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Transportation Network Modeling a Powerful Tool in Greenhouse Gas Emissions Reduction Strategy

The LLamasoft transportation optimization solution can help lower carbon emissions by minimizing empty miles through backhaul and interleaved consolidation opportunities.

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Climate change and greenhouse gas (GHG) emissions began moving up in many companies’ business concerns and priorities starting in the mid-2000s and only took a back seat during the financial crisis while companies had to focus on corporate survival rather than just environmental impact. The tides are turning once again and bringing more scrutiny than ever to sustainability and corporate GHG emissions. Companies need to be fully aware of these global conversations and how they will impact their supply chain in the near future.
One of the biggest driving forces behind controlling GHG emissions and climate change is the Paris Agreement. On September 3, 2016 China and the US agreed to ratify the Paris Agreement on climate change. The agreement, not yet in force, commits signatories to keep global temperature increase “well below” 2º C and to pursue efforts to limit it to 1.5°C. The USA says it intends to reduce emissions by 26-28 percent below its 2005 level by 2025, trying hard for the upper limit2. Announced at the G20 summit in China, the US/China deal will also put pressure on other G20 nations to move faster with their pledge to phase out subsidies to fossil fuels. The Paris Agreement will take legal force when it is ratified by enough countries to equal 55 percent of global emissions produced. With the US and China on board it brings the signatories to 40 percent (King, 2016). In order for the agreement to reach critical mass, either the European Union or some other major emitters will need to ratify the agreement.

GHG Emissions from Trucking and Sea Freight

Outside of the Paris Agreement, the EU has a goal of reducing greenhouse gas emissions from transport by around 60 percent below 1990 levels by 2050.  It currently has no limits on truck emissions, unlike other countries such as the United States, China, Japan and Canada, which already have truck fuel efficiency standards. For example, the US Environmental Protection Agency (EPA) is phasing in fuel efficiency standards starting with trailers in 2018 and truck standards in 2021, which are estimated to provide two to four-year payback periods3.  The European Commission will soon follow suit and has announced that they will soon propose legislation which would require CO2 emissions from new heavy vehicles to be certified, reported and monitored. Commentators expect the European Commission to then propose limits on truck emissions and to also set new fuel efficiency standards for cars and vans.

Emissions from sea freight are bound to come under scrutiny as well. Shipping emissions are predicted to increase between 50 percent and 250 percent by 20504, depending on future economic and energy developments. It’s similar with air freight, with the International Transport Forum predicting that CO2 emissions from airfreight will rise from 150 million tonnes in 2010 to 767 million tonnes in 2050 on a business as usual basis5. This is all incompatible with the objectives of the Paris Agreement unless there are dramatic developments in technology.

The impact of these changes are difficult to predict. Cost reductions sometimes go hand-in-hand with GHG reductions, but some measures could increase transport costs. It’s not difficult to imagine regulatory authorities putting levies on transport – through taxes or other measures – that significantly increase costs on GHG-heavy methods in order to reduce usage and help to achieve the overall goals of the Paris Agreement. Supply chain network and transportation optimization can help make better sourcing and multi-stop route decisions that ultimately result in route design that balances low costs with higher service.  With the EU and US introducing CO2 emission limits for trucks, the design of these transportation networks needs to change.

Corporate Responsibility

The corporate world is recognizing the importance of emissions. Apple, Coca-Cola, Walmart and PepsiCo are among 13 of the largest companies in the US that have signed the American Business Act on Climate Pledge with some ambitious company-specific goals6. In 2010, Walmart announced its goal to eliminate 20 million metric tons of GHG emissions from its global supply chain by the end of 2015. Last year the company announced that it has exceeded this commitment early by eliminating 28.2 million metric tons to date, saying that some measures had led to a doubling of fleet efficiency7. Last year, multi-national consumer foods giant General Mills committed to a target of 28 percent absolute reduction in GHG emissions by 2025 on 2010 levels, with a longer-term aspiration to achieve ‘sustainable emissions’ levels by 20508.

Companies are realizing that they can’t just look to themselves when considering emissions. GlaxoSmithKline would like to be the most sustainable healthcare company and has set a target to reduce its carbon footprint by 25 percent by 2020 and have a carbon-neutral value chain by 2050. With 40 percent of GSK’s carbon footprint coming from the procurement of raw materials, the company recognised that tackling its own emissions wouldn’t be enough to reduce its carbon footprint – it would need to support suppliers to do the same9. Kellogg’s has announced that it wants suppliers to disclose GHG emissions as part of an ambitious package of new environmental targets and intends to set a GHG reduction target for its entire supply chain.

Supply Chain Models Enable Companies To Compare And Test GHG Reduction Strategies

Using LLamasoft Supply Chain Guru, companies can set up models of their supply chains to identify major sources of emissions and model different scenarios, quantifying the financial benefit or costs of achieving sustainability goals. They can build multi-year models to develop and phase GHG reduction programs, and to monitor and report on progress during implementation. If there are major changes to the costs of particular transport modes or operating sites, alternative supply chains can be assessed and implemented.

to-route-utilization

3PLs and logistics companies can trace their own emissions on each segment of a multi-stop route and apportion the vehicle emissions by segment to their customers.  LLamasoft transportation optimization solution has the ability to indicate a carbon emission per weight-distance for each segment in the supply chain since the fuel consumption is dependent on the weight of the truck and its payload.  Given the new restrictions from the ACEA (European Automobile Manufactures’ Association), companies could continue to develop efficient multi-stop routes while tracking the reductions in their fleet’s GHG emissions.  All of this enables companies using 3PLs to accurately report on their end-to-end supply chain emissions.

Companies may even want to evaluate the impact and benefits of early adoption of the emission-regulated fleet.  They can identify the optimal cost trade-off between early capital investments in new low emissions vehicles with lower fuel consumption versus phasing out the existing transportation fleet. This analysis should be extended into suppliers’ operations as much as possible, so that an end-to-end view can be taken. The LLamasoft transportation optimization solution can help lower carbon emissions by minimizing empty miles through backhaul and interleaved consolidation opportunities.  Additionally, zone skipping and consolidation of shipments through cross-docking/hubs can improve vehicle utilization, ultimately leading to lowered route costs and GHG emissions. These approaches allow for informed decision-making as well as providing the means to demonstrate corporate responsibility.

Llamasoft Is Here To Help

LLamasoft is dedicated to helping businesses build optimized supply chains that help them thrive even in changing market conditions. Partnering with LLamasoft ensures you’ll have more than just software and technical support, but a growing community of supply chain design practitioners, workshops, training and coaching to guide you as you progress. To learn more, email sales@llamasoft.com or call 866-598-9831.

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