Sustainable Transport and Reliable Supply Chains

 Jari KauppilaEconomist

F&L Working Group meeting, Paris, 2 July 2013

Related work at the ITF/OECD

• Improving Reliability on Surface Transport Networks (ITF/OECD 2010) http://www.internationaltransportforum.org/Pub/pdf/10Reliability.pdf

• Managing Urban Congestion, ITF/OECD (2007) http://www.internationaltransportforum.org/Pub/pdf/07Congestion.pdf

• Internalisation of External Effect in European Freight Corridors http://www.internationaltransportforum.org/jtrc/DiscussionPapers/DP201310.pdf

• Road Haulage Taxes and Charges, Summary analysis and  data tables 1998-2012 http://www.internationaltransportforum.org/jtrc/DiscussionPapers/DP201308.pdf (related database available at http://www.internationaltransportforum.org/statistics/taxation/index.html)

• Measurement of National Level Logistics Costs and Performance http://www.internationaltransportforum.org/statistics/taxation/index.html

• All ITF/OECD work on shipping http://internationaltransportforum.org/jtrc/maritime/index.html

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Related work at the ITF/OECD

• Statistics Brief on Global Trade and Transport http://www.internationaltransportforum.org/statistics/StatBrief/2013-04-Global-Trade-Transport.pdf  

• Spending on Transport infrastructure 1995-2011 http://www.internationaltransportforum.org/statistics/index.html

• Moving Freight with Better Trucks (Summary document) http://www.internationaltransportforum.org/jtrc/infrastructure/heavyveh/TrucksSum.pdf

• Charges for the Use of Railway Infrastructure http://www.internationaltransportforum.org/Pub/pdf/08RailCharges.pdf

• Workshop and presentations on Information and Communications Technologies for Innovative Global Freight Transport Systems http://www.internationaltransportforum.org/Proceedings/Genoa2010/index.html

• Workshop and presentations on Innovation in Road Transport: Opportunities for improving efficiency http://www.internationaltransportforum.org/Proceedings/Lisbon2009/index.html

• Workshop and presentations on Overcoming Border Crossing Obstacles http://www.internationaltransportforum.org/Proceedings/Border2009/index.html

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Key messages

Take into account all elements of sustainability

Focusing on reliability can improve sustainability of supply chains

Reliability should be incorporated into transport policy

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Sustainability

Economic viability

Efficiency is key in contributing to growth

Social welfare

Safe and equitable access to jobs, education, healthcare

Impact on cost of goods

Environmental carrying capacity

Transport consumes massive amounts of finite resources

Should not surpass key environmental thresholds > limit opportunities for future generations

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Sustainability and transport

Sustainability and supply chains: challenges

Economic viability

Uncertainties (Volatility in oil prices, slack demand)

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Global freight volumes suggest continuous uncertainty

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-13%

-5% -6%

Sep

-10

USA external trade by sea, total (tonnes)(% change from pre-crisis peak)

Jul-08 June-12

-14%

-3% -1%

Sep

-10

EU27 external trade by sea, total (tonnes)(% change from pre-crisis peak)

Jul-08 June-12

Source: International Transport Forum statistics

Global air freight as a lead indicator

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-20%

-1% -1%

Sep

-10

USA external trade by air, total (tonnes)(% change from pre-crisis peak)

Jul-08 Jun-12

-21%

16%

-3% -1%

Sep

-10

EU27 external trade by air, total (tonnes)(% change from pre-crisis peak)

Jul-08 Jun-12

Source: International Transport Forum statistics

Supply chains and sustainability challenges

Economic viability

Uncertainties (Volatility in oil prices, slack demand)

Congestion

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Road Congestion

Continued dependency on road freight Options for shifting to other modes limited

Infrastructure investments necessary but not sufficient

Significant impact on efficiency

Unmanaged road capacity no longer an option Identify & target strategic bottlenecks Regional planning key in port-hinterland networks

Focus on managing networks for reliability, users’ needs

Supply Chains and Sustainability Challenges

Economic viability

Uncertainties (Volatility in oil prices, slack demand)

Congestion

Social welfare

Supply chain contribution to cost of goods

Impacts on safety

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Safety

http://www.team-bhp.com/forum/commercial-vehicles-india/39265-container-truck-toppled-traffic-junction.html

Road safety

Around 1.3 million people die on roads every year 20-50 million injured

Truck involvement 10-25% in OECD countries Up to 70% in developing economies

Multiple causes, including speed, non-respect of traffic laws, over-loading and equipment failure

Huge cost for society and impact for well-being

Supply chains and sustainability challenges

Economic viability

Uncertainties (Volatility in oil prices, slack demand)

Congestion

Social welfare

Supply chain contribution to cost of goods

Impacts on safety

Environmental carrying capacity

Energy use/GHG and air pollution (land and sea)

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Air pollution

Transport key contributor to the overall air pollution

Control strategies are known but implementation lagging in non-OECD countries

Need to address concentration of air pollutants in port cities and port areas

Responses

Regulatory

E.g. mode-specific emission and energy efficiency agreements and standards

Reorganization of supply chains

Shifts in production composition

Relocating production (especially for low value goods where transport component is large)

Operational

Slow steaming

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Supply chains are slowing down

“There is this big, ugly thing in the middle of the supply chain slowing down” –Ron Widdows,

CEO Rickmers Holdings

Supply chains are slowing down - impacts

Logistics business with inability to deliver goods on time

Inventory levels affected – more stocks are held in compensation for uncertainties

Companies need to adapt their operations either through the way they operate or building in buffer stocks

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Reliability carries a premium

“We like speed but spend most of our time making the supply chain predictable” –Jeff Langenfeld,

VP, International Logistics,

Walmart

Reliability carries an premium

Reliability may matter more than speed

Cost of unreliability rival those of congestion

Users often face delays at interfaces

Reliable but slow can be also greener

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Shift in policy focus

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Travel time

Current focus in reducing average travel time

Future focus in reducing also variability

Choosing the low-hanging fruit

A key policy challenge to create incentive structures that encourage cost-effective solutions

Improvements can be delivered by both users and network providers

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Transport is a component of process speed

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0%

5%

10%

15%

20%

25%

30%

35%

Owncompany

action

Problem atdelivery

point

Trafficcongestion

Problem atcollection

point

Lack ofdriver

Vehiclebreakdown

Huboperation

% o

f to

tal

del

ay t

ime

McKinnon et al (2009).

Easier to pay someone to move goods faster than to change the procedures within the company

“Own company actions” the most important source of delays

PIMP your transport policy

Provision: Increase physical capacity either through supplying

extra capacity or improving the quality of existing infrastructure

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Provision

Physical growth through new, expanded or upgraded facilities (mostly bottleneck removal)

Higher network standards can deliver higher reliability

E.g. long-life pavements reducing need for maintenance

Providing additional capacity in infrastructure has limited remaining scope in traditional corridors

Time consuming, costly and politically difficult

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PIMP your transport policy

Provision: Increase physical capacity either through supplying

extra capacity or improving the quality of existing infrastructure

Information: Informing users enabling them to mitigate the

adverse effects of poor predictability

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Information

Monitoring reliability is a policy signal and needed to inform policy

Diverge information is needed for different users

1. Government to design cost effective policies

2. Network managers to enhance service provision

3. Users (carriers) to adapt behaviour accordingly or to mitigate adverse effects of poor reliability

4. Logistics managers handling the total trip not just part of the trip (supply chain)

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“Fluidity index” by Transport Canada

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Source: Transport Canada – Economic Analysis & Research

Evidence-based information leads to greater accountability and transparency in the supply chain and will benefit all gateway users

PIMP your transport policy

Provision: Increase physical capacity either through supplying

extra capacity or improving the quality of existing infrastructure

Information: Informing users enabling them to mitigate the

adverse effects of poor reliability

Manage: Better management of existing infrastructure

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Managing existing infrastructure

“Before building new infrastructure, we need to make sure the existing works as it was meant”

– Catharina Elmsäter-Svärd, Minister of Infrastructure, Sweden

Managing existing infrastructure

Pro-active management

Active management

Government can have a facilitating role

Managing interfaces

Ports and hinterland connections

Borders

Network providers

Organizational interfaces

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PIMP your transport policy

Provision: Increase physical capacity either through supplying

extra capacity or improving the quality of existing infrastructure

Information: Informing users enabling them to mitigate the

adverse effects of poor reliability

Manage: Better management of existing infrastructure

Price: Charging directly for reliability to achieve more efficient

levels of reliability

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Price-reliability spectrum, with circle size illustrating traffic volume (USA)

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Source: Derived from The Tioga Group (2003).

Conclusions

Take into account all elements of sustainability

Focusing on reliability can improve sustainability of supply chains

Improves efficiency

Reduces congestion, cost of goods and environmental footprint

Focus on interfaces and better management

Governments may have a facilitation role

Enhanced interface coordination and corridor management

Provide information for all users

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Future and on-going work at the ITF/OECD

Workshop on Supply Chain Resilience

APEC Supply Chain Resilience Workshop, Bali, 26-28 July 2013

Follow-up early 2014, jointly with APEC

Measurement of national-level logistics costs and performance (two post-docs)

Supply chain performance

ways to better measure and benchmark their supply chain performance (APEC priority)

Working Group on Infrastructure Adaptation to Extreme Weather and Climate Change (on-going)

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Thank youJari KauppilaT +33 (0)1 45 24 97 21E jari.kauppila@oecd.org

Postal address 2 rue Andre Pascal75775 Paris Cedex 16