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Exploring Green LogisticsGreen Logistics in Action

Measuring EmissionsLegislation on Environmental

ComplianceFuture Directions

Mark Millar

Environmental concerns are becoming increasingly important agenda items for both corporations and for consumers - and nowhere more so than when it comes to transportation and logistics. Particularly in the context of modern day global supply chain ecosystems, where complex elongated logistics networks involve extensive multi modal transportation movements, all of which are consuming expensive oil and contributing emissions into the environment.

The paradigm shift to supply chain ecosystems that serve globalised markets has created immense challenges for companies working on traditional economic models. The dramatic rise in consumerism has led to climate change developments, including the increase of C02 emissions globally. We are also witnessing continuing depletion of natural resources such as oil, gas and forests, resulting in the disappearance of vast swathes of rainforest, warming of global temperatures, faster melting of glaciers and rising levels of oceans.

Therefore the need to develop and deploy sustainable business strategies adopting Green Logistics has never been more critical in order to address the growing issues of climate change and natural resource management on a global basis.

EXECUTIVE SUMMARY

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Whilst there is no definitive industry standard definition for ‘Green Logistics’, a useful reference point is to consider the key fundamentals of providing a Green Supply Chain as ‘the logistics and supply chain management processes that incorporate environmentally sustainable strategies that assist in minimising the effects of particulate emissions and pollution, and that include management processes to mitigate climate change’.

The transportation sector has one of the severest challenges in the role of sustainability and green supply chains. The never ending pursuit of faster, optimised and more streamlined logistics services, delivered at a competitive price, remains a priority requirement for most businesses; whilst the equipment used for the movement of freight – including aircraft, ships, trucks, forklifts, trains, barges and feeders - all remain key polluters emitting particulates such as CO2, NO2 and SO2.

Logistics organisations that develop effective Green strategies will enhance their brand profile

EXPLORING GREEN LOGISTICS

and generate competitive advantage. Gaining a strong reputation for environmental capabilities can be achieved through embracing new elements of business processes, incorporating sustainability strategies and integrating these processes into daily operations. Therefore, for leading companies, Green Logistics becomes an everyday part of the business process that can be leveraged to reduce costs and increase productivity.

The important areas of Green Logistics are being able to measure your footprint and create suitable strategies to reduce carbon or particulate emissions, which are crucial in meeting the increasingly stringent legislative expectations of governments and environmental committees. Furthermore, such emission reduction strategies directly correlate to health improvements amongst communities which are located in close proximity to major highways and ports, and therefore suffer from high levels of roadside pollution or shipping emissions, which are two of the most prevalent areas where respiratory, heart and lung disease are most commonly diagnosed.

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The dynamics of implementing Green Logistics strategies are clearly connecting all the important aspects of environmental well-being for the enterprise, its extended stakeholders, and the society in which it operates. The role of Green Logistics is to meet the highest standards of service efficiency and effectiveness, whilst maintaining a footprint that is conducive to protection of the environment as part of daily business activities. Contrary to the popular myth that only large companies can afford to be environmentally friendly, implementing and operating a Green Logistics program is equally applicable for small, medium size and large companies alike – including local players and multinationals.

Tony Wines, CEO of Turnkey Group, has worked on sustainability initiatives with many medium sized businesses, and advocates that “Green Logistics is not just for the Global Giants!” He says that “there are many different sustainability initiatives that can be undertaken by small and medium businesses – all business can adopt green logistics programs that will improve efficiencies, reduce costs and deliver competitive advantage, whilst also increasing compliance to customer and regulatory requirements - and providing branding benefits generated from market perceptions of green leadership”.

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The Logistics sector is one of the leaders in embracing the concepts of Green programs for sustainability. As logistics is such a critical enabler for so many leading companies that focus on imports, exports and global trade, many businesses have found it necessary to measure the performance of their vendors in areas such as their green footprint and sustainability strategies.

Numerous companies have embarked upon the implementation of eco-rating systems, whereby their vendors are monitored and measured on a range of enviro-metrics, which provide the principal with the ability to rate their suppliers – with options to downgrade or deselect those that are under performing against defined scorecard measurements for environmental standards. This is becoming widespread in Europe and North America, and now gradually filtering into markets within the Asia region.The resulting trend is also impacting the role of Freight Forwarders, Logistics Service Providers, Transportation Companies, Shipping Lines and Cargo Airline Carriers. It is clear that the dynamics are changing - a global survey by Eye for Transport found that 82% of logistics firms considered Green Logistics to be an important part of their business, whilst 12% of respondents considered it their number one priority.

Many companies have directed their attention to achieving a globally recognised environmental standard certification such as ISO (International Standards Organisation) or the GRI - Global Reporting Initiative. Industry leaders have pursued ISO 14001 accreditation to demonstrate that they are environmentally responsible and keep ahead of the competition. By

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investing in these globally recognised standards, which include regular audits to ensure their business practices are conforming to agreed standards, they are committed to continually improving their environmental footprint. Such international certifications provide high levels of assurance to companies who wish to work with vendors who meet their environmental expectations.

Whilst achieving such international standards provides a strong basis to drive competitive advantage, many other approaches to Green Logistics are being adopted by leading companies in their environmental programs. The sustainability program implemented by one leading logistics company provides a sample roadmap:

A leading integrator has been active in reducing emissions by also modernising their fleet of vehicles and adding hydrocarbon based fuel distillation, which results in 10% more fuel efficiency and enables up to 50% less emissions.

Thorough review of product packaging requirements with the objective of reducing packaging costs by a minimum of 15% through re-design and alternative materials

Modernisation of their transportation fleet to meet the latest emission standards in their particular market

Educating all staff on environmental awareness and the positive effects of saving energy and reducing waste - for both their business and the community at large

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MEASURING EMISSIONS

The measurement of emissions remains a vague and complicated process, especially as many organisations do not measure the complete picture in terms of evaluating both direct and indirect emissions. Direct emissions are those created by your own company, whilst indirect emissions are those created by third party vendors carrying out work on your behalf. Ideally, emissions measurements should include both of these elements as the means of establishing the benchmarks for an organisation’s environmental program.

One of the underlying weaknesses within the logistics sector is that much of the environmental reporting has proven to be inaccurate. In recent years, we have witnessed a noticeable amount of “Green Washing”,

exposing inaccuracies in the actual amount of emissions being released by companies that have been claiming to be green, but without the certifications and best practice measurement processes to demonstrate they are following accurate protocols.

Many companies in the logistics field do not measure their carbon footprint - a survey from the Aberdeen group reported that only 18% of logistics firms undertook any form of certifiable emissions monitoring - and therefore there is no means to benchmark improvements over time. Increasing adoption of international best practices will gradually improve this situation, whilst we can also expect further regulatory and governmental legislation to change the landscape in a positive way during the forthcoming years.

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Governments are taking a stronger stance in this area as a means of maintaining the focus on reducing the effects of climate change. In many jurisdictions, mandatory carbon reporting for large corporations is likely to come into effect within the next 12-24 months. In China the initial decision to adopt a carbon tax for polluting industries is imminent. In India, radical changes in policy have resulted in the first ever carbon tax program coming into effect, aimed at the most heavily polluting sectors such as the coal industry; extending this tax to the transport sector cannot be discounted.

One of the most important governmental agreements is the consensus from the G40 nations to work on reducing emissions by 80% by 2050. This may seem a long way away, but to achieve this goal, companies need to

LEGISLATION ON ENVIRONMENTAL COMPLIANCE

now be embarking upon measurement and benchmarking programs that will gradually reduce particulate levels to a point whereby climate change can be controlled.

There is growing awareness of carbon cap-and-trade schemes, whereby in the context of environmental measurements, better performing firms can buy carbon credits and - provided they meet their agreed emission goals - can subsequently sell these credits to the poorer performing firms. In the future, companies that do not take the role of green logistics seriously will be financially penalized by having to pay for carbon credits to offset their higher levels of emissions. In other words the worse you perform, the more you will need to pay, with the potential of additional negative consequences impacting customer loyalty and market perceptions of brand and reputation.

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FUTURE DIRECTIONSCap and trade schemes, together with carbon taxation programs are expected to be the predominant trends in the near future. Therefore companies need to ensure that they have suitable monitoring and reporting tools to meet these exacting requirements. As governments seek to establish legally binding environmental targets that can be implemented globally, it is clear that companies must act now.

Companies that embrace Green Logistics programs benefit not just from improved environmental performance and regulatory compliance, but can also generate cost savings - if they implement programs and strategies effectively. Furthermore, businesses adopting green logistics also gain competitive advantage and improve their brand image. As well as the global multi nationals, these business benefits extend very much to the small and medium size companies, who can avail themselves of external expertise as appropriate, to support and assist in the development of Green Logistics strategies.

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FUTURE DIRECTIONS

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