Inbound Logistics: Feature Story

January, 2005 | List all feature stories

Environmental Compliance:
Seeing Green

The EPA's 2007 low-emission diesel engine specifications loom large in the minds of shippers and carriers. Will the industry take the high road and embrace the eco-friendly policies?

From oil drilling to power generators, farm and mining applications to transportation and logistics, diesel engines are the lifeblood of U.S. industry, yet paradoxically one of the greatest threats to its bottom-line growth. Freight transporters and shippers, in particular, continue to watch profits hemorrhage as a result of escalating fuel costs, urban congestion, and inefficient route management.

Cost considerations aside, rampant misuse of fuel has exacerbated existing pollution and health concerns across the country -- so much so that the U.S. Environmental Protection Agency (EPA) has warranted both mandatory and voluntary participation from freight transporters and shippers to invest in new vehicles and technologies that reduce vehicle emissions.

Given the density of the U.S. transportation grid, the EPA's concerns are compelling. In the United States alone, nearly seven million heavy-duty trucks are on the road every year, carrying 85 percent of the total value, and 66 percent of the total weight of domestic cargo, according to the EPA.

Freight trucks and locomotives together consume 35 billion gallons of diesel fuel annually, producing more than 350 million metric tons of carbon dioxide. Based on current trends, ground freight transporters will use more than 45 billion gallons of diesel fuel, and produce more than 450 million metric tons of carbon dioxide by 2012 -- a 25-percent increase.

Fuel for Thought
For some, green politics is justification enough for embracing low-emission diesel engines. But carriers and shippers also have a vested business interest in making sure vehicles are used in the most efficient means possible. Poor fuel usage often underscores other hiccups within the supply chain, from insufficient route management and improper driver training to flawed warehouse management strategies that result in longer truck stops.

"Shippers and carriers can gain a lot by taking a synergistic approach to operational improvement," says Mitch Jackson, managing director of environmental management, FedEx. "Having scheduled pickups and dock operations that prevent excess or unnecessary idling by carriers is important."

This kind of coordination is beneficial both to the bottom line and to environmental compliance, especially as it eliminates emissions and unnecessary burning of fuel.

The challenge for shippers and carriers is to streamline existing transportation management processes, while also investing in complementary technologies and equipment that reduce emissions and enhance fuel economy. Working toward a cleaner atmosphere not only validates the role and responsibilities of freight transporters as environmental stewards, but also makes them better service providers to their customers.

Between July 2002 and October 2004 the average price per gallon of diesel fuel rose nearly one dollar from $1.30 to more than $2.20, according to the Energy Information Administration. In an industry operating on tight margins, carriers and owner-operators are often forced to absorb fuel costs themselves or foist surcharges onto their customers.

Increasing road congestion has further compounded growing concerns about fuel consumption and emissions. Traffic problems and delays in urban areas are at an all-time high and continue to compromise the timeliness of over-the-road transport, notes the 2004 Urban Mobility Report, published by the Texas Transportation Institute.

"The problem is simple -- congestion has grown in areas of all sizes. Congestion occurs during longer portions of the day and delays more travelers and goods than ever before," the report notes.

The institute, which has measured gridlock delays in urban areas for the past two decades, documented a remarkable change in traffic patterns and costs as a result of economic growth. Total hours of delay have increased from 700 million in 1982 to 3.5 billion in 2002. Not surprisingly, gallons of wasted fuel have risen nearly fivefold during the same period, from 1.2 billion gallons to 5.7 billion gallons -- a direct corollary to trucks idling in traffic jams.

In 2003, the EPA launched the National Transportation Idle-Free Corridors project, with the goal of eliminating unnecessary truck and locomotive idling at strategic points along major transportation corridors. Still, gridlock in urban areas costs freight carriers, shippers, and customers billions of dollars each year.

"Congestion costs are increasing. The total congestion 'invoice' for the 85 areas documented in 2002 was $63 billion, an increase from $61 billion in 2001. The 3.5 billion hours of delay and 5.7 billion gallons of fuel consumed due to congestion are only the elements that are easiest to estimate," the study adds.

As the report suggests, other consequences such as air pollution and noise pollution -- and ultimately, quality of life -- are harder to document, and even more difficult to improve. The EPA's goal is to change this paradigm by soliciting help from the freight industry.

SmartWay Takes the Lead
"Many people believe that business and the environment are mutually exclusive concerns," noted Bill Graves, president and CEO of the American Trucking Associations, in a November 2004 seminar on transportation and the environment sponsored by the Japan International Transport Institute.

"While this might have been the case in the past, I don't believe we can legitimately consider this to be the case today," he added. "Business must do its part to provide jobs and sustain our national and global economies. At the same time, we require a clean environment to provide the natural resources we are dependent upon."

Collaboration among freight shippers and carriers is the key to driving environmental compliance in the transportation sector. Recognizing the need for cooperative action, the EPA launched a voluntary program in February 2004 encouraging shippers and carriers to work together to meet reduced emissions standards.

The SmartWay Transport Partnership challenges companies to improve the environmental performance of their freight operations with the goal of significantly reducing air pollution and greenhouse gases.

"One of the tools developed for this program is the Fleet Model -- a series of benchmarks fleets use to baseline their performance," says Suzanne Rudzinski, director, transportation and regional programs division for the EPA. "Fleets can use a number of different strategies to determine what improvements they need to make.

"The model is flexible, so it allows fleet operators and carriers to decide how much they want to invest, and pick whatever strategies are appropriate for their business.

"A carrier can decide how much it wants to improve its fleet, and what improvements are in its best interest," adds Rudzinski. "It's a win-win situation: businesses save money because many of the options deal with fuel economy; and the environment wins because the program helps carriers and shippers save fuel and reduce emissions."

As a charter partner of the EPA's SmartWay program, The Home Depot is committed to improving energy efficiency and reducing greenhouse gas emissions throughout a transportation network that includes 1,643 stores in North America, says Paula Smith, spokesperson for The Home Depot.

"Doing business with SmartWay carriers is the most significant commitment we can make to ensure meaningful reductions in emissions," she says. "In 2004, our goal was to achieve 64 percent of the company's transportation spend with SmartWay carriers. We exceeded that goal and ended the year with approximately 75 percent of our transportation spend with SmartWay carriers."

The Home Depot's insistence that core carriers embrace its operational standards reflects its leadership role and commitment to the SmartWay initiative. It also raises the bar among its transportation partners to streamline their operations and make the necessary investments in technology to ensure a more environmentally conscious supply chain.

This interplay among shippers and carriers is vital to the long-term success of the partnership, adds Rudzinski. "We hope shippers will get information out to all their carriers. Sometimes the smaller operators are the hardest to reach, but they can achieve some of the biggest emissions reductions and savings," she says.

Competitive pressures will similarly bring more carriers into the fold, especially as shippers such as The Home Depot consider "green provisions" in their carrier selection process.

"We now include an environmental goal in our transportation contracts, and expect that carriers we use be active participants in the SmartWay program," Smith says. "We are using SmartWay as one of the conditions for selecting new carriers because energy efficiency in transportation networks and operations often leads to cost savings. This is one of those areas where environmental responsibility and business goals work hand-in-hand."

The Atlanta, Ga.-based home improvement retailer is also looking at ways it can drive further efficiencies within its own operations to help complement carrier investment in new diesel engines.

"Tweaking internal processes to comply with SmartWay while also maintaining a high level of efficiency for our customers is important," Smith says. "Truck idling is not allowed on Home Depot property. New dock-door scheduling processes and seven-day receiving have also helped us achieve efficiency."

To further improve compliance, The Home Depot is considering replacing propane-powered lift equipment with electric equipment where practical. The company also established night receiving guidelines to reduce road congestion during rush hours.

Carrying the Load
As far as investment in new vehicles and equipment, freight carriers clearly bear the brunt of the EPA's ongoing efforts to reduce emissions.

The introduction of low-sulfur diesel to the marketplace in 2006, coupled with the 2007 deadline for diesel engine manufacturers to comply with EPA emissions standards, will likely have a significant impact on reducing pollution. The EPA anticipates 2.6 million tons of smog-causing nitrogen oxide emissions and 110,000 tons of soot and particulate matter will be eliminated each year following the rollouts.

"The industry as a whole is hungry for information about available technology that will help us meet 2007 guidelines," notes Danny Loe, director of marketing for ABF Freight, a Fort Smith, Ark.-based motor carrier. "We are seeking real-time information from the engine manufacturers to help us evaluate our choices. Test engines are only one component -- they need to be coupled with new fuel to truly test the operating characteristics."

As Loe suggests, many questions still need to be answered as far as the cost and overall fuel efficiency of low-emission diesel engines. Some carriers and fleet owners are wary of the new engines, especially after the 2002 rollouts, which reduced emissions but also compromised fuel economy.

"Clearly fuel efficiency is an issue from economic, operational, and environmental standpoints because if fuel efficiency goes down, greenhouse gas emissions go up," says Jackson.

Carriers must therefore exercise their own due diligence to see what equipment and technologies best fit their business strategy.

"Some of the emission controls manufacturers utilized in the 2002 and 2004 diesel engines -- such as exhaust gas recirculation -- led to fuel economy degradation," notes Jackson. "When we did our engine evaluations, however, we were looking at units that met both operational requirements and duty cycles, and also provided the best fuel-economy results."

Many carriers are playing the waiting game before purchasing vehicles to see how new equipment responds to actual deployment.
"ABF has no plans to pre-buy or alter our trade cycle at this time," explains Loe. "We currently operate on a three-year trade cycle, replacing approximately one-third of our tractors each year.

"With an average tractor age of 21 months and our oldest tractors being three years old, we can be quite flexible. Our young fleet gives us the option to mitigate exposure by deferring purchases and allowing manufacturers to tweak the new engines after gaining real-world experience," he adds.

While concerns about reliability, cost, and fuel efficiency continue to surface -- especially as the 2007 deadline nears -- buyer discretion ultimately will depend heavily on economic conditions, says Jim McNamara, spokesperson for Volvo Trucks North America.

"Our customers' truck purchase plans are driven by the economy. Trucking is regarded as a leading economic indicator, which means our customers place orders for trucks when they feel confident they will have a business need for the equipment -- either to replace existing equipment on a regular basis, or to expand their business through purchase of additional units," McNamara explains.

"Currently, there is strong demand for new trucks in North America -- mainly to replace aging equipment, but also to meet the increased freight generated by a growing economy. We anticipate this strong truck market will last for the next few years," he adds.

As carriers and shippers investigate new strategies to reduce pollution and enhance fuel efficiency, some are looking internally to get a better grip on fleet and route management.

ABF Freight's NetLink system, for example, facilitates information sharing throughout its supply chain, allowing shipment information to become immediately visible across ABF dispatch systems.

NetLink employs wireless technology to streamline procedures across ABF's transportation network. City drivers, dock workers, dispatchers, and other key operational personnel operate handheld micro-browsers that are linked with Internet systems to create rapid shipment pickups, paperless dock operations, and optimal load planning.

"The NetLink system streamlines processes in two critical operational areas: city drivers and line haul," says Loe. "City driver routes can be dynamically optimized as pickup requests are received. Customer-specific instructions or alerts are pushed to the driver as a truck nears each customer location."

Real-time information enables line- haul drivers to better optimize routing, he adds. This gives ABF greater leverage in utilizing its equipment, eliminating unnecessary stops and delays.

Solutions developers are similarly evolving their product portfolios to meet increasing demands for technologies that monitor fuel usage. Blue Tree Systems, a Dangan, Ireland-based wireless solution and data management services provider, has crafted its R:COM wireless Local Area Network solution to specifically address fleet efficiency. The system provides a cable-free connection between the vehicle's electronic systems and the office computer network.

"The R:COM Fleet Management System monitors engine and driver performance information," says Charlie Cahill, managing director, Blue Tree Systems. "Fuel consumption per trip -- ignition on to ignition off -- is reported in liters or gallons used and average miles-per-gallon.

"In addition to this information, we report idling time, time in each RPM band, and time in each speed band. This information enables fleet managers to determine fuel costs and identify possible savings."

GPS location information is also recorded every minute so an operator can compare vehicle and driver performance for different routes and road types. If a fleet manager determines that a particular vehicle type is 10 percent more efficient on city routes, this will influence assignments and future purchasing decisions.

Fleets using Blue Tree's R:COM system to regulate fuel economy can save as much as 5 percent on diesel costs. Currently deployed only in Europe, Blue Tree Systems plans to release R:COM in the North American market this spring.

Leadership from the Top
The trucking industry is not the only one to labor with issues of fuel consumption and air pollution, and policies to rectify these concerns. Other modes of transport have faced similar difficulties.

In October 2004, rail operator Union Pacific Corp. announced a 36-percent drop in quarterly income, despite recording its second consecutive quarter of revenue topping $3 billion. The reason: it was wrestling with the high cost of diesel fuel and a rail network still clogged with delays.

"Fuel is a major cost factor for us," says John Bromley, the company's director of public affairs. "We've had surcharges in place for more than a year that have helped us recover some, but not all, of the increased expenses."

The Omaha, Neb.-based railroad is also making investments in new equipment directed at reducing emissions and enhancing fuel efficiency.

"We ordered 315 of the new low-emission locomotives this year," says Bromley. "We're also acquiring hybrid diesel/electric switch engines that use a lower-emission truck engine."

Working closely with shippers has similarly enabled Union Pacific to reduce costs and more efficiently manage its assets.

"We haul a lot of rock for construction in Texas -- we moved more rock with fewer cars in the past several months as a result of collaborating with shippers to work on weekends, and use speed loading and unloading," adds Bromley. "We took some cars out of that service to keep the railroad more fluid."

This type of shipper/carrier collaboration will dictate the freight industry's progress toward a cleaner, more efficient transportation environment. While the EPA has aptly assumed a mentoring role in this transition, the federal government has the opportunity to get involved and offer tax incentives to drive industry toward these newer technologies, suggests FedEx's Jackson.

Speculation already exists that the EPA will support Congress in proposing financial incentives to help heavy-duty truck buyers offset the expected cost increase for purchasing trucks that meet the EPA's diesel-engine emission regulations.

The path to a cleaner environment doesn't just start on Capitol Hill or America's highways -- it begins in corporate boardrooms. Environmental leadership and corporate responsibility go hand-in-hand.

What it drills down to, says Bob Brescia, vice president of logistics, Michelin North America, is "making a sustainable contribution to progress in the mobility of people and goods by constantly enhancing freedom of movement, safety, and efficiency when on the move."

Ultimately, this begins and ends in the supply chain.

Businesses Learn the 'SmartWay'

The U.S. Environmental Protection Agency's SmartWay Transport Partnership brings freight shippers and carriers together in an effort to meet reduced-emission standards, and to drive further innovation in developing fuel-efficient technologies.

Here are two SmartWay partners who have embraced its environmental initiatives.

FedEx Goes Hybrid
While many freight carriers and shippers are waiting for more detailed information about the next generation of low-emission diesel engines before making any purchasing decisions, FedEx is taking a more proactive approach to stewarding environmental best practices within its organization.

As a charter member of the EPA's SmartWay Transport Partnership, the Memphis, Tenn.-based expediter has embarked on its own project to introduce hybrid delivery vehicles in several U.S. cities.

The company currently has 19 electric/diesel vehicles in use in Sacramento, Calif.; Tampa, Fla.; and New York City. The FedEx OptiFleet E700 hybrid electric vehicles began delivering packages on routes in the New York metropolitan area this past holiday season, following an agreement with the New York State Energy Research and Development Authority to demonstrate the viability of lower-emission hybrid power trains in heavy-duty vehicles.

Manufactured by Cleveland, Ohio-based Eaton Corporation, the hybrid-electric power train combines a diesel engine and electric motor to drive the vehicle. A computer determines the most efficient combination, depending on current operating conditions and driver demand.

A four-cylinder engine replaces the six-cylinder version currently used in the FedEx Express W700 delivery vehicle -- the reduced engine size is due to the added power provided by the electric motor. A particulate trap has been added to the truck to further reduce emissions.

FedEx rolled out its first hybrid truck in Sacramento early last year.

"Those vehicles are achieving 99 percent up-time in the field, and have reduced particulate emissions by 96 percent," says Mitch Jackson, managing director of environmental management, FedEx. "This, while traveling 57 percent farther on a gallon of fuel, and reducing fuel costs by more than one third."

Michelin Gains Fuel Traction
For Michelin North America, the road to a cleaner future starts with smart tires and an intelligent approach to cultivating a corporate culture receptive to environmental initiatives.

"By joining the SmartWay Transport Partnership, Michelin is furthering its commitment to environmental leadership and corporate responsibility," says Bob Brescia, vice president of logistics, Michelin North America.

The Greenville, S.C., tire manufacturer's role in the program is unique because it holds dual responsibilities as a shipper, and as a manufacturer of fuel-efficient tires.

"We take a lot of pride in developing 'green' tires that meet a very strict design criteria, providing decreased rolling resistance and contributing to decreased fuel consumption," he says.

The tire manufacturer's X One product, for example, offers a wide single tire that replaces dual tires on tractor-trailer combinations.
"Essentially, we're turning 18-wheelers into 10-wheelers," notes Brescia. "Through the design and construction of the X One, we are seeing fuel efficiency gains in the realm of 4 percent, and weight savings of 200 pounds or more per axle.

"The tire helps fuel efficiency, but also provides a competitive advantage because the fleet is able to transport more than the competition running traditional duals."

When mounted on both drive and trailer positions of Class-8 rigs, X One tires deliver weight savings of 800 pounds to 1,300 pounds, increasing the payload of a truck by the same weight. Associated maintenance costs -- such as mounting and dismounting tires and air pressure checks -- are likewise reduced because carriers are now working with only 10 tires. This can have a significant impact in terms of labor and time costs, as well as the ability to reduce inventory.

"We now work more efficiently and are finding ways to do business that improve our products and processes, which ultimately lowers costs. Investment in new technologies is at the core of our business strategy and we will continue to invest in its development," Brescia concludes.

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