Good afternoon, good morning to those on the West and welcome to the Talking Freight seminar series.
Today's topic is Freight & Carbon Footprint: Efforts to Enhance Supply Chain Sustainability. Please be advised that today's seminar is being recorded.
We are using a new teleconference provider today and I just learned the voice over IP option isn't available, but we will have that available for the seminar next month. Please bear with us.
Today we'll have three presenters, Lee Kindberg of Maersk North America, Mike Zachary of Parsons Brinckerhoff, and Diego Klabjan of Northwestern University.
Lee Kindberg is Environmental Director for Maersk North America, where she is responsible for environmental policies and programs, HSE compliance assurance and pandemic flu preparedness. She is active in Business for Social Responsibility's Clean Cargo Working Group, a global group dedicated to assessing and improving the environmental impact of shipping and responsible corporate citizenship. Other recent activities included the advisory panel for The Climate Registry.
Mike Zachary is a principal consultant at PB with extensive experience in global infrastructure, strategic consulting and maritime goods movement. He is currently actively engaged in mapping freight's carbon footprint on the supply chain as an active member of TRB's Freight Planning and Logistics Committee (Past Chairman), AT015 and the impact on not only the shipper, but the regional and State level planning organization and the associated modes of transport and distribution affected by legislation and regulatory constraints on freight as a result.
Diego Klabjan is an associate professor at Northwestern University, Department of Industrial Engineering and Management Sciences and Kellogg School of Management. In 1999, Professor Klabjan obtained his doctorate from the School of Industrial and Systems Engineering of the Georgia Institute of Technology.
In the same year he joined the University of Illinois at Urbana-Champaign, and in 2007 became an associate professor at Northwestern. He is the recipient of the first prize of the 2000 Transportation Science Dissertation Award.
His research is focused on business intelligence and analytics related to sustainable transportation. I would like to go over logistical details prior to starting the seminar.
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We will get started with today's top freight and carbon footprint freight. Lee you can get started.
This is Lee Kindberg, I am with Maersk North America, I have been asked to talk to you about things to enhance supply chain sustainability. A little background on our company. Maersk line is part of the AP Moller sea line,
we are part of that company headquartered in Copenhagen. In North America we have U.S. flagship and international vessels, terminals, warehousing and distribution and global logistics services.
Our container shipping arm operates over two million containers a year.
Could I interrupt you -- I am getting a message that people are still getting hold music. Is the operator on the line?
Lee, I will let you continue.
Okay. Some people are hearing us, we will continue.
Again, Maersk Line, our container shipping operation, over 470 container vessels worldwide, either 20 or 40 feet long, so a 40-foot container is about the size of a city bus. 90% of all goods transported globally is done by ship.
We are about 4% of worldwide shipping activities and 16% of the contain or segment.
Those vessels consume or 10 million-tons of heavy fuel oil annually, so that means our carbon footprint is well North of 30 million sons a year, something we are concerned about and working to do something about.
Burning those hydrocarbon fumes creates a lot of emissions, 3.1 continues per -- nitrogen oxides, black carbon and a few other things.
Let's step back a little and think about how ocean shipping works.
This is how most of these goods come into our country. If you look at the maps I have shown you here, this is our transPacific fixed route.
We have vessels leaving [indiscernible] near Singapore, go to Hong Kong and over to Los Angeles. When they leave Los Angeles they don't go back to Hong Kong or Singapore, they go up to Japan, down the coast of China
and back around then to Hong Kong and Singapore.
It's a big loop.
That loop takes several weeks, which means to provide a regular weekly service we have to have that number of vessels. Let's look at one of the individual vessels, here's the -- George Maersk, last called Los Angeles April 30,
was in Los Angeles just a few days, three days, to load and unload, then went to Japan, China, Hong Kong, back down to Singapore, through the Suez canal to Spain, around the Mediterranean and all the way back to Los Angeles.
That whole trip takes about 14 weeks, so there are 14 vessels on this, what we call string of ships. So of course, having that many vessels has a significant impact on the environment, but we are actually working, both as a company
and within the industry to try to do something about it. The vessels are becoming more engineer efficient, reducing emission and this is due to technologies, operations, speeds we operate at and the vessel sizes,
there definitely are economies of scale. As you can see by the chart there on the slide, since 2002 we reduced our CO2 emissions per container per kilometer by 20% and set a goal of an additional 25% by 2020.
Reducing the amount of fuel you burn reduces CO2, also reduces these other emissions. For example the NOx emissions are down, something of concern to all of you involved in planning, particularly port areas are in non-attainment status.
There's a large increasing number of vessels built after the year 2000 and they are certified to the international maritime organization's NOx standard and there are new standards coming in for fuel and NOx performance for the big vessels.
Those are set internationally.
We have been doing fuel switching on the West Coast for four years now, it's over 1600 port calls since March of 2006.
That fuel switching to a distillate fuel instead of the heavy fuel oil actually reduces our sulfur oxide emissions by 95%, particulates by 86% and [indiscernible] depending on the vessel fix.
In California we did that voluntarily for three years, it's now become mandatory in California. We do it in [indiscernible] and British Columbia, since the first week of August in Houston and the first week of September in Hong Kong.
Fuel switching is a means that companies can take to dramatically improve our criteria pollutants, air emissions. It doesn't do a lot for carbon did I ox dioxide. One thing, operational decisions have a big impact. Fuel use
and costs increase exponentially at higher speeds, just like car and trucks get better mileage at lower speeds, so do vessels. For us it's lower than the cars and trucks. As you can see there, the curve gets fairly steep above 15 knots.
So speeding up uses more fuel than is saved by slowing down.
If we speed up, say from 22 to 24 knots we use an extra 20 metric tons. If we slow down we only save 40 metric tons, so the lowest constant speed is best, speeding up and slowing down to meet different speed limits
and areas actually can cause increases in greenhouse gas emission and fuel use.
If you want to look at animal optimal point, it's 16 mph, something slower than some of the fast sailing ships of 100 years ago.
Now, to enact something like that, which we have been doing, you have redesign the routes, you can't just take your foot off the accelerator. We are trying to make the weekly calls, ever Tuesday the ship leaves Hong Kong
and Wednesday pulls into Los Angeles. Here are two schedules, a typical 2007 schedule on the left was 12 vessels, showing fuel consumption of 12,000 metric tons.
A new economical speed, adding a 13th vessel to slow down the whole string would use about 10,000 metric tons for the entire group of vessels. That's a 16% savings on fuel. It reduces cost and emissions of CO2
and the criteria pollutants. This is something we have now enacted on about half the containers we ship.
It wasn't just a matter of taking the foot off the accelerator.
We worked with the engine manufacturers, they were recommending an engine load of 40 to 60%. So we started a study, working with [indiscernible] and MAMBW in 2007 covering 110 different vessels.
That study showed it was actually okay long-term to operate down as far as 10% engine load, about half speed. Remember the water carries a lot of our weight, so 10% engine load is roughly half speed,
but it is a much lower emitting range to operate in.
By doing that we've actually increased our voyage flexibility and schedule planning and increased schedule reliability because schedule reliability is the number one important criterion for customers.
They want to know they will get their freight on time. We are able to meet those dates with higher reliability, still save between 10 and 30% fuel and reduce CO2 emissions by 10 to 30% and criteria pollutant,
a significant cost savings for this, that helps pay for some of the other projects we are working on that are not free.
For this particular initiative and some of the other things we are doing, we were selected for the 2009 sustainable shipping operator of the year.
Sometimes you have to retune the engines to get them to optimize out at a slightly lower speed level. That's been done on many of our vessels. Technical innovation is also essential for sustainability.
It goes from things like an 1401 management system, crew training and engagement, which by the way had good effect, up to more exotic things, microbubbles forced out through tiny holes reducing the drag or ballast water optimization
and treatment systems, alternative fuels. We are looking at all kinds of other things and are implementing them on our vessels, some with retrofit, some have to be put in when we build a new vessel like the waste heat recovery systems.
Let's talk more about the supply chains. Ocean shipping is the most engineer efficient mode of transportation, and also doesn't clog highways, contribute to highway congestion.
Let's take one pair of shoes being shipped from northern China to Europe in a big container with lots of other pairs of shoes.
You divide it out to see what that pair of shoe's contribution in greenhouse gasses, about 372-grams per pair of shoes, about the weight of a paper clip. What happens when that consumer in London buys the shoes,
drives them home 12-miles from the store, generate 10 times as much CO2 or 3700-grams of CO2.
I might mention that is, unless you buy more pairs of shoes each time you go to the store, what I tell my husband, but it's true of our businesses too. With better planning of routes,
combining trips we can reduce carbon footprints without impeding our businesses.
Shipping emits around 4% of the world's man made CO2 emissions while transporting 90% of the world's goods. Here's how the different modes of transportation stack up. As you can see ocean shipping is the most energy efficient,
at the bottom, followed by rail that's electric or diesel. Trucking is five times less efficient and air freight, the most inefficient way, you have stay in the air as well as move the goods forward.
Ocean shipping is the most energy effective way to move freight.
Here's the factors, we have been working closely with industry association and customers to determine how to do these things effectively. First is the mode of transportation, energy efficiency of the mode and the routing available.
It doesn't help if you are more energy efficient if you have to go five times as far to make the trip. There's the distance traveled by each mode, cargo or container weight in volume -- and how you calculate and report these things.
The world resources institute has a distance-based protocol for calculating supply chain carbon footprint. There are softwares for doing these calculations also, and carrier-specific tools like carbon check and carbon dashboard,
which are some of the tools available within my own company, and others from other carriers.
The clean cargo working group is the industry group I mentioned that added and collects data for the vessel side and others focus on other modes, like SmartWays that focuses on the trucking transportation.
We have been in existence and collecting data since 2004, in the form of emissions factors to enable our shipper members and liner companies to actually do these carbon calculations in a consistent manner so trade routes can be compared.
We do an annual benchmarking of the member line's environmental performance and resulted in increased energy and reducing environmental footprint, increased motivation to do that.
We have an intermodal calculator that allows a consistent way of calculating these things.
I might mention, by the way, the website, to get more information about Clean Carbo is up there under the title.
Clean Cargo puts out an environmental performance scorecard.
This is a simplified version of it, the summary sheet. We look at carbon dioxide, other factors like environmental management systems, transparency, we look at chemicals used, that kind of thing.
At the bottom you see we have a detailed carbon performance factor for each trade lane and this goes down quite a ways, so for every trade lane between Asia, North America, Europe, for dry containers
and refrigerated containers there's a defined emissions factor for CO2 based on actual data.
These things are updated every year by Clean Cargo.
When we put that into practice, let's make a cam par son of comparison of shipping from Istanbul to Belgium.
If you go across Europe by truck you generate about 1300-kilograms of CO2. However, if you go by truck to the port, put on a ship, go all the way out through Gibraltar and to the port of Belgium,
drive to the distribution center that way you generate 980-kilograms of CO2. The bar chart on the left shows when you add up all the pieces you can actually reduce the carbon footprint of this total chain by about 21%. It also does,
by the way, increase the time required to get it there.
We do have internal tools, a slide I show courtesy of Nike and our sister company, DamKO*, they did a case study on work that both Maersk Line and Damco did with Mikey to reduce the carbon footprint.
This visibility of the supply chain carbon footprint helped Nike accomplish their goal of reduction, shipping from air freight to ocean, reducing footprint by 12% last year.
There's a complete case study posted on the DamKO* website, there on the right side.
Another study, with Boots, a leading pharmaceutical and beauty store in the U.K., reducing emissions 29% and logistics costs by 21%. It's a win/win proposition if you do it right.
So let me just summarize then what we've learned through this process. First, it's really important to use a consistent calculator approach, best if it's agreed upon by the whole industry.
Clean Cargo working group is working with the industry and SmartWay does trucks, groups with similar processes in Europe, you are working with real data.
Transportation footprints can and have been reduced. We have to keep in mind it's the total lifecycle footprint that matters. Transportation is often only a small part of the total. I have seen numbers anywhere from 5% to 25%
or higher for the total supply chain footprint that's related to the transportation.
Near sourcing doesn't necessarily always make the greatest amount of sense. You have to do the full analysis to really see the big picture.
If you focus on improvements and actually incorporate the carbon impact into business decisions, you can actually make real progress on both and perhaps also improve your business.
The opportunity is to reduce both CO2 emissions and costs. My contact information is provided here on the last slide.
I will turn it back over to you, Jennifer.
Thank you, Lee, and to those who posted questions. We will get to the questions after the other presentations. I am now going to turn it over to Mike Zachary of Parsons Brinckerhoff.
Michael Zachary: Thank you. I will talk today about some of the shippers, the modes along the lines the shipper has to address. They are not just in it for social responsibility,
they are in it basically because they have to have an efficient supply chain that makes money. As Lee mentioned, Diego definitely well, we need to reduce 80% of total emissions, trucking, as Lee pointed out, under air, the worst,
especially per container or per ton basis.
The bottom point there is, the supply chain, all the nodes, modal components of the supply chain want to be part of the solution, not part of the problem. So, when we take a look at what is that, Lee, thank you for mentioning that,
right now it's interesting, in January's TRB conference they indicated freight was 28% of transportation's 28%, which you see that number now has gone up, recent studies to 29%.
You can see light duty vehicles, freight trucks, aircraft fall into that. One problem we have, going to continue to have, defining freight, for instance, UPS, DHL, FedEx, packaged delivery, is that freight
or just 18-wheelers going to distribution or store.
Part of that is, as we mentioned, the measurement component of that, what does that mean?
How can freight be reduced?
This is on all aspects of it. Lee touch odd this ed on this a lot, I won't go into it, the logistics providers, ocean carriers, we mention dam co, looking at the distribution networks,
looking at a complete systems approach how much reverse haul, empty backhaul is considered as part of that. What are my modal options, great display on the Europe trucking versus ocean.
Do we use double stacked trains, how can we eliminate truck bottlenecks? Houston, Dallas are both working on truck bypass routes to get them out of the congested areas, adding more miles but traveling at a more efficient speed.
When we take a look from an MPO, metropolitan planning organization planning perspective or state DOTs, I think in all goods movements studies we are currently involved in, six different ones,
understanding the supply chain is absolutely critical.
What's the routing?
Why are shippers using that mode or that node in the supply chain?
Why are they going through downtown Houston? As Lee mentioned, models to analyze the global greenhouse gas effect, in terms of what each mode, each node contributes to that. Then, how do you analyze, take that measurement
and what do you do to infrastructure and policy improvements? I am not going to start talking about a need for policy, up hear me mention several times, we do not have adequate standards, we are not playing on a level playing field,
and we in the United States definitely need a federal freight strategy.
If you take different views of the emission producers, the supply chain, prerogative of shippers, transportation modes, carriers; you have the effect of the regions, the ports, the state DOTs, and probably more importantly,
we have to play in a global playing field. Right now we're off playing left field in a ballpark the rest of the world isn't playing in. That's a key issue I have with a lot of the issues we're dealing with.
So, from a shipper, BCO, beneficial cargo owners perspective, what do they want in a supply chain? From a total systems perspective I have to have reliability. As Lee mentioned, she has 14 vessels for a 14-week deployment, a weekly call.
If one of those gets delayed a week the entire supply chain gets screwed up. I have to be reliable. I have to have efficiency of cost, I have to have density, balanced cargo. In an intermodal rail train, a full train that leaves
and it's nice to have the same time amount of containers coming back full that I shipped out. My East and Westbound movements should be balanced, not necessarily with empties. I am looking for redid you redundant
and contingent supply chains KA Katrina brought up a huge -- if that was my only entry into the United States I was not a happy camper.
A lot of shippers now are looking at redundant ports, and the Panama Canal plays into this.
What can I afford? Everybody said they want to play, want to be socially responsible, but is it going to cost me? One question that came up, BCO is Beneficial Cargo Owner. Supply chains, why focus on supply chains?
Well, that's the way we work.
Decisions are made in global, multiple jurisdictions on sourcing, manufacturing, assembly.
Lee mentioned the complex lifecycle, production, definitely global You will hear time and again today, Diego will say it, the supply chain is ever-changing.
The sourcing, distribution patterns kind of go by the will of the winds and most importantly, by the components of cost that we get into it. A lot of that cost is directly applicable to the legislative policy
or rule mitigations that come about in terms of air quality attainment and And trade.
I will talk specifically more about CAP and trade. The bubbles that all effect each other.
Good example. No such thing as acting locally, came from a recent study we are doing. For instance, if you look at U.S. apparel import value and the market share, these are the different countries we're getting apparel from.
In the late 1990s, Mexico was the leading importer.
Now China is, Indonesia, Vietnam, India are all coming up. This gives good indication stuff is changing and the source is changing and if you are going to look at the component from a shipper's perspective,
and I am looking at the entire supply chain, that has an impact on it. The next impact, without naming names, a large shipper built a large distribution facility in the Houston market. It came online, guess what, about 2004.
You can see that because of that there was a significant increase in the amount of furniture that came into the Houston area, that was the gateway into the United States, or as the apparel component didn't change that much.
A decision by a major shipper or distributor, logistic service provider does have an impact in terms of what cargo they will see.
You will see changes with the Panama Canal extension. We are involved with the -- couple of other agencies, looking at the effect of the Panama Canal, and where cargo will flow and how it will flow and the impact it will have on U.S.
ports, West East Coast. Developing to handle containerized cargo is significantly changing the landscape.
Quite frankly, the intermodal mentality of western railroads is being applied to the eastern railroads. That's not a dig, they just haven't had to produce -- a recent example. Not part of my bio,
used to be director of port planning for the port of Tacoma for five years. We had a vessel call, cranked out a ship, three full unit trains from one terminal from one vessel call. You get to Charleston, Savannah,
some of the Gulf Coast ports, they will crank out one train a week. That's not density.
Some of those trains go get reassembled in Atlanta.
What the railroad is looking for and the ports and the steamship companies, is the economy of scale and the density by cranking out a unit train a day.
Going back to some of Lee's point about efficiency of mode.
Again, what are some of the factors that affect the shipper's decision criteria. Obviously cost, the reliability we talked about, density. More importantly, it's the uniform applicability and enforcement of policies.
We will talk about some of the differences in those policies.
If I have the alternative as Lee mentioned in terms of routing, and this is a good example. I can go, if going to the Houston/Dallas area I can go on water 24 days, intermodal through the California ports, 20 days.
Four days of time but I may save on my carbon emissions, may save on cost, and so again, do I divide up my supply chain to have redundancy, call at both ports or put a lot of product in one port, one distribution chain?
Let's switch over from the DCO perspective to the MPO perspective.
This new phenomena coming about in terms of mega region and how they handle it. As a highlight right now, currently 66% of all international trade is handled within a mega region.
77% of all domestic trade within the mega regions are moved by truck.
Excuse me, 77% of the domestic trade moved by TRUG occurs in the mega regions, 60% of that effort is within the mega region and 13 -- 4% is by rail.
The second bullet is the key aspect. There's going to be a tremendous amount of imports as the mega regions continue to grow. By 20 there will be 96% increase in imports in mega regions.
We are working for several of those mega regions MPOs and there is no national policy, no standard as to how a shipper can plan on a supply chain using or going through
or locating distribution manufacturing in so many facilities within that region. Not to pick on the port of LA/Long Beach, southern California ports have a truck licensing program.
I applaud it, great program, but it's going to add cost. The shipper has to make a decision whether that cost to go through LA/Long Beach is part of the social responsibility or, can I save a couple hundred buck and go through Houston
or Seattle/Tacoma. The rest of the ports on the West Coast and the Gulf Coast are not following suit to what LA/Long Beach is doing.
They are looking at it, but right now that's not a level playing field.
We look at the federal climate policies, we have a bunch of different forms, the CAP and trade, energy bills, you will hear me and the other speakers talk about the transportation reauthorization and what strings come attached with that.
Regulations, the form of affecting trade in a region.
CAP and trade legislation doesn't do much, quite frankly, for the shipper. The shipper is looking at the entire supply chain and the bottom point down there is the key. Right now the CAP
and trade in the United States is focused on point source, the utility, manufacturing facility, the fossil fuel plant. If CAP and trade can be made to be more global along the supply chain,
then you are going to get a lot more information and a lot more participation by the supply chain participant.
An example; if I am shipper X and I use a Maersk vessel -- in my manufacturing facility in China and in a debit situation, but because I am using Maersk's new efficient cargo vessels, slow steaming, I get a credit.
I come through the port of Seattle, a green port, through the SSA terminal, both green, credit from the port, from the terminal, I use the DNS S green locomotives, get credit from the railroad component, get it to Chicago,
truck to Indianapolis, may be back into a debit, but The overall supply chain may have a total credit to it. What I do with those credit system up to me as a shipper, but the point is the entire supply chain may be green,
whereas the components, different components may not be.
What's the status of the CAP and trade? House passed it, Senate hasn't. Several amendments to it, but the current guess is that it's not going anywhere this year, does not match the EU policy,
very much trying to get to the supply chain component of it.
All different strategies, saying the states, large MPOs must demonstrate progress, without any kind of guidance, a bunch of different methodologies without standardized models, without uniform data collection and without, frankly,
terms of definition of what we're looking at. USDOT is not certifying the state MPO plans, and everybody is looking for USDOT to establish requirements in the performance measures in terms of how they are met
and what happens if they are not met.
Again, all that ties into, again, right now, the specifically the reauthorization bill in terms of how projects and mega projects are going to be viewed.
So the bottom line is we have some issues. Planning is impacted by the state and federal policies, that affects the DOTs, MPOs, the shippers, the carriers, we need the ability for [indiscernible] thank you, again,
Lee with your clean cargo working group. We have a model we are using, use with our shippers, MPOs, to predict the effect on the supply chain, using current data. The legislation can change that data at any time.
We need a federal freight strategy that makes it uniform. There's 33 states with state climate plans to date. Unfortunately they are focused on major sectors, the point source, electricity, based on wildly changing targets,
they have been conducted on literally, shoe string budgets, limited time frame with a lot of cookbook approach, this is what XYZ did, I will follow their lead, do it separately.
The carriers, shippers have been excluded up to this point in time, and so a major decision criteria, locating a new facility, will have an impact on these plans and that's not being looked at, in the current time.
Some have been adopted and others are just reports. I wanted to bring up quickly what Canada is doing.
Canada has developed a national strategy, called the Asia/Pacific gateway strategy, and on the East Coast they have an Atlantic strategy. This is from the vision statement Framework for policies, investment
and initiatives that seek to make Canada the most competitive exit and entry point in North America.
Secretary Paul Hamm OPBD, John Wolf, port of Tacoma said we can't compete.
We in the northwest cannot compete with prince Rupert and the port of British Columbia in Canada because Canada is using this national strategy. Everything that happens looks at the policies, investments
and initiatives that make Canadian supply chains stronger.
If that continues, port Tacoma, port of Seattle, all the West Coast ports will feel feel an impact.
The bottom line -- folks, freight pays our bills. If everybody would fake take a close look on your clothing, it's not made in the United States.
Consumerism is ramp pant, we have to build up the economy, thank you, Lee for buying more than a pair of shoes at one trip to the store, but we need to realize freight is a significant economic driver in a region, a state
and a national level.
Manufacturers, shippers, distributors, changing sourcing criteria, that sourcing makes the supply chains very dynamic, everybody wants to green the supply chain. The shipper must realize a direct economic and operational benefit,
must be rewarded, hence I am looking, proposing the Cap-and-Trade, and the bottom line is we absolutely need some sort of standardized freight policy that dresses the greenhouse gas emissions, create standards for that.
So with that, Jennifer, I will turn it back over to you.
Thank you, Mike, we are now going to turn it over to our final presenter, Diego Klabjan of Northwestern University.
Dr. Klabjan: I am mostly focused on carbon footprint accounting in logistics and the actual allocation of -- I will raise the issue later.
In the last year or so, I spoke with many shipper and carriers, and my main interest was essentially in trying to learn what is today's status in the United States when it comes to the footprint accounting in logistics,
or we can cascade broadly in supply chain management. Here is the good and the bad. First, why do shippers or companies care about carbon footprint accounting? Some do it for the sake of having green image,
but in most of the companies green image doesn't -- doesn't add a lot of value, actually look at the economical benefits and if you have, if you know your carbon footprint, then, you can measure,
means you can also -- if you don't know your carbon footprint you don't know if it's high or low, why bother with it. If you figure out the footprint is high,
a lot of companies actually use innovative approaches to reduce carbon footprint as well as reduce costs. Then, some of the companies will be doing it or already are doing it for the sake of potential future mandates and not so much,
now, because so much uncertainty about government policies , they do it mostly because of fear of mandate of big guys, in this case Wal-Mart announced in 2015, roughly, they want to start putting eco labels on goods they sell. In the U.K.
, for example, [indiscernible] is already experimenting with some of their products, put eco-friendly label and customers can compare various products.
About a year ago a lot of the logistics service providers didn't have many requests from customers, in this case shippers, with questions about carbon footprint, so how much is my carbon footprint. But,
in the last year I have heard from a couple of logistics service providers that that has changed. In other words, they are getting many more requests. From a handful of carbon footprint requests, about a year ago, to today,
where they have more than 100 such requests.
Another service provider also pushed it to the limit in a sense that they are actually providing carbon footprint for every single shipper they handle or manage.
Now, the good side of the story, because there is definitely -- it's increasing, from a handful of request to over 100 requests; on the other hand there's still plenty of operators that do not provide such a service,
meaning do not provide a carbon footprint of their shippers. Some are saying well, we don't get too many requests, and including -- competitive advantage is not included.
In a few years it might be but now they don't see such a competitive advantage.
Many shippers are not willing to trade costs for "eco-image." If a carrier is more eco-friendly, but more expensive, well, most of them will go for the cheaper carriers. Really, no surprise there.
But it is the case that many shippers now, if costs being equal, when they evaluate two carriers, for example, cost being equal, they will actually start to look at green initiatives of the two carriers
and then will take that into account when they make the decision.
The situation is different in European union because of the regulations that require you to trade off cost and emissions, so an example that I want to bring up here is Proctor & Gamble,
where in western Europe to lower emissions they are switching from trucking to rail. By no means all of their transportation or logistical services, but the portion of rail used to be 10% of all their shipments;
now they want to push that to 30%.
Main reason being reducing carbon footprint.
They are doing, have an awesome initiative, in my opinion, in Brazil, where instead of shipping grains from the Amazon basin down with trucks to ports in the South of Brazil, they now actually use ships on the Amazon river
and from the Amazon River ship directly to the U.S. Now, they do have a 40% longer lead time, essentially move from trucking to [indiscernible] the Amazon River, but they concluded they lowered their emissions by 60%.
That's clearly a trade of theirs.
Both Lee and Mike mentioned SmartWay on a few occasions.
I am not affiliated at all, but I am interacting with SmartWay, had several discussions with them. Let me briefly say a little more about SmartWay, really, in a few sentences, for those not aware of what SmartWay is.
SmartWay is a program within EPA that is supposed to bring together truck companies and shippers and help them in reducing their emissions in transportation.
The participation is free, any company can join. Trucking companies who join, receive SmartWay certification, essentially committing to improve fuel efficiency and reduce emissions.
Shippers that are part of SmartWay, they commit to use SmartWay trucking partners, in other words SmartWay certified carriers, but this by no means is that all of their shipments must be SmartWay, just a certain portion of shipments,
and SmartWay helps them improve freight operations, eventually to reduce emissions.
So, SmartWay has a tool called the FLEET model, Freight Logistics Environmental and Energy Tracking model, where shippers, for example, enter all of their shipments within the last year, for example, and carriers they use,
and they get the tool gives you, calculates the NOx, CO2 and particulate matter contributions. Carriers use this tool mostly to, for example, get a sense of what their potential strategy, such as changing fleet composition,
how they will effect the carbon footprint of that particular carrier.
It conducts -- they conduct analysis with FLEET and gives strategic guidance. Shippers, likewise, use the tool to get their carbon footprint from logistics operations, for example in the past year,
a tool to measure their environmental footprint.
This is just a very quick summary of SmartWay with a focus on FLEET.
When I talk to the shippers and carriers about carbon footprint accounting and logistics, it was clear that there are many, many challenges. Some of them are what I call the traditional old-fashioned challenges when it comes to data.
You need data and issues collecting the data, transparency, quality of data, all the standard data-related issues.
A much bigger hurdle, at least now, the actual processes, because most of the shippers don't have process in place. Essentially what ends up happening, they have to manually pick up the phone, call carriers,
call their logistics service providers to get the quantity they want so they are then able to calculate carbon footprint. Another -- a minor point, but nevertheless, raised by quite a few, I mentioned the FLEET model,
SmartWays is about to release a new version of the FLEET model, some are really concerned about their impacts to their carbon footprint reporting.
Because the FLEET model gives you a score, how much "green" you are, now they are worried whether they will increase their score or actually -- the score will be reduced.
Here's a typical example that a fairly large global shipper had to go through in order to get their carbon footprint from logistics. This shipper in the U.S.
was tasked to calculate carbon footprint emissions for their operations in the U.S. You see they have many divisions, every division is using its own transportation service provider, they have from parcel carriers,
a middle man between the actual carrier and the shippers, so it was really, for them, the first year, it was a very tedious task because there were no processes in place, not a single data source they could simply grab the data from.
They had to make many calls within the company, many calls out of the company to put all the data in place.
Then there's standard data issues, missing data, missing weight, you assume it's zero, well you are distorting your true emissions.
If you go down to aggregation bias where you ship, on the first day of the month 10-pounds -- not 10, say 200-pounds, a week later a different mode you ship 50-pounds,
you don't know details about the mode you just consolidate the numbers together, make the assumption.
There's a lot of uncertainty.
When I trying to think about this carbon footprint accounting issues, I came up with a very fundamental issue that if you look at truck loads, single dedicated truck from A to B,
to calculate carbon footprint of that particular -- it's very simple.
You know fuel consumption of the truck, can calculate fairly precisely. But the situation becomes more difficult if you switch to [indiscernible] truck loads, one truck from several shippers, calculate emissions are the entire truck,
but more challenging to allocate emissions to various shippers. You can split by weight, volume, or any other means, but in either case you can come up with situations where you put more bias on one shipper versus another shipper.
I also spoke with two parcel carriers, direct competitors, asked them, you ship the small packages, parcels, somebody asks you what's the carbon footprint of this particular shipment?
For example, it went from Peoria to Fresno, to Chicago, Memphis, then over to Oakland, to Fresno -- every one of them is using a different way to allocate emissions. There's no real standard guidance or, say,
collaboration between the two of them.
Now, the situation, when it comes to, I mentioned the carbon footprint accounting and allocation.
If you really think about truck load carriers operating on relay points where they consolidate goods, use bigger trucks to truck the load from one point to another, at a system level it's relatively simple to calculate emissions,
but when you need to allocate to the various users of the system it becomes much more challenging. So SmartWay's perspective is really, a great, excellent starting point,
but we have to keep in mind SmartWay's perspective is at a macro level; looking at all shipments in one year, no details as to what the eco or mode was used, focus on trucking, but what vehicle was actually used.
It's a perfect tool for a static environment where, for example, every day you ship the same quantity, the same lane, for example. We all know today's supply chains are not static. They are extremely dynamic,
respond to demand fluctuations, lead time variations, et cetera. This becomes a much bigger challenge as to how to actually allocate your emissions.
So a more microlevel view might give a different picture of emissions in terms of allocation, again, at a system level, allocations are what they are.
These are just a summary of the main challenges that I have identified, so on the data side, it's the same old story, and then on the allocation schemas, another issue is when you have backhalls, trucks actually moving empty, well,
shippers are responsible for those emissions from backhalls, how do you allocate to shippers. Then it becomes more challenging if you think about intermodal freight.
Say someone ships a container from Beijing to Memphis, when it goes through several modes of transportation it becomes much more challenging how to allocate the actual emissions.
All this thinking about allocation actually then drew me to a different perspective, more on the national level in the following sense. We have seen today,
Mike showed the slide that presented the actual breakdown of emissions at the national level.
Mike's slide was more recent than mine, but in 2008, transportation accounted for 33.1% of total U.S. emissions.
Now, the question becomes, if you want to drill down to this 33.1%, how much is used by rail, by maritime, trucking, port, then it becomes challenging if you start asking questions. What's the emission contribution of intermodal yards,
terminals, the contribution of drayage, for example. One can get, for example, the air emissions at a national level relatively easily, but then if you want to really slice it and dice it, start asking questions, drayage, intermodal,
rail, anything, what are the actual emission contributions at the regional level, state level, corridor, industry, operation, drayage,
it becomes much more challenging to actually get carbon footprint contributions when you start to slice it and dice it, asking questions about -- or add more fine grained level.
Why are these kind of questions important? Well, they could assist decision-makers and policymakers into making better decisions.
Mostly this kind of information will complement the typical cost decisions by providing the emission counterpart. The decision makers will not just have cost, complete cost picture at corridor level,
but also have an emission picture of the same corridor level.
Then they can help make infrastructure decisions that are not 100% driven by cost, but also taking into account the emission side of the picture.
Another -- Mike talked extensively about Cap-and-Trade, say you want to implement on a particular corridor, et cetera, I know [indiscernible] initiated a study, put an RFP for possible -- the stress here is on the word possible,
a possible Cap-and-Trade for airports.
What should the CAP be?
What's reasonable for the entire airport? I want to ramp this up by again raising the issue of, for example, parcel carriers, UPS, FedEx, for example,
that there's no uniform standard as to how to allocate carbon footprint to the various users of the entire system. I hope I persuaded you this is not that simple of a question.
It is relatively easy to answer the question at a national level, if you just focus on the entire contribution. But when you try to break it down to the operation, the various modes, regions, then it becomes much more intriguing.
With that, thank you very much, I will be a little bit peculiar here, free to contact by the e-mail, but also text message me. Why I have a text message, essentially my phone number, I have a limited text messages,
but only my kids text message me, nobody else. I encourage you to text message me. Thank you very much.
Thank you, Diego. I believe that's a first for contact information. Just shows where communications are heading.
Shows how old are we.
So, I will start the Question and Answer session. We have a number of questions typed in.
I am going back up to the top, starting with the questions for Lee to give Diego time to digest the questions that came in for him.
The first question, you added another ship, 12 to 13 ships, what's the cost of new vessel and the pay-back period for the fuel savings?
Lee: Well, I didn't see that when I reviewed them. Typically a new vessel, talking $15 0 million, varies depending on size and intended trade for the vessel.
In terms of pay-back, I don't know how to answer the question there.
I will be happy to discuss that with that, person off line.
Okay. The cruise ship industry constructed vessels such as the queen Mary 2 and the oasis, how about the container vessels, can they be constructed to super size?
We launched a class of eight vessels, the first was the Emma Maersk, we quote vessel size in terms of the number of containers you can put onboard. For example,
the largest vessel that can go through the current Panama Canal can carry about 4500 of those 20-foot containers.
The Emma Maersk can carry three times that, or close to 15,000 20-foot containers, powered by large, low-speed diesels, 110-horsepower, some of these are real behemoths.
The next question, would reduction in black carbon also reduce greenhouse gasses?
I will be glad to chat with that, person offline. Black carbon is typically reduced when we do a fuel switch, it's a more complex pollutant to deal with, black carbon has a shading effect at high level,
but once it falls to the glaciers tends to accelerate melting.
Has climate impact, but more complex in terms of CO2 or methane or the other classic greenhouse gases.
Thank you. I am going to move on to questions for Mike now. If you think of additional questions for Lee, type them in. Mike, what does BCO stand for? I know you answered that, but --
Mike: Beneficial cargo owner, that's a government term that came about, four years ago, part of the safe ports act, they, quite frankly, hopefully no one from Wal-Mart is on the call, it was the Wal-Mart aiming at Wal-Mart
and big shippers who were not taking charge of their ownership of cargo until it actually arrived on their doorstep, even though they are responsible for, indirectly responsible, sometimes directly,
for making sure they have cargo supply chain initiated. Real quick also, Jennifer, in terms of the question about the mega vessels, I saw that, Lee is right. Part of the issue of can it be made bigger, the Panama Canal issue,
but a lot of ports, in terms of capacity of ports, especially on the East Coast, they will have trouble getting the bigger vessels in.
The inland transportation infrastructure is not capable of handling the surge loads that those vessels came in. I cited my three-unit trains, a 100 containers -- 300, excuse me, all of a sudden you are talking with A trains,
a mega vessel can develop 16 trains. So you have a tremendous surge load on the terminal and the port when those big mega vessels come, so they have reached about the highest limit of efficiency they can get right now,
based on the infrastructure they have to serve.
Lee: Mike makes a good point.
Let me extend that to say there are sometimes geographical barriers. In New York, New Jersey you have the Brooklyn bridge.
Most vessels can get in to serve the New York, New Jersey terminals, but the biggest vessels can't get in. There was an announcement they are moving to the next step to evaluate what to do about that bridge, and the ship to shore cranes,
only some of the newer terminals have the cranes to work those massive vessels. Most of them are calling on the Asia/Europe run. The biggest ones you see in the United States are around 10,000.
That would be on the West Coast.
These large low-speed highly efficient engines are the best thing out there. We are testing solar, testing alternative fuels, and as you know there's been one test, a solar sail, a small vessel,
you have to have the wind in a certain direction for that to work. There are all kinds of alternative methods of propulsion, but for now you can't beat the big diesel.
I saw someone ask about nuclear, too. There you run into questions about how you control the safety of the used fuels. Because remember, these are international vessels, they travel the world,
and are not under the control of a highly regulated and highly competent body, say like the U.S. Navy.
There would be, a lot of hurdles to deal with before you could consider putting nuclear into commercial vessels with, say, Panamanian flag and so forth.
Thank you. Before the next question I needed to bring up a polling question. Originally how you were accessing today's audio, but given the option, would you use the phone line or voice over IP,
I will put that up to help us account for phone lines in the future.
I will put it up for you to answer while going through the questions.
Another question, what does GHC stand for, greenhouse gases. Can you provide references of your data on freight and mega regions?
Most of that came from the TRB, several committees working on mega regions from the urban planning perspective and fright movement perspective. I can cite the references, two report were recently published.
I will get it to them, the person that asked.
Thank you. Diego, the next question is for you. Where do we find out more about the Canadian freight strategy national goals?
Probably it's Mike.
The website for Transport Canada.
Okay. Assuming a PNG goal of increasing rail from 10 to 30% in Europe to reduce carbon footprint had huge cost advantages, how much of this is transferable to the U.S.?
Clearly, [indiscernible] claims they were able to make cost savings as L it's not clear how much they actually saved. In terms of the U.S., I think it is definitely -- there would be cost benefits on the U.S.
side as well if they do it in a large scale, but most in Europe it was driven actually by regulations to puts a CAP on carbon emissions, to put a price on carbon. In the U.S., with no price on carbon,
I think that's going to be much more challenging for P and G to get cost benefits in switching in the U.S. It is, there are railways that are much more emission-friendly than truckers are, or trucks,
so clearly there is the emission advantage and cost as well, also cost advantage.
It all boils down to the lead time, shipping by rail has larger lead time. If we look at the example down in Brazil, P and G did, perform, the price they had to pay was increased lead time, but that can, with today's supply chains,
the most efficient supply chains, agile, adaptable, you have to -- this new lead time has to be eaten up in some other parts of your supply chain.
They could switch to rail in the U.S. also. I don't see a reason why not.
I cannot comment about the actual cost numbers because those are proprietary and -- not sharing them.
Next question, what are the U.S.' goals in developing the infrastructure on both coasts after 2004 -- more terminals, contracts with ocean carriers, et cetera?
Probably more for Lee and Mike as well.
Mike: Yeah, the [indiscernible] is currently looking at the role federal government should be playing in developing port infrastructure and inland infrastructure in terms of rail and roads,
based upon the anticipated opening of the canal and the anticipated benefits to areas and regions from increased traffic.
If you listen to the America Association of Port Authorities, all have claimed to be a direct beneficiary of that cargo. Obviously that's not true, but the market will play a significant role in determining where that goes, but first,
the crescent corridor, heartland corridor, we talked about in my presentation, all aspects the railroads are gearing up to increasing additional cargo. Most of the port facilities have announced plans, the southeast, coast ports,
dredged up new terminals, regional infrastructure improvements to handle cargo. People are gearing up, but the problem is not everybody will win on that one.
Okay. Did I see ports are a large percentage of emissions, does that counteract the maritime savings?
I saw that. The problem is ports, when you classify ports, there's a lot of things thrown into that. Sometimes the drayage from a terminal, marine to inland intermodal, seven miles away in Los Angeles, may be on-dock,
part is the harbor tugs, bunker fuel delivered, emissions for vessels who don't switch over to the auxiliary power, continue to use their main engine fuel to power the vessel at berth, versus cold -- it's a compilation of, literally,
a hundred different sources that go into a "port." I know that a lot of ports are gleaning the terminals, looking at cranes, electric hustlers, storage equipment, greening other areas. In a global supply chain,
there's no one measurement, but you have to look at the entire supply chain to break down the components.
Lee: Speaking from the perspective of the vessel operators and we have marine terminal and truck and warehouses, these proprietary tools actually break down the pieces so you have one emissions factor in distance for the ocean leg,
then you have an emissions factor for the marine terminal. Then you have emissions factor for the truck.
Then, if you look at the port's inventories, most ports have inventories posted on the website, you see there is definitely a contribution due to things like the harbor tug and so forth.
You have to actually know the contribution at that particular port to be able to do a good analysis.
Thank you, both.
I should also say a vessel coming all the way across the Pacific from Hong Kong will have a lot larger total emission than any amount of cargo handling in, say, Los Angeles, the difference of course in Los Angeles
or any port is people are there to breathe it.
Okay. The next question for Diego -- did your presentation imply an important weakness in the effect of Cap-and-Trade since -- hard to allocate.
That is definitely the case Even though, if you look at all the versions of Cap-and-Trade that were bounced around in the Congress, that was not an issue, they were all imposing a CAP at a much higher level such as CAP on utilities,
on cement producers, et cetera, the level where the emissions are fairly known, but definitely becomes much more challenging if you go down at a lower level. I have already mentioned PRB's interest
or study into if you want to put a cap On airport emissions, do we know -RGS for example, not just that, what are the actual emissions of an airport?
The in-bound aircraft, for example, does that count towards the emission of an airport or doesn't?
If any version of Cap-and-Trade to be passed at a federal level will probably not have that issue, but later, as Cap-and-Trade evolves, definitely allocations of carbon footprint will become an issue, or will become a challenge.
We know that, perhaps a bigger issue with And trade is how you actually allocate initial permits, auction them out or give them for free. One of the debates in the Congress that was fairly high up on the table.
I will ask one more question, then I know there are still a few in there, I will send them out to the presenters.
When I send the follow-up information with the recording announcement I will include the written responses from the remaining questions.
One last question, for Diego. The complexities of detailed supply-chain carbon accounting seem daunting in the near term. This is a new, but necessary effort for industry. Is it necessary to have macro level
and refine as better data becomes available?
I do give full credit for SmartWays come up with a way, the right tool for the right time, that is definitely the right time for a tool like FLEET. But, now the FLEET model has been around for quite a while
and I think it is time to start thinking, exploring at a more microlevel the actual accounting. I mentioned the study of that company that, they were aware there's a lot of aggregation going on, if you are a shipper,
you think about consumer goods, the example in the U.K. where you can compare carbon footprint, those labels are based on your total lifecycle carbon footprints, large portion from transportation, companies, when that level is reached,
companies will be concerned pretty much about every Singleton of CO2 they emit. And they will worry that aggregation is going on, could be improved, or might be today a disadvantage.
Again, the FLEET model, questionably -- unquestionably the right model.
Thank you. I will get the remaining questions, we had three left. I will get those to the presenters, include that in the follow-up information, but we are out of time for today.
I want to thank all three presenters for three great presentations.
Thank you, everybody in attendance, and thank you for bearing with some of the audio issues. As I said, we will have all the audio back up and running correctly next month. This was the guinea pig session.
The recorded version from today will be available online within the next few weeks I will send an e-mail when it becomes available.
I encourage everybody to fill out the evaluation form up there, accepted send it back to me.
If you are an [indiscernible] member, want to receive credits, make sure you are signed in with your first and last name or attending with a group of people, type your name into the chat box. The N next seminar is October 20,
about the freight analysis framework 3. The seminar is not available for registration currently but I will send a notice through the listserv once registration opens in the next few days.
I encourage you to join the freight planning listserv, that's our primary channel for announcements about the seminars. With that, thank you, everybody, enjoy the rest of your day.
Ladies and gentlemen, that concludes our conference for today, thank you for your participation.