Survey finds Europe ahead of U.S. shippers and carriers on embracing sustainability.
By Chris Dupin
While environmental sustainability is becoming an increasingly significant issue for customers and senior management, “cost still trumps environmental impact as a driver of behavior,” according to a summary prepared by AlixPartners of a recent survey it conducted among shipper and transportation company executives.
AlixPartners surveyed 150 “C”-level or other senior executives in the United States and Europe to prepare its 2013 Executive Survey on Supply Chain Sustainability
It found more emphasis on sustainability in Europe, with 88 percent of European respondents saying their firms had sustainability programs in place, compared to 68 percent for those from the United States. Similarly, 33 percent of European executives surveyed said green initiatives were extremely or very important when considering supply chain vendors and/or purchasing decisions, compared to 26 percent of U.S. executives.
Foster Finley, managing director at AlixPartners, said this is the first sustainability study his firm has done with a focus on the U.S. market, though the company has done some work on the subject in Europe.
There is a strong focus by businesses, especially among U.S. firms, on sustainability steps they can take that will also benefit their bottom lines and provide rapid payback.
The survey found less than a third (31 percent) of American executives surveyed said they would be willing to invest in green logistics initiatives that do not produce positive financial returns. In Europe, however, double that number (62 percent) reported willingness to make such investments.
Finley said businesses are most interested focusing on steps that have dual benefit for profits and the environment. “It’s just a matter of prioritizing, what somebody goes after first,” he said.
Vehicles that can run on compressed natural gas, as well as diesel, cutting out idling, reducing speeds, promoting mode conversion and moving heavier or full trucks — “these are all steps that businesses saw as ‘twofers.’ They will reduce the cost or consumption of precious resources, be they carbon resources or not,” he said. “They will also produce financial benefits as well.”
Nearly 60 percent of the executives surveyed said they require a cost payback on sustainability investments of 18 months or less.
Finley said he was not surprised by that demand for rapid payback, saying companies sometimes want other investments to payback in less than 10 months.
“The businesses with whom we interact, most live and die by their ultimate viability — which is their cash flow, their return on capital and their ability to be competitive in the market,” Finley said. “If they simply say, ‘we want to be green for green’s sake, to be environmentally friendly,’ it is very easy to lavish a lot of managerial bandwidth and spend money on a lot of approaches that might be good for Mother Earth and might be great for advertising, but could be adverse for financial well being.
“The takeaway is there seems to be this happy overlap between what a business person who may be environmentally-minded or not, along with a sustainability minded person who may or may not be particularly worried about the economic ramifications,” he said.
AlixPartners found of companies that have made efforts to “green” their supply chain, the most popular steps implemented in 2012 were:
- Expansion of recycling programs (42 percent).
- Consolidation of less-than-truckload (LTL) shipments to truckload (TL) shipments (42 percent).
- Introduction of energy conservation programs or solar energy (34 percent).
- Introduction of returnable packaging (24 percent).
- Installation of fuel-saving equipment or technology on private fleets (24 percent).
- Increased use of intermodal (24 percent).
- Shifting air freight to ocean transport (20 percent).
- Selection or discontinuation of a supplier based on environmental concerns (14 percent).
- Increasing inventory to reduce transportation costs (10 percent).
- Near-shoring (7 percent).
Finley noted some reduction in energy consumption can be achieved through changes in business practices, while others require new equipment. He gave two examples from companies shipping refrigerated goods.
For instance, instead of loading a refrigerated trailer at the end of the day and then running it all night before a delivery run begins in the morning, a company could pre-stage loads in a freezer so that a trailer would not have to be kept cool all evening, but just be rapidly loaded in the morning.
As another example of energy savings driven by equipment, he pointed to companies that have replaced the typical plastic strips at reefer warehouses that keep cold air in but allow forklifts to drive through. By replacing those with sliding electric doors that use electric eyes to burst open and slam shut, some companies have been able to reduce energy use.
Some companies have proposed taking the idea of cargo consolidation to reduce environmental impact a step further by co-loading products with their competition for delivery to retailers. For example, competing manufacturers of computers or televisions may be able to reduce the length of delivery truck routes by sharing space on vehicles delivering goods to Best Buy, Staples, and other stores.
But ideas like this can meet resistance. Finley noted that over a decade ago there was an attempt at getting multiple producers of foot products to jointly deliver product to grocery stores. The idea never got off the ground, he said, because some of the food companies felt that one of their advantages was the fact that they had more scale than their competitors.
Finley said these businesses asked “’Why would we level the playing field and give them a leg up? This is a core competency, we do it well. We’ve got a level of economic scale that gives us a benefit relative to a lot of other folks.’ And so it fell apart.”
The AlixPartners survey found 72 percent of respondents said their companies have corporate policies or sets of objectives regarding sustainability, but 84 percent said lower costs are more important to customers than is improved environmental impact. Some 70 percent of firms indicate they could pay no more than 2 percent additional for sustainable initiatives.