17: Knock Knock: Special Delivery

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What used to take a month, now takes hours. Delivering anywhere in the country is becoming faster and cheaper than ever. In this episode, we’ll take a look at the steps we took to get closer and closer to instant gratification.

An overnight success

What an incredible time to be alive – you can purchase something with one-click, and have it delivered to your doorstep overnight … or even just within hours. It almost feels like telepathy meets teleportation. Yes, we’re that much closer to being able to get what we want, when we want it – but we’re not all the way there yet. Package delivery, or logistics, has a long history of disruption and evolution, and what used to take 28 days now takes mere hours.

From ponies to planes

By the 1870s, we were no longer relying on horsepower or the seas to deliver things from coast to coast. The railroad made what used to take a month now take mere days. But with the advent of airlines, the time it took to ship was cut even further, and with deregulation of the airline industry and the invention of the UPC code, it led to the rise of Federal Express (FedEx) and United Parcel Service (UPS). A postal worker strike changed the way the Postal Service operated forever … and made them better.

Going the final mile

Amazon, as an industry player, is now shaking up the logistics process even further. With Amazon Prime and Amazon Prime Now, what was once concerned fast shipping is now snail mail, and what was once deemed impossible is now routine. Will Amazon, or some other drone delivery service, solve the “last mile problem” that’s vexed logistics operators for years? And how soon? Find out in this episode of Trailblazers.

“We like to say that the information that flows with each package is as important as the package itself. We ship about 19 million packages a day but we also have about 100 million tracking requests … and all of those tracking requests equate to big data in a really kind of remarkable way. We were actually doing big data before the term existed.”

DAN MCMAKIN, PUBLIC RELATIONS, UPS

What you’ll hear in this episode

  • What happens when parents mail their children (really!)
  • How UPS took package delivery off the rails
  • The classy uniforms for UPS? No accident.
  • Did you know UPS is only 40 years old?
    How a strike changed the way the Postal Service operated forever
  • What airline deregulation led to the rise of FedEx
  • How does a UPC work?
  • The great bottleneck, and the last mile problem.
  • Let’s talk about drones and how they’ll cut costs like crazy.
  • Feeling Flirtey?
  • Amazon’s big bet on technology as a whole.
  • Who controls the skies? And will they let drones in?
  • From across the country in 28 days, to your doorstep in less than 2 hours

NARRATOR: It was surely the most unusual package ever sent by the US Post Office, possibly the most unusual package ever sent by anyone. The date was February 19, 1914. And the package was a heavy one, it weighed 48 and 1/2 pounds. And it needed to get to its destination fast. Even a one-day delay in transit may have meant dire consequences, because the package was a five-year-old girl.

Her name was May Pierstorff. She lived in Grangeville, Idaho. And her parents wanted to send her to visit her grandparents in Lewiston, Idaho, about 73 miles away. The problem was that the train ticket between Grangeville and Lewiston was more than May’s parents could afford.

But there was another option. In 1912, President William Taft had signed the Parcel Post Act, giving the US Post Office permission to ship packages of up to 50 pounds. So when May Pierstorff’s parents were trying to figure out how to get their daughter to her grandparents, they came up with a rather unorthodox solution.

Why not mail her? She weighed 48 and 1/2 pounds, just barely under the limit. And the cost of stamps would be considerably less than the cost of a train ticket. So they attached $0.53 in parcel post stamps to May’s coat, and they handed her over.

She spent the entire ride from Grangeville to Lewiston in the train’s mail compartment. When she arrived at her destination, a postal worker took her to her grandparents’ house rather than have May spend the night at the post office waiting for next-day delivery.

The arrival of parcel post was one of the first great disruptions in the package delivery business. There have of course been many more since then. You can’t ship children through the mail anymore. That practice was outlawed in 1920.

But you can ship just about everything else in every way imaginable– boat, plane, train, truck, car, bike, and now even drone. Today, with about 80% of Americans doing at least some of their shopping online, spending about $350 billion this year, the stakes have never been higher. There is no quicker way to turn off a potential online customer than delivery that’s too slow, too expensive, and too unreliable.

Giant shipping companies like UPS, FedEx, and, probably no surprise here, Amazon, are spending billions of dollars on new equipment, plants, and technology to meet the demands of increasingly impatient shoppers who are now measuring their wait time in hours, not days. This is not a business for the faint of heart.

I’m Walter Isaacson, and you’re listening to “Trailblazers,” an original podcast from Dell Technologies.

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SPEAKER 1: Mail, mountains of it.

SPEAKER 2: The letters will go to many different places.

SPEAKER 3: I have a letter here from somebody from Springfield.

SPEAKER 4: Springfield?

SPEAKER 2: Letters and newspapers and magazines. Many boxes and packages too.

SPEAKER 1: It will be a red letter day when the post man blows mail call.

[MUSIC PLAYING]

NARRATOR: In the days before the railway tied the country together, Americans had to be a lot more patient when it came to package delivery. If you wanted to send a package from New York to California in the 1850s, you’d load it on a steamship to Panama.

From there, horses would carry it across the Isthmus of Panama. And then another ship would transport it to the Pacific coast. Even when an overland route was established in the 1860s by companies with names like Wells Fargo and American Express, it would still take about three weeks to get a package from St. Louis to San Francisco using a combination of stagecoaches and Pony Express. The establishment of a transcontinental rail link in the 1870s cut delivery time from weeks to days.

But it was a 19-year-old in Seattle, Washington who really laid the groundwork for the modern package delivery industry. His preferred mode of transportation, at least initially, was on foot.

His name was James Casey. And in 1907, he started a company called the American Messenger Company. In 1919, he changed the name to United Parcel Service, or UPS.

Dan McMackin started working for UPS loading trucks when he was 17. 40 years later, he does public relations for the company out of Atlanta.

DAN MCMACKIN: We started in the month of August in 1907. And we started out as a messenger delivery service. So we basically had four iterations or four different business models. And the first one was as a messenger delivery company.

That was at a time in the country’s history at the turn of the century when telephones were rare. They were hard to find, and not many people owned them. And so our founder, Jim Casey, bought a bank of telephones.

And he would take messages from people and then have what he called footpads or delivery boys deliver those messages for about a nickel apiece. He quickly understood that people wanted more than just messages delivered. And so to make a living, he would accept any number of things for delivery. So our messenger boys would deliver meals, beer, pharmaceuticals from the pharmacy, any number of things.

NARRATOR: By the 1920s, Jim Casey saw the need to reinvent his business again. People could now talk to each other on the phone. They didn’t need to send messages by courier. But those packages still needed to be delivered. And now that could be done by car or truck.

Jim Casey saw an opportunity, a delivering niche that would set his company apart from everyone else. He would create an air of luxury and exclusiveness around his brand by dressing his drivers up in brown uniforms and making sure that trucks were spotless. And they’d offer themselves up as a delivery service for upscale department stores.

DAN MCMACKIN: What Jim really did was he pioneered the notion of consolidated deliveries, economies of scale, if you will. So he could make a dollar or make a few pennies if he could take the Bon Marche’s packages and Marshall Field’s packages and Boston Store’s packages and Gimbel’s and Schuster’s and all of these major retailers of the era, he could bring them all into one sorting facility, he could deliver them in a timely fashion, save those companies’ money, and still continue that notion of excellence or elegance, if you will.

NARRATOR: In the boom years after World War II, Americans began to move out to the suburbs, and department stores moved there with them. They built massive stores surrounded by acres of free parking.

Shoppers can now drive their own packages home. A company that focused exclusively on local retail delivery was ultimately doomed to failure. And Jim Casey knew it. It was time for another business model, one that would see UPS become a company that delivered not just locally, but throughout the United States.

But there was a problem. Only the US Post Office had the right to ship packages across state lines. Everyone else had to apply to get common carrier rights from the Interstate Commerce Commission and approval from regulatory authorities in every state. This was not going to be easy.

DAN MCMACKIN: If you’re a regional carrier at the time and you’re thinking about taking on the federal government, that’s a tall order. That takes some gumption. I think gumption, it’s an old fashioned word, but I think it really defines who Jim was.

NARRATOR: It took 25 years for Jim Casey to accomplish his goal. Texas was the last state to open its doors to UPS. And that didn’t happen until the mid-1970s. A service we take for granted today is actually only about 40 years old.

DAN MCMACKIN: You could not cross state lines. That was the mountain he had to climb, basically, state by state, so that he could connect all 50 and be a true common carrier. Prior to that, we were more of a regional shipper.

You look at us today, we’re in 220 countries around the world. We’re the fourth or fifth largest employer in the US, $61 billion in revenue in 2016. And that all came about because he had the vision and also the stamina, really– I mean, to work for 25 years to get these rights.

And he personally did it. He did it with a team of people. But in fact he had a name for it. He called it the golden link when we got Texas so that we could cover the entire United States.

NARRATOR: The establishment of the golden link was one of a series of critical developments in the 1970s. That laid the groundwork for the package delivery industry as we know it today. It was part of a massive deregulation of the trucking and airline industries.

There were also changes in store for the US Post Office, which had pioneered package delivery following World War I. After postal workers walked out on strike for eight days in March 1970, the Post Office was reconfigured and renamed the US Postal Service. Rather than a branch of the federal government, it would now be a government corporation with a mandate to behave more like a private company. But the odds were stacked against it.

Devin Leonard is the author of the book, “Neither Snow nor Rain– a History of the US Postal Service.”

DEVIN LEONARD: Things changed for the Postal Service. They became this sort of government corporation. They were supposed to make money. But for a long time, there had been under-investment in the Postal Service, and they hadn’t really kept up with the times.

They tried to install a whole new sort of system, a mechanized package sorting system. And that didn’t work out very well. In the 70s, packages were getting mangled and things like that.

On top of all that, they weren’t allowed by statute to offer volume discounts. That was a big thing for UPS because they could do that.

NARRATOR: All these changes opened the door to new companies that could be more nimble in adapting to technological change and far more flexible in the ways they could deal with the workforce and meet the demands of their customers.

The most important of these new companies was Federal Express. The company’s founder, Fred Smith, had written a term paper while an undergraduate at Yale in 1965, proposing an integrated air-ground network that could deliver packages anywhere in the US overnight.

Rather than ship them on commercial aircraft, as other companies were doing, Smith’s company would own its own fleet of airplanes. His professor gave him a C on the paper because he didn’t consider the idea to be feasible.

But Smith persevered. His new company began operations on April 17, 1973, with 14 small aircraft delivering 186 packages. Five years later, Federal Express turned its first profit and was shipping 19,000 packages a day.

After the air cargo industry was deregulated in 1977, the company purchased a large fleet of Boeing jets and could now deliver packages overnight more cheaply and more reliably than the US Postal Service, the only other delivery company with its own fleet of aircraft.

Today, Fedex, as the company is now called, has the fourth largest fleet in the world and annual sales revenue of about $40 billion. Deregulation was a critical step in the creation of the modern package delivery industry in the 1970s. But it wasn’t the only one.

With millions of packages now in motion every day on planes and trucks, keeping track of them all would become a major challenge. And that challenge was met in the 1970s using a technology that was actually designed for the grocery industry.

GEORGE LAURER: I am George J. Laurer, and I’m the one that invented the UPC code while I was working with IBM.

NARRATOR: Universal Product Codes, or UPCs, were actually invented in the 1940s as a way to speed up the checkout line at the grocery store. But those barcodes didn’t look like the ones we are so familiar with today. They were round, not rectangular, with the crucial coding information displayed in the middle, like the bull’s eye of a target. They never achieved widespread acceptance because the codes were difficult to scan and hard to print without smearing.

Enter George Laurer, an IBM scientist who in 1971 was given the task of building a better barcode. Today, George Laurer is 92 years old.

GEORGE LAURER: My boss came to me and he says, George, I want you to write a paper that the officers in White Plains can use supporting RCA’s circular barcode. And we’re going to present it to them in two weeks. Well, I’m going on vacation right now, so you do it while I’m gone.

I’ll tell you the truth, I looked at the circular barcode and what the specifications for the symbol were and realized there was no way that it could work. There was no way that with my background I could support it. So I decided to design my own.

I finally came up with the idea of an X scanner so I could use vertical bars instead of a circular and still be able to beat the omnidirectional requirement. With that, I developed the code.

Well, I finished just about the time my boss came home. And he lived across the street from me. And then the next day, we were to make this presentation. I took it over to my boss and I said, Paul, I didn’t do what you asked, this is what we’re going to present.

And he looked at me and he says, if they don’t accept it, it’s going to be your job, not mine. So it’s a real case that I bet my job.

NARRATOR: George Laurer won his bet– big time. By the end of the 1970s, you could find his vertical universal product codes on just about every product in the grocery store.

GEORGE LAURER: You work on problems and you wake up in the middle of the night and you say, Eureka, this is it. And then I guess that’s what happened.

NARRATOR: It turned out that the barcodes did a lot more than just speed up grocery check out. Those vertical bars contained all kinds of information about price, quantity, sales, and location that could be easily retrieved when scanned. And that’s why George Laurer’s invention was so important, not just to supermarkets, but to the package delivery industry as well.

The barcode technology allowed shipping companies to keep track of their packages, from the time they left the factory to the time they arrived at their destination. It’s simply not possible to imagine package delivery at the scale and speed we have today without UPCs. Sometimes, a technology designed to address one problem winds up solving another completely unrelated problem, much to the amazement of its original inventor.

GEORGE LAURER: We never thought this thing would grow out this big. We thought it’s going to stick with the grocery industry and it will be just a fad, and that was it. So like I said, I don’t think anybody could be more surprised that myself.

NARRATOR: Today, the ability of large shipping companies like UPS to meet customer’s demand for reliable, rapid delivery depends to a large extent on the data gleaned from the packages. One UPS engineer has been quoted as saying that UPS used to be a trucking company with technology, and now it’s a technology company with trucks. That may be overstating the case, but Dan McMackin says data gathering is now a critical component of what the company does.

DAN MCMACKIN: We’d like to say that the information that flows with each package is as important as the package itself. We ship about 19 million packages a day, but we also have about 100 million tracking requests every day. And all of those tracking requests equate to big data in a really kind of remarkable way.

We were actually doing big data before the term existed. Because every time a driver scans a package, every time a package is scanned in one of our facilities, going forward, we can use those data points.

One of our engineers likes to use the terminology that at some point we will become clairvoyant. We will actually be able to tell what’s going to happen before it happens. What it means is we can look at literally billions of data points from prior deliveries and from prior pickups and from prior sortations of packages, and we can tell you that for the past 40 years on a Tuesday in August this has happened.

In other words, it rained on a Tuesday for the past eight years in this month, and during this week it’s probably going to rain again, and your driver might be delayed for 30 or 40 seconds. Therefore, this is going to happen. So it truly will in some way be clairvoyant.

NARRATOR: The package delivery industry that Dan McMackin has just described bears very little resemblance to the world that UPS founder Jim Casey knew. These days, it’s more commonly referred to as the logistics industry. And it concerns itself with a much wider scope than Casey would have ever imagined.

It contains not just obvious competitors in the delivery field, like FedEx or UPS, but giant retailers like Wal-Mart. And then there’s Amazon, disrupting both retailing and delivery by trying to control the entire supply chain.

Amazon is a company with boundless ambition and a bankroll that seems to be limitless. And yet, there is still at least one problem that Jim Casey would be able to identify with– people in the industry often refer to it as the last mile problem.

It’s fine to be using sophisticated algorithms to gather massive amounts of data and send packages whizzing around the globe, but actually getting the package into the hands of its intended customer has always been the most difficult and costly step in the process.

Think back to the story of little May Pierstorff. Getting her to Lewiston on the train was not difficult, but delivering her safe and sound to a grandparent’s house required a postal clerk to drive her there, a level of personal service that would have been too costly and too labor intensive to sustain. That’s the last mile problem. And it’s as vexing today as it was back then.

Evan Bakker is an analyst at L2, a digital intelligence firm based in New York.

EVAN BAKKER: Transportation is kind of the great bottleneck that everyone is facing right now. Because if you look at surveys, consumers basically expect either same day or next day delivery. That’s what they consider to be fast shipping.

Your standard kind of two-day delivery, which was always the norm– decades– is now not really considered fast shipping. So now that that standard has changed, retailers are obviously trying to adjust. And that makes deliveries sort of another area where innovation needs to happen.

NARRATOR: There are a few things that just about everyone in the logistics industry can agree on. The first is that it’s ripe for disruption. Solving the last mile problem is critical for the continued growth of online shopping.

The competition to solve that problem is intense and growing more so every day. And at least part of the solution will come from above in the form of drones.

MATTHEW SWEENY: My name is Matthew Sweeny, and I’m the founder and CEO of Flirtey.

NARRATOR: Matthew Sweeney was a student in China when he first started to get interested in drones.

MATTHEW SWEENY: My theory was that delivery would be the application that caused drones to become widespread because drones are unique in that they fly straight as an arrow over traffic, so they are always going to be the fastest form of delivery. At scale, they’re going to be the most efficient form of delivery because they have a high level of autonomy, and are also green and environmentally friendly. And they’re the most convenient form of delivery.

NARRATOR: In 2013, in Australia, Matthew Sweeny launched his company. He called it Flirtey. The name suggests his site might be a place to go find a date. But in fact, there’s nothing frivolous about his company’s mission– to save lives and change lifestyles by making delivery instant.

MATTHEW SWEENY: We’re living in a world where people demand an increasing amount of instant gratification. They want what they want when they want it. And the forms of delivery that can get it there fastest will be preferred by society. And nothing is faster than drone delivery.

So we’re building a future where, if you order something online, a Flirtey delivery drone will deliver it to your home within minutes of a purchase. If you order food, a Flirtey delivery drone will deliver it to you at your convenience. And if you need medicine or medical devices, like defibrillators, we will be pre-positioned to dispatch that to you faster than an ambulance.

NARRATOR: In just four years, Flirtey has racked up an impressive string of successes. It beat out Amazon and Google to get US government approval to be the first drone delivery on American soil. It has delivered lifesaving medicine and medical devices to remote areas. It has a contract with 7-Eleven to deliver food orders in Nevada and with Domino’s to get pizza to hungry customers in New Zealand.

Earlier this year, Flirtey was able to raise $16 million in venture capital funding. Matthew Sweeney is convinced the definitive solution to the last mile problem is finally in sight.

MATTHEW SWEENY: Traditionally in the logistics industry, the last mile is the most expensive leg of the delivery. And at Flirtey, our drone delivery technology is fundamentally disrupting that by enabling drones to fly over people, over traffic, straight to customer homes with goods in a way that’s faster, more convenient, and ultimately cheaper than anything else that exists on the market today.

And when you look at the industry today, even though we’ve got rapid online ordering and mobile ordering, we’re still relying on an old infrastructure for how we then transport those goods to people’s homes. We’re relying on roads, we’re relying on bridges, we’re relying on cars, and we’re relying on trucks.

Drone delivery is a revolution in the way we deliver goods in the last mile so that we can ship them by air any time, anywhere, to customers faster. And as a result, we’re solving the last mile problem. and fundamentally disrupting the logistics industry.

NARRATOR: Drones may well be the ultimate disruptive technology in the logistics industry. And Flirtey may well have made a strong claim to be part of that future.

But the big players in the industry will not go down without a fight. In fact, given what’s at stake, they’re unlikely to go down at all. If you had to bet on anyone winning the drone war, the safe bet is probably on Amazon.

Amazon’s Prime Air is a delivery service designed to get packages under five pounds to customers in 30 minutes or less using drones. In December 2016, a Prime Air drone successfully delivered a package to a customer in rural England for the first time.

Amazon’s drone technology may not necessarily be the most advanced in the industry, but Evan Bakker says it has an advantage that none of the other players can hope to match.

EVAN BAKKER: What’s innovative about Prime Air is, first of all, the vast majority of Amazon’s products are within the weight range that drones can carry. So these drones are able to carry things five pounds or less. As of last year, at least, that was 86% of Amazon’s inventory.

But second of all, it’s innovative in the sense that it’s taking out again that human element, and so it just drives down the costs significantly. And once you drive down those costs and you start being able to fulfill orders for such a low price, I do think that you can feasibly meet the customer expectations.

They also have the customer’s data to kind of pair it so that they can anticipate your needs, anticipate your orders using AI and using intelligence to basically send you things that you want on a recurring basis, or even anticipate what you might want. And the combination of all that is removing both friction and potentially costs from the shipping process. I can see a day in the near future where Amazon is able to bypass those traditional obstacles.

NARRATOR: There’s a lot of uncertainty in the logistics industry in 2017. Will Amazon morph into its own delivery service? How quickly will drones become part of the equation? What will happen to legacy carriers such as FedEx and UPS?

But here’s one thing we know for sure– the popularity of online shopping will continue to grow, increasing about 10% this year. That translates to about $430 billion in online sales. That’s a lot of packages that need to be delivered.

We also know that customers will continue to demand speedier and cheaper service. We’ve come a long way from the time when a package took 28 days to get from St. Louis to San Francisco. Just a few years ago, two or three days was considered an acceptable window.

Not anymore. Today in some markets, Amazon is offering free shipping within two hours to its Prime Now customers. Think about that– free shipping, two hours. No wonder everyone is racing to develop their own package-carrying drone.

Survey the landscape of the logistics industry today and what you see are some giant players fighting to maintain their dominance, some pesky start-ups nipping at their heels, and billions of dollars at stake. It’s a battle being fought on the roads, in the air, and in computer labs. One thing that’s sure to be delivered over the next few years is lots of drama.

I’m Walter Isaacson, and you’ve been listening to “Trailblazers,” an original podcast from Dell Technologies. If you enjoyed the show and want to find out more about the history of package delivery, you can visit our website site at delltechnologies .com/trailblazers.

Next episode, we’ll be looking at the world of live events, from the early days of stadium concerts where acts like the Beatles could barely be heard over the screaming of the crowd, to the immersive mega-rock tours of today, where technology has become as much of a star as the musical acts themselves.

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