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Fuel costs and environmental factors Starting in the early 2000s, fuel costs grew significantly faster than the overall rate of inflation (as measured by the consumer price index). Gasoline and diesel prices peaked in the $4.50 per gallon range, and, in 2008, many truck-reliant freight businesses found that they had spent their entire annual fuel budgets by midyear. At about the same time, consumers and state governments began to look more closely at how transportation was impacting the environment at large. In the case of consumers, a movement to understand the overall carbon footprint of specific consumer goods became more common. At the same time, governments, in an attempt to curb both pollution and congestion, began to look specifically at the impact of freight transportation (particularly truck trips) on local, regional, and state facilities. Both factors have had an impact on freight facility location selection and associated distribution networks. There is a general tradeoff between the cost of having more facilities and the cost of shipping The Rising Cost of Fuel Relative Increase in Cost (1996 = 1.0) Consumer Price Index Oil Per Barrel Gas Per Gallon Diesel Per Gallon Year Source: US Energy Information Administration, 2010 and Bureau of Labor Statistics 2010 58 Freight Facility Location Selection: A Guide for Public Officials
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goods longer distances. Put another way, it becomes more efficient to consolidate warehouse and distribution operations when fuel costs are low and the cost to ship goods long distance by truck is relatively inexpensive. However, higher fuel costs have pushed some freight- dependent companies to investigate more dispersed distribution networks, with larger numbers of smaller facilities. These facilities reduce distances from the centers to the final delivery points, which are the most dispersed and truck dependent, and allow consolidated carriage inbound to the distribution centers by a relatively smaller number of long-haul trucks, or by rail. This method trims transportation costs while boosting facility expenses. During the fuel spike in 2008, supply chain designers began considering a larger number of smaller-footprint facilities situated close to big cities, preferably with high degrees of automation, offering short commutes for labor and short distances to product delivery. The same set of behaviors also tends to reduce environmental impacts, because fuel efficiency and carbon efficiency are positively correlated. This is important as current trends are beginning to place more weight on green/carbon evaluation criteria. According to one logistics manager, approximately one-third to one- half of his customers are requesting measurement of green and/or carbon footprint data. Rail companies such as BNSF and intermodal operators like JB Hunt now provide their clients with internet-based "carbon calculators" to estimate the impact of specific shipping decisions, underscoring the fuel consumption and carbon emission advantage of long-haul rail. While a different logistics professional described customer attitudes to greening as mostly "wait and see," the fact that an influential company like Wal-Mart now expects carbon reductions from its vendors would tend to indicate that the requirement is likely to spread. The effect of carbon monetization on supply chain design would be identical to that of higher fuel prices. Monetization is essential, so that a carbon footprint can then be considered a "real cost." Freight Facility Location Selection: A Guide for Public Officials 59