Physical Internet

Trend Overview

Impact:

Moderate

Realization:

5 - 10 Years

Focus Areas:

Automation & Efficiency Customer Experience Environmental Sustainability

Trend Clusters:

Internet of Things Packaging & Containers

Sectors:

The trend of Physical Internet is a new logistics paradigm envisioning a worldwide open network that is hyperconnected physically, digitally, and operationally. Mimicking how data packets are efficiently handled by the digital internet between senders and receivers, the physical internet seeks to improve supply chains through the standardization of interfaces and protocols, the synchronization of modes and channels, and the modularization of containers.

Conceptualized in 2011, the physical internet was modelled on the digital internet in hopes of reaping efficiency benefits similar to those in digital communication.

In the digital internet, information to be sent is perfectly encapsulated by data packets, and only these packets, not the information inside, are handled by the communication system. The packet itself contains identification data, as well as the important information needed to route it to the correct destination. Additionally, these packets are only built for a specific transmission; when they reach their destinations, they are disassembled to reveal the sent information they once contained.

Furthermore, the digital internet has protocols that enable each packet to travel with ease along different types of medium like copper wire and fiber optics and be processed by different equipment, such as cloud servers and wireless routers, regardless of where the packet was generated. Perhaps most importantly, with the digital internet, users do not have to care so much about how the information is sent but rather that the information arrives uncompromised, in perfect condition, and on time.

Described and portrayed this way, similarities to supply chains become apparent as shipments of palletized or containerized goods travel through hubs and along highways to the doorsteps of customers with high expectations. However, unlike the digital internet, the physical world of logistics is fragmented into thousands of players along and across supply chain networks with different standards and protocols, numerous private vehicles and facilities, and only limited levels of data sharing and communication. While some standardization exists, like 20-foot equivalent unit (TEU)-scaled shipping containers and pallet sizes, many industry leaders are imagining a physical internet in which logistics partnerships can be further integrated and synchronized to achieve seamless and efficient delivery of goods as in the communication of data in the digital internet.

Once materialized, the trend of Physical Internet will have high impact on logistics. It will greatly influence how the supply chain operates, shifting from closed networks to open, agnostic ones with a hyper level of connectivity in a more globalized world. However, this trend will take perhaps decades to fully develop and be realized, but we here at DHL believe experimentation with some components of this trend will begin within several years.

Using a physical internet system of 50 hubs instead of utilizing existing dedicated warehouses to supply actual demand, the experiences of two major French retailers show dramatic supply chain improvements across several metrics.

Source: The Consumer Goods Forum

Relevance to the Future of Logistics

Smart & Modular Containers

Today, products and packages are continuously loaded in often inefficiently sized boxes and containers, unloaded, re-consolidated into smaller groupings, and then loaded again in similarly inefficiently sized containers. The physical internet hopes to address these inefficiencies and decrease the amount of shipped air in a box or container, as well as eliminate the need for (de-/re-) palletizing in the supply chain.

At the core of this concept are next-generation containers called physical internet (pi)-containers. Pi-containers are ideally made of sustainable material, connected digitally via sensors and other smart technology, and easy to store, handle, and transport. Most important to the idea is that they come in a standardized set of modular, interlocking boxes between 10 cm (4 in) and 12 m (39 ft) along one side – this better suits the volume of encapsulated shipments to intended destinations than current boxes, pallets, and TEU-scaled containers. Overall, pi-containers are often visualized as an efficient hybrid between stackable LEGO® blocks and nesting Russian dolls that can easily and individually snap off from a consolidated batch and continue towards its final destination.

While these idealized pi-containers do not exist yet, various companies are working towards this ideal from different angles. Netherlands-based CargoShell and 4FOLD, as well as American-based Staxxon, produce certified collapsible containers that reduce space when stored empty or transported in return streams. Meanwhile, Swiss unit load device (ULD) management company Unilode has developed and deployed devices within thousands of its ULDs to achieve one of the first aviation-compliant Bluetooth roaming networks, increasing real-time visibility of containers during flights. In addition, various companies are looking into nonconventional container formats to better accommodate smaller shipment volumes, like the DHL Cubicycle cargo bicycle, as well as the DHL City Hub trailer, that accommodates a container volume of 1 cubic meter (35 cubic feet) and creates an internal system of easily swappable, smaller containers.

Next use case

Agnostic Hubs & Logistics Infrastructure

Operating in a fragmented industry with a multitude of players, logistics organizations are, on the one hand, often limited in terms of reach and capability by their partner network; some regions lack the services of certain providers as these would be too costly to support from the network’s distribution center or hub due to great distance or other barriers. On the other hand, logistics organizations in some other regions, especially metropolitan areas, are often supported by many providers offering very similar services, and this adds to urban congestion, inefficient delivery patterns, and low margins in a tightly competitive space.

The solution lies in the physical internet. Hubs and other facilities and pieces of the infrastructure would ideally be agnostic and shared by all players and partnership networks. In underserved regions, this would encourage more competitive logistics service offerings as each provider could use a closer facility, one that did not previously belong in their network. Meanwhile, in urban areas, agnostic hubs and locker stations would allow more experienced and specialized last-mile delivery players to make more efficient and coordinated deliveries by bundling multiple shipments, and this would alleviate last-mile burdens like congestion on middle-mile services.

In 2021, Singapore launched one of the world’s first open-access nationwide parcel locker networks with about 1,000 parcel lockers. The network is carrier-agnostic and will be progressively accessible to all logistics service providers and digital marketplace customers. With most residents able to access a locker within a 5 minutes’ walk of their home, the parcel locker network seeks to improve delivery companies’ fulfillment reliability and productivity. Meanwhile, in the Netherlands, the Goederen Hubs organization recently created a network of 20 logistics facilities around the country focusing on bundling freight flows for urban recipients. One of its newest hubs near Groningen was purposely built just outside the city near the highway and airport to help middle-mile truck shipments avoid city traffic and to provide last-mile delivery providers with easy access to the city.

Previous use case Next use case

Hyperconnected Transportation Networks

In some ways, we can already see that steps have been taken towards the physical internet in supply chain transportation. Today, for example, it is not so uncommon for shippers to utilize digital logistics marketplaces and other means to combine several less-than-truckload (LTL) shipment orders from customers, reducing costs and optimizing shipment utilization.

However, the physical internet imagines an even higher level of coordination and synchronization across transportation modes and providers. Modularly sized, yet standardized, containers of shipments would be easily transferrable between airplanes, ships, trains, trucks, cargo bikes, scooters, and hand trucks with minimal effort needed. Like public transit systems, logistics vehicle routing would be calculated to intersect rather than follow siloed paths or territories, generating network benefits as intersections would act as potential shipment transfer points. To illustrate, an urban courier van with a mix of shipments could meet up with an outbound truck passing through the outskirts of a city, and shipments destined for an out-of-region address would be immediately transferred from the courier van to the truck without having to be delivered to a local hub. This would save time and, after the transfer, both vehicles would continue their delivery journeys.

As inter-operational communication between logistics providers is currently lacking, this optimization opportunity of the physical internet has yet to be fully explored by the industry. However, as partnerships and data sharing trends strengthen, we here at DHL anticipate seeing experiments with this use case in a few years.

Previous use case

Challenges

Pi-containers will need to pass international regulatory standards and testing rigor, and gain acceptance by multiple players along the supply chain, before widespread adoption.

Implementing physical internet concepts like agnostic facilities and parcel lockers requires coordination between multiple players in both the public and private realms.

Logistics organizations aiming to improve the supply chain using physical internet concepts will probably need to invest in the overhaul of existing infrastructure, operations, and networks.

The physical internet requires data transparency and sharing between participants to create hyperconnected networks, but both the risk and impact of cyberattack grow with the size of the network.

Like firewalls on the digital internet, international borders and customs unions may prove to be barriers to the physical internet, limiting its benefits across regions.

Challenge 1 Challenge 2 Challenge 3 Challenge 4 Challenge 5

This trend should be PASSIVELY monitored, with applications still mostly being developed or explored.

Outlook

To bring about the next level of efficiency, the trend of Physical Internet will greatly rearrange supply chain networks and alter how logistics organizations provide services and interact with one another. However, with great change comes great challenge, including the coordination and integration of a multitude of players along and across the supply chain, significant investment, and new regulations to permit and enforce standardization. We here at DHL are eagerly waiting to see how this trend will develop and materialize, including all the small steps towards this new way of operating.