German logistics giant still has small share of U.S. package distribution, but hopes new centers will change that.
DP DHL Group (Xetra: DPW) is looking to add more warehouse automation in a push to expand its U.S. e-commerce logistics business, and deal with a tight job market.
The Bonn-based firm says its $20 million investment in a new distribution center in New Jersey will serve as a test bed for future roll-outs across the U.S. It’s just one of several moves the logistics giant is looking at as e-commerce continues its sharp growth.
“It’s about more speed, more efficiency and higher quality. We are going to keep making these investments as e-commerce grows,” said Lee Spratt, who heads DHL’s U.S. e-commerce business.
DHL handles about 10% of U.S. e-commerce deliveries, so the high-tech warehouse is a first step in getting more online merchants to use DHL versus UPS (NYSE: UPS) and FedEx (NYSE: FDX).
DHL’s e-commerce service connects directly to online platforms such as Amazon (Nasdaq: AMZN), Ebay (Nasdaq: EBAY) and Alibaba (NYSE: BABA). They take packages from retailers on those platforms and distributes to the U.S. Post Office, which still handles 60% of e-commerce deliveries in the U.S.
The 200,000 square foot facility in Avenel, which opened early November, will process over 40,000 shipments per hour. In comparison, Spratt says DHL’s non-automated distribution facilities can process 10,000 shipments per hour.
Tight labor markets are also spurring the automation drive. Average warehouse pay has risen 50% over the past five years to around $15 per hour, Spratt says.
The distribution center, which employs 200 people, uses a cross-belt conveyor sorting system and automated bar-code scanning. Additional automation including robotic arms will be tested next year.
The automation has mostly worked as planned, save for bugs such as optical scanning of Tyvek bags. German firm Beuemer Group, which also provides automation for DHL’s parent firm Deutsche Post, was the primary contractor for the site’s automation.
Eight inbound ramps handle 2,500 inbound parcels per hour. Parcels are first sorted for outbound shipments to DHL’s 18 other distribution facilities.
The last sort is for distribution to local U.S. Post Offices, with the facility distributing to roughly 1,000 zip codes along the U.S. East Coast.
The distribution center faced a big test on Cyber Monday. Spratt says DHL forecast 200,000 packages coming through the facility overnight. But 300,000 actually came through as e-commerce retailers faced constraints at other distribution facilities or had more orders than originally forecast.
E-commerce “is a high growth market but it’s created some challenges,” Spratt said. Citing Cyber Monday, “it would have been impossible to source 100 employees” to handle the surge.
Cyber Monday sales hit a record $7.9 billion in the U.S., growing 20% over last year. U.S. e-commerce reached $131 billion during the third quarter, accounting for 10% of total retail sales.
That surge is creating increasing demand for automated distribution and fulfillment centers, particularly near major consumer markets.
The automated distribution center is one leg of DHL’s strategy for the U.S. market. It is also looking to get deeper into fulfillment by warehousing retail products close to major markets. Spratt says DHL’s multi-use warehouses in California, Newark, Columbus, Atlanta and Dallas could cover 95% of the U.S. population with two-day delivery of products.
“If you want to have same day or next day delivery, you have to have the product relatively close to the consumer, otherwise it’s going to be cost prohibitive to ship,” Spratt said.
DHL is also looking to expand its Parcel Metro service, which is an Uber-like app connecting third-party couriers and local delivery services to customers.
Overall, DHL will move about 475 million packages through its U.S. network this year, Spratt says, with 400 million for two- to three-day delivery and the rest for same-day delivery.
Along with improving service to shoppers, shippers also benefit from the warehouse automation as the cutoff time for inbound deliveries is now two hours later than it was previous to the automation. Likewise, shippers can get multiple views of their package’s progress through DHL’s network.
He expects other automation roll-outs at its Los Angeles and Chicago distribution centers. The roll-outs will occur based on lease expirations as the automation requires an open floor plan.
“If this pans out as we think, we will start blueprinting it for other facilities by early 2020,” Spratt said.
