Carbon Footprint a Logistics Red Herring?
Welcome back to the 10th edition of The LogTech Letter, a weekly look at a particular aspect of the impact technology is having on the world of global and domestic logistics. Last week, I looked at the nuances of various freight rate marketplace models. Today, I’m diving into whether it’s possible to arm shippers with enough data and context for them to use sustainability as a true variable in freight procurement decisions.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.
About a decade ago, I was involved in a study that looked at the extent to which environmental sustainability was taking root in global logistics. The one data point that always stuck out to me was around the impact of sustainability on freight procurement for shippers and 3PLs.
We asked a simple question: What was the most important variable in choosing a carrier or logistics services provider? Rates, service, or sustainability?
Think about the context for asking this question back then. Sustainability goals were becoming ubiquitous in the corporate world, but it was also during the recovery of the economic crisis. No one was in a position to be financially profligate. Unsurprisingly, fewer than 3 percent of respondents said the sustainability of their logistics partners was the most important factor in deciding who to choose (and I think even those respondents were answering wishfully).
I often wonder whether the results would be substantially different if I were to ask the question today. I’m not going to delve into the science or politics of climate change here. But I will say there is undoubtedly more corporate momentum today to orient global supply chains around sustainable practices than there was a decade ago, when sustainability goals felt like a box that needed to be ticked, not a core value.
The interesting thing is there are actual products on the market today to turn sentiment around making freight logistics more sustainable into action. These are predominantly provided by 3PLs and visibility software providers as a service to help shippers measure the carbon footprint of asset-based operators they may be using.
In certain cases, it’s not just about giving insight about whether one carrier’s service produces more emissions than another, but about whether a certain sourcing location is contributing a disproportionate amount of emissions relative to other locations.
It feels as if we’re at the precipice of this evolution, and (as with almost everything), clean and accurate data is at the heart of the situation. But the question still remains: will this data move the needle on shipper decision-making?
Let’s presume a 3PL has undeniably accurate data around a shipper’s emissions patterns. And remember, since most of those emissions are out of the shipper’s direct control, it is dependent on good data from other sources. Will a shipper make the decision to change service providers or sourcing locations if the metrics show that they are overly contributory to its carbon footprint?
So much is abstract and needs to be made definable:
What is the threshold for acceptable emissions levels? Are they striving for carbon neutral? A 10 percent reduction on existing emissions? 50 percent?
What is the tradeoff in freight rates versus lower emissions? Is $50 per TEU worth lower emissions? $100? $500?
Are slower ocean services that produce lower emissions compatible with transit time requirements? Is the shipper, either internally or via a 3PL or software provider, able to better forecast demand and inventory availability to offset longer transit times?
I’m sure every shipper aspires to choose the most environmentally sustainable path for their cargo. But given truth serum, I’m sure they would still choose service and rate levels as the primary drivers for procurement decisions. But as carbon emissions calculation products mature and present shippers with more defined tradeoffs, we may well see sustainability not be an afterthought but instead be a “co-thought” in the minds of shippers.
Here’s a roundup of pieces on JOC.com the past week from my colleagues and myself (note: there is a paywall):
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Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.
Eric — nice article — Sustainability and the future of our planet is near and dear to me — In Europe Carbon-Offsets are more pronounced and make adding monetary value to the equation. While I content that preserving a planet that is livable for generations to come is priceless — having concrete numbers does vastly facilitate a discussion. The Freightgate Logistics Cloud does provide execution level CO decision support and allows to make this part of your daily routing decisions. We have offered this for quite some time — but I see a lot of positive momentum in the right direction recently. COVID has taken the foot a little of gas and force some focus diversion, but never the less. Google recently announced aiming for being carbon neutral, we have seen low emission vessels come online — so even w/o government regulations some people out there are trying to do the right thing. LETS WORK TOGETHER and accelerate the trend
Thanks for sharing man. I've always been curious as to what the real incentive is to reduce carbon footprint outside of government regulation. Do you know what some of those other drivers may be also by chance?