By Eric Kulisch
Reducing the environmental impact of freight transportation operations is laudable, but methods used to achieve that goal will only become consistent business practice if they are based on demonstrable results and help generate profits, according to top logistics industry officials.
Hoping, or assuming, an activity will reduce pollution is not reason enough to invest in new technology or procedures.
Ignoring sustainable practices carries direct and indirect costs for the $5 billion freight transportation and logistics services enterprise in terms of operational expenses, as well as damage to its reputation that could lead to customer and employee defections, he said.
Aspirational goals to do the right thing for employees and the environment have to be intertwined with initiatives that actually save corporations money if they are to be maintained over the long term, Jim Butts, senior vice president of transportation for C.H. Robinson, agreed.
Although the Eden Prairie, Minn.-based third-party logistics service provider doesn’t operate assets of its own that produce carbon and other emissions, it is frequently asked by shippers for pro-environmental ideas that have a real economic impact, he said. The company is able to use its relationships with shippers and carriers to serve as a broker for best practices that have proven results, he added.
The Freight Sustainability Summit was hosted by the SmartWay program, a partnership between the EPA and the freight industry designed to improve fuel efficiency, reduce air pollution and encourage supply chain sustainability.
Source: Vision Motor Corp. (Click to zoom in)
After initially working to reduce smog-forming chemicals — nitrogen oxides, sulfur oxides and particulate matter — that pose health risks in high concentrations, industry has reacted to public concern by switching its focus to climate change and controlling carbon emissions as well.
Retailers and manufacturers, increasingly interested in presenting a good environmental track record to their customers and shareholders, are looking for transportation providers that can move their goods with less pollution. Freight transportation and management companies say that shippers increasingly require them to provide details of their sustainability practices when placing bids.
The retailer has set a goal of removing 20 percent of greenhouse gas emissions from its domestic supply chain by 2015. Transportation accounts for half its total carbon footprint. In one year, the retailer has eliminated almost 13 percent of greenhouse gas output, she said.
Best Buy has similarly set a carbon-reduction target of 20 percent by 2020. Towards that end, the company on Oct. 27 announced plans to implement a new energy management system across its 1,105 U.S. retail stores in 2012 that is expected to reduce the company’s energy costs and carbon emissions by 15 percent within three years.
Best Buy currently spends about $10,000 per month on energy costs for each store. When fully integrated the automated system is expected to cut energy costs by $1,500 per store per month, which projects to about $71 million in cost savings over six years. Once the savings have been proved in U.S. stores, the system will be considered for implementation in Best Buy distribution centers, regional offices and retail operations overseas, the Minneapolis-based electronics retailer said.
“We’re very proud of the work we’ve done at Best Buy relative to sustainability (measures). But we have no illusion that they are sufficient for the future, that they are deep enough for where we need to be,” he said at the Business for Social Responsibility conference in early November. “What we are is fanatically committed to the journey. The more you peel back the onion the more you find there is to do. And I think that can be very, very vexing to businesses. And I think you have to embrace that complexity.”
Best Buy to date has spent a lot of time trying to reduce the environmental impact of its operations, but intends to focus more on influencing vendors and other supply chain partners on product lifecycle waste, from how products are made to how they are disposed of, he said.
“For the sustainability solutions to be sustainable they have to work in companies’ business models,” Dunn stressed. The use of exclusive brands, for example, gives Best Buy the ability to control product standards. He noted that the three most energy-efficient TVs sold by the retailer are its Insignia models.
“The best environmental programs are ones that pay for themselves. And the even better environmental programs are those that actually show a profit at the end of the day,” Ken Dorsey, executive director of tank car safety for the American Association of Railroads, told the SmartWay audience.
“To us, more efficient locomotives mean the ability to do our business and perform our role for our customers at a much more reasonable price,” he added.
Among the advances implemented by railroads in recent years are GenSets, in which three or four smaller diesel engines are combined on a train and only activated when additional power is needed, and exhaust treatment systems that remove harmful chemicals and improve fuel efficiency.
The cost of new equipment and uncertainties about whether new technologies will perform in demanding cargo environments were cited by industry representatives as reasons why many companies are not operating in a more sustainable fashion.
The program has grown to 2,900 members, including 256 shippers, who collectively have saved 50 million barrels of oil and $6.1 billion in fuel costs.
“SmartWay is the voice of goods movement within EPA” and bases its initiatives on sound science, Swift Transportation Vice President David Berry said.
Con-way’s three operating companies — Con-way Freight, Con-way Truckload and Menlo Worldwide Logistics — all belong to the SmartWay Transportation Partnership.
Both Con-way and C.H. Robinson formed internal committees to develop their environmental policies. At Con-way, a committee that crosses all functions and business units provides input and encourages employees to bring forth ideas for enhancing environmental performance. All proposals and decisions are measured and graded on their financial impact, Mullett said.
C.H. Robinson originally implemented pro-environmental measures in a scattershot fashion as local offices tried to meet specific customer requests to reduce the amount of carbon and other waste generated by their shipments, but was not taking advantage of good programs across the organization, Butts said.
Without a centralized game plan in place there was no sharing of local lessons, which prevented the company from capitalizing on successful solutions and making them available for the benefit of other shippers as well.
Executives eventually created a sustainability policy group eight years ago that had as its first task “raking the leaves together” to find out what the company was doing in its different branches, Butts said.
Companies like SmartWay because it is an avenue for staying abreast of ways to improve efficiency.
And freight efficiency contributes to sustainability, Mullett and Butts said.
Forecasts call for goods movement worldwide to increase almost 250 percent by 2050. In Asia, cargo growth will reach 600 percent. And U.S. freight volume is expected to increase by a quarter within eight years. Any constraints on the physical movement of goods, whether inadequate infrastructure or regulatory policy, not only slows economic growth but adds to highway congestion and other delays that result in unproductive burning of fuel, as well unhealthier air, according to environmentalists and industry officials.
Butts said the primary business proposition of outsourced logistics companies, by definition, is to find innovative ways to create transportation efficiencies that reduce waste and improve utilization of existing capacity. That requires managing transportation and customers in a coordinated fashion.
“Future reductions in greenhouse gas emissions will come from how we use the truck, not so much from the truck itself,” Berry added.
Butts said good planning is critical to sustainability because reacting to events, such as a rush of orders or a supply chain disruption, is not strategic and leads to inefficient transportation choices in an effort to expedite deliveries.
It’s impossible to eliminate all empty backhauls, no matter how much collaboration exists among shippers and 3PLs, because of demographic realities, Mullett said. Large population centers will always tend to pull in freight, but they often lack the manufacturing base to fill outbound trucks.
In reality, many efficiency techniques are not specifically designed to produce environmental benefits but do so as a byproduct of streamlining business operations.
Reducing highway speed by 5 mph can cut fuel use and greenhouse gas emissions by about 7 percent and reduce wear on engines, tires and brakes, according to a SmartWay fact sheet.
Many motor carriers have implemented speed management policies as much for safety as fuel efficiency reasons, but either way they get a dual benefit.
Con-way, Mullett said, was able to consolidate less-than-truckload routes driven each day by using simulation software to reengineer its terminal network in 2008. The closing of 40 smaller, end-of-the-line terminals and the use of new load planning, routing and scheduling programs helped the company eliminate 124,000 miles per day from the system and increase route density.
The move was largely prompted by the downturn in shipping volumes at the height of the recession, but was considered a wise move by analysts because it reduced costs and improved transit times for customers.
The trucking company is being careful about adopting boutique bio-fuels because there is scant guidance on what their long-term use will do to vehicle engines, Mullett said.
Cleaning up freight transportation further will require improved measuring tools and industry standards, new technology and routing freight to the most fuel-efficient transport providers, Butts said.
But Mullett cautioned that getting “fixated” on trying to shift shipments from truck to rail, or on port-related traffic, could lead the industry and government to ignore potential solutions for the vast majority of freight traffic.
The railroad industry has heavily invested in upgrading its intermodal franchises to attract more freight. It touts its ability to move a ton of freight on a single gallon of diesel fuel and haul the equivalent amount of cargo on a single train as 280 or more trucks. According to the AAR, using rail instead of truck reduces carbon emissions by 75 percent. If just 10 percent of long-distance freight that currently moves by highway switched to rail, national fuel savings would exceed one billion gallons a year and annual greenhouse gas emissions would fall by about 12 million tons, it said.
Modal shares are expected to stay fairly constant during the next 20 years, according to EPA studies cited by Mullett. Shipments that move further than 500 miles, and are most suitable for intermodal rail, only represent 13.4 percent of trucking activity. If rail intermodal capacity doubled by 2020, its market share would only be 1.8 percent compared to 1.5 percent if capacity stayed constant, he said.
And the 12 to 13 million ocean containers entering the country each year only represent about five days’ worth of truck traffic.
Many shippers and large trucking companies strongly agree that a dual benefit to the bottom line and the environment would come from passage of federal legislation allowing states to increase the permissible weight of loaded tractor trailers to 97,000 pounds from 80,000 pounds. Fewer trucks on the road to move the same amount of goods would reduce congestion and carbon emissions, save fuel and purchased transportation, supporters argue.
Home Depot, for example, could save about $10 million per year by fully stuffing trailers that currently max out on weight restrictions before they are completely filled, Chason said. The home-repair retailer’s bulk distribution centers, which receive and deliver heavy products such as lumber, would especially benefit from the rule change, she added.
John Woodrooffe, a research scientist at the University of Michigan’s Transportation Research Institute and an authority on truck safety, last summer produced a report that estimated the industry would save 9 billion gallons of diesel fuel by using larger, heavier trucks.
“You can’t fill up a trailer with pretzels, popcorn and potato chips and fill up to 80,000 pounds,” Susan Alt, vice president for strategy and customer relations at Volvo Trucks North America, said. In fact, it takes two or three trailers to hit that weight threshold, she added.
Alt recommended that any regulations aimed at reducing greenhouse gas emissions be aimed at the whole truck — tractor and trailer — rather than the individual sections to produce a better overall outcome.
There are more than 500,000 trucking companies in the United States and 97 percent of them have fewer than 20 trucks, according to analysts.
C.H. Robinson, one of the largest truck capacity brokers in the nation, supports the non-profit Cascades Sierra Solutions to help independent truck owners in its network improve efficiencies, Butts noted.
Cascades Sierra of Eugene, Ore., tests the effectiveness of equipment designed to improve energy efficiency — such as idle-reduction systems, diesel particulate filters and aerodynamic accessories — and helps small and mid-sized enterprises finance their upgrades, or new truck purchases, and become SmartWay certified. Financing assistance includes matching customers with available grants, tax credits, manufacturer discounts, leases and other options.
The organization also offers consulting services to help companies with regulatory compliance, technology adoption and fuel-saving strategies.
Cascades Sierra lists C.H. Robinson as one of its Gold Contributors, which donate up to $100,000.
The four-year-old organization has helped 6,800 truckers retrofit their 18-wheelers with exhaust filtration devices and other equipment and another 1,200 upgrade to a 2007 or newer, EPA-compliant engine, spokesman David Orton said.
Another way C.H. Robinson tries to help owner-operators is by playing over the phone system an audio loop of six or seven good-driving principles when drivers are on hold waiting to speak to someone in its dispatch center, Butts said.