By Jeannette T. Goldsmith, Vice President, Strategic Development Group
“Every company is a technology company.” I can’t remember who said this first or where I heard it, but there is no doubt that this statement is true. Even with the inevitability of it, we continue our collective hand-wringing about the move to greater automation and artificial intelligence on the manufacturing floor. There can be little doubt, however, that technology has already resulted in dramatic shifts in the transportation and logistics industry. These shifts have affected all facets of the industry including warehousing, distribution channels, fleets, and workforce. Strategic Development Group has seen how these changes are impacting the way in which companies select new locations for their logistics business.
Autonomous Vehicles and Drone Delivery
Perhaps the “sexiest” technology trend in the logistics industry is the use of autonomous vehicles and drones in the movement of products. While I am fascinated by the potential for autonomous vehicles, I have my doubts about how fast this technology will be adapted. There are two reasons for my hypothesis.
Federal and State Regulations
As we get closer to the likely deployment of autonomous trucks, the government will step in with rules and regulations that will govern the use of the technology in the wider environment. As of yet, Congress has failed to pass significant legislation (not surprising). The 115th Congress ultimately failed to pass the American Vision for Safer Transportation through Advancement of Revolutionary Technologies Act (AV Start Act).
Opponents of the AV Start Act cited the threat of public safety as their chief concern, noting that the bill rushed to allow the widespread sale of automobiles under the façade of safety, but would not require them to meet all of current safety standards. It was less than a year ago that an Uber self-driving car killed a woman, after failing to make an emergency stop. The National Transportation Safety Board also has pending investigations into crashes involving cars with partial automated driving capabilities.
While we wait for Congress to act, states are taking the lead in adopting legislation to regulate where and how autonomous vehicles can be used.
For example, in 2017, 33 states have introduced legislation related to autonomous. Governors in Arizona, Delaware, Hawaii, Idaho, Illinois, Maine, Massachusetts, Minnesota, Ohio, Washington, and Wisconsin, have all issued executive orders related to autonomous vehicles. The primary focus of these efforts fall into one of three areas:
- Testing and pilot programs. Most of the legislation or executive orders call for testing and pilot programs to be conducted in restricted areas such as universities. Similar orders call for strategic partnerships to leverage the social, economic, and environmental benefits of autonomous and connected vehicles.
- Insurance and other related issues. A handful of states are beginning to address legal issues related to operating AVs. Specifically, these actions address issues such as vehicle registration, licensing, insurance, traffic regulations, and vehicle owner or operator responsibilities and liabilities under current law. Some demand the review existing state statutes and administrative rules and identify existing laws or rules that impede the testing and deployment of autonomous and connected vehicles on roads.
- Finally, there are a small number of states that are working to build appropriate infrastructure for the safe and effective use of autonomous vehicles. Specifically, Ohio’s Governor John Kasich signed an executive order to “bring together those who are responsible for building infrastructure in Ohio with those who are developing the advanced mobility technologies needed to allow our transportation system to reach its full potential by reducing serious and fatal crashes and improving traffic flow.”
While traditionally logistics companies have focused on states and locations that are most appropriate for their distribution network, it is now often the case that companies are considering states where autonomous vehicle infrastructure is being developed. For example, some states are beginning to allow “vehicle platooning” (Vehicle Platoon is a group of motor vehicles that are traveling in a unified manner under electronic coordination). For example, a number of states including, Indiana, Kentucky, Louisiana, Maine, Mississippi, Nevada, Pennsylvania, Ohio, South Carolina and Tennessee, have all enacted some sort of legislation to clarify what defines a platoon and what types of vehicles can be included in a platoon. In addition, these legislative actions also lay out specific regulations for vehicle platooning. It is critically important for companies that are considering new locations or expansions and intend to heavily invest in new technologies for transportation and logistics, to review and understand the legislation in each of the states they are considering.
The second reason for my skepticism is the issue of legal liability. There will be changes in the insurance system for autonomous vehicles and trucks. The biggest impact will be in the area of liability coverage. Over time, the manufacturers of vehicles or crash-avoidance software will become increasing liable for accidents. Municipalities could also become liable as they begin to implement tracking and other information collection technology. Finally, comprehensive coverage will change as the cost to repair or replace vehicles will rise.
One important impact of insurance changes to logistics companies and their expansion requirements is in the area of uniformity of insurance requirements. Currently, insurance requirements are governed by the states. As car manufacturers are required to accept more responsibility for damage and injuries, they will likely push for a greater uniformity in order to eliminate compliance costs. Again, we are seeing differences in the way that states are handling the issue of insurance and legal liability. Again, companies will need to evaluate states requirements for insurance prior to making location decisions. For example, in Michigan, there is legislation that limits the liability of a manufacturer or “up-fitter” for damages in a product liability suit resulting from modifications made to automated vehicles. This might expose truck companies or truck owners to additional liability.
Another aspect of insurance or legal liability that will become an important location decision is the investment in appropriate infrastructure. The insurance requirements might be different if there are areas set aside. For example, if a truck is “driven” in an area that uses dedicated lanes for vehicle platooning and automated driving, there may be less severe legal liability. More on the importance of infrastructure next.
Another important issue in the location decision of logistics companies is the investment in public infrastructure. Infrastructure expenditures in this country fall woefully short of keeping up with current demands. So often, states and communities are spending dollars to address issues that should have been addressed two decades ago and they certainly don’t have time or money to think about the infrastructure needs of the next two decades. At the heart of autonomous vehicles is the sensors and systems on board that collect thousands of data points a second to make decisions. But, where are those data points coming from? They have to come from the built environment in which those vehicles operate – traffic lights, road signs, lane striping, road beds. With the exception of some purpose-built controlled environments, there is little to no investment in this infrastructure.
It will be important for companies seeking to adopt autonomous delivery strategies to evaluate the level at which the state is addressing the infrastructure needs. As private companies begin to deploy 5G technology in different cities around the country, cities and states need to be sure that they have the right connectivity to allow for vehicle-to-vehicle and vehicle-to-signal communications. This might include proactively investing in the implementation of broadband services in rural areas or “dead zones.”
Some needs are more simple. For example, AVs need clear lane markings and signage in order to operative. In a recent demonstration of an autonomous vehicle, the vehicle behaved erratically due to poor road markings. Investment in infrastructure is going to be different from state to state and location to location. This will require careful consideration during a company’s search for new facilities.
Currently, the use of drones in the logistics sphere is limited to fleet and inventory management systems – drones are used to identify the location of trailers, shipping containers, and other assets in hard to reach areas. In addition, drones are being increasingly used inside the four walls of the warehouse for inventory control. Equipped to carry various technologies (GPS, RFID, OCR, and barcode readers) the drones fly to locate and identify assets that have been tagged in a yard or port. For example, Walmart has implemented a fleet of drones inside their distribution centers that fly autonomously. These drones can scan a volume of inventory that would require up to 50 humans.
For logistics companies implementing drone technology for inventory management, the lack of rules and regulations will likely limit the use of drones to inside the facility’s footprint.
The Federal Aviation Administration (FAA) has been slow to allow commercial use of drone aircraft, much to the chagrin of companies like Amazon and Google. However, the agency may be on the verge of loosening restrictions to make commercial drones more useful in the U.S. Under a set of proposed rules, commercial drone operators could fly aircraft at night and use them over populated areas.
There are a number of hurdles to the larger adoption of drones in the logistics industry. The most significant of these hurdles is the “line of sight rule,” which requires that drone operators keep the aircraft within eyeshot at all times. This clearly removes any benefit that the use of drones in the delivery space, as the need to keep a drone in the operator’s sight defeat the purpose of using the drone to drop off a package at an individual house or building. A second impediment is that the solution still requires not just the technology, but a certified pilot to oversee the drone.
The FAA will let licensed operators fly certain drones over populated areas. The most notable restriction is that only small drones can do so without any additional regulatory oversight. The small unmanned aircraft can weigh no more than 0.55 pounds (0.25 kilograms). That’s one-hundred times smaller than Amazon’s proposed Prime Air drones, which weigh about 55 pounds (25 kilograms). For drones larger than the limit, manufacturers have to conduct testing that proves they would not cause serious bodily injury if they crashed into a person. That means exposed rotors are out.
Most state regulations focus on use of drones in law enforcement, emergency management, agriculture and forest management, etc. Other legislation deals with what drones cannot be used for. Very few states have tackled the issue of how, where and when drones can be used for commercial or transportation purposes.
One area where states and municipalities could make a difference in the adoption of drone technology in the logistics industry is the adoption of legislation and the appropriation of funds to develop drone docking stations (technology that Amazon has recently patented). At this time, however, there are very few states and communities that are discussing this issue and, as such, it has not yet become a critical location factor for companies seeking to build new, expand or relocate facilities.
Robots Take Over the Warehouse
Robots have made advancements in many areas of our lives – from vacuuming my house on a daily basis to the way in which many goods are manufactured. Many experts believe that Robotics will have the biggest impact in warehouse environments. The whys are obvious: turnover in warehouse employees is among the highest, people tend to make more mistakes than robots, and the product leakage. The intersection of robotics and humans on the warehouse floor – collaboration robots or Cobots – has the potential to dramatically change the way distributors pick, pack, ship and deliver goods.
Again, the issue of public infrastructure is key to the successful adoption of robotic and artificial technology in warehouse operations. Broadband capacity is obviously key to the ability to use the robotic technology. In many locations, there is limited access to broadband service.
In addition, access to electric capacity is important. Robotics require additional electric capacity both inside and outside the facility. Access to sufficient electric power will become a key factor in location decisions for highly-automated warehouses.
Until there is a full adoption of robotics and artificial intelligence in the logistics industry, humans will continue to make up a majority of the logistics workforce. As the pool of skilled labor continues to decline in the U.S., all companies need to dramatically alter and improve their methods for recruiting and retaining a talented workforce. As the nature of work continues to change and jobs in the logistics industry continue to shift from manual abilities to more technical and computer-based skills, this labor shortage will become more acute. In addition to the move towards more automated logistics infrastructure, customer demand for faster delivery times is also placing pressure on the logistics workforce.
Companies that are considering expansions should look for communities that place a heavy emphasis on workforce development and training programs. Specifically, companies should look for communities that have robust and sophisticated Career Technical Education (CTE) programs. These programs allow high-school students to explore different educational opportunities in variety of different areas. In addition, communities should evaluate the program offerings of local technical colleges to ensure that they have associate degrees or certificate programs in relevant areas. Finally, companies should look for areas that have high-school internships or apprenticeship opportunities. Immersive programs like apprenticeships have an increasingly positive impact in terms of increasing awareness of jobs in different industries.
As technology continues to evolve, it becomes easier to adopt into new environments. The transportation and logistics industry will be no exception. The adoption of these technologies will mean companies, who are considering new facilities, will have to investigate different location criteria. No longer will the evaluation focus solely on the size and configuration of a site and availability of labor. New criteria include the evaluation of the built environment in an around the region to allow for autonomous vehicles and robots guided by wireless computers, access to electricity at potentially larger loads than current warehouses demand, access to a more sophisticated workforce, and any legal and insurance regulations that are being adopted at the state and local levels.
About the Author: Jeannette Goldsmith is Vice President of Strategic Development Group, where she specializes in site selection and incentive negotiations for clients worldwide. Jeannette’s background spans more than 20 years in site location consulting, incentive negotiations, and economic development consulting with McCallum Sweeney and then with her own company, Goldsmith Strategy. Her specific experience includes a heavy focus on manufacturing (specifically, aerospace, logistics, advanced materials and automotive sectors), as well as office sectors. Recent clients include Suntory, Boeing, Nissan North America, Suncoke Energy and Vought Aircraft. Among Jeannette’s most notable projects, are Nissan North America’s headquarter relocation from Los Angeles to Nashville, the Boeing 7E7 Final Assembly siting project and the Vought Aircraft/Alenia Aeronautica 7E7 supplier site project. For more information about Strategic Development Group visit https://strategicdev.com/process/ or https://strategic.com/contact-us/.