The Pressing Need Within Supply Chains to Measure and Reduce Its Carbon Footprint

Supply chain stakeholders are increasingly wary of seeing demand, legislation, and capital tied to how they deal with their emissions.

A hearty welcome to the 81st edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.

Running a business involving the supply chain is challenging, as stakeholders at different nodes in the value chain face various constraints that restrict their degrees of freedom to do business. Think of this as having a metaphoric asterisk at the end, as legislation gets tighter, consumers get increasingly picky, and capital is hard to come by. 

One such factor is carbon emissions — a mere side note at the turn of the century but has risen in importance ever since. While an evolving regulatory landscape might seem to be pushing companies to gain cognizance of their emissions quotient, this is not the principal reason for them to seek more sustainable operations. 

Case in point; the countless number of companies that have tried to circumvent legislation to maximize profitability, even if they came close to flouting laws. For instance, antitrust laws are well-established, but it isn't difficult to point out name brands that vigorously contest allegations of antitrust practices in court. With different emissions markers like Scope 1, 2, and 3 emissions and differing opinions on how the latter is measured, it is relatively easy for companies to skirt responsibility and feign ignorance. 

And yet, we do see companies take up the sustainability cause quite earnestly. While companies hate legislation acting as speed breakers to operations, they'd promptly work on strategies and initiatives that impact demand. The last decade has seen consumers become wary of emissions and opt for brands that pursue eco-friendly practices and actively strive to minimize their carbon footprint. 

This consumer attribute hasn't been lost on companies, reflected in the overt promises to enhance sustainability in operations. Aside from catering to demand, introducing ESG scores has meant capital is increasingly tied to it, making it harder for companies to raise money if they don't toe the line. Environmental, Social, and Governance (ESG) scores are used by investors, financial institutions, and stakeholders to assess company performance and risk exposure pertaining to the environment, making it crucial for companies to work on their carbon footprint. 

At the end of the day, it is the consumers that define how a company gets run, and access to capital that helps sustain and scale operations. As the need for product provenance and transparency in the value chain gain importance, companies are pushed to contend with Scope 3 emissions that have remained hazy due to the general lack of visibility across inter-tier operations. 

Paraphrasing Scope 3 emissions from the Environmental Protection Agency (EPA):

"Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain. Scope 3 emissions include all sources not within an organization's Scope 1 and 2 boundaries."

"While it is easy to ignore Scope 3 emissions and take no action, it is becoming increasingly challenging for businesses to do so, especially when selling to consumers or businesses that actively demand to know the end-to-end emissions of the services they purchase. There's a certain amount of compulsion to engage in understanding emissions," said Saleh ElHattab, founder and CEO of Gravity Climate, a technology firm helping supply chain stakeholders manage their carbon footprint. 

ElHattab explained that it isn't unusual to find companies agnostic about the maturity of their emissions forecasts, which largely depends on how accurate their data collection gets and the manual processes associated with it. "The true challenge is likely centered around the lack of education on emissions and the absence of a trusted advisor," he said. 

Companies often struggle to measure emissions as many lack sustainability expertise, with only a few industry leaders historically prioritizing carbon footprint. While the data problem is daunting, leaders must be aware of the numerous solutions and software tools to significantly simplify the process. 

ElHattab put the early adopters of technology that track emissions in three baskets. The mid-market SMBs make up the first category, especially those with consumers within the automotive industry. Considering it's a highly scrutinized market, stakeholders in this value chain are at the frontlines of change. The second category includes organizations that seek to differentiate themselves through sustainability. These businesses advocate for carbon-neutral practices, acting as industry lodestars via their sustainability evangelism. 

"Such adopters actively find us and express their desire to create a disclosure report and formulate a plan where they can publicly share their commitment to being carbon conscious," said ElHattab. "These are companies that voluntarily embrace sustainability initiatives rather than being driven solely by external pressures." The final group would be large public companies, firms on the verge of going public, or multinational corporations — all compelled to comply with regulations to address and report carbon emissions.

Before understanding emissions, companies must clearly perceive their motivation for disclosure, whether driven by supplier demand, cost-saving opportunity, or marketing USP. By grasping the underlying cause, companies can effectively identify areas where streamlining is possible, paving the way for measuring emissions and identifying opportunities for emission reduction.

Companies can then leverage technology like Gravity Climate to meet their specific tracking needs. Technology can simplify the process, allowing users to input real-world information, such as location and energy consumption, to ensure accurate emissions calculation. By integrating emissions calculators with utility providers, telematics systems, and other sources, companies can automate the data collection process, eliminating the need for manual transcription. 

For SME companies that outsource most of their logistics operations, data might be hard to come by, and even if it did, it is challenging to streamline. ElHattab contended that such companies must not initially focus on controlling emissions but rather work with partners who take their carbon footprint seriously. 

"Finding and disclosing the carbon footprint is a significant first step, and perfection should not be the immediate goal. Starting with a baseline carbon footprint measurement is perfectly acceptable, and the focus can then shift towards gradually reducing emissions," said ElHattab. "Culpability gets thrown around the entirety of the supply chain, but we've got to be realistic about who has the capacity to do so. It's not good to badger a company with 2-3% margins to reduce and dispose of their emissions."

For larger companies or companies looking to scale, having capital tied to their emissions report is a strong headwind for change. ElHattab took the case of Wisconsin Aluminum Foundry (WAF), a client of Gravity Climate, which is working to measure and mitigate its emissions.

WAF's interest in tracking its emissions was driven by the automotive supply chains' demand for disclosure regarding their environmental footprint and stakeholder interest in curbing emissions across operations. Considering investment and demand was tied to their carbon footprint, WAF worked with Gravity Climate to ensure they could bridge the gap between understanding emissions and controlling them. 

"Companies realize that reducing their emissions can help them win new business. They are leveraging it as a marketing component of their offering rather than just reacting to market demand," said ElHattab. "About a tenth of all emissions in our society is related to cargo transport and its logistics. The good news is the technology that helps tackle it is fast evolving and is minimally disruptive, making it more accessible to businesses and enabling them to stay more resilient to market demand."

The Weekly Roundup

The Panama Canal is taking water-saving measures to maintain transit operations amidst low water levels and a prolonged drought. Cargo vessels face restrictions, while some ocean carriers have introduced low-water surcharges, with ongoing monitoring and operational procedures in place to mitigate the economic impact.

The American Trucking Association's For-Hire Truck Tonnage Index declined for the second consecutive month in April, reflecting a 3.4% year-over-year decrease, the largest drop since February 2021. With the goods portion of the economy experiencing softness, both contract and spot market truck freight are being impacted, signaling challenges in the freight economy despite the broader economic performance.

Union Pacific has halted the acceptance of exports and empty containers at its Denver rail terminal bound for the Port of Los Angeles due to ongoing labor issues and supply chain challenges. The move reflects concerns over container congestion and the need for shippers to find alternative ports, impacting the nation's busiest port and raising worries about the reliability of service in the West Coast region.

Despite the significant venture capital investment in freight visibility providers, shippers express their disappointment with the lack of transformative outcomes. Users cite incomplete and inaccurate data, poor insights into key milestones, and limited value compared to direct interactions with carriers and terminals, highlighting the challenges faced by visibility solutions in meeting industry needs.

…said who?

“Ocean carriers and terminal operators have thumbed their noses at the workforce’s basic requests, insinuating that the health risks and the loss of lives these working people endured during the pandemic did not matter to them and they were expendable in the name of profits.”

- a statement issued by a union local chapter in Southern California in the wake of labor issues heating up across the US West Coast.

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