative. With daytime deliveries, the restaurant had to always have enough fresh produce to last a day and a half in order to protect against delivery delays. In contrast, with UOHD the necessary supplies for that day are already in the walk-in refrigerator when the staff arrives for work. The restaurant was therefore able to reduce its inventory stock to one day and employ its staff in the most efficient manner.
Another concern regarding off-hour deliveries identified during the pilot phase was the possible effects on the community of noise from the OHD operations. Based on a comprehensive review of noise-control technologies, policies, and programs, the project team implemented a three-stage approach to addressing the noise issue. The first stage was to educate project participants about proactive noise-mitigation measures such as driver behavior (don't slam the cargo door, for example), low-cost noise-control measures (such as using noise-absorbing materials like special noise-reducing vehicle coatings), and low-noise trucks and equipment. The second stage required participants to commit to proactively addressing the noise issue. Participants agreed to a code of conduct that includes taking steps to avoid and/or mitigate noise issues that may occur during OHD. The third stage was to direct anyone with noise concerns to the New York City Department of Transportation and the New York City Department of Environmental Protection for further assistance and enforcement actions, if warranted. These measures have been quite effective, and essentially no noise complaints have been logged against the participating companies.
The OHD project is widely acknowledged to be one of the most effective and business-friendly public sector interventions for the following reasons:
New York City's experience with the Off-Hour Delivery Project makes a compelling case about the transformative impacts of public-private sector cooperation to accomplish what otherwise would be insurmountable challenges. By means of a collaborative approach the OHD program benefits all involved: Shippers and carriers benefit from improved asset utilization and reductions in parking fines because they could use their fleets more intensively, and because parking fines are rare in the off-hours; receivers enjoy superior reliability, lower delivery costs, and reduced inventory because of the more reliable and efficient deliveries; local communities benefit from increased quality of life and livability in the day hours without being negatively impacted by off-hour noise thanks to noise-reducing delivery practices and technologies; and regular-hour travelers enjoy faster travel times and fewer conflicts with delivery trucks because of the reductions in daytime truck traffic.
What role should local communities play in this process? Our position is that local communities are bound to play a key role in the transformation of supply chains for the better. The reason is simple: In competitive markets, consumers have a great deal of power. However, for this power to be properly channeled toward increasing sustainability of supply chains and urban economies, consumers need information about the sustainability of supply chains.
Here's one potential way to provide that information. Imagine that city agencies, in collaboration with industry groups, created a certification program that rates the sustainability of the supply chains that deliver to urban areas—let's say, restaurants and retail stores that exceed a minimum threshold in size. (Note the emphasis on the receivers, not the carriers.) As part of this certification program, the supply chains serving an establishment would be rated on the basis of the operations of both the carriers and the receiver itself. If, for example, the carriers used electric trucks or alternative fuels, or they engaged in other sustainable practices, they would earn points in proportion to the beneficial impacts of their adopted measures. Similarly, if the receiver adopted sustainable practices, such as OHD, retiming or consolidation of deliveries, and so forth, points would be added to that establishment's sustainability score. The score would determine a letter grade that would be posted where potential customers could readily see it.
To allow enough time for implementation and adjustment, such a system could be set to start two years after it is created. A properly advertised and objective supply chain-sustainability rating system would provide consumers with information about whether or not their favorite restaurants and retail stores are doing their part to reduce their environmental footprint. Discerning customers might decide to patronize the establishments that are doing good things for the environment. In response to customer pressure, establishments would react by transferring that pressure to their vendors. Vendors and carriers that take steps to increase the sustainability of their operations would be rewarded by gaining new customers. In contrast, vendors and carriers that will not take such steps may lose customers.
Essentially, a certification program like the hypothetical one described here would remove a key obstacle for supply chain sustainability: the lack of market incentives. Currently, the markets offer very few rewards for vendors and carriers that take steps toward sustainable operations. In fact, there are cases where the market provides disincentives: Purchasing a more expensive electric truck may be a poor business decision if the electric truck does not generate additional revenues.
Facing the challenge together
The Off-Hour Delivery Project in New York City has produced significant benefits for all categories of stakeholder: federal, state, and city governments; shippers, carriers, and receivers; and local residents. Nevertheless, local communities and elected officials should recognize that there are no perfect solutions. It is simply not possible to transport the increasing amounts of cargo consumers demand without increasing truck traffic or producing negative externalities of some kind.
This is not to say that communities should not demand a more sustainable world. On the contrary, communities are right to demand sustainable and livable urban environments while being pragmatic about what could be accomplished. After all, we are in this together. Since our purchase decisions are at the root of the current situation, consumers should be part of the solution. It is our opinion that only multi-stakeholder collaborations involving local communities together with the public and private sectors could tackle the gigantic challenge of increasing the sustainability of modern supply chains.
Here are just a few of the interesting facts researchers uncovered in the course of planning for the Off-Hour Delivery Project in the Manhattan area of New York City:
[Source: J. HolguÃn-Veras, et al., "Overall Impacts of Off-Hour Delivery Programs in New York City Metropolitan Area," Transportation Research Record (December 2011)]
1. J. HolguÃn-Veras, et al., "Overall Impacts of Off-Hour Delivery Programs in New York City Metropolitan Area," Transportation Research Record 2238 (December 2011): 68-76.
2. Josh Sanburn, "10 Ideas That Make a Difference: Deliver a Fix for Traffic Jams," Time, March 25, 2013, 40.
3. City of New York, "PlaNYC: A Greener, Greater New York: Update 2011" (2011).
4. Federal Highway Administration, "Federal Grant Opportunity Request for Applications (RFA): Off-Hours Freight Delivery Pilot Project" (June 13, 2012).