Carbon: The New Supply Chain Factor

I spent most of today traveling, flying between South Florida and Phoenix for a variety of business meetings.  As I sat on the 757 today,  I pulled out the Delta SKY Magazine. Pretty much the entire issue was dedicated to Green initiatives. "Green" meaning ecology related savings of energy and environmental resources in this instance. For an airline mag, it was full of pretty good stuff. I'm interested in this because while I am politically conservative,I truly believe we borrow this planet from our children. We have a social responsibility to leave it in somewhat better shape than we found it.

Having said that, I'm no tree hugging Al Gore fan.  I am interested in "green" from a supply chain and business point of view. As a guy who works for a major transportation company and integrator, we get asked more and more, "what are you guys doing to reduce your carbon footprint?". Carbon footprint means how much fuel and energy we consume in our physical activity of transporting goods as well as in operation of our physical plant. Thats not just a "feel good" question. More and more companies are being asked this by their customers and by governments. When a major manufacturer has to account for how much energy they use in delivering goods as well as creating them, the manufacturer must account for their vendors as well. RFQ's and RFP's are increasingly asking this question and soon, very soon, a logistics companies green footprint and carbon offset position will be a very real factor in vendor selection.

French President Nicolas Sarkozy is a right wing conservative.  He proposed one of the most aggressive environmental policies ever. This includes reduction of energy consumption, creation of dedicated rail corridors for freight and passengers, and especially the possible taxation of excess carbon consumption. When government leaders in Europe get on this kind of topic, especially taxation, this becomes a C level topic for major conglomerates. 

For logistics and supply chain managers, this translates this way. You now have to consider three factors in shaping your supply chains. Cost to deliver, time to deliver, and the carbon impact of delivery. This three dimensional balance sooner rather than later, will also impact how you select logistics vendors.

Companies like Maersk, UPS, DHL, FedEx, Lufthansa, etc., all use a specific amount of energy to transport goods. If they are particularly efficient at not only the transportation, but also their internal consumption of carbon fuels,  selection of these firms will reflect on the manufacturers green supply chain as well. Keep that in mind.  Soon, very soon, it won't all be about a tariff rate. Carbon credits are already being traded in Europe.   If selecting transport company X means that it improves the green quality of  your supply chain, pretty quickly (next two years?!) that will be a selection determinant in RFQ processes.  This will blow up the traditional online bid process as well.

The European Union has already determined a Greenhouse Gas Protocol based on the UK model. Use of that protocol to measure consumption of fuels yields a carbon consumption factor. Look for carbon credits to be part of the barter for transport services and to influence supply chains in very unexpected ways.

One such way might be the investment in wind energy by a shipping company. DHL already buys wind energy in the UK. Its efficient and can lead to other possible models like creation of hydrogen for use in trucks by using wind generated energy to crack hydrogen atoms off of pure water.

"Carbon offset strategy is the next big thing in supply chain. Major carriers and 3PL's will have dedicated engineering groups that specialize in it. Carbon credits will mean as much to logistics providers as they will to to their customers. Without too much exaggeration, I think that carbon credits could become a supply chain currency."

I am absolutely passionate about that. This is middle of the fairway in the consumer mind, but it is also strategic to breaking the fossil fuel stranglehold on global business. Transportation companies need to take immediate hold of not only their own consumption, but need to partner with their customers to create green supply chains overall.  If governments can measure it, sincerely believe they will also tax it. If it is taxable, it will influence balance sheets. Profits drive markets. At that point, we are well past tree hugging and into management board decisions. (Al Gore meets Dick Cheney in a Texas death match.)

As a supply chain professional, this is the kind of conversation I want to be having with my customer. This is the first of a number of articles on this topic and is now filed here at Freightdawg.com under a new section called "Green Supply Chain". Sir Richard Branson gets this subject. We all need to.  Sooner, rather than later, we all will.

Eric

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Comments

[Management Recruiter]

This is a tremendous piece. The catalog industry is coming under intense fire to reduce their prospecting initiatives -- which is mailing out unrequested catalogs to prospects who match a certain SRDS.com profile. It's not surprising to me that companies are looking northward in the value chain to their suppliers and carriers to reduce their destructive impact on the environment.

Again -- great article.

[Scott]

At word count 814 this is a lengthy article for this blog. It is worthy of attention. The maxim you posit, socially constructive and prospectively conservative in so many respects, is not often mainstream thinking. That is, "...we borrow this planet from our children. We have a social responsibility to leave it in somewhat better shape than we found it." That we do, I lament, that we do.
Too often, the issues of the day, the priorities of the week, month, quarter and fiscal year so often obscure the need for shouldering such responsibility. Peering at the back of a business card from one of the global conglomerates, I noted yesterday, a recycled paper symbol. Such simple small measures can contribute favorably to the responsible legacy we should all be seeking to leave. The con trails of aircraft, though inlarge part from condensation, are still evidence of pollution. The exhaust pipe effluent and particulates that rise from the funnels of vessels at ports, prompt calls to use shore based electricity to keep the ship's operating systems 'warm' or for fuel cell technology development or other means to mitigate the risks.
We can all do a bit more to be environmentally responsible and conscientious for the planet we seek to leave in a better state than when we entered it. I am not certain all can say that. Let's have a go at it though. More than the ol' half hearted college try, but a real initiative from across the value chain platform. Where does it start, as a competitive advantage in those RFQ and RFP's? Keep an eye on the marketplace you ol' Freight Dawg.

[Eric]

Scott, bonus points for using "maxim you posit". Not seen that in a sentence in some time!

[Trucking Tutor]

It will be a nice to see alternatives of conventional fuel which will reduce emission come into being. Already some ideas like Hydrogen fueled vehicles and bio fueled vehicles are there. Even water fueled vehicles also we have heard about. whats next?

[Edwin Sellers]

I agree that "Green is Good", but until the government is willing to give tax credits for measurable improvements for their conservation/carbon footprint to the trucking, rail, and air transportation industry I seriously doubt that the customers/consumers are willing to foot the bill.
I liken this to the SO2 federal mandatory emission reduction deadlines given to the utility companies; we like the sound of it until we get poked in the eye with a sharp utility bill.