As the countdown to the Rudd Government’s Carbon Pollution Reduction Scheme (CPRS) continues, the good news for the logistics industry is that a lot of work can be done around behavioural change.

 

For those who have been living under a rock for the last year, the core of the government’s Carbon Pollution Reduction Scheme (CPRS), is an Emissions Trading Scheme (ETS) whereby Australia’s emissions are capped at a level yet to be determined at the time of writing.

 

Permits will be issued to emit that amount of greenhouse gases (GHG) and these permits will become a tradeable instrument. 

 

The ETS currently mooted doesn’t cut in until companies are producing 25,000 tonnes of GHG emissions or more so initially only the 1000 biggest polluters will be affected.

 

Over time the ETS will extend to apply directly to smaller companies as well but indirectly, broader issues such as sustainability and carbon footprint stand to affect small and medium businesses right now.   

 

IBIS World’s industry analyst, Ross Connor, says the ETS is not expected to have a great impact in terms of investment on the industry in 2009-10.

 

“Larger companies such as Linfox and Toll are investigating more efficient technologies and means of transport to be prepared for when ETS kicks in, but the focus is more on what the company can do to improve processes rather than on research and development.”

 

As a result of the oil price spike in 2008, many transport operators began to implement driving techniques across their workforces designed to save fuel and reduce emissions.

 

Driving slower, following routes to avoid excessive braking and accelerating backed up with GPS monitoring to track their fleets and make sure that drivers paid more than lip service to driving more economically. Similarly, operators are also starting to look at how they’re loading their trucks.

 

Not despatching trucks until they’ve got a full load and back loading are both becoming increasingly widespread.

 

“It won’t be unfeasible for larger operators to charge a premium for deliveries that are urgent where they’re not able to fill the truck up for the return leg,” says Connor.

 

“That would also cover the additional emissions. Such a process will become more commonplace as operators try to cover themselves against rising fuel costs and emissions charges.” PwC’s partner Oliver Sargent agrees.

 

“The major providers’ emphasis will be on firstly ensuring they meet their necessary compliance obligations for those publicly listed. Off the back of that work those that are feeling a bit brave will use it in their marketing initiatives with clients.”

 

Sargent discounts the likelihood of any dramatic change in transport provider behaviour.

 

“You don’t need Penny Wong to be focused on diesel. Diesel represents 25 per cent of the cost base in a short haul, multi-drop vehicle and between 35 and 45 per cent of a line haul so if you’re looking at 25 to 45 per cent of your cost base you’d be pretty focused on it.

 

"Sophisticated operators have already worked aggressively on reducing fuel consumption and they’re focusing on training their drivers around engine management, braking, revving and reducing the speed of vehicles.”

 

Sunrice supply chain manager, David Hamilton, believes Just-in-time inventory management will fall out of favor with a backlash against running trucks half empty.

 

“Why are we willing to pay a cost impost on carbon and fuel emissions yet run a truck up a highway half empty? I think there’s going to be a lot of pressure on people to look at their supply chains and restructure to get better utilization.

 

“Depending on some of the cost and energy impacts going forward, ETS might also affect the strategic approach to distribution locations. For example centralised distribution is more costly.

 

"If there’s the added carbon cost on fuel it could severely impact an operator using just one location. It may be strategically better to set up multiple distribution centres to reduce carbon impact.”

 

Linfox is one company that provides a case in point. Chairman Peter Fox is quoted as saying “Linfox will reduce its rate of greenhouse gas emissions from its global operations by 15 per cent by 2010 based on 2006/2007 emission levels.”

 

The four main areas where these reductions will be achieved are ‘Eco-Driving’ 4.8 per cent, improved vehicle utilization 3 per cent, supply chain optimization 3 per cent and electricity savings 2.2 per cent.

 

Group manager environment and climate change, David McInnes, says the group has achieved 9 per cent reductions so far and stresses that it’s all been done within the bounds of existing technology.

 

“One of the most important factors is getting staff to realize that this stuff really is serious,” he says.

 

“A lot of it is about cultural change and I’m sure that if we had asked staff to do some of the things as an economy measure or some other kind of saving they wouldn’t be as responsive as they are when they realise it’s for the environment.”

 

Rail freight presents one opportunity for logistics operators to reduce emissions but PwC’s Sargent cautions against irrational optimism in this area.

 

Not only has the rail infrastructure in Australia been run down over the last 30 something years there are infrastructure bottlenecks such as the lack of a freight-only line through Sydney and major social and capacity constraints.

 

“The challenge with rail is that the only way you can increase the usage of rail is to get track access which is a real issue in the major metropolitan because local councils are limiting the access windows of big diesels.

 

"This could be solved with freight only routes] but there needs to be an increase in the number of locomotives and the number of wagon sets on the line and some of the big rail operators can’t get the financing.

 

"To put another 20 or 30 locomotives onto tracks is a 18-24 month project costing hundreds of millions of dollars. Because it’s got a low return and it’s not seen as a great investment in our current environment.”

 

With polls regularly showing that 80 per cent of Australians are concerned about global warming/climate change and an increasing number voting with their wallet, companies recognise that being seen to be environmentally unfriendly presents a huge risk to corporate reputation.

 

Those that actively portray themselves as environmentally friendly must look to their entire supply chain. Westpac is a perfect example of this approach.

 

It is demanding that any suppliers not at environmental best practice must be demonstrably working towards it.

 

The net result of these trends, the ETS and other regulation is that in the not too distant future companies that are not environmentally sustainable won’t be economically sustainable.

 

Ultimately transport and logistics services providers wishing to prosper in a carbon constrained future will need to revisit their strategies, Sargent argues.

 

“The problem is that not many freight forwarders, rail or road operators actually have a strategy. They’ve grown the business through surging demand and their customers have often selected and defined their strategy for them. They now have to ask themselves, how do I make this sustainable, what are the things I need to do keep going beyond three years time?”