L'Oréal & Danish Freight Express pilot case

L'Oréal & Danish Freight Express pilot case

Overview

The case of L'Oréal and Danske Fragtmænd Express is an excellent example on how to cooperate and find solutions in a joint and open business scenario. To reach a common goal the two partners in this case had to “pilot” for success and to find common ground in a process over time and with obstacles on the way.

Status of the Danish Market Situation

Electrifying the urban freight and goods transport in Denmark is a challenging task since the E-vans have been politically downsized compared to passenger cars. This have resulted in very few incentives for the logistic market and the light commercial vehicles have been between 60-100 % more expensive than the equaling fossil model.

At the same time the Danish market is a niche market, with a low number of vans sold, which also has a huge effect on the priorities from the OEMs and car dealers in Denmark. Several models therefore never find their way into the Danish market and prices have been high and not subsidized to increase the interest or uptake from businesses. The Danish labor cost are relatively high, and the marginal income is challenged by this fact combined with the high cost of cars in Denmark due to the registration tax. Since the cost of the car is only about 14-15 % of the total equation to the last mile delivery cost, it is difficult to attract specialized business partners into this market with the current market conditions and lack of governmental finance support or incentives.

Danske Fragtmænd Express/Danish Freight Express

The company started operation in 2009 and has depos in five parts of Denmark. The biggest office is placed in Hoeje Taastrup, in the Greater Copenhagen area about 20-25 minutes from the center of Copenhagen. They operate around 170 vehicles daily bringing small packages and goods around the country with the focus on express delivery on a day to day or hourly basis. They operate on behalf of many different companies and have cooperation with both national and international global brands taking care of all their logistics and goods transport within the national border.

Most of the business is tendered through independent carriers and vehicles therefore owned separately and not by the company itself. This is a challenge to the business model, since the independent carrier must do the investment on its own and Danske Fragtmænd has no control of this investment. So, if they want to be part of the transition to greener vehicles, they would have to support the investment done by the carrier, which then would increase the price and cost of operation.

Background information

Danske Fragtmænd and Danske Fragtmænd Express have shown interest in the e-mobility area for some years. However, as the models on the market were limited and prices for buying e-vans have been much higher compared to ICE vans, they have decided not to invest yet. Most of their daily deliveries are done with large trucks and huge loads which are not suited for E-vans yet, so if they want to transform some of their business it had to be done in the last mile logistic area and through the express company. In here there are daily operations of between 60 – 200 km routes and have most of its stops in the urban city areas of Copenhagen.

At the same time Danske Fragtmænd Express have customers with lots of activity and daily fixed routes around the Copenhagen urban area which are fitted and well suited for electric vans.

As a part of a Danish pilot project involving the Municipality of Hoeje Taastrup, Danish Freight Express, several Danish car sales companies offering E-van vehicles and the charging infrastructure operator E.ON a small pilot project was organized and implemented during 2019.

Pilot case setup

During a period of 12 months Danske Fragtmænd Express have tested five different electric vans in periods of three months, to experience the difference in model size, range, load capacity and charging. The models tested were the Renault Kangoo & Renault Kangoo Maxi (old model), the Nissan NV-200, the Volkswagen E-crafter and the Mercedes E-Vito.

Supported by the infrastructure provider E.ON, they established a charging spot close to the depot, so that the E-vans could charge during nighttime and be ready for operation at 7:00 am fully charged. The charging spot was connected to the local power supply in the main office, and therefore had no extra cost to deploy. The pilot project basic idea was to offer customers a green “last mile” delivery with no extra cost or charge, and to see how the vans would operate in a normal daily operation replacing a diesel van of similar size. At the same time, it initiated a discussion on how to create a business case and a scenario that would be long lasting and sustainable in a future cooperation under normal market conditions.

For a start the idea was just to implement the electric vehicles and replace the normal routes and tasks done by the normal diesel van. The first two E-vans tested were the Renault Kangoo Z.E. and the Nissan NV-200.

Figure 1 - Danske Fragtmænd Express and one of their electric vehicles.

Source: Danske Fragtmænd Express

The first experiences and challenges to the operation

Since normal daily routes are between 60-250 km and not planned in specific patterns or known routes beforehand, the challenge to this type of service is that the car needs to be “on the road” full time from 7am - 4pm to be economically profitable.

Starting with different tasks around the City of Copenhagen quickly showed the challenges within limited range of the E-vehicles. Driving on highways is very costly on the range for small E-vans and therefore the range went down to about 100 km during the tests. So, the drivers found themselves limited in many ways, and operation had to stop around 12pm to 1pm simply because the vehicles where close to zero in battery capacity. Both vans are charged using the Type 2 plug, and therefore only charged by 3,6 kWh pr. hour which quickly turned out to be a challenge to the daily operation, due to the limit hours of operation for the car compared to a normal diesel version. The long charging time caused a 50 % decrease in working hours in operation. Since charging could not be done quick and in less than 30 minutes, the company decided to exchange the e-vehicles and run the afternoon shift with a diesel van instead. The implications to the initial thoughts and the company’s expectations to the capability of the E-vans was therefore challenged. From a business side it quickly turned out that replacing a normal diesel van with a standard E-van is not feasible in the last mile logistic setup that Danske Fragtmænd Express runs as a daily business. All though the drivers expressed a great comfort in driving the vehicles and doing so in the morning operation from 7am-12pm was a very positive experience, the lack of range to cover the whole day operation is critically limiting the business perspective. It was clear to the management that if the pilot test should succeed another approach or business cooperation was needed daily. This could be changing the value chain or pointing out specific route patterns or daily operations which was more focused in the urban areas in Copenhagen or more fixed planning for drop off and goods carried.

New approach, new process and new business created

During the first trial period several customers had their goods delivered by the E-vans and communication about this was made to the recipients. One of the clients was L'Oréal (the French perfume and cosmetics company) and they noticed the possibility to do “green delivery” in the city of Copenhagen and asked for a meeting regarding this subject.

As a result of that meeting a focused cooperation started, supporting the deliveries of goods from L'Oréal to dealers and retailers in the urban area of Copenhagen. Firstly, it was not specialized products or segments but goods in general going from the main depot in the outskirts of Copenhagen into the city. This project was then materialized for a 2-month period.

During that period, the daily challenge regarding charging and the load volume to the E-vans became an obstacle. Since the daily flow of goods exceeded the amount that the E-vans were able to deliver because of the limited range and time for charging – it became clear that this type of service and delivery was not suitable for the demands from L'Oréal. If there were to be a good business model for this type of deliveries, and cost per goods should not be doubled, there had to be done something to increase the payload or the specific routes had to be optimized. This showed the simple challenge in daily operation when E-vans are inserted and replacing normal diesel vans. The workload compared to the price and the functionality is simple not profitable if things are done in a 1:1 dimension. There is a simple need for rethinking the routines.

Since L'Oréal has a strategy towards zero emission delivery in their global brand there was still and interest to find a solution. Therefore, the value chain of all deliveries where analyzed to find areas in which the E-vans would be suitable for operation. Since the E-vans in the market all has a rather limited payload and the charging for most parts is only type 2 connector and not able to charge that fast, there is no easy way to achieve a profitable business case in the current market. But looking at this from another angle, the proposed zero emissions zones and the inner city of Copenhagen with bans of diesel cars is a change of the market situation soon to be expected. To cope with these changes and to be an early adopter in this area, L'Oréal came up with the idea to differentiate their goods.

To optimize the workload and create specific routes that could fit the range in the current E-vans in the market, they agreed to do a separation of goods and deliveries for a test period.

So, now the goods from L'Oréal are delivered by a large truck to the main depot (From the main depot of L'Oréal in Scandinavia which is placed in the middle of Sweden). Here the goods are divided into smaller parts, and the “high-end” goods are separated from the rest. Since the amount of goods in the “high-end” segment is a lower weight, and when separated it can be placed on pallets that fits the size of the E-van. Looking at the destinations for these products, it was also possible to separate the postal codes and do the deliveries to a fix area in Copenhagen on two daily operations. By that securing that all “high end” retailers had their products delivered by a green last mile distribution, and at the same time a full workload and optimized delivery tour could be planned. The separation of goods and deliveries enables an economically efficient business case. The cooperation between the two parties could be scaled and the results of the pilot project can widely apply in other areas of the company in the future.

Contracts for 3 Years of “Green Delivery”

Creating the new workflow and setting up the operation in this way, a great cooperation has been created. To optimize the business of both Danske Fragtmænd Express and L'Oréal they have decided to cooperate as a joint venture regarding this specific delivery.

Both companies have invested in this cooperation meaning that 2 to 4 E-vans will be used to cover the whole city and the deliveries of “high end” goods. This investment is carried out by their joint venture cooperation, and therefore the cost is not related to the independent carriers as normal. Danske Fragtmænd Express will therefore hire their own drivers to this specific case and run an independent business model agreed with L'Oréal. The cost of a single delivery with an E-van will be 10-20 % higher compared to a delivery with conventional vehicles, but that has been accepted by L’Oréal due to the price of E-vans in the current market. To make sure that the investment is done on a long perspective, a new contract regarding this cooperation has been made on a 3-year contract period. By that Danske Fragtmænd can buy the E-vans and start operation with the guarantee of a daily delivery with L'Oréal goods.

At the same time customers from around the Copenhagen area have heard about this cooperation and the possibility to be delivered by E-vans and have also started new dialogues with Danske Fragtmænd Express about green delivery. Therefore, Danske Fragtmænd plans to invest in two more E-vans to support the growing demands and service request that they have experienced during 2019. To further expand the knowledge and service to customers regarding green last mile delivery Danske Fragtmænd might try to highlight a new “product”, asking the customers if they want the goods delivered by E-vans for a higher price. This would give a clear view on the interest and demand from the customer side to be more responsible and contribute to alternative fuels and electric vehicles.

So, coming from a “non-interest” and no intention to buy E-vans to now starting a new full time real life scenario and business case with a customer, and investing in six E-vans is a big change and suddenly the interest from other parts of the company and the owner Danske Fragtmænd has aroused. This includes discussions on how to create a 100 % green transport corridor including the use of biogas trucks for the long haul to electric vehicles for urban city logistics.

Do you want to know more about this case, please contact:

Thomas Troels-Smith

+45 30372561

thomas.troels.smith@gmail.com

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