February 1, 2006
enroute | Small Parcels

No overnight sensation

no overnight sensation

Yes, RFID will transform the parcel express industry. But it won't happen tomorrow.

By John R. Johnson

You open the front door and are delighted to find a package containing the lamp you ordered yesterday. But when you pick up the carton, you hear the telltale clink of broken glass. Before you can pick up the phone to complain, however, you look up and see the express carrier's driver sprinting across your lawn bearing a carton with a replacement lamp—this one, happily, fully intact.

Sounds too good to be true? That scenario may be closer than you think ... and it will likely be made possible by the magic of RFID. Among other projects, express delivery companies are busy running tests to see whether RFID tags can reliably detect damage to packages and automatically prompt the shipper to send a replacement. "There are just so many possibilities," says Bob Berg, an RFID specialist at DHL. "RFID could be used to track if a package was dropped from beyond its drop specifications, or [if it] got wet or was tipped on its side." With early notification of the mishap, he says, the carrier could ship a replacement while the first one was still in transit.

It's hard to imagine an industry where RFID holds out more potential than the overnight package delivery business. True, the major players already possess advanced systems to track packages, but it's clear that they see RFID playing a role some day. DHL, for instance, has pledged that it will tag every package it delivers by 2015. UPS, meanwhile, has invested in three RFID-related startup companies, including Impinj, a supplier of RFID chips and tags. FedEx, too, acknowledges that RFID is the way of the future. "RFID is going to play an important role in the future of shipment and package movement," says David Zanca, FedEx's senior vice president of information technology.

Beyond detecting damage to packages, RFID also offers great potential for tracking. Customers who ship high-value goods are already asking for tracking solutions that make use of active RFID tags—tags with their own power source.

Eventually, DHL hopes to use RFID to offer customers tracking data so detailed and accurate that they can dispense with costly inventory stockpiles."We're hoping that the increased visibility we'll have into shipments, and the information we'll be able to transfer to the customer in real time, will result in the customers' having a better opportunity to manage their freight while it's still in the DHL pipeline," says Berg. "By eliminating some of their inventory warehousing, RFID could help to fine-tune [clients' just-in-time operations]."

Recommended for internal use, too
In the end, however, RFID's greatest promise may lie not in the "extras" parcel carriers can offer their customers, but in its ability to streamline the carriers' internal operations. Carriers could use routing data collected via RFID, for example, to identify mis-sorts and get misdirected items back on track for on-time delivery.

Then there's RFID's well-documented ability to reduce paperwork and eliminate time-consuming data collection tasks. "The process of manually scanning bar codes at certain points could be replaced with tag readers, so as you load a container, packages pass through a portal and you get a read on the tag," says Zanca. That's much faster than having a worker scan the bar code and manually place the package in the container.

It's not just faster; it's cheaper. "Having a person pulling a trigger on a bar-code scanner represents a considerable cost to us," notes DHL's Berg. "Internally, where we can replace manual bar-code scanning with RFID and automated scanning would be a big plus for us."

UPS already has a pilot under way to test the feasibility of using RFID tags to track containers moving within its processing centers. As part of the test, the carrier has affixed passive RFID tags—tags with no batteries or power source of their own—on reusable tote boxes used to convey small packages and irregularly shaped packages within its own facilities. The pilot's first phase was conducted at the carrier's state-of-the-art automation testing facility in Atlanta, which replicates most automation systems used in UPS's global operations. The pilot's second phase is currently under way at Worldport, the UPS international air hub located in Louisville, Ky., where 1,000 tote boxes have been tagged with RFID labels.

Active interest
Though UPS's pilot is a notable exception, most RFID applications in the parcel delivery world have involved active tags. "We've used active tags quite successfully for a number of years," says FedEx's Zanca. "We've deployed them in our operations in a number of places—on our trailers as they come into facilities with gate readers, and we've tagged containers and various other assets."

But as reliable and capable as they may be, those active tags have yet to transform the industry. What will finally ignite the RFID revolution, analysts say, will be their less capable brethren, the passive tags. The explanation lies in the tags' cost. Active tags are too expensive to use for tracking the millions of shipments the big parcel carriers move each day. But passive tags, which are much cheaper to manufacture, may someday make tagging feasible.

Problem is, that technology is not yet ready for prime time—at least where the overnight delivery business is concerned. "We think ... passive tag technology has a very important place in the future," says Zanca, "but as of today, all of our field work has shown there are still read rate problems and reliability issues. ...We continue to work with them in a lab environment in the field, but they are not reliable enough for us to run a sorting operation or to provide tracking information to our customers from those tags."

And even if the reliability issue could be resolved, the tags' costs are likely to inhibit their widespread adoption in the near term. "The 10-cent tag will not take RFID into mainstream supply chain applications," says UPS representative Donna Barrett. "Technology breakthroughs are required before tag costs drop to [the] point where RFID replaces bar codes." Even if tag prices were to drop precipitously, she adds, companies would still have to invest in tag readers and related equipment.

Still, most observers believe it's only a matter of time before the express industry goes over to RFID. DHL has already gone public with its plans to tag all of its shipments within the decade. And though he doesn't specify a timeline, it's clear FedEx's Zanca is thinking along the same lines. "It's safe to say this technology will evolve to the point where it will have a place on all of our shipments and packages and be an important part of our operations," he says. And UPS? Right now, the carrier says it has no immediate plans to tag individual packages. But that will undoubtedly change if one of its competitors takes the plunge. In the race to move packages smarter, faster and cheaper, no one wants to risk getting a slow start out of the gate.

About the Author

John R. Johnson
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.

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