Andrew Williams reports on how LSPs are attempting to reduce emissions and costs in response to environmental concerns and changing regulations
In recent years, automotive logistics companies have come under increasing pressure to improve the environmental performance of their supply chain operations. While some issues are driven by regulation—including pending sulphur restrictions for the shipping sector—and others by commercial factors, there is a lot more to ‘green logistics’ than marketing slogans nowadays.
With approaches ranging from improving supplier communication and IT systems, to slowing down ships and trucks or increasing multimodal transport, the automotive industry’s logistics experts are looking across the supply chain to reduce emissions—and save money—amid rising fuel costs and the potential for more regulation-driven price increases.
In itsWhite Paper on Transport,“Roadmap to a Single European Transport Area”, adopted in March 2011, the European Commission (EC) put emphasis on decarbonising transport in the long-term, with a target to reduce transport-generated greenhouse gas (GHG) emissions by 60% by 2050, with interim targets as well.
“Right now, our priority must be to put our economy back on the growth path. Road transport should contribute to this effort, however economic and environmental efficiency are not contradictory goals,” says Magda Kopczynska, head of unit - maritime transport and logistics (MOVE) at the Directorate General for Mobility and Transport, European Commission.
Kopczynska explains that congestion is a major source of economic waste—currently estimated at more than 1% of GDP across the European Union, a sum comparable to the total EU budget—and is also responsible for a large waste of fuel and lost productivity. In this light, she argues, intelligent transport systems (ITS) have the potential to “revolutionise” transport, helping to manage congestion and optimise the use of infrastructure, facilitate intermodal communication, allow real-time tracking and tracing of goods and contribute to increased road safety.
“For all these reasons, it is crucial that the ITS applications for road and complementary systems in other modes are deployed in a timely and coordinated manner,” she says.
Another key EU policy focus is on the need to optimise energy efficiency by using newer vehicles and cleaner fuels. As part of its future strategy on HGV fuel consumption and CO2 emissions, it is looking at ways to improve vehicle efficiency using new engines, materials and design.
The EU is also keen to promote freight volume consolidation as a path to greater efficiency. As Kopczynska explains, while moving large volumes of cargo is the strength of railways, barges and ships, consolidating freight is more difficult over short distances.
“Here, the EU can help, with the right infrastructure— transhipment platforms, consolidation centres and intelligent transport systems. By integrating different transport network modes, the available capacity can [also] be better used,” she says.
Financial support for intermodal connections will be an important element of the overall funding schemes for transport networks in the 2014-2019 budget, in the context of financing facilities for trans-European transport networks. The commission has sought a fourfold increase in its budget to €32m ($40m), still pending parliamentary approval.
While the help from government and central organisations on infrastructure and connectivity is certainly welcome, there are many in the industry worried and wary over regulation that would legislate certain reductions. While there are few examples yet of such regulations for carbon emissions in freight specifically, one regulation set to have a big impact on the shipping industry is the tighter restrictions on sulphur emissions declared by the IMO and agreed in the EU and the US. Sulphur emissions will be restricted to 0.5% in these areas by 2015, including 0.1% in special control areas in much of northern Europe and the US and Canadian coasts.
Shipping lines have estimated that bunker costs could rise as much as 50%. WWL, the deep-sea shipping and logistics company, is currently working along several technology streams to address the issue. According to Kai Kraass, the company’s chief operating officer, these include looking at scrubber and other technology solutions, as well as campaigning for de-sulpherised heavy fuel oil and exploring alternative fuels and new engine and vessel designs.
“Fuel prices driven by sulphur regulations will be a big challenge, along with the fact that regulations will drive costs and risks in other areas as well,” Kraass says. “Being proactive and looking for the most cost effective solutions is the only way to handle this.”
In other areas of regulation, while there are few mandatory arbon reporting equirements, John uchanan, PTO onstraints manager t Ford of Europe, xplains that an ncreasing number of requests for nformation on GHG reporting are coming from investor bodies and NGOs. Buchanan points out that Ford contributes to the Carbon Disclosure Project and the Dow Jones Sustainability Index among other initiatives.
“We see it as likely that mandatory reporting will be a significant aspect in the future, with the introduction of freight CO2 reporting in France next year being a sign of things to come,” he says.
Elsewhere, Wang Ying, purchasing manager at Volvo Logistics in Asia Pacific, points out that China is “catching up” on emission standards. He explains that the Chinese government has made commitments on emission reductions and investigated carbon trading. “There will be more and stricter measures in future,” he adds.
According to Peter Baumann, global director of automotive at Geodis Wilson, although regulations are a key driver, commercial reasons also play a strong part because activities aimed at improving environmental performance, such as streamlining the supply chain and finding innovative modes of distribution, often also result in lower supply chain costs.
“Optimising supplier networks is also a way to look into becoming leaner, and as such greener,” he says.
Buchanan agrees that emissions reductions are a “win-win” for the freight industry, as generally any move in this direction will reduce fuel usage and therefore cost. Ford works closely with its lead logistics providers to optimise the efficiency of inbound and outbound freight networks, including analysing delivery frequencies, the location of crossdocks and use of drop-deck trailers and high cube ocean containers.
“Each year, there are targets to introduce more green routes. Switches to rail can reduce CO2 by 40%. In Europe, barges and short-sea routes have been introduced for finished vehicle shipping,” he says.
“Our internal transport fleets have introduced a range of techniques to improve fuel economy and reduce emissions, including aerodynamics, idle speed control and advanced driver training. Fleets are regularly updated to benefit from the latest engine technologies,” he adds.
Edwin van Woudenberg, European development manager for automotive at Vos Logistics, points out that, in general, automotive supply chains are efficient compared to other industries thanks to collaborative strategies between shippers and providers such as the “slowing down” of supply chains, the use of larger “Eco-combi” 25.5-metre trucks (where legal), multimodal options and alternative fuels like LNG (Liquefied Natural Gas) and LBG (Liquefied Bio Gas).
“Despite the tight service and cost frameworks related to the business, we meet with open minds,” he says. “Mid and long-term expectations related to subjects like the availability of transport capacity, as well as expected rises [in] fuel costs, taxes and general costs are impacting these discussions.”
In response to these drivers, companies have adopted strategies to reduce the environmental impacts of their supply chains. At Honda of America, the approach goes both internally and externally. According to Dana McBrien, associate chief advisor for North American logistics, the first approach is to engineer the network continuously to drive efficiency. “By applying a monthly re-engineering of our network to remove waste caused by changes in our model mix, we attempt to keep our trucks running as full as possible,” says McBrien. “Utilising regional crossdock facilities to eliminate empty miles is one example.”
The second approach is to partner with the right logistics providers. Honda uses LSPs that are participants in the Environmental Protection Agency’s Smartway programme, which encourages fuel efficiency practices such as tyre pressure maintenance and reduced idling time, as well as measuring carbon footprints. “By using participants in Smartway, we know that continuous improvement in fuel consumption and economy is a common goal.”
Baumann explains that strategies for environmental protection are important at Geodis Wilson, including working with partners to develop sustainable supplier selection criteria along with subcontractor coaching and training programmes.
Geodis has also installed photovoltaic panels in one of its car yards in Le Boulou, in the south of France—providing more than 3,800 homes in the local area with electricity— and developed city distribution hubs, whereby shipments are delivered by hybrid-powered trucks. Initiatives such as the solar panels, however, often require outside support or government subsidies to be attractive for most companies.
Vos Logistics has set key objectives such as to reduce the company’s carbon footprint by 20% between 2010 and 2015 and roll out a distribution fleet running entirely on LNG. The company is exploring the possibility of using alternative energy, including solar power, in its warehouses and is also committed to load planning optimisation, increased load efficiencies and more intermodal transport.
“Approximately 50% of the kilometres driven by trucks on the road are empty these days. Here is a huge potential for improvement,” says van Woudenberg.
At the OEM level, Ying explains that environmental care is one of Volvo Group’s core values, which “cascades” down to supply chain design. Volvo is working on areas such as improving load capacities, reducing empty miles, increasing multimodal transport and using more returnable packaging.
Meanwhile at Ford, Buchanan explains that the company aims to better understand supply chain GHG emissions, to assess supplier readiness to measure and report, to identify emissions hot spots, to identify opportunities for efficiency improvements and to lead industry development of universal tools and estimation methodologies.
One example of Ford’s approach is the involvement of its major suppliers in its Carbon Disclosure Project’s supply chain programme. According to Buchanan, this entails gathering qualitative and quantitative information about the suppliers’ management of climate risks and emissions, allowing Ford to better understand suppliers’ capability to measure, manage and report emissions.
Another example is its involvement with the development of the new Scope 3 GHG reporting standards of the Greenhouse Gas Protocol. The GHG Protocol, published jointly by the World Resources Institute and the World Business Council for Sustainable Development, is the most widely recognised corporate standard for GHG emissions reporting.
“The Scope 3 standards cover all indirect emissions including tier suppliers and transportation. Ford was one of just 20 companies who took part in detailed road-testing of the standards, which have now been published and will likely form the template for future auditing of reporting processes,” says Buchanan.
“We have also played a leading role in developing supplier CO2 reporting programmes within the AIAG, the North American Automotive Industry Action Group,” he adds.
Buchanan says that Ford has two work streams for logistics: improving CO2 reporting processes and implementing reduction initiatives. Ford maintains a global ‘green logistics’ team to coordinate activities within all its regions with the aim of reporting freight CO2 throughout its operations.
“The fact that freight emissions and fuel usage are so closely tied means that our focus on emissions reduction encourages actions that help us achieve other environmental goals, such as improving air quality and reducing traffic flows,” he says.
With the objective of developing consistent guidelines for the industry, Buchanan explains that Ford is engaged with a range of interested stakeholder groups. In the UK it helped develop the Department for Transport’s guidelines for freight CO2 reporting and it is currently working with supply chain communication organisation Odette, and other OEMs to develop Europe-wide guidelines. In North America, the company’s internal fleet is certified under the SmartWay programme, as are many of its carriers.
“Our Asia Pacific team attended the first Green Freight China seminar [a programmed related to Smartway for China] last year and is keeping an eye on how things develop there,” he adds.
As far as EU regulation is concerned, the EC is currently collecting information on the range of green logistics schemes currently in operation and will soon consult stakeholders on possible next steps. According to Kopczynska, efficient multimodal freight transport is still hampered by high complexity and the inefficiency of information exchange along freight transport logistics chains. In her view, information systems are not sufficiently interoperable.
“The level of information on available multi-modal transport solutions is still limited. Altogether this leads to increased administrative costs, a perceived complexity of multi-modal transport and a non-optimal use of the transport infrastructure,” she argues.
Kopczynska explains that these shortcomings will be addressed at the European level through the development of a framework for information exchange between the different actors in the freight logistics chain known as e-Freight. Under the auspices of e-Freight, the EC is also considering the possible development of a single transport document (an electronic “waybill” across modes, for the exchange of information between enterprises); a single window (for reporting purposes); as well as a standard description of transport services and the issuing of transport instructions.
Elsewhere, Ying argues that the cost of environmental impact has not yet been “reasonably priced” in the Chinese market and he believes that it is still difficult to balance cost and environmental impact. “However, the ‘green’ solution will be more and more attractive. It would be great if the [Chinese] government can put a tax on emissions and if individual companies focused on the development of a methodology to balance costs and environmental impact,” he says.
From the commercial perspective, Baumann anticipates that the pressure to find innovative ways to protect the environment and to reduce the carbon emissions will continue. “Multimodal concepts are becoming key for longhaul transports. Logistics companies who are taking this topic seriously and striving for further innovation will be successful and ‘first choice,’” he argues.
WWL’s Kraass points to multimodal transport as an outlet for reducing emissions, particularly in new markets, but much depends on infrastructure developments. “Port congestion, inadequate roads and rail networks create sub-optimal logistics chains with unnecessarily high environmental impact [for example] in India and Argentina,” he says. “In India, shifting from trucking to coastal shipping for certain volumes could reduce both costs and environmental impact, but then port infrastructure needs to be adequate.”
Looking at other infrastructure potential, Kraas sees the widening of the Panama canal as a positive development for reducing emissions, as ships will be able to take shorter routes through the canal. “We are currently working on a completely new vessel design that will enable us to take advantage of the wider canal,” he says.
In the medium-term, Buchanan is confident that equipment technology will steadily evolve, with aerodynamics, powertrain efficiencies and speed-controlling technologies improving. He also predicts that, within Europe, the new Green Freight Europe initiative—a European equivalent to Smartway—may have a useful role to play in encouraging best practices within the industry.
“As companies increasingly publish their sustainability performance, it is likely that there will [also] be increasing interest in verifying the information provided, which could see supply chain sustainability becoming a regular subject for review by external auditors,” he says.
Honda’s McBrien sees the challenge of reducing emissions as developing from a regional approach to a global one, particularly as OEMs re-orientate the supply chain to avoid single sourcing.
“Our challenge will be to apply our network optimisation approach to reduce empty miles from an even longer supply chain,” he says. “Through further innovation of our global supply, application of multimodal logistics and consolidation of freight volumes, we will be able to achieve the right balance and eliminate cost, miles and emissions.
“These conditions provide a lifetime of opportunities for the company logisticians. After all, if it were easy, anyone could do it.”
In the coming years, it seems clear that governments will devote more attention to encouraging automotive companies to reduce their supply chain CO2 emissions as they seek to deliver on their national carbon reduction commitments. In responding to the increasingly pressing challenge, there are now strong indications that improvements in transport infrastructure, particularly in relation to rail and mixed-mode operations, together with more advanced communication systems in the freight network, may prove one of the most effective weapons in the fight to reduce carbon emissions across entire supply chains.