Green Logistics

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Green Logistics

Authors: Dr. Jean-Paul Rodrigue, Dr. Brian Slack and Dr. Claude Comtois

1. Greenness and Logistics

Most considerations in sustainable transportation focus on passengers, leaving freight issues somewhat marginalized. Logistics are at the heart of the operation of modern transport systems and implies a degree organization and control over freight movements that only modern technology could have brought into being. It has become one of the most important developments in the transportation industry. Greenness has become a code word for a range of environmental concerns, and is usually considered positively. It is employed to suggest compatibility with the environment, and thus, like logistics is something that is perceived as beneficial. When put together the two words suggest an environmentally friendly and efficient transport and distribution system.

Green Logistics. Supply chain management practices and strategies that reduce the environmental and energy footprint of freight distribution. It focuses on material handling, waste management, packaging and transport.

The loosely defined term covers several dimensions related to production planning, materials management and physical distribution opening the door to a wide array of potential applications of environmentally friendly strategies along supply chains. This implies that different stakeholders could be applying different strategies, all of which being labeled as green logistics. One corporation could be focusing on product packaging while another on alternative fuel vehicles; both are undertaking green logistics. However, a closer look at the concept and its applications, a great many paradoxes and inconsistencies arise, which suggest that its application may be more difficult than what might have been expected in the first place. Although there has been much debate about what green logistics truly entails, the transportation industry has developed very narrow and specific interests about the issue. If transportation costs are reduced and assets such as vehicles, terminals and distribution centers better utilized, the assumption is that green logistics strategies are being implemented.

In common with many other areas of human endeavor, greenness became a catchword in the transportation industry. It grew out of the emerging awareness of environmental problems, and in particular with well-publicized issues such as acid rain, CFCs, waste disposal and climate change. Environmental concepts, such as material flows or the carbon cycle, became readily applicable to supply chain management. The World Commission on Environment and Development Report (1987), with its establishment of environmental sustainability as a goal for international action, gave green issues a significant boost in political and economic arenas. The transportation industry was recognized as a major contributor to environmental issues through its modes, infrastructures and flows. The developing field of logistics was seen as an opportunity for the transportation industry to present a more environmentally friendly face. Yet, environmental perspectives and transportation sustainability issues remain predominantly focused on passenger transportation.

Interest in the environment by the logistics industry manifested itself most clearly in terms of exploiting new market opportunities. While traditional logistics seeks to organize forward distribution, that is the transport, warehousing, packaging and inventory management from the producer to the consumer, environmental considerations opened up markets for recycling and disposal, and led to an entire new sub-sector: reverse logistics. This reverse distribution involves the transport of waste and the movement of used materials. Even if the term reverse logistics is widely used, other names have been applied, such as reverse distribution, reverse-flow logistics, and even green logistics. Inserting logistics into recycling and the disposal of waste materials of all kinds, including toxic and hazardous goods, has become a major new market but is does not reflect the full extent of green logistic which is the greening of both the forward and reverse segments of supply chains.

2. Green Logistics and its Paradoxes

An overview of the standard characteristics of logistical systems reveals several inconsistencies with regards to the mitigation of environmental externalities. They take the form of five basic paradoxes:

Costs. The purpose of logistics is to reduce costs, notably transport costs. While the former remain the most salient logistics cost, inventory carrying costs come second. In addition, economies of time and improvements in service reliability, including flexibility, are further objectives. Corporations involved in the physical distribution of freight are highly supportive of strategies that enable them to cut transport costs in a competitive setting. Economies of scale in transportation as well as higher load densities are common cost-saving strategies that concomitantly lead to environmental benefits in terms of lower fuel consumption per ton-km. On some occasions, the cost-saving strategies pursued by logistic operators can be at variance with environmental considerations that become externalized. This means that the benefits of logistics are realized by the users and eventually to the consumer if the benefits are shared along the supply chain. However, the environment assumes a wide variety of burdens and costs, which form a hierarchy ranging from costs internal to the supply chain to externalized costs. Society is becoming less willing to accept these costs, and pressure is increasingly being put on governments and corporations to include greater environmental considerations in their activities. A salient example concerns food supply chains that have been impacted by lower transport costs, enabling a diversification of the suppliers and longer transport chains. The concept of food-miles has been developed as an attempt to capture the full costs of food distribution by using the distance food is carried as a proxy.
Time. In logistics, time is often the essence. By reducing the time of flows, the velocity of the distribution system is increased, and consequently, its efficiency. This is mainly achieved by using the most polluting and least energy efficient transportation modes. The significant increase of air freight and trucking is partially the result of time constraints imposed by logistical activities. The time constraints are themselves the result of an increasing flexibility of industrial production systems and of the retailing sector. Logistics offers door-to-door (DTD) services, mostly coupled with just-in-time (JIT) strategies. Other modes cannot satisfy the requirements such a situation creates as effectively. This leads to a vicious circle; the more DTD and JIT strategies are applied, the further the negative environmental consequences of the traffic it creates. The slow steaming strategy pursued by maritime shipping companies is further challenging time management within long distance supply chains.
Reliability. At the heart of logistics is the overriding importance of service reliability. Its success is based upon the ability to deliver freight on time with the least breakage or damage. Logistics providers often realize these objectives by utilizing the modes that are perceived as being most reliable. The least polluting modes are generally regarded as being the least reliable in terms of on-time delivery, lack of breakage and safety. Ships and railways have inherited a reputation for poor customer satisfaction. For instance, the schedule reliability of container shipping is around 50%, implying that about half the time a container ship will not arrive at a port terminal at the scheduled day. Lower reliability levels are linked with lower levels of asset utilization and higher inventory levels, which is wasteful and indirectly damaging to the environment. The reliability of the logistics industry is built around air and truck shipments which are the two least environmentally-friendly modes.
Warehousing. Logistics is an important factor promoting globalization and international flows of commerce. Modern logistics systems economies are based on the reduction of inventories, as the speed and reliability of deliveries removes the need to store and stockpile. Consequently, a reduction in warehousing demands is one of the advantages of logistics. This means however, that inventories have been transferred to a certain degree to the transport system, especially to roads but also to terminals. Inventories are actually in transit, contributing still further to congestion and pollution. The environment and society, not the logistical operators, are assuming the external costs. Not all sectors exhibit this trend, however. In some industrial sectors, computers for example, there is a growing trend for vertical disintegration of the manufacturing process, in which extra links are added to the supply chain. Intermediate plants where some assembly is undertaken have been added between the manufacturer and consumer. While facilitating the customizing of the product for the consumer, it adds an additional external movement of products in the production line.
Information Technologies. Information technologies have led to new dimensions in retailing. One of the most dynamic markets is e-commerce. This is made possible by an integrated supply chain with data interchange between suppliers, assembly lines and freight forwarders. Even if for the online customers there is an appearance of a movement-free transaction, the distribution online transactions create may consume more energy than other retail activities. The distribution activities that have benefited the most from e-commerce are parcel-shipping companies such as UPS, Federal Express or DHL rely solely on trucking and air transportation. Information technologies related to e-commerce applied to logistics can obviously have positive impacts. So once again, the situation may be seen as paradoxical.

It can be argued that the paradoxes of green logistics make it challenging for the logistics industry to become significantly greener. The internal inconsistencies between the goal of environmental sustainability and an industry that gives undue preference to road and air transport can be seen as being irreconcilable. Yet internal and external pressures promoting a more environmentally-friendly logistics industry appear to be inexorable. How the logistics industry has responded to the environmental imperatives is not unexpected, given its commercial and economic imperatives, particularly in view of the paradoxes it is facing.

3. A Blueprint for Green Logistics

Pressures are mounting from a number of directions that are moving all actors and sectors in the economy in the direction of increasing regard for the environment. In some sectors this is already manifest, in others, such as the logistics industry, it is latent but quickly emerging. The issue is when and in what form it will be realized. Three scenarios are possible. While not mutually exclusive, they each present different approaches and implications:

A top-down approach where ‘greenness’ is imposed on the logistic industry by government policies through regulations;
A bottom-up approach where environmental improvements are coming from the industry itself through the adoption of best practices;
A compromise between the government and industry, notably through certification schemes.

First is that government action will force a green agenda on the industry, in a top-down approach. Although this is the least desirable outcome for the logistics industry, it is already evident that government intervention and legislation are reaching ever more directly over environmental issues. In Europe there is a growing interest in charging for external costs, as the EU moves towards a ‘fair and efficient’ pricing policy. A sharp increase in costs could have a more serious impact than a more gradual, phased-in tax. In North America there is a growing interest in road pricing, with the re-appearance of tolls on new highways and bridges built by the private sector, and by congestion pricing, especially in metropolitan areas.

Pricing is only one aspect of government intervention. Legislations controlling the movement of hazardous goods, reducing packaging waste, stipulating the recycled content of products, the mandatory collection and recycling of products are already evident in most jurisdictions. Indeed, it is such legislation that has given rise to the reverse logistics industry. Truck safety, driver education, limits on driver’s time at the wheel, are among many types of government action with a potential to impact the logistics industry.

A difficulty with government intervention is that the outcomes are often unpredictable, and in an industry as complex as logistics, many could lead to unintended consequences. Environmentally-inspired policies may impact on freight and passenger traffic differentially, just as different modes may experience widely variable results of a common regulation. Issues concerning the greenness of logistics extend beyond transport regulations. The sitting of terminals and warehouses are crucial to moving the industry towards the goal of sustainability, yet these are often under the land use and zoning control of lower levels of government whose environmental interests may be at variance with national and international bodies. A positive trend has been the joint planning and sitting of logistics zones and intermodal terminals as co-located facilities.

If a top-down approach appears inevitable, in some respects at least, a bottom-up solution would be the industry preference. Its leaders oppose leaving the future direction to be shaped by government action. There are several ways a bottom-up approach might come about. As with reverse logistics, these occur when the business interests of the industry match the imperatives of the environment. One such match is the concern of the logistics industry with empty movements, which ranges from empty trucking backhauls for regional freight distribution to the repositioning of empty containers across oceans. With the growing sophistication of fleet management and IT control over scheduling and routing, further gains are achievable. Another match involves fine tuning the routing and operations of freight transport systems with higher energy prices. The adoption of slow steaming strategies by maritime shipping companies is using the rationale of environmentalism to reduce the fuel consumption and improve the utilization of their ship assets.

Less predictable, but with a much greater potential impact on the greenness of the industry, are possible attitudinal changes within logistics and without. These changes are comparable of that which has already occurred in recycling. There has emerged striking public support for domestic recycling. This has been extended by some firms in successfully marketing their compliance and adoption of green strategies. Firms have found that by advertising their friendliness towards the environment and their compliance with environmental standards, they can obtain an edge in the marketplace over their competitors. Traditionally, price and quality characteristics formed the basis of choice, but because environment preservation is seen as desirable in general, greenness can become a competitive advantage. Ultimately, pressure from within the industry can lead to greater environmental awareness and respect. Companies that stand apart will lose out because purchasers will demand environmental compliance.

Somewhere between the bottom-up and top-down approaches are the moves being implemented with environmental management systems. Although governments are involved in varying degrees, a number of voluntary systems are in place, notably ISO 14001 and EMAS (Environmental Management and Audit System). In these systems firms receive certification on the basis of establishing an environmental quality control tailored to that firm, and the setting up of environmental monitoring and accounting procedures. Obtaining certification is seen as evidence of the firm’s commitment to the environment, and is frequently used as a public relations, marketing, and government relations advantage. This represents a fundamental commitment of the corporation to engage in environmental assessment and audit that represent a significant modification of traditional practices, in which efficiency, quality and cost evaluations prevailed.

Of the three possible directions by which a greener logistics industry may emerge, it is realistic to consider that they will concomitantly help shape the industry of the future. Although there is a clear trend in policy guidelines to make the users pay the full costs of using the infrastructures, logistical activities have largely escaped these initiatives. The focus of much environmental policy is on private cars (e.g. emission controls, gas mixtures and pricing). While there are increasingly strict regulations being applied to air transport (noise and emissions), the degree of control over trucking, rail and maritime modes is less. For example diesel fuel is significantly cheaper than gasoline in many jurisdictions, despite the negative environmental implications of the diesel engine. Yet trucks contribute on average 7 times more per vehicle-km to nitrogen oxides emissions than cars and 17 times more for particulate matter. The trucking industry has been able to avoid the bulk of environmental externalities it creates, notably in North America.

4. Applying Green Logistics to Supply Chains

Although in the past the environment was not a major preoccupation or priority in the industry itself, the last decades have shown a remarkable change as green logistics became increasingly part of the supply chain management discourse and practices. The standard themes of materials management and physical distribution can be expanded with an additional focus on strategies able to mitigate the paradoxical nature of green logistics:

Product design and production planning. The conventional focus of product design and development is the improvement of its commercial and competitive attributes such as price, quality, features and performance. This process is common for electronic goods as each new generation of a product (computers, phones, televisions) is quantitatively and qualitatively better. Products are increasingly being considered from a supply chain perspective, namely their sourcing and distribution where the concern is about designing or redesigning supply chains that are more environmentally friendly. This can involve the physical characteristics of the product itself (lighter, alternative materials) or production processes that allow for a higher transport density of parts. Suppliers that are closer (near sourcing) may be considered even if they may be more expensive, so that transportation costs can be reduced. A decision can also be made to preferably contract suppliers that have demonstrated that the parts and resources they provide have been procured in a sustainable manner.
Physical distribution. Concerned about strategies to reduce the environmental impacts of physical distribution, namely the transportation and warehousing processes. It could involve the usage of facilities that have been certified as environmentally efficient (Leadership in Energy & Environmental Design - LEED - is a globally recognized certification scheme) as well as carriers abiding to environmentally friendly principles. Preferences could also be placed on delaying shipments until a sufficient load factor is reached. The usage of alternative modes and fuels is increasingly applied, particularly for city logistics. For long distance travel a modal shift to rail and economies of scale on maritime shipping are considered strategies that may lead to greener supply chains.
Materials management. Concerned about reducing the environmental impacts related to the manufacturing of goods in all their stages of production along a supply chain. A salient strategy involves better packing and packaging to increase the load density as well as to reduce materials consumption and waste. Low impact materials, particularly recycled resources, can be preferred as industrial inputs. As products, or their components, tend to be increasingly recyclable, waste management strategies are being pursued to insure that the end products are either discarded properly or, preferably, being recycled to other uses.
Reverse distribution. Concerned about activities and movements related to taking back consumed goods as well as waste to be recycled or discarded. It has opened up new market opportunities over specific aspects of materials management (mostly recycling and waste disposal) and physical distribution (collection channels). Here the environmental benefits are derived rather than direct. The transportation industry itself does not necessarily present a greener face, indeed in a literal sense reverse logistics adds further to the traffic load and facilities required to handle them. The manufacturers and domestic waste producers are the ones achieving the environmental credit.

Applying green logistics to supply chains must also consider the network and spatial footprint of freight distribution. The hub structures supporting many logistical systems result in a land take that is exceptional. Airports, seaports and rail terminals are among the largest consumers of land in urban areas. For many airports and seaports the costs of development are so large that they require subsidies from local, regional and national governments. The dredging of channels in ports, the provision of sites, and operating expenses are rarely completely reflected in user costs. In the United States, for example local dredging costs were nominally to come out of a harbor improvement tax but this has been ruled unconstitutional and channel maintenance remains under the authority of the US Corps of Army Engineers. In Europe, national and regional government subsidies are used to assist infrastructure and superstructure provision. The trend in logistics towards hub formation is clearly not green as it incites the convergence of traffic flows and their externalities within a well defined area. On the positive side, this confers opportunities to mitigate these environmental externalities since they are focused and clearly identifiable.

Improvement of logistics flows and performance required the setting of new facilities in suburban areas, a trend that has been labeled as "logistics sprawl". In turn, this process is related to additional land take and a level of disorganization of freight flows within a metropolitan area. The setting of logistics zones is an attempt at providing a more coherent setting for distribution centers, including shared facilities such as parking areas and intermodal terminals. They confer the advantage of being able to more effectively minimize the impacts of freight distribution on surrounding areas such as with direct access ramps to highways (less local intrusion) or the setting of buffers of mitigate noise and emissions. There is an array of rationale and settings for logistics zones and correspondingly environmental mitigation strategies. Still, the environmental impacts of distribution centers remain a daunting issue to mitigate.

There is growing evidence that green logistics results in increased supply chain performance, particularly since greenness, particularly because it favors an integrated perspective about supply chains. The actors involved in logistical operations have a strong bias to perceive green logistics as a mean to internalize cost savings, while avoiding the issue of external costs. The top environmental priority is commonly reducing packaging and waste. The rise in energy prices is conferring additional incentives for supply chain managers to improve upon logistics and will correspondingly push energy and emissions at the forefront. These observations support the paradoxical relationship between logistics and the environment that reducing costs does not necessarily reduce environmental impacts. By overlooking significant environmental issues, such as pollution, congestion, resource depletion, means that the logistics industry is still not very green. Green logistics remains an indirect outcome of policies and strategies aimed at improving the cost, efficiency and reliability of supply chains. A key aspect of more environmentally friendly freight distribution systems concerns city logistics where the “last mile” in freight distribution takes place as well as a large share of reverse logistics activities. Still, even in this context the driving force is not directly environmental issues, but factors linked with costs, time, reliability, warehousing and information technologies.