We live in a truly connected commerce world today, where the Internet can instantly

link anyone on the planet. Recently, Frederick W. Smith, founder and chairman of the FedEx Corporation, aptly referred to today’s “fast planet” environment. Smith observed that: “We live in a world in which immediacy is taken for granted….From fast cars to fast food to the lightening-fast transmission of data, the rest of the world is becoming as enamored with speed as Americans always have been. Speed is a fact of life and, more than ever, a fact of business.”

The global express package industry is absolutely critical for its ability to quickly “connect the dots” on our fast planet. As the perfect complement to firms operating in this new business world, these megacompanies run the critical operations to guarantee that mission critical parts, time-sensitive documents, and even Santa Claus’ “emergency” delivery of a video game or DVD can be made between almost any two physical addresses on the fast planet, and in many cases, overnight - if necessary and if the laws of time and space allow.

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For the global players in the shipping market,

RFID is a new way to deliver value on-time

to a “fast planet”

by David C. Wyld, Southeastern Louisiana University

Global IDentification - December 2005

Focuson

Postal Applications The RFID package

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adding air and ground operations to compete with the entrenched competition.

As can be seen in the Figure, FedEx and UPS still command the lion’s share of the U.S. marketplace, with DHL lagging far behind. However, analysts believe that with its sizeable North American investments, fast-moving DHL could seize between 12 and 15% of the U.S. market over the next few years as it seeks to break the almost duopoly held by UPS and FedEx. However, the market leaders are not standing pat. Indeed Satish Jindel, president of the transportation-focused SJ Consulting Group, recently reported that since 2001, FedEx and UPS have each invested more than $6 billion in the North American market on improving their operational networks and capabilities.

With the growth of online retailing, increased “just in time” inventory cooperation between supply chain partners worldwide, and expanded use of private sector service providers for shipments that were formerly the province of public postal services, express shipment volumes today are simply staggering. Indeed, FedEx ships an average of 5.5 million packages daily

www.global-identification.com

The RFID package

The global express package industry

The global express package industry is dominated by two leading players - FedEx and UPS. Evidence abounds as to the ubiquity of their services today. Indeed, the brand name “FedEx” has now entered the English lexicon as a commonly understood verb (as in “to FedEx”), much in the same way that brands such as Kleenex, Coke and Kool-Aid represent whole categories of products. Their delivery trucks and delivery people have become an expected part of the everyday routine of business life. In the United States, UPS recently ran an ad campaign capitalizing on the “sexiness” of its men in brown, with office workers looking forward to their daily visit with great anticipation.

Since 2000, the business models of the two companies have converged, with UPS seeking to build upon its strong ground presence by rapidly upgrading its air fleet, while FedEx has conversely sought to boost its ground transport arm to complement its commanding worldwide air presence. The industry’s “big two” have been joined in the marketplace by Deutsche Post World Net. Deutsche Post - the privatized German postal service - acquired DHL in 2002 and Airborne Express in 2003. While holding approximately a 40% share of the parcel market in both Europe and Asia, DHL is making a major push to be a global player by rapidly expanding in the U.S. market, having invested at least a billion dollars over the past few years in the U.S. Deutsche Post CEO Klaus Zumwinkel commented that his firm is seeking to build a truly global network for DHL, because from a customer perspective, “in an industry like ours, the network has to be complete.” In the U.S., DHL is rapidly expanding its footprint,

U.S. small parcel market in 2005

12 Global IDentification - December 2005

through its worldwide network, and UPS delivers 13.6 million packages a day – or an astonishing 3.6 billion packages in calendar year 2004. Global double digit growth in shipment volumes is expected to occur annually over the next decade or more, as analysts see particular growth in the “Asian tiger” economic powerhouses of China, India, Singapore, Japan, South Korea, and Malaysia.

RFID and the express package market

If ever there was an industry that – on the surface – appears to be the “perfect match” for RFID technology it is the global express package industry today. However, due to their market positions, the RFID strategies of the current market leaders (FedEx and UPS) are far different from that of the emergent player, DHL. While UPS and FedEx certainly have tremendous first-mover advantages from being entrenched in the marketplace with their current technologies, fast-growing and fast-spending DHL has the ability to more easily create an RFID-based network as

a second-mover in the global express parcel market.

To support their own global networks and to give their customers visibility of their shipments in process, UPS and FedEx have been leaders in the development and deployment of a whole host of automatic identification technologies, having two of the best barcode-based information systems in any industry today. For instance, in both the UPS and FedEx systems, each parcel is scanned between 15 and 20 times during its journey from sender to destination. Shippers and receivers therefore already have close to real time visibility on their parcels. In a recent speech to the Direct Marketing Association, Kurt Kuehn, senior VP of Worldwide Sales and Marketing at UPS, emphasized that information exchange is key to the enabling of today’s extended, dynamic supply chains. Both companies continue to be innovative in their development of operational and technological innovations to “better” their current barcode-based auto-ID systems.

For instance, as part of its corporate “Worldwide Wireless Plan”, UPS is equipping its drivers and package loaders with a barcode scanner that fits over two fingers like a ring. Using Bluetooth technology that allows the scanner ring to broadcast tracking data to a local server via Wi-Fi, using a Symbol-devised, TDMA (Time Division Multiple Access) based communications protocol to promote security and avoid interference, UPS has deployed over 55,000 of the wireless ring scanners, which have proven to improve productivity, enhance visibility, and substantially decrease maintenance and upkeep costs over similar wired scanners in the UPS network.

Smart labels on packages allow the postal system to identify and route them to their final destination

13www.global-identification.com

Still, UPS and FedEx are only making cautious steps toward shifting away from their entrenched barcode-based technology to the next generation of automatic identification technology in RFID. While both companies are publicly committed to RFID, they are approaching it rather tentatively as a long-term technological shift, awaiting further refinement on the technology and standards and greater tag price reductions and reliability increases.

UPS, headquartered in Atlanta, Georgia, is committed to an RFID strategy that is based on the fact that “business drives technology, not the other way around.” In other words their approach focuses on how RFID technology can be employed to enhance service offerings to customers, reduce costs, and improve operating efficiencies.

RFID strategies

There are four “pillars” to the UPS RFID strategy: helping customers, testing technology for internal use, investing in technological knowledge, and formulating global standards. UPS has been a participant in the EPC standards process, and it holds great hope that Gen2 technology will prove to be a globally accepted standard that will help drive acceptance and use of RFID. UPS, through its Strategic Enterprise Fund, has made small investments in both Savi Technology and Impinj in order to gain more knowledge about RFID technology. UPS has also been engaged in internal RFID pilots and testing for two years. However, Bob Nonneman, UPS’ executive in charge of its industrial engineering unit, is still skeptical on the long-term prospects for RFID. He recently observed that “for the most part, we still haven’t found that RFID is providing customers

with either quality improvements or cost savings.”

FedEx has likewise conducted RFID pilots in its system, both its operational and delivery systems. FedEx was instrumental in the Boeing tests that led to FAA certification of RFID-equipped airplane parts in the U.S., having participated in tests in 2004 to test RFID tag capabilities in the highly electronic – and metal – aircraft environment and in the high temperatures found in aircraft engines. FedEx will also be the first operator of the A380-800F, the freighter version of Airbus’ new superjumbo jet which will have over 10,000 RFID-tagged parts on board and will be capable of carrying a freight load of 150 tons over 10,400 kilometers. In RFID tests in package operations however, FedEx has experienced scanning failure rates to the order of 25%, with higher rates for packages with high liquid and/or metal content. Linda Brigance, CIO for its Asia-Pacific operations, puts the dilemma facing the company this way: “We get a 99.9 percent accuracy in the scanning of the barcodes, so anything less than that is really a step back in our business. It’s not something we want to do. We want to wait and see when RFID gets the same accuracy rate.” So while Brigance does see FedEx migrating to RFID technology, she believes that FedEx’s timetable for any widespread RFID rollout in its actual delivery operations is still some years away.

Server rooms such as this one handle up to a million database transactions a minute

14 Global IDentification - December 2005

In contrast to the first-movers’ hesitancy, second-mover DHL is publicly committed to placing an RFID-enabled smart label on every package it ships through its network by 2015. The company is hard at work to fulfill this strategic vision, which it believes will give the firm not only tighter control of shipments, but will ensure improved operating performance and data collection, while reducing both paperwork and costs. DHL foresees that with RFID, it will be able to better manage – and even redirect – misrouted packages by automating the exception

management process through alerts via email and mobile phones to the parties involved in the shipment. DHL also believes that RFID-enabled packages will enable the carrier and its customers to comply more easily with customs requirements in various nations in the future by linking government agencies to reporting data from manufacturers/retailers sites.

However, the challenge of developing a global IT infrastructure to support DHL’s RFID vision for 2015 is daunting. Trevor Peirce, DHL’s RFID program director for the DHL Global Coordination Center in Brussels, recently observed that: “You could look at it as a huge, overwhelming

challenge, but if you break the elephant into bite-size chunks, there’s a way to tackle it. It requires lots of thought, and most people in RFID don’t sleep much because they’re always thinking.” DHL presently has an IT staff of over 8,000 dedicated to this Herculean task.

RFID in the parcel market: looking ahead

What will the future hold for the global express parcel market? Certainly, RFID smart labels will eventually become a central component of shipments, especially as tag prices fall, standards are accepted, and reliability increases. While very good barcode technology works for today, it is clear that the expanded capabilities of RFID-based auto-ID will be demanded – and expected – by shippers on a “fast planet” in the very near future. As the parcel market moves to RFID-based technology, this will create knowledge and opportunities for all involved in the RFID industry, whether from a hardware, software, or tag fabricating/label printing perspective. Certainly, the volume of tags/labels on packages will be in the billions annually by 2015, making the express parcel market a significant part of the growing tag market.

Being, in effect, the distribution arm of many small and medium-sized firms, companies such as UPS, FedEx, and DHL can expand their service offerings and value add activities by helping their customers take better advantage of RFID technology. According to Gartner analyst Jeff Woods, “every logistics service provider needs to have a deep understanding of RFID…as logistics companies are the types of businesses that can best serve companies that require help in RFID deployments.”

FedEx uses state-of-the-art information technology to meet the personal computing needs of its customers