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THE GEOGRAPHY OF TRANSPORT SYSTEMS Green Logistics Authors: Dr. Jean-Paul Rodrigue, Dr. Brian Slack and Dr.

Claude Comtois 1. Greenness and Logistics The two words that make up the title are each charged with meaning, but combined, they form a term that is particularly evocative. 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 in the late 1980s and early 1990s. 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 reserve segment 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 achieved in the main 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 ecommerce 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 drivers 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 topdown 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 firms 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 two 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 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. _____________ Several dimensions

Logistic Activities and their Green Dimensions The green applications of logistics are numerous and covering three main dimensions:

Product design and production planning. Developing products that have a lower environmental footprint, including their production process. Physical distribution. Insuring that the mobility of freight related to logistics operations is performed in a sustainable and environmentally friendly manner.

Materials management. Moving towards more efficient materials use, including packaging and recycling.

All these dimensions can be individually or jointly applied. Since they involve different actors, concerted efforts are uncommon as each element of the supply chain pursues strategies that are judged to be the most effective. ________________ Material flows

Source: adapted from USGS Fact Sheet FS-068-98, June 1998. Material Flows Cycle Supply chains are part of a complex material flows cycle that starts with the extractions of renewable and nonrenewable resources which then become part of the resource supply system. Through a forward logistics process, these resources are transformed by the manufacturing sector to become final consumption goods. All the processes of forward logistics are generating wastes and discards that enter the reverse logistics cycle. What can be recycled will reenter the resource supply cycle while what remains will be put into a sink, most commonly a landfill. __________________

Reverse distribution

Forward and Reverse Distribution The conventional forward channel in freight distribution is well understood with raw materials, parts and finished goods flowing from suppliers to producers, distributors and, finally, to consumers. In many cases, there is also a reverse channel where wastes, packages, and defective/obsolete products are "climbing back" the supply chain. In some cases (such as a defective product), distributors will take back the merchandises, but in many others, a specialized segment of the distribution industry aims at collecting and then recycling goods and parts. Thus, reverse logistics (or reverse distribution) is concerned about the movements of previously shipped goods from customers back to manufacturers or distribution centers due to repairs, recycling or returns. There are several variants:

An important segment is customer-driven, where domestic waste is set aside by homedwellers for recycling. This has achieved wide popularity in many communities, notably because the public became involved in the process. A second type is where non-recyclable waste, including hazardous materials, is transported for disposal to designated sites. As land fills close to urban areas become scarce, waste has to be transported greater distances to disposal centers. A different approach is where reverse distribution is a continuous embedded process in which the organization (manufacturer or distributor) takes responsibility for the delivery of new products as well as their take-back. This means environmental considerations for the whole life-cycle of a product (production, distribution, consumption and recycling/disposal).

_________________

Basic paradoxes __________________ Dimension Costs Outcome Reduction of costs through improvement in packaging and reduction of wastes. Benefits are derived by the distributors. Integrated supply chains. JIT and DTD provide flexible and efficient physical distribution systems. Paradox Environmental costs are often externalized.

Time / Flexibility

Network

Reliability

Warehousing

Information Technologies

Extended production, distribution and retailing structures consuming more space, more energy and producing more emissions (CO2, particulates, NOx, etc.). Increasing system-wide efficiency of Concentration of environmental the distribution system through impacts next to major hubs and network changes (Hub-and-spoke along corridors. Pressure on local structure). communities. Reliable and on-time distribution of Modes used, trucking and air freight and passengers. transportation, are the least environmentally efficient. Reducing the needs for private Inventory shifted in part to warehousing facilities. public roads (or in containers), contributing to congestion and space consumption. Increased business opportunities and Changes in physical distribution diversification of the supply chains. systems towards higher levels of energy consumption.

The Paradoxes of Green Logistics

Logistics cost

____________________ Hierarchy

Cost Type
Internal

Implications
Material, labor, other expenses, and revenues that are commonly allocated to a product or process. Can easily be quantified (internalized). Expenses incurred by and benefits to the firm that are not related to products or processes. Mostly concern compliance to regulations. Potential liability or benefit that depends on the occurrence of a future event. Assessed as a risk. Costs/benefits related to the subjective perceptions of a firms stakeholders. Costs/benefits of a companys impacts upon the environment and society that do not directly accrue to the business. Difficult to quantify (externalized).

Compliance Contingent Image / relationship External

Source: adapted from US Environmental Protection Agency (2000) The Lean and Green Supply Chain: A Practical Guide for Materials Managers and Supply Chain Managers to Reduce Costs and Improve Environmental Performance, Environmental Accounting Project, EPA 742-R-00001. Environmental Costs Hierarchy To produce and make goods available on the market a hierarchy of environmental costs is concerned, from internal costs that are easy to quantify to external costs that remain vague and complex to assess and even more to quantify. Although managers are keenly aware of the costs involved in the management of supply chains, there is commonly a lack of methodologies available to formally assess them. This makes environmental accounting a challenging process far from being an exact science. Still, this endeavor concerns five cost categories:

Internal costs are well understood as they concern the inputs costs (materials, labor) related to what is been produced. Most firms have a good level of control for these costs as they directly disburse them. Compliance costs concern an array of expenses that do not contribute to the output but are related to the regulatory framework. Environmental issues, such as emission standards, are common and all come with costs assumed by firms to insure compliance. Compliance can also have some benefits, particularly if it implies subsidies, lower levels of taxation or lower insurance premiums. Contingent costs. Depending of the sector of activity and the part of the supply chain, there is always a risk of accidents or hazardous materials releases. Although it can almost be certain that such an event will eventually happen, its moment and its intensity remains only a probability. Contingent costs thus imply a form of risk management where a low

level or a lack of compliance can be weighted in terms of the involved risks, such as being fined.

Image and relationship costs. A firm or a product that is perceived negatively from an environmental standpoint can incur significant costs in terms of lower sales and litigation. Public relations on environmental matters are a complex and commonly costly endeavor. If skillfully done it can also lead to positive impacts in terms of better sales of products perceived as "environmentally friendly". External costs relate to an array of costs that are externalized, implying that they are assumed by the collectivity and not by the firm. Growth often results in a higher level of usage of transport infrastructures, more emissions of pollutants and higher risk for accidents. All these costs are commonly assumed by the wider economy and can therefore be considered to be outside the firm.

_____________________ Food-miles

Source: adapted from Bge, S. (1995) "The well-travelled yogurt pot: lessons for new freight transport policies and regional production", World Transport Policy & Practice, Vol. 1, pp. 7-11. The Food-Mile: Yogurt Supply Chain, Germany One dimension of green logistics concerns food supply chains and the growing awareness that supplying food products to consumers concerns large distances. The term food-miles has been brought forward to try to capture the distances involved in all the stages and processes of food production, from the farm up to the consumer. It is assumed that more food-miles are related to less environmentally efficient supply chains. A classic example concerns a yogurt supply chain in south Germany. Although a simple product, a yogurt pot involves a wide variety of components ranging from milk, sugar and jam (product) to labels, jars and boxes (packaging). The above map shows direct, first order, relations between the manufacturer with its suppliers and customers (second tier relations, such as for the supplier of a supplier, are not depicted). It may indicate that the supply chain is environmentally damaging because of the distances involved and that these distance should be shorted to achieve greener logistics. However, statements in the line that supply chains should be more locally and regionally focused can be misleading. The following nuances should be considered:

Input weight factor (material index). Location theory has for long underlined that a location is often influenced by the weighting of the industrial inputs. The higher the material index of an input the more important it is as a location factor. A yogurt pot can be considered a bulky product with more than 85% of its weight (milk and sugar) and 90% of the package (glass jars) being sourced regionally. Other inputs play a small, if not negligible role. From an input weight factor perspective, the concerned food supply chain appears much more optimal. Different location factors. Suppliers within a supply chain may have different location factors which may appear to be far from optimal in relation to their customers, but can be optimal in relation to their suppliers. Changing their location to optimize one supply chain (or simply one segment) could lead at the aggregate level to diseconomies for other supply chains. Economies of scale and regional specialization. The extension of food miles is in part reflective of emerging regional specializations in food production, many in developing countries where agribusiness is a growing source of employment and income. The benefits derived in terms of lower input costs and economies of scale may out weight higher transport costs.

Consequently, the example of the yogurt pot as an environmentally damaging supply chain is mostly inaccurate and misleading. Striving to shorten supply chains may appear at first glance to be imminently desirable but must be considered within a wider context, namely the nature of the inputs and the location factors of the suppliers.

___________________ Vicious circle

Environmental Vicious Circle of Logistics Added value, efficiency and control are the main drivers of supply chain management. The search for added value enables to capture economic opportunities along the supply chain with activities related to consolidation, deconsolidation, transshipment and transloading. Efficiency drives the improvement of cost and performance attributes of the supply chain through better modal and intermodal options. Control insures reliability in terms of performance and costs along the supply chain undertaken through mergers and information technologies. The application of logistics involves a paradigm on freight distribution systems that results in two specific externalities:

The first externality relates to spatial constraints. The more physical distribution is efficient, the less production, distribution and retailing activities are constrained by distance. This results in changes in the configuration of distribution networks and a higher level of space consumption by logistical activities. The second externality relates to the usage level of transportation. A less spatially constrained supply chain involves more ton-km of freight transported, both in terms of the number of trips and the average haul length. This is associated with higher level of energy consumption and correspondingly with more emissions.

The above paradigm relies on an externalization of costs where the full costs of the distribution system are not entirely assumed by the users. It also leads to a concentration, both spatial and functional, of logistical activities and their level of control. ____________________ Schedule reliability of container shipping

Source: adapted from Drewry Shipping Consultants. Note: Sample of 1792 vessels, April to June 2010. Schedule Reliability in Container Shipping, 2010 Schedule reliability is a function of the frequency of deviations between the actual arrival day and the estimated time of arrival (ETA). At the global level container ships arrive at their ports of call on the scheduled day less 50% of the time, with an average deviation of 1.3 days. For the two most important trade relations, Asia/Europe and transpacific, schedule reliability is consistent with the global average with 33% of the ships arriving 1 to 3 days late. The transatlantic has a much higher schedule reliability than the global average because the concerned distances are shorter and pendulum services have less port calls. Low levels of schedule reliability are problematic for supply chain managers since it ties up more inventory in transit and forces last minute adjustments for terminal pickups and deliveries to distribution centers. Terminal operators are also forced to use more terminal space as a buffer is required to absorb the lack of reliability. Inland transport providers servicing the port terminals must also cope with the related fluctuations and uncertainty. At the aggregate level, it ties up more of their capacity for the same volume. Evidence underlines that in a supply chain if 20% of the containers arrive more than 3 days late, just in time strategies are becoming impractical. It is also worth underlining that about 30% of the containers that are scheduled on ship slots are no shows at terminals, which creates difficulties for shipping companies for the management and the utilization of their assets.

______________ In transit

Containerization, Cold Chains and the Flexibility of Supply Chains Globalization and more reliable cold chains are starting to have significant impacts on commodity chains, by expanding the options available for each sequence of the supply chain, which results in an increase in the quality of products available on markets as well as lower costs. The above example is a good illustration how commodity chains can become more flexible with cold chains. Conventionally, langoustines were fished off the coast of Scotland, brought to a nearby processing plant where they were mechanically pealed. After a maturation period of about three weeks in cold storage, the langoustine meat was then processed (e.g. cooked and breaded), packed and then distributed to the main United Kingdom market. By using the cold chain technology at the global level, it becomes possible to relocate part of the process to a lower cost location and at the same time improve the quality of the product. In the above case, after freezing the langoustines are placed in ISO reefers and shipped by containership to Thailand, which takes about three weeks. Such a change in the supply chain appears to be counterintuitive from a distance perspective as it increases to amount of energy used. However, a few nuances must be brought forward. Since the containerized trade between Europe and Asia is very imbalanced, the cold chain benefits of a significant discount on the UK - Thailand transport chain, in the range of 50%. The cargo is carried on containerships, offering economies of scale and the most environmentally efficient mode per unit carried. In Thailand, the Langoustines are manually peeled, which improves the quality of the product. Then, the peeled langoustines are shipped back to the UK. Since the maturation process takes about three weeks, the reefer acts at the same time as a transport unit as well as a maturation warehouse, conferring additional economies since no more warehousing space is required for that process (reduced land take). The final stages, processing and packaging are taking place in the UK market.

______________________ e-commerce Logistics and E-commerce THE GEOGRAPHY OF TRANSPORT SYSTEMS

Logistics and E-commerce Logistics is being impacted by E-commerce, particularly by its consumer to business segment. In a conventional retailing supply chain, customers are responsible to purchase their goods at the retailer's location; they are assuming the "last mile" in freight distribution. Because location is an important dimension of retailing, significant costs are assumed by the retailer to retain such an accessible location (e.g. rent). These costs are reflected in the final costs of a good which is assumed by the consumer. The retailer is the only segment of this supply chain interacting downwards, although retailers are keen to accommodate the demand signals of their customers. The emergence of e-commerce has changed the relationship between customers and retailers (eretailers):

Actors. In some cases, entirely new e-retailers have emerged (particularly in the music, book and electronics), but the adoption of an online strategy by conventional retailers has also been very significant. In the emerging distribution system, the e-retailer is at the same time a retailer and a distribution center. Locations. The locational choice is much more flexible, permitting the use of lower cost locations that would not have been considered otherwise.

Purchasing. Customers are virtually interfacing with a store and the orders are shipped through postal and/or parcel services. Figuratively, the customers are directly linked to the supply chain since their action of ordering a product reaches directly the distribution center. Tracking. Customers want accurate time-in-transit information for the various shipping options. This challenges the distribution industry to implement information systems to track parcels as well as vehicles.

The consequences of e-commerce on logistics are little understood, but some trends can be identified. As e-commerce becomes more accepted and used, it is changing physical distribution systems:

The standard retailing supply chain coupled with the process of economies of scale (larger stores; shopping malls) is being challenged by a new structure. The new system relies on large warehouses located outside metropolitan areas from where large numbers of small parcels are shipped by vans and trucks to separate online buyers. This disaggregates retailing distribution, and reverses the trend towards consolidation that had characterized retailing earlier. In the traditional system, the shopper was bearing the costs of moving the goods from the store to home, but with e-commerce this segment of the supply chain has to be integrated in the freight distribution process. The result potentially involves more packaging and more tons-km of freight transported, especially in urban areas. Traditional distribution systems are thus ill fitted to answer the logistical needs of e-commerce.

__________________________ Higher energy prices

Impacts of High Oil Prices on Transportation For the transportation sector, six major types of interdependent impacts of high oil prices can be expected:

Usage level. This trend is clear and straightforward as users of a specific mode generally respond to higher prices by limiting or rationalizing (e.g. speed) their usage level. Transport operators, such as airline companies, can reduce the frequency of their services. It is a matter of price elasticity where an increase of price P will result in a usage level change of Q. This function is rarely linear. At first, price increases may have limited effects as they are simply absorbed with the expectation that they are a temporary condition. Once a specific price threshold is reached, then significant changes will result as marginal and extraneous usage will be cut until a new equilibrium is reached. Usage for this mode is said to have reached a paradigm shift. For instance, in 2008 the amount of driving in the United States fell sharply as well as the number of flights, on par with an increase in oil prices. Modal shift. In conjunction with a drop in usage level for a mode, an alternative mode may capture the traffic of that change, in whole or in part, through a modal shift. Again, this process is commonly not linear and a modal balance (A/B) can shift rapidly once a price threshold is reached. Thus, an increase of price P may result in a substantial shift, Q(A/B), in the modal balance. A modal shift commonly takes place towards a mode which is less energy intensive (less elasticity) than the other. It can thus be expected that with higher oil prices some trucking will shift towards rail and that public transit will gain in market share. Service area changes. Under a specific price level, each mode has an optimum service area; a distance at which it provides mobility in a cost effective fashion. Since each mode has a different elasticity, an increase in prices will have different impacts on the cost / distance function. For two modes, A and B, the same increase in energy price would create a different inflection of the cost / distance function where the range of mode B would reduced by R(B). Thus, mode A gains in market share. An example is trucking versus rail in North America where about 700 miles (1120 km) was considered to be a standard cutting point, but a rise in fuel prices has placed this range around 500 miles (800 km). Gateway / Hub selection. A gateway is a point of interface between two systems of circulation. Since these systems have different elasticity, a rise in energy prices can eventually change their relationships, particularly the locations where intermodal transportation takes place. A shipping service using gateway port A and taking advantage of faster (but more energy intensive) hinterland connections may instead switch to gateway port B which is closer to customers. Although this change may result in longer total shipping times, the cost trade-off would make it acceptable. Higher energy prices are thus likely to reinforce gateways that have the most efficient hinterland connections, notably in terms of modal choice. Network configuration. Enduring high energy prices are likely to trigger shifts in the configuration of transportation networks in terms gateways, hubs, routing and corridors. For instance an inland corridor may experience a change of the linkages with inland load centers that minimize road use and maximize rail. An airline may decide to abandon less

profitable routes an offer more direct (point to point) services. An air transport network may experience a reconfiguration and an abandonment of marginal services, namely at small airports.

Supply chain propagation. A supply chain is composed of a series of inputs and outputs having a complex geographical and functional structure. Rising energy prices imply a wide variety of changes in the cost structure within a supply chain, namely a propagation of those costs. Procurement, manufacturing and distribution costs are all impacted to various degrees. For instance an increase in the density of packing of parts for a better level of transport asset utilization may involve the delay of assembly tasks along the supply chain. It is possible for some of these costs to be absorbed through reduced profit margins and higher efficiencies, but they do eventually propagate and end up in higher consumer prices. The functional and geographical structure of a supply chain is a key element of the nature and extent of its costs propagation. At certain price level, some supply chains cease to be profitable and a reconfiguration becomes necessary.

It is assumed here that the origins and destinations remain relatively constant. However, it is clear that locational choices are significantly impacted as well. For instance, many comparative advantages in global trade are mainly based on low transport costs. In a higher energy prices environment, locational practices may change in several manufacturing sectors with sites closer to final markets, even if characterized by higher labor (or input) costs, may be advantaged. ______________________ Slow steaming

Source: adapted from Notteboom, T. and P. Carriou (2009) "Fuel surcharge practices of container shipping lines: Is it about cost recovery or revenue making?". Proceedings of the 2009 International Association of Maritime Economists (IAME) Conference, June, Copenhagen, Denmark.

Fuel Consumption by Containership Size and Speed Fuel consumption by a containership is mostly a function of ship size and cruising speed, which follows an exponential function above 14 knots. For instance, while a containership of around 8,000 TEU would consume about 225 tons of bunker fuel per day at 24 knots, at 21 knots this consumption drops to about 150 tons per day. While containership operators would prefer consuming the least amount of fuel by adopting lower speeds, this advantage must be mitigated with longer shipping times as well as assigning more ships on a pendulum service to maintain the same port call frequency. The main ship speed classes are:

Normal (20-25 knots; 37.0 - 46.3 km/hr). Represents the optimal cruising speed a containership and its engine have been designed to travel at. It also reflects the hydrodynamic limits of the hull to perform within acceptable fuel consumption levels. Slow steaming (18-20 knots; 33.3 - 37.0 km/hr). Running ship engines below capacity to save fuel consumption, but at the expense a additional travel time, particularly over long distances. This is likely to become the dominant operational speed as more than 50% of the global container shipping capacity was operating under such conditions as of 2011. Super slow steaming (15-18 knots; 27.8 - 33.3 km/hr). Also known as economical speed. A substantial decline in speed for the purpose of achieving a minimal level of fuel consumption while still maintaining a commercial service. Minimal cost (12-15 knots; 22.2 - 27.8 km/hr). The lowest speed technically possible, since lower speeds do not lead to any significant additional fuel economy. The level of service is however commercially unacceptable, so it is unlikely that maritime shipping companies would adopt such speeds.

The practice of slow steaming emerged during the financial crisis of 2008-2009 as international trade and the demand for containerized shipping plummeted at the same time as new capacity ordered during boom years was coming online. As a response, maritime shipping companies adopted slow steaming and even extra slow steaming services on several of their pendulum routes. It enabled them to accommodate additional capacity with a similar frequency of port calls. It was expected that as growth resumed and traffic picked up maritime shipping companies would return to normal cruising speeds, but this appears not to be the case. In an environment of higher fossil fuel prices, maritime shipping companies are opting for slow steaming for cost cutting purposes, but using the environmental agenda to further justify them. Slow steaming practices have become the new normal to which users must adapt to. Slow steaming also implies adapting engines that were designed for a specific optimal speed of around 22-25 knots, implying that for that speed they run at around 80% of full power capacity. Adopting slow steaming requires the "de-rating" of the main engine to the new speed and new power level (around 70%), which involves the timing of fuel injection, adjusting exhaust valves, and exchanging other mechanical components in the engine. ___________________

Better packaging

Photo: Dr. Jean-Paul Rodrigue, 2011. Weight and Packaging Improvements: iPad 1 versus iPad 2 The conventional focus of product 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 (e.g. computers, phones, televisions) is quantitatively and qualitatively better. For instance, the second generation of the iPad has the same display surface (246 mm diagonal) than the first generation, but is 16% lighter (600 grams versus 712 grams), 33% thinner (8.8 mm versus 13.4 mm), is more performing (CPU and graphic display speed) and has more features (e.g. front and back cameras). Products are increasingly being considered from a supply chain perspective, namely their sourcing and distribution. The final assembly of a consumer good such as an iPad is performed in Shenzhen, China and then the boxed finished product is shipped by air transport to consumers around the world. This implies that air transportation costs are an important component of the total logistics costs of the product. In addition to the weight improvements of the second generation iPad, efforts have been made to reduce its packaging dimensions. The outcome is a box which is 10% lighter and has 18% less volume, both being important considerations for air shipping. Keeping air transportation costs constant, it is therefore possible to ship 11 iPad 2s with the same weight / volume price ratio than 10 iPad 1s.

____________________ Land take that is exceptional

Source: adapted from A. McKinnon (2009) "The Present and Future Land Requirements of Logistical Activities", Land Use Policy, Vol. 26S, pp. S293-S301. Land Requirements for Freight Distribution Land requirements for freight distribution take two major dimensions:

Transportation. Both modes and terminals consume space for the setting of their respective infrastructures. The land take of infrastructures such as roads and ports can be extensive, particularly in metropolitan areas that are points of convergence of global material flows. The true transportation land take for freight distribution is difficult to assess as many infrastructures, such as roads and airports are dominantly used for passenger movements and can be considered as shared facilities. Storage. Include various facilities to hold freight in inventory such as bulk storage facilities (e.g. oil reservoirs or grain silos) and warehousing facilities for break-bulk. Distribution centers are particularly space-consuming as a wide array of added value activities are performed, including consolidation and deconsolidation, cross-docking and storage. The later can also require specialized facilities as for cold storage.

Land requirements to supply this system with energy (such as petroleum and electricity) are also to be considered, but considered as external as the same energy system is used to supply a whole range of economic activities outside freight distribution (e.g. passenger cars). There has been a convergence in the use of transportation assets for logistical purposes, all of which trying to

rationalize scarce real estate assets. Containerization was an important driver in such flexibilities, which include:

Inland ports. Facilities commonly designed in co-location with terminal infrastructures (particularly rail) and offering a wide array of logistical infrastructures and services. Inventory at terminal strategies. Consider using the storage capacity available at terminals as a temporary buffer within freight distribution systems part of inventory management. This is also been referred as "terminalization". Inventory in transit strategies. Consider using the storage capacity available while in the transport process. The mode thus becomes a mobile warehouse and part of inventory management strategies as long as the flows have a good level of reliability.

____________________________ Convergence of traffic flows

Hub-and-Spoke Network and Externalities The hub-and-spoke structure has characterized the reorganization of transportation networks, notably for air, rail and maritime freight transportation. It has reduced costs and improved efficiently through the consolidation of freight and passengers at hubs (or gateways). Despite cost savings, the flows, modes and terminals that are used by pursuing logistical integration tend to be less sustainable and environmentally friendly. The hub-and-spoke structure concentrates traffic at a relatively small number of terminals. This concentration exacerbates local environmental problems, such as noise, air pollution and traffic congestion. Thus, even if overall an hub-and-spoke network has a lower level of total externalities than a point-to-point network

[E(A) < E(B)], a large share of the environmental externalities are assumed by a single node; the hub. _____________________ Array of rationale and settings

Typology of Logistic Zones The main criteria that distinguish logistic zones is related to their relation with transport terminals and the array of services present:

Intermodal Co-location. A direct integration with an intermodal terminal, which involves an adjacent setting. Port-centric logistic zones are co-located by a port terminal, which is often the outcome of a strategy spearheaded by port authorities. An inland port (or dry port) has a similar co-location setting, but in this case with an intermodal rail terminal (on some occasions with a barge terminal) along a inland transport corridor. Various actors are involved in the setting of these logistic zones, such as local governments, rail operators and commercial real estate developers. Intermodal Proximity. A step below co-location is a relative proximity to an intermodal terminal (port or rail), which characterizes logistics parks. Although they were not established directly in relation to an inland terminal, they are connected to the facility as a customer. If there are no direct proximity or relation to an intermodal terminal, then the

logistic zone is simply an industrial park taking advantage of available land and road access.

Freight services. A freight village represents a specific logistic zone in the sense that it has a high orientation towards services such as hotels, convention centers and office space for third party logistics providers. They thus have a wide variety of potential settings, but are often found within logistics parks.

__________________ Environmental impacts of distribution centers

Source: adapted from Google Earth. UPS Chicago Area Consolidation Hub A modern large distribution center consumes a large amount of land, as for the UPS Chicago Area Consolidation Hub. The 240 acres (97 hectares) site is in co-location with a major intermodal rail terminal (BNSF). The distribution center per se occupies 37 acres (14.9 hectares), about 15% of the site. The standard plot ratio is around 40-45%, but mostly concern smaller distribution facilities. Because of the nature of its operations (consolidating and deconsolidating parcel loads) a substantial share of the site is allocated to trailer parking as well as parking space for the 11,000 employees working in different shifts. Additionally, space must be allocated for water collection as rainfall over such a large paved area would flood local streams. _________________________

Additional incentives Objective Shipping less Changing suppliers Shipping scheduling All Efficient packaging Modal shift Strategy Demand responsive systems. Reduce returns. Reassessing sourcing both at the global and domestic levels. Allow greater shipping time and outside rush periods. Reduce the shipment size (volume) of the same load. Use a mode or a route that is more energy and environmentally efficient.

Logistical Strategies to Cope with Energy and Environmental Constraints While costs have always been an important driver of supply chain management strategies, the rising cost of energy has been a strong incentive to rationalize supply chains and indirectly improve green supply chain management. Depending on the objective, there are several strategies that are being adopted to mitigate energy and environmental constraints:

Shipping less. The setting of demand responsive systems where supply chains are tightly integrated so that the goods being delivered are the outcome of an expressed demand. A better level of order fulfillment tends to reduce returns. Changing suppliers. Reassessing sourcing both at the global and domestic levels. This is best done if a comprehensive array of logistics costs is considered, particularly in light of energy and environmental constraints. While a supplier may appear to offer the lowest cost, if factors such as higher transport costs, more inventory in transit, longer response times and a higher level of unreliability are considered, alternative, but closer, suppliers could be more advantageous. Shipping scheduling. Adapt the scheduling of flows to insure a greater level of utilization of existing transportation and warehousing assets. By allowing greater shipping time and outside rush periods the same assets can be used more rationally, which conveys energy and environmental benefits. Efficient packaging. Reduce the shipment volume of the same load by using less packaging or by changing how a good is packaged. This results in higher transport densities. For instance, the introduction of the second generation of iPads in 2011, a popular tablet computer, involved a reduction in its packaging dimensions with a box that is 10% lighter (mostly from lighter product design) and has 18% less volume (mostly from better packaging). This is an important consideration for air shipping since the final assembly of the product takes place in Shenzhen, China. Modal shift. Use a mode or a route that is more energy and environmentally efficient, which can involve a change in the routing of cargo. Rail is the logical alternative to trucking over longer distances, but short sea shipping can be suitable for coastal regions.