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The Future of Last-Mile Delivery has Arrived … in a Small Dutch City

The Future of Last-Mile Delivery has Arrived … in a Small Dutch City
The Future of Last-Mile Delivery has Arrived … in a Small Dutch City
November 19, 2019   //   

When Birgit Hendriks set out in 2007 to create a more efficient, environmentally responsible system for freight deliveries in the Dutch city of Nijmegen, she knew she was up against steep odds. “I talked to a Ph.D. candidate who was defending his research on sustainable urban freight solutions in Europe,” says Hendriks. “He’d been analyzing 106 initiatives in Europe, and they all failed.”

She laughs. “We decided not to be Number 107.”

Hendriks was trying to solve a problem that has long bedeviled municipalities: How to combat truck traffic while still helping businesses and residents receive the goods they need in a timely manner. Big trucks are a blight on urban streets. They pose a disproportionate danger to pedestrians and cyclists, exacerbate traffic congestion by double-parking, and are responsible for up to half of traffic emissions within cities. The explosion of online and app-based delivery services has only made the challenges of last-mile delivery tougher.

For years, governments and private entities have explored the possibility of reducing truck traffic through freight hubs called “urban consolidation centers,” or UCCs, with Europe leading the way. The concept seems relatively simple. Instead of having large, partially filled, long-distance trucks roar into city centers, they would stop at designated freight hubs at the edge of town. There, packages could be unloaded and redistributed into smaller vehicles, such as electric cargo bikes, freeing the big vehicles to go back out on the highway.

The concept seems like a win-win: In addition to the obvious benefits for dense city streets, a UCC also reduces the load on long-haul drivers, whose time behind the wheel is strictly limited under European law. But the logistics of delivery require consideration of dozens of complex factors. These range from physical challenges (like where to locate UCCs, which require highway access and a significant amount of land) to political and market-driven hurdles (like how to get freight companies to buy in).

On the supply side, for instance, highly competitive freight delivery companies are wary of cooperation at centralized transfer locations, lest they lose customers to their rivals; they’re also reluctant to add a delivery step, which could potentially add costs. On the receiving end, shops and other small businesses want a simple, low-cost solution to their delivery needs, and don’t have the bandwidth to think about additional layers of transfer and expense. Budget-crunched governments, for their part, are reluctant to commit subsidies for UCCs, regardless of the potential upside for public health and city streets.

And so the failures mounted, year after year, UCC after UCC falling victim to expense, lack of adequate facilities, and difficulty in recruiting freight companies willing to participate. Then came Hendriks’s turn in 2007, as she set out to launch a freight-consolidation company called Binnenstadservice (binnen stad means inner city in Dutch). Spoiler alert: It was not failure Number 107.

Three secrets to last-mile success

Nijmegen, population 180,000, is the oldest city in the Netherlands, with continuous settlement dating back to Roman times and an urban core that features well-preserved architecture from past eras. Now 57 years old, Hendriks worked as a bus driver for seven years to pay for her advanced degree in business administration, eventually becoming Nijmegen’s inner-city manager — a quasi-governmental position representing the interests of businesses in the city center.

That role gave Hendriks deep experience navigating the complex web of relationships among businesses, local government, and regional regulators. It also made her acutely aware of how much people in the historic municipality hated trucks.

“I was in contact with lots of entrepreneurs, small and bigger, in the city shops,” says Hendriks. “All kinds of retail, restaurants, cafes — they were all annoyed about the number of trucks and the size of the trucks in the city. Nobody enjoys walking and crossing around big trucks, and the noise and everything. That’s not a healthy, livable experience. It’s not a good environment to show to tourists. So we wanted to have a solution.”

After a few years as inner-city manager, Hendriks was looking for new opportunities when a local cargo-bike entrepreneur approached her to see if she would be interested in setting up a UCC. In search of a model, Hendriks picked up the phone, and quickly got a bleak picture of the prospects. “I never had to ask, Why did it succeed?” she laughs. “Because there was no success.”

Powered by her experience, a practical nature, and a one-year pilot subsidy, Hendriks went ahead with her plans to set up the service anyway. She situated the Binnenstadservice hub at the perimeter of Nijmegen, in a building that looks pretty much like any industrial park warehouse. There, long-haul trucks unload their shipments at an abundance of loading docks, with electric cargo bikes and small vans taking goods the rest of the way into town.

Long-haul trucks deliver their loads to the Binnenstadservice hub (above, red pin) on the perimeter of the Nijmegen city center, with electric cargo bikes and small vans making the final leg of delivery through local streets.

Simple as that set-up sounds, Binnenstadservice is the result of Hendriks studying each failure before it to see how she and her colleagues could avoid similar mistakes — ultimately hitting on three key insights.

For starters, Hendriks and her partners decided to make Binnenstadservice a non-governmental organization, or NGO, a designation that positioned the service somewhere between a public and a private entity. That way, the trucking companies wouldn’t fear it as a for-profit competitor, and the government wouldn’t worry about playing favorites when contracting with the service for its own procurement needs (local government is a core client for the Binnenstadservice business).

“Being an NGO, we are safe for both sides,” says Hendriks.

Hendriks also pushed the business model forward in new ways. Binnenstadservice’s core revenue comes via payments from freight companies for last-mile deliveries. Contrary to initial fears about adding a delivery step, shippers indeed found the hub cost-effective, because it gets their trucks back on the road more quickly for long hauls, instead of caught in traffic on dense local streets. But the hub also offers other fee-based services to receivers, such as storage, home deliveries for bulky items, clean waste collection, and support for online retail services.

The revenue from those services is essential in keeping the rest of the enterprise afloat. Most recently, the Nijmegen hub has been moving into providing delivery services for residents as well as businesses. Electric cargo bikes move through neighborhoods on a daily basis, dropping off packages and picking up packaging waste for return to the hubs, where it is disposed of in the most sustainable way available.

Perhaps the most crucial move Hendriks made was to start recruiting customers not from the big trucking companies, but rather from the shops, hotels, and restaurants on the receiving end. By engaging directly with receivers, Hendriks cut right to the heart of the problem. “The independent small shopkeepers make the biggest mess when it comes to traffic movements,” she says, “because they order high frequency and small volumes — because they don’t have cash, because they don’t have space.”

While those small businesses were the ones most affected by truck traffic in terms of negative impacts on the neighborhoods where they were trying to attract customers, they had never before had any say about how deliveries were made. They just placed orders and essentially took what they could get in terms of transport. Hendriks’s vision was to give them agency.

“Normally, the end receiver has no power, given how the supply chain is organized,” Hendriks says. “What we did is give the power to the people to make a decision about how they want to receive the goods.”

Once she had end receivers who expressed interest in receiving deliveries through the hub, Hendriks asked them for leads on the supply side. That process continued back and forth, with suppliers recommending more of their receivers, and those receivers recommending more of their suppliers. Gradually, a network began to form. At the beginning, there were 20 shops. The next month, 10 more. Within a couple of years, 160 shops in Nijmegen were getting deliveries via the hub.

Together, these steps — serving as an NGO, expanding the business model beyond shipping, and building a bottom-up network with local receivers — seem to have cracked the code for UCC operations.

In addition to showing financial viability, initial studies have found that the hub is indeed fulfilling its larger social purpose. One early analysis, from 2010, reported a 5 percent first-year decline in truck kilometers, with models predicting that number could rise to 32 percent over time. The study also found a reduction in total truck traffic and promising signs for noise reduction, traffic safety, and street life.

The authors conclude: “This concept is a success.”

The path to wider adoption starts with policy

Today, the Nijmegen UCC is one of about a dozen such facilities in the Netherlands, all operating under the designation Goederen Hubs (“goods hubs”), a national operation that provides sales, administration, and I.T. support. This arrangement creates certain economies of scale for the individual city hubs while allowing for hyper-local management in terms of operation and hub design; after all, Amsterdam’s freight consolidation needs are different from those in Nijmegen.

For all their success in the Netherlands, UCCs still haven’t taken off elsewhere around the world.

In the U.S., the prevailing approach to freight policy is to rely on market-based solutions to achieve consumer convenience and profitability, explains University of Washington freight expert Anne Goodchild. Allowing multiple freight carriers to compete for delivery business in a city should, theoretically, result in increased efficiency for operators, along with optimal service for consumers. And, Goodchild points out, the current system does achieve those goals — as shown by the ease with which you can order just about anything delivered to your urban doorstep with ever-increasing speed.

There may come a time in the future when America shifts its priorities, Goodchild says. “Maybe we decide that getting things really fast is just not as important as having clean air to breathe, you know?” she says. “And so we give up that goal. Maybe that goal is out of date. But I don’t see that happening here right now.” What she does see — and is dedicated to researching — are other initiatives being explored by big players in the delivery business, like the cargo e-bikes that UPS is rolling out in Seattle. Such pilot programs offer some of the benefits of UCCs, such as getting big trucks off city streets, without compelling individual corporations to cede control of their logistics to a centralized hub.

Reception to UCCs would seem more welcoming in Europe, where the preservation of a city’s streets is perceived as its own value, and environmental concerns such as noise and particulate pollution are a much more pressing priority for local governments. In the Netherlands, Hendriks acknowledges the role that regulation has played in supporting her own business. The country recently set a goal of zero emissions from cargo in 40 of its cities by 2025, and Hendriks believes this will be a critical impetus for consolidation hubs.

“This is the kind of trigger that we we have been pleading for for 12 years,” she says. “The companies are not going to change their behavior overnight just because of the fact that we are there with the new service. That’s the story about the carrot and the stick. I always say to local governments, I can be the carrot, that’s the nice part. But you have to be the stick.” Other financial incentives for UCCs would include tiered pricing for vehicles entering cities, which would make it even more cost-effective for shippers to deliver to hubs on the periphery.

Since she started this work, Hendriks says she has seen a slow but steady shift in attitudes toward more sustainable cargo transport. “Twelve years ago, nobody was talking about sustainability in logistics, and we were,” she says. “We had to be very careful not to be pushed in one corner, of being environmental idealists or something. No. We wanted to be the entrepreneur that was delivering services that made everybody happier, both the private side and the public side. And that was a very, very advanced way of thinking 12 years ago.”

Today, as awareness of the climate crisis is filtering into the mainstream, Binnenstadservice’s expertise on cargo consolidation is suddenly in demand. Because there are still very few successful examples out in the field, everyone wants to come and see how Hendriks and her team have built the first success — instead of the 107th failure — in the sleepy little city of Nijmegen. (She does wish that people wouldn’t fly to see her operation: “It’s not sustainable,” she says. “Calling is better.”)

“There are lots of cities making steps — that’s the good story,” Hendriks says. “They all realize what they have to do. But policymaking is always slow, and entrepreneurs are always too fast. It’s about timing and about keeping in contact with each other. And that’s more or less what I do. I force this group of people around the table every now and then to discuss, where are we? What’s happening here? How is this going to work for this city? And that’s a fascinating challenge.”