Sustainability Strategies Addressing Supply-Chain Air Emissions (2014)

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30 3.1 Significance of Transport and Supply Chain Operations One of the major ways in which supply chains are becoming more sustainable is through operational improvements. Faced with a given set of product sources and required destinations, and given the technological characteristics of different trans- port modes, how can changes in the overall network design, the routing of freight, and other operational optimization tech- niques lead to reduced emissions? This operational optimiza- tion is generally undertaken directly by shippers and carriers aiming to reduce costs across the supply chain. This chapter explores the main elements of operational optimization, with examples drawn from interviews with shippers and carriers on historical results and possible future impacts. These trends are necessary for public policymakers to understand, as they often drive major reductions in fossil fuel use with attendant atmo- spheric benefits. Transport-related air environmental regula- tions should be designed in ways that do not contradict or undermine these major and positive changes occurring in the private-sector supply chain world. Therefore, the research team addresses the following two key questions, in covering each of the major areas of operational optimization: • To what extent is operational efficiency (or cost savings, especially due to reduced fuel use) aligned with air emissions reduction? • To what extent are these changes purely driven by the pri- vate sector versus being influenced by public policy? The operational aspects of the vast number of supply chains that exist in the United States clearly have a substantial impact on the environment and society, whether via greenhouse gas GHG) and criteria air pollutant (CAP) emissions, roadway congestion, noise impacts, or other effects. The transportation of goods accounts for 8% of total U.S. GHG emissions from all sources. Further, the activities associated with moving and storing products tend to result in the concentration of pollut- ant emissions at key nodes (e.g., ports, intermodal facilities, and distribution centers) and along the main transportation corridors, thereby affecting air quality and the health of adja- cent communities. Changes in the design and operation of supply chains have a significant impact on emissions as well as on environmental and human health outcomes. Regula- tors should be familiar with the nature and impacts of these network, modal, and operating changes. 3.2 Main Elements of Optimization Shippers and carriers can achieve both efficiencies and air emissions reductions via various means. These can be classified as planning (or strategy) measures and execution measures. Most of these efforts are driven purely by economic efficiency and return on investment considerations, with environmental impacts achieved as a co-benefit. The focus on fuel efficiency by fleet operators, for example, aligns directly with carriers’ over- all operating efficiency imperatives. Under this win-win situ- ation, carbon emission reductions are achieved via the same measures that create cost reductions. Public-sector policies and regulations also contribute to the impetus for change, particu- larly in the case of CAP emissions reductions (which are not always directly correlated with cost efficiency improvements). Some of the main levers of distribution and transportation optimization follow: Planning measures include • Distribution network design and • Transport mode selection. Execution measures include • Freight routing, • Empty miles, C H A P T E R 3 Operational Optimization

31 • Equipment use, • Speed reduction, • Driving style and vehicle idling, and • Packaging. Each of these levers is examined in the following paragraphs, with examples drawn from primary and secondary research. 3.3 Planning Optimization Distribution Network Design The design of distribution networks involves the determina- tion of how best to connect production (or import) sources with points of consumption (stores, offices, or homes). Typically this means designing a network of nodes such as warehouses, cross- docks, or transload facilities that serve as intermediate points for the consolidation, storage, and final shipment of goods to destinations. Network design is undertaken by shippers for their product flows, and by carriers to most efficiently deploy their equipment and operators. The shippers interviewed cited the use of plant and distribution center network optimization initiatives. Shippers have worked assiduously to optimize their logis- tics networks across the United States for at least the past two decades in response to shifting sources of supply (particularly increasing imports as a result of the globalization of the world’s economy), expansion from regional markets to nationwide distribution, and rising fuel prices. Sophisticated software is readily available for corporations to facilitate these network decisions, balancing cost and service aspects. Typically, trans- port costs are reduced largely by reducing fuel consump- tion, which in turn reduces GHG emissions. In interviews, the research team found that all shippers the research team spoke with undertake network optimization studies, sometimes quite frequently. However, causing a major shift such as opening a new distribution center (DC) or closing an existing one, is often a time- and capital-intensive decision that is not taken lightly. Yet these decisions, taken by the operators of individual supply chains, have a significant cumulative impact on the spatial distribution of traffic and warehouses across the nation. A few examples follow. • Software makes “what-if” analyses of network design alter- natives readily available to shippers. For example, JDA Software’s Supply Chain Strategist solution allows com- panies to model and analyze their supply chain networks. The software includes capabilities that show sustainability choices and impacts, such as carbon dioxide (CO2) emis- sions. Likewise, International Business Machines Corpora- tion’s (IBM’s) ILOG LogicNet Plus XE software can evaluate a network and determine where/when new facilities (storage, production, etc.) are needed. This software has been used to reduce overall supply chain costs by 5% to 15%, to opti- mize the balance between shipping, warehousing costs, and service levels, consolidate distribution and manufacturing networks following mergers and acquisitions, and drive CO2 emissions reduction. • Large food manufacturers (e.g., Kraft and ConAgra) revised and streamlined their distribution networks in the 1990s to improve service to retailers and reduce costs. Such efforts were sometimes dramatic in terms of the reduction in num- ber of warehousing facilities used and their enhanced abil- ity to fulfill orders rapidly. Many small food suppliers (e.g., King’s Hawaiian Bakery) have followed suit in optimizing their networks as well. Giant retailers such as Wal-Mart have also contributed momentum to the move to optimize joint supplier-retailer networks, using the most appropri- ate warehousing and transportation capabilities available to both parties. • The goal of these network design studies is typically cost minimization for a given level of service. Given that transport costs dominate physical distribution costs, and are typically several times the cost of warehouse operation, these projects generally aim to reduce transport costs. This is done either by reducing miles traveled or by mode shift- ing. In either case, there is a direct link to reduced GHG emissions. • Progressive corporations maintain internal staffs dedicated to conducting network analyses and related supply chain optimization. Examples include TJX Companies, Inc. (a large, off-price retailer) and The Limited (a major apparel producer) (https://www.limited-logistics.com/, 2012). Although the effect varies from company to company, the optimization of distribution networks combined with the other operational measures discussed in the rest of this sec- tion have been responsible for significant gains in logistics efficiency in the United States. The Council of Supply Chain Management Professionals (CSCMP) publishes annual fig- ures showing logistics costs as a percent of U.S. gross domestic product (GDP). This percentage has declined from 9.9% in 2007 to 8.5% in 2011, as shown in Exhibit 3-1. Freight Mode Selection Mode decisions are made by shippers at a planning level, based on trade-offs of cost and service. Hence, to meet a par- ticularly tight delivery requirement, it may be necessary to expedite a shipment via air freight or parcel truck, rather than by a more sustainable mode. Shippers need to remain vigilant, however, given that diverting even a small percentage of freight from, for example, ocean to air modes, can cause a major increase in transport cost, fuel usage, and carbon emissions.

32 Nevertheless, if sufficient time is available, it may be possible to ship via a slower but more economical and less-polluting mode, such as rail or barge. These decisions are influenced by the length of the particular route involved, the competi- tiveness of transport services offered, the expected transit time and reliability. The economics are driven, in part, by evolving technology (discussed in Chapter 4) and by the costs of meeting regulatory requirements for equipment and operations. Choice of transport mode has a stark impact on fuel con- sumption per mile (Exhibit 3-2), which can vary by a fac- tor of 3.7:1 (considering just surface modes). For over-water moves, the difference in fuel intensity and GHG emissions is even more dramatic, with air freight fuel use per ton-mile many times higher than sea freight. Modal decisions can have a profound impact on GHG emissions, due to their close link to fuel consumption. However, in the planning and daily running of supply chains, there also are other ways that efficiencies can be gained and air emissions reduced. As a general rule, transport costs (and carbon emissions) decrease as speed is reduced and freight capacity is increased. In other words, large ocean vessels can typically move freight far more cost-effectively and with significantly lower carbon emissions per ton-mile than trucks or aircraft. Shippers are thus motivated, particularly in the current era of relatively high fuel costs, to shift freight from a fuel-intensive mode to a more economical mode, wherever possible. Carriers, where they have a choice of how to move the freight using different modes of transport, face the same incentives to “downshift” to slower, greener modes when they can, while still meeting customer on-time delivery requirements. Through primary research, the research team found numer- ous examples of shippers shifting to greener modes with resultant carbon emissions benefits. CAP emissions benefits may also occur, although there is less of a direct correlation between mode shift and CAP emissions, and carriers are less likely to track air pollutant emissions. Impediments to shifting more volume to increasingly fuel-efficient and less-polluting modes include transit time and delivery reliability, as well as capacity availability and lot size considerations. Studies also consider that because the overlap of the markets for the dif- ferent rail and truck freight modes is fairly small, mode shift has only limited potential to affect emissions (Annema, 2008). Nevertheless, many shippers are reportedly finding that rail intermodal, in particular, is now viable on an increasing num- ber of routes and on shorter haul distances than previously was the case. Public policymakers influence private-sector transport mode decisions via the constraints and incentives applied to each mode. These include federal regulations pertain- ing to heavy-duty trucks, state restrictions on truck weights and lengths, local restrictions on railyard development, and cabotage laws such as the Jones Act (requiring that domes- tic marine transport be conducted only by U.S.-flag vessels). Fuel taxes and highway use taxes can play an influencing role, as well. Both within and extra to the existing policy and regu- latory environment, private-sector players are actively opti- mizing their use of fuel-efficient and less-polluting modes. Examples from shippers include the following: • TJX has expanded the use of rail intermodal in the United States for inbound flows to distribution centers. This increased from 30% of miles traveled in fiscal year (FY) 2008 to 61% of miles traveled in FY2011. The company anticipates further use of rail intermodal in future (TJX, 2012). • Stonyfield Farm, the yogurt maker, is one of the few in its industry to use rail as a primary transport mode. The fuel cost is low compared with truck, though transit times are about a day longer to the West than via truck. The com- pany makes up for the transport speed difference by pro- cess improvements in the warehouse, so the customer does Exhibit 3-1. Logistics costs as share of U.S. GDP. Source: CSCMP, 2012 0 2 4 6 8 10 12 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 Percentage of GDP Exhibit 3-2. Comparative fuel use by mode. Mode MPG for One Ton of Cargo Truck freight 155 Railroad 413 Inland Towing 576 Source: Kruse et al., 2009

33 not experience a difference. Shipments move to retailer DCs on a weekly schedule, from New Hampshire to the Pacific Northwest and California, and from Pennsylvania to California and Florida. Stonyfield’s experience is that rail is more reliable than truck transportation (Stonyfield Farm, 2012, pers. comm.). • Nike plans to focus on optimization over the next few years, concentrating on mode, vehicle, and port optimiza- tion, as well as filling containers and decreasing number of shipments. • Two food manufacturing companies cited the use of rail as a significant transport mode, having shifted away from trucking. • One consumer goods maker is analyzing emissions per mode, seeking lower costs and environmental benefits. Carriers are also shifting modes, examples are as follows: • For United Parcel Service (UPS), mode shift is one of the first things considered when trying to reduce supply chain carbon emissions, as it is highly cost-effective. In 2010, UPS reduced its CO2 emissions by 2.5 million metric tons as a result of this shift. Typically, for UPS this involves shifting from air to ground transport. The challenge is to help con- sumers and corporate customers plan ahead for longer lead times (UPS, 2012, pers. comm.). • At UPS Freight, an effort is being made to switch to inter- modal (from truck) whenever possible for long-haul situa- tions. The company has strong relationships with all major railroads and is currently exploring a possible intermodal solution for 2-day service. Railroad reliability is viewed as being at an all-time high and the railroads are increasingly focused on their intermodal product. These carriers are now coming to UPS Freight with ideas and solutions (UPS Freight, 2012, pers. comm.). Freight Routing Once the structural decisions are taken with regard to a specific network, the operators (either shippers or carri- ers) optimally route the freight across the network. Questions arise as to which facilities should be used, and the trade-offs of consolidating versus fragmenting freight flows to provide the most efficient overall solution. Both shippers and carriers actively work to optimize the routing of cargo loads across their networks. Great improvements have been made in this area, largely thanks to better and widely available software solutions. The ability of more efficient routing to reduce miles traveled— and influence fuel, GHG, and potentially CAP emissions— is significant. Essentially, this is a purely private-sector initiative that has not been promoted or incentivized by public policy, but its impact is widely felt across the country. Shippers have seized the opportunity to route their product flows via the most efficient paths as follows: • Stonyfield Farm actively examines all elements of its supply chain to raise sustainability. The company found that 9% of its overall CO2 emissions originate from inbound transport of ingredients and packaging, 13% from manufacturing, and 8% from distribution (with the remainder linked to milk production). Multiple efforts have been pursued, with routing a key factor. Stonyfield has – Eliminated 95% of its less-than-truckload (LTL) ship- ments by re-routing deliveries. This was enabled by elec- tronic invoicing, which yielded detailed data on product delivery points and shipping schedules. Through analy- sis of these data, the company identified opportunities to add stops to existing truck routes so that trucks could deliver straight to customers with no intermediate termi- nal (Stonyfield, 2011). – Cut more than 4 million miles and 2,500 truck trips through improved routing (between 2006 and 2007), reducing its CO2 per ton delivered by about 40%. The combination of fewer miles and fewer loads helped reduce fuel consumption, which was directly linked to reduced CO2 release (Cooke, 2009). – Optimized transportation on incoming materials by pur- chasing full truckloads when possible; using backhauls when possible; and tracking the “food miles” (distance food travels to reach their plant), mode of transport, and associated GHG emissions for all major ingredients. Carriers engaged in parcel delivery and trucking also have been focused on routing optimization, primarily to save fuel. Examples include the following: • Federal Express (FedEx) uses dynamic routing software (Route Optimization and Decision Support [ROADS]) for route optimization. The goal is to match “the right vehicle with the right missions with the right route.” This dynamic routing system shows how best to move volume through the delivery system by creating and assessing what-if sce- narios (FedEx, 2012, pers. comm.). Due to this software and other efforts, FedEx has achieved year-over-year increases in miles per gallon, ranging from 5.4% in FY2006 to 22.0% in FY2012 (FedEx, 1995-2012). • UPS has worked to decrease its average fuel consumption per ground package delivered in the United States. This indicator improved by 3.3% in 2010 relative to 2009 (and 7.9% relative to 2007), even though package size rose by 1.8%. The company’s proprietary routing technology (as well as telematics and other innovations) enabled UPS to avoid driving more than 63.5 million miles in 2010, with an associated air emissions avoidance of 68,000 metric tons.

34 UPS focuses on opportunities to reduce miles driven and idle time before evaluating the use of alternative vehicles or fuels. Between 2006 and 2011, UPS achieved a 28% reduc- tion in fuel per ton-mile in its parcel business by reduc- ing miles driven and idle time (UPS Freight, 2012, pers. comm.). The routing technology works by optimizing the following key processes: – Allocating pick-ups and deliveries to the most efficient number of vehicles each day at each facility, thus keep- ing vehicles off the road wherever possible. – Loading vehicles most efficiently for the order of delivery so that routes and miles driven can be kept to a minimum. – Selecting vehicles for routes on which they will deliver the best fuel efficiency (UPS, 2010). • Con-way has introduced dynamic routing algorithms for its line-haul LTL operations. This software provides optimal routing for each of 60,000 daily shipments. This reduces fuel consumption and operating cost by eliminating schedules, increasing loaded backhauls and improving trailer cube use. It is an active, not static, system. In the past, loads from locations like Maryland to California all moved via the same route. Now, with dynamic modeling, the routing can change from day to day. Overall, this software is expected to generate significant operational efficiencies. • Weber Logistics, operating throughout the western United States, changed from an environment where drivers routed freight to a computer-driven solution. The software takes circuitous miles out of the route and reduces empty miles. Weber expects the use of this routing software to increase transportation efficiency by 12% to 18%, once fully imple- mented (Weber Logistics, 2012, pers. comm.). Empty Miles Closely related to the routing of cargo loads is the issue of minimizing the distance that transport equipment is moved with no load. Reducing empty miles is a major concern of car- riers, particularly within the trucking segment, which creates the most total air emissions of any mode in the United States. This is again largely a private-sector initiative, motivated by seeking lower fuel costs—generally the largest single compo- nent of operating cost for transport operators—and having positive impacts on GHGs and CAP as well. Examples of programs targeting empty miles reduction from carriers interviewed, include the following: • Con-way achieved major reductions in empty miles through major network changes in 2009 and the continued use of optimization and simulation software. Empty miles in the LTL division have dropped from 11.1% in Q1 2007 to 6.4% in Q2 2012. Con-way’s truckload division also has used soft- ware to drive down empty miles, from 10.2% of total miles in 2008 to 9.3% as of mid-2012, resulting in the lowest level of empty miles in the company’s history (Con-way, 2012, pers. comm.). • Pacer indicated that reducing empty miles is a major focus. The carrier measures empty miles by terminal location and then develops a targeted marketing and sales campaign to try to balance each lane (Pacer International, 2012, pers. comm.). Equipment Use Maximizing the capacity of containers, trailers, or railcars is an important lever in moving freight efficiently, leading to fuel economy per cargo ton moved and air pollution reduc- tion. This is because fuel use for a given truck, ship, or plane is often less than proportional to increases in weight or simply because the cargo is more volumetric or low density. Examples of such initiatives are as follows: • ConAgra Foods, in addition to focusing on how to take trucks off the road (modal shift) and take miles out of the system (routing optimization), is working to make full use of trailer capacity for miles that they do use (ConAgra Foods, 2011, pers. comm.; ConAgra Foods, 2012a). • TJX has changed the frequency of store deliveries from its U.S. DCs to so that full truckloads are sent to each store. The retailer employs various co-loading schemes to ensure full truckloads. TJX also looks at alternative methods to load and unload trucks, using various delivery techniques (including live “traditional” deliveries, floor-loaded trail- ers, pallet drops, and trailer drops) (TJX, 2012). • FedEx Technology Solutions developed a process for FedEx Ground to help maximize the shipments in line-haul trucks. The system scans every package to measure dimensions. From this, FedEx knows the actual capacity used for each trailer. This information helps FedEx train team members who load the trailers, which leads to better trailer use. Speed Reduction Operating transportation equipment at reduced speeds is a fuel efficiency technique frequently used in recent years of high fuel costs. This reduces overall cost for a carrier, given that the lower fuel consumption per ton-mile at lower speeds generally more than offsets any need for additional capital investment to make up for the lost carrying capacity per day. Major speed reduction applications are in trucking and con- tainer shipping. Although state authorities set speed limits, currently many motor carriers use regulators on tractors to limit their speed to rates below the speed limit, for fuel sav- ings. In ocean shipping, the practice of slow steaming is anal- ogous (though typically without the regulatory aspect); with

35 fuel consumption varying roughly as the cube of speed, a reduction of a few knots is sufficient to sharply reduce fuel usage, the largest component of vessel operating cost. Examples include the following: • Stonyfield’s trucks delivering to New England customers are equipped with onboard computers that regulate top speeds to optimize fuel efficiency (Stonyfield Farm, 2011). • Several trucking executives interviewed indicated that they routinely limit truck speed. One said the company reduces speed by 2 miles per hour (mph) if the truck is fully loaded. Another stated that fuel cost is so significant that it is worth- while limiting speeds to below the speed limit, even though travel time is increased. • Container line APL has broadly applied slow steaming, reducing speeds from about 24 to around 18 knots. This slow steaming requires adding one more vessel to a typical service loop, but is still less costly overall. APL is combin- ing slow steaming with the planned introduction of new, larger vessels, which together will drive efficiency gains of 75%. Other operational measures include voyage optimi- zation and routing and vessel trim (burning fuel from spe- cific tanks in a sequence that causes the least-resistant trim condition) (APL, 2012). • Through the introduction of slow steaming, Maersk Line cut overall CO2 emissions by 4.6% in 2010 and reduced fuel consumption and carbon emissions on major routes by about 30% (Maersk Line, 2010). Other shipping lines such as Hapag-Lloyd, Nippon Yusen Kaisha (NYK) Line, and Kawasaki Kisen Kaisha have also adopted slow steaming. The American Trucking Association agrees that speed reductions are an effective means of reducing vehicle emis- sions, with the benefits felt immediately. The association sup- ports the use of speed governors (already installed on large trucks) set at 65 mph. Reducing truck speeds to 65 mph would save an estimated 2.8 billion gallons of diesel fuel in a decade and reduce CO2 emissions by 31.5 million tons, equal to the carbon emissions generated by 9 million Americans in a single year. Further, nearly 3,000 lives could be saved annually with a nationwide speed limit of 65 mph or less (American Truck- ing Association, 2011a). Nevertheless, studies have shown that emissions of most pollutants do not rise or fall dramatically as a result of speed reductions (Panis, 2011). Ships can improve their operational efficiency significantly by sailing at slower speeds. Reductions in operational speeds stand out from other measures to reduce GHG emissions from ocean-going vessels, as they do not require vessel modifications and can, in theory, be introduced immediately. Generally, a 10% reduction in speed corresponds to a drop in emissions of approximately 27% per unit of time or more than 19% per unit of distance. It is estimated that bulker, tanker, and con- tainer emissions can be reduced by about 30% in the coming years. Further, the current oversupply of ships creates a unique opportunity to reduce speed in order to match the supply with demand (Seas at Risk, 2010). Cost efficiencies play a key role in slow-steaming decisions. Marine bunker costs reportedly make up 21% of vessel operat- ing costs. Slow steaming partially offsets these costs by reduc- ing bunker fuel consumption and has the added benefit of reduced CO2 emissions. Additional benefits include improved on-time reliability (since buffer time is added to slow-steaming routes). However, marine shipping lines such as Hanjin Ship- ping note that added transit time can result in a competitive disadvantage, depending on the shippers affected and com- modities being moved. In addition, the added charterage (as a result of additional vessel deployment) and additional equip- ment requirements incurred as a result of slow steaming, as well as additional costs associated with engine maintenance, can offset fuel savings benefits (Hanjin, 2011). Note that where slow-steaming decisions are voluntary, they appear less likely to have unintended consequences. One ocean carrier inter- viewed cautioned that ships required to slow in one geographic area may need to pick up speed in another area to make the required schedule, which can result in an increase in overall GHG emissions. Driving Style and Vehicle Idling Trucking and parcel delivery companies have embraced more fuel-efficient driving styles and the reduction of vehicle idling. This leads directly to fuel and operating cost savings, as well as CO2 and CAP emissions reductions. Training and telematics are used to encourage fuel-efficient driving practices. Many trucking and parcel companies have put in place strict limits on how long a vehicle can idle, for instance, as it waits to unload. The trend has been supported through idling regulations by state and local jurisdictions (State of Florida, State of Connecticut, City of Sacramento, City of Denver, and City of Atlanta). Examples of shipper and carrier initiatives are as follows: • Staples has focused on idling reduction by installing anti- idling equipment in its trucks to keep idling at less than 5 minutes. • One large motor carrier uses special onboard equipment (monitoring revolutions per minute, transmission wear, and tire condition) and a control module that provides alerts of incorrect shifting behavior by drivers. • UPS’ package planning and routing system includes the identification of idling reduction opportunities. These are related to selecting routes that minimize time spent wait- ing for lights and left-hand turns, and identifying unloading locations that enable multiple deliveries (UPS, 2010). Over

36 the 2006 to 2011 period, UPS Freight has been able to reduce idle time by 50 minutes per driver, for a fuel reduction of 400,000 gallons per year (UPS Freight, 2012, pers. comm.). • As noted in Chapter 2, FMCSA is advancing the concept of a state-based commercial driver’s certification for safe and fuel-efficient driving. Some carriers, such as FedEx, already have an eco-driving program designed to lower vehicles’ effect on the environment by helping drivers change their daily driving habits (FedEx, 1995–2012). • Cascade Sierra Solutions (CSS), a nonprofit organization, is supporting the electrification of truck stops along major freight corridors in the United States as an alternative to burning diesel fuel during rest periods. CSS is providing ped- estals that allow trucks to plug in to the grid during manda- tory rest stops, and enabling truckers to access $10 million in finance from the U.S. DOE to subsidize the retrofit of 5,000 trucks to enable them to plug in to the grid. This can result in considerable savings to truckers, as the cost of electrified power is just $1 per hour, whereas trucks consume upwards of 1.2 gallons of fuel while idling (more for reefers), as well as CAP and GHG emissions reductions (Stifel, Nicolaus and Company, 2012). • Railroads in California, under the terms of a voluntary agreement with CARB, have installed anti-idling devices on 99% of the California-based locomotives (CARB, 2006). • Marine carriers have begun to use shore power (also referred to as cold ironing or Alternative Marine Power), for exam- ple, at the Ports of Los Angeles and Long Beach as well as at European ports (e.g., Goteborg), to reduce emissions from auxiliary engines while in port. Shore power refers to the use of power from shore-based sources by vessels while they are docked, rather than from onboard fossil-fuel burning engines. However, this is an expensive option for emis- sions reduction. The recently adopted Californian At-Berth Ocean-Going Vessels Regulation requires container, reefer, and cruise ships making regular calls to California ports to reduce their at-berth emissions by 80% in 2020. They are required to do so either through connecting to shore power or through the use of alternative control technologies to reduce nitrogen oxide (NOx), PM, and CO2 emissions. To date, there are no proven alternative technologies available for on-vessel use and CARB has agreed to accept only a very few alternatives. There have been only limited incentive pro- grams to speed adoption. Packaging Reduction of unnecessary packaging, both in terms of weight and volume, is a major thrust of shippers and carri- ers today. These efforts serve to increase the effective use of transport equipment, thus reducing air pollution and solid waste, while driving down costs as well. This is akin to equip- ment use initiatives, in that the goal is to eliminate unneces- sary weight and volume surrounding products as they move through the supply chain. Examples include the following: • A leading mass retailer has implemented sustainability cri- teria in purchasing decisions, requiring product suppliers to comply with sustainable packaging requirements. • One office supplies company is working to raise carton use by eliminating excess air in each carton. • In order to lower logistics costs and increase efficiency in its transportation and warehousing operations, IKEA initi- ated an internal competition to reduce unnecessary air in its product packaging, thereby increasing true product vol- ume during transportation and storage. A case study of the introduction of volume-efficient packaging method for tealight candles, for example, shows how a decrease in the amount of air enclosed in the packaging process resulted in a 30% increase in products per load unit. However, this also increased the weight of the load unit to such a level that the weight exceeded the load capacity of vehicles if loaded to reach full volume use. The solution to this over- load was to balance the load on the trucks by using light- weight products to fill up the left over space (European Community BestLog Platform for Logistics, 2011). 3.4 Impact of Evolving Trends: Online Ordering and Delivery Studies have found that alternative retail channels such as e-commerce have distinct GHG emissions benefits when com- pared to conventional retail models. The major differences between the traditional retail model and the e-commerce model are associated with transportation from the warehouse to the retail store or distribution center, data center energy usage, individual vs. bulk packaging, and transportation from the store or distribution center to the consumer (the “last mile” of delivery). These differences vary in energy usage and inten- sity. Study results indicate that e-commerce delivery typically uses less primary energy and produces fewer CO2 emissions than traditional retailing. GHG reduction benefits are primar- ily derived from customer transport and last mile delivery, as well as packaging reductions (Barrington-Leigh, 2008; Weber et al., 2011). However, there is variability uncertainty in the conclusions associated with customer transport to the retail store with benefits of online ordering and delivery, largely dependent on the nature of the trip being replaced (mode, length, and whether it is single- or multi-purpose). Study results also found that shippers can have a signifi- cant impact on GHG emissions from their online ordering operations through a careful choice of packaging materials and low-impact operations. Nevertheless, the overall GHG emissions reductions potential from online ordering and

37 delivery is relatively modest compared with the potential for emissions reductions elsewhere in the supply chain (Barrington-Leigh, 2008). A study of the use of information and communication tech- nology for the online purchase and digital delivery of music found that, despite the increased energy and emissions asso- ciated with Internet data flows, purchasing and downloading music digitally reduces the energy and CO2 emissions associ- ated with delivering music to customers by between 40% and 80% compared to traditional retail delivery of a music compact disc (CD). This reduction is due to the elimination of CDs, CD packaging, and transport emissions associated with tradi- tional CD distribution. Nevertheless, this study found that the traditional retail delivery scenario can be nearly equivalent to downloading and burning a CD at home if the customer walks rather than drives to the retail store. However, as the Inter- net becomes more energy efficient, the emissions reductions benefits of online purchasing and downloading will increase (Weber et al., 2009). 3.5 Conclusions The Private Sector Is Optimizing Its Operations with Air Emissions Benefits The private sector is already engaging in operational opti- mization, mainly for business reasons that improve economic efficiency and elevate the quality of service provided to cus- tomers. In several cases, these optimization initiatives can have emissions benefits. For example, network optimization soft- ware capabilities include CO2 emissions assessment capabili- ties. Routing optimization is similarly employed as a means to save fuel by reducing miles traveled and can have emissions benefits. Both network and operational optimization are internal company business process decisions. The Need for Public-Sector Support Nevertheless, there is potential for public-sector support for optimization initiatives. For example, in the Kansas City region, the movement of containers between railroads mov- ing goods north-south and east-west typically requires mul- tiple truck moves. These “rubber tire” movements are required when the intermodal facilities of the various railroads are not in proximity or equipped for a direct rail-to-rail transfer. Multiple truck moves frequently result in empty moves where there is no backhaul associated with the original move. This adversely affects the overall efficiency of the transportation network, transportation safety, and adds to congestion, fuel use, and air emissions, as well as undermines the quality of life of people in surrounding communities. In response, the Kansas City Cross- Town Improvement Project (C-TIP) initiative was set up to coordinate information among multiple intermodal terminals to improve efficiencies, save carriers time, and eliminate empty moves. Wider benefits include reducing both the overall num- ber of moves and transport air emissions. C-TIP is a collaborative project between government and industry supported by the FHWA Office of Freight Man- agement and Operations as well as the Intermodal Freight Technology Working Group (IFTWG), a partnership of public- and private-sector interests focused on the identification and evaluation of technology-based options for improving the effi- ciency, safety, and security of intermodal freight movement. C-TIP has involved the Kansas DOT, Missouri DOT, Mid- America Regional Council (MARC) as well as the railroads and trucking companies. Together these agencies are developing an intermodal moves database that enables the coordination of cross-town traffic, tracking of intermodal assets, and distri- bution of information to truckers wirelessly. Railroads, facil- ity operators, and truckers can thus share information about available loads, deliveries, traffic, and scheduling. The results of the initial testing proved the concept to be viable. Mode Shift Carriers’ and shippers’ mode choice also can influence freight emissions, and in an era of relatively high fuel costs, many are downshifting to slower, cheaper modes such as rail and short sea shipping which typically have lower GHG emis- sions. From interviews with carriers and shippers, it appears that many are taking advantage of the cheaper costs of non- truck modes. However, transit time and delivery reliability tend to be the main impediments to a mode shift from truck- ing. Because the overlap between markets for truck and rail freight is relatively small, mode shift potential is fairly limited. Further public efforts to support mode shift appear to have had uncertain impacts. Efforts to induce mode shift to rail and short sea routes in Europe have been less success- ful than expected. For example, distance-based truck tolls in Germany resulted in an only a 7% increase in the number of containers carried by rail (Denning, 2010). Similarly, heavy goods vehicle fees in Switzerland did not achieve significant rail mode shift. Rather, changes to truck configuration and delivery logistics have resulted in more efficient use of trucks in both cases. This highlights the inherent speed, reliability, and logistical advantages of trucks for many shipment types (Minnesota DOT, 2010). Although mode shift efforts (including pricing policies, targeted grants, and infrastructure investments) by European decisionmakers have had some impacts, the full extent of ben- efits generated is ultimately uncertain and it is unclear whether the benefits attained were achieved in the most efficient man- ner, or whether similar benefits could have been attained through other policies at a lower cost (U.S. GAO, 2011a). One of the ways in which public agencies can assist in facilitating

38 mode shift is by focusing their efforts, to the extent that they are able, on helping to overcome the private sector’s perceived challenges in shifting to cleaner and greener modes, most notably those associated with transit time and reliability. Routing, Vehicle Speeds, and Equipment Use Shippers and carriers alike are realizing reduced fuel costs from efficient routing decisions with associated air emis- sions benefits as a result of reduced vehicle miles traveled. In many cases, this involves the use of routing technologies and software that allows pick ups and deliveries to be allocated efficiently, matches vehicles to routes, and ensures efficient vehicle loading. Technology also can enable reductions in empty miles through increasing loaded backhauls, as well as improved trailer cube use. Businesses are driving down operating costs through improved use of trailers and containers, and through reduced and rationalized packaging. Private-sector truckers and ocean carriers are reducing emissions by reducing speeds. The trucking industry is advo- cating a nationwide reduction in speed limits to 65 mph or less. This could have significant benefits in terms of reduced fuel use, carbon emissions reductions, and safety. This requires further investigation. Several ocean carriers are engaging in voluntary slow- steaming initiatives that can create cost savings as a result of reduced fuel consumed on intercontinental voyages, along with GHG emissions benefits and improved on-time reliabil- ity. Ports such as the Port of Long Beach (POLB) are offering incentives for vessel speed reductions within 40 nautical miles of harbor. For example, POLB’s voluntary “Green Incentive Flag Program” rewards vessel operators for slowing down to 12 knots or less by providing dockage rate reductions. The program has NOx, Ox, and PM emissions reductions benefits, with improved health outcomes for port communities. More than 1,000 tons of air pollutants are reportedly prevented each year from this voluntary program. Benefits include reduced CO2 emissions and the protection of marine mammals from vessel strike (Port of Long Beach, 2012). Environmental groups are, in fact, currently pressing for mandatory 10-knot speed limits off portions of the California coast to protect marine mammals. (Seasonal 10-knot speed limits for ships 65 feet or longer have been in effect in locations along the East Coast for several years with the aim of protecting the North Atlantic right whale.) Options for the regulation of speed limits require further investigation and exploration with industry prior to implementation to ensure that speed reductions in one loca- tion do not necessitate speed increases in other geographies for carriers to meet scheduling requirements, and thereby increase overall GHG emissions. Idling and Driver Behavior Carriers are engaging in various initiatives to reduce vehicle idling and improve driver behavior. In the trucking sector, this includes the installation of anti-idling equipment on trucks, eco-driving programs, and onboard monitoring. Truckers are also retrofitting their vehicles (in some cases with the assistance of financing from the public sector) to enable them to plug in to the grid. Railroads, too, have committed to reducing idling. In California, they have entered into voluntary agreements with CARB to install anti-idling devices on 99% of California- based locomotives. Marine carriers are reducing at-berth emissions through the use of shore power. In 2008, at-berth vessel emissions reduction regulations were introduced in California, where docked vessels are responsible for a significant proportion of port emissions that affect the health of local communities. The regulations require reefers, cruise ships, and container vessels to shut down their auxiliary engines and plug in to the electrical grid while at berth, or to use alternative control technique(s) that achieve equivalent emission reductions. Notwithstanding the potential for the use of alternative control technologies, this regulation has evoked strong reactions from shipping lines due to high onboard technology costs, reported lack of available alterna- tive technologies, and limited applicability of shore power in other non-California locations. Shore power is a particularly expensive emissions reduction option for terminal opera- tors, as well as for marine carriers (both in terms of technol- ogy and the high costs of electricity when compared with bunker fuel). Air emissions benefits are dependent on the source and availability of grid power, as well as the extent of quality issues in the port area. Thus, where shore power is contemplated, the alternatives, as well as the costs and ben- efits of the options should be weighed carefully. In particular, the perspectives of the terminal operators, energy providers, and vessel owners should be taken into account, as well as the availability of equivalent emissions reductions approaches and technologies. Successful approaches in Europe have included voluntary partnerships between ports, terminal operators, and steamship lines, rather than mandatory requirements. This approach might be considered at other ports outside of California.