Green Logistics

Authors: Dr. Jean-Paul Rodrigue, Dr. Brian Slack and Dr. Claude Comtois

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1. Green and Logistics

The two words that make up the title are each charged with meaning, but combined, they form a term that is particularly evocative. Logistics are at the heart of the operation of modern transport systems and implies a degree organization and control over freight movements that only modern technology could have brought into being. It has become one of the most important developments in the transportation industry. Greenness has become a code word for a range of environmental concerns, and is usually considered positively. It is employed to suggest compatibility with the environment, and thus, like logistics is something that is perceived as beneficial. When put together the two words suggest an environmentally friendly and efficient transport and distribution system. The term has wide appeal, and is seen by many as eminently desirable. However, as we explore the concept and its applications in greater detail, a great many paradoxes and inconsistencies arise, which suggest that its application may be more difficult than what might have been expected on first encounter. Although there has been much debate about green logistics, the transportation industry has developed very narrow and specific interests.

In common with many other areas of human endeavor, greenness became a catchword in the transportation industry in the late 1980s and early 1990s. It grew out of the growing awareness of environmental problems, and in particular with well-publicized issues such as acid rain, CFCs and global warming. The World Commission on Environment and Development Report (1987), with its establishment of environmental sustainability as a goal for international action, gave green issues a significant boost in political and economic arenas. The transportation industry is a major contributor to environmental issues through its modes, infrastructures and traffics. The developing field of logistics was seen by many as an opportunity for the transportation industry to present a more environmentally friendly face.

Interest in the environment by the logistics industry manifested itself most clearly in terms of exploiting new market opportunities. While traditional logistics seeks to organize forward distribution, that is the transport, warehousing, packaging and inventory management from the producer to the consumer, environmental considerations opened up markets for recycling and disposal, and led to an entire new sub-sector: reverse logistics. This reverse distribution involves the transport of waste and the movement of used materials. While the term reverse logistics is widely used, other names have been applied, such as reverse distribution, reverse-flow logistics, and green logistics.

Inserting logistics into recycling and the disposal of waste materials of all kinds, including toxic and hazardous goods, has become a major new market. There are several variants:

• An important segment is customer-driven, where domestic waste is set aside by home-dwellers for recycling. This has achieved wide popularity in many communities, notably because the public became involved in the process.
• A second type is where non-recyclable waste, including hazardous materials, is transported for disposal to designated sites. As land fills close to urban areas become scarce, waste has to be transported greater distances to disposal centers.
• A different approach is where reverse distribution is a continuous embedded process in which the organization (manufacturer or distributor) takes responsibility for the delivery of new products as well as their take-back. This would mean environmental considerations through the whole life-cycle of a product (production, distribution, consumption and recycling/disposal).

How the logistics industry has responded to the environmental imperatives is not unexpected, given its commercial and economic imperatives, but by virtually overlooking significant issues, such as pollution, congestion, resource depletion, means that the logistics industry is still not very ‘green’.

2. The Paradoxes of Green Logistics in Transport Systems

If the basic characteristics of logistical systems are analyzed, several inconsistencies with regards to environmental compatibility become evident. Five basic paradoxes are discussed below.

• Costs. The purpose of logistics is to reduce costs, notably transport costs. In addition, economies of time and improvements in service reliability, including flexibility, are further objectives. Corporations involved in the physical distribution of freight are highly supportive of strategies that enable them to cut transport costs in a competitive environment. On some occasions, the cost-saving strategies pursued by logistic operators can be at variance with environmental considerations. Environmental costs are often externalized. This means that the benefits of logistics are realized by the users (and eventually to the consumer if the benefits are shared along the supply chain), but the environment assumes a wide variety of burdens and costs. Society in general, and many individuals in particular, are becoming less willing to accept these costs, and pressure is increasingly being put on governments and corporations to include greater environmental considerations in their activities.
• Time / Speed. In logistics, time is often the essence. By reducing the time of flows, the speed of the distribution system is increased, and consequently, its efficiency. This is achieved in the main by using the most polluting and least energy efficient transportation modes. The significant increase of air freight and trucking is partially the result of time constraints imposed by logistical activities. The time constraints are themselves the result of an increasing flexibility of industrial production systems and of the retailing sector. Logistics offers door-to-door (DTD) services, mostly coupled with just-in-time (JIT) strategies. Other modes cannot satisfy the requirements such a situation creates as effectively. This leads to a vicious circle. The more DTD and JIT strategies are applied, the further the negative environmental consequences of the traffic it creates.
• Reliability. At the heart of logistics is the overriding importance of service reliability. Its success is based upon the ability to deliver freight on time with the least threat of breakage or damage. Logistics providers often realize these objectives by utilizing the modes that are perceived as being most reliable. The least polluting modes are generally regarded as being the least reliable in terms of on-time delivery, lack of breakage and safety. Ships and railways have inherited a reputation for poor customer satisfaction, and the logistics industry is built around air and truck shipments which are the two least environmentally-friendly modes.
• Warehousing. Logistics is an important factor promoting globalization and international flows of commerce. Modern logistics systems economies are based on the reduction of inventories, as the speed and reliability of deliveries removes the need to store and stockpile. Consequently, a reduction in warehousing demands is one of the advantages of logistics. This means however, that inventories have been transferred to a certain degree the transport system, especially the roads. Inventories are actually in transit, contributing still further to congestion and pollution. The environment and society, not the logistical operators, are assuming the external costs. Not all sectors exhibit this trend, however. In some industrial sectors, computers for example, there is a growing trend for vertical disintegration of the manufacturing process, in which extra links are added to the logistical chain. Intermediate plants where some assembly is undertaken have been added between the manufacturer and consumer. While facilitating the customizing of the product for the consumer, it adds an additional external movement of products in the production line.
• E-commerce. The explosion of the information highway has led to new dimensions in retailing. One of the most dynamic markets is as e-commerce. This is made possible by an integrated supply chain with data interchange between suppliers, assembly lines and freight forwarders. Even if for the online customers there is an appearance of a movement-free transaction, the distribution online transactions create may consume more energy than other retail activities. The distribution activities that have benefited the most from e-commerce are parcel-shipping companies such as UPS and Federal Express that rely solely on trucking and air transportation. Information technologies related to e-commerce applied to logistics can obviously have positive impacts. So once again, the situation may be seen as paradoxical.

Although there is a clear trend for governments, at least in their policy guidelines, to make the users pay the full costs of using the infrastructures, logistical activities have largely escaped these initiatives. The focus of much environmental policy is on private cars (e.g. emission controls, gas mixtures and pricing). While there are increasingly strict regulations being applied to air transport (noise and emissions), the degree of control over trucking, rail and maritime modes is less. For example diesel fuel is significantly cheaper than gasoline in many jurisdictions, despite the negative environmental implications of the diesel engine. Yet trucks contribute on average 7 times more per vehicle-km to nitrogen oxides emissions than cars and 17 times more for particulate matter. The trucking industry is likely to avoid the bulk of environmental externalities it creates, notably in North America.

The hub structures supporting many logistical systems result in a land take that is exceptional. Airports, seaports and rail terminals are among the largest consumers of land in urban areas. For many airports and seaports the costs of development are so large that they require subsidies from local, regional and national governments. The dredging of channels in ports, the provision of sites, and operating expenses are rarely completely reflected in user costs. In the United States, for example local dredging costs, were nominally to come out of a harbor improvement tax but this has been ruled unconstitutional and channel maintenance remains under the authority of the US Corps of Army Engineers. In Europe, national and regional government subsidies are used to assist infrastructure and superstructure provision. The trend in logistics towards hub formation is clearly not green.

The actors involved in logistical operations have a strong bias to perceive green logistics as a mean to internalize cost savings, while avoiding the issue of external costs. The top environmental priority is commonly reducing packaging and waste. These observations support the paradoxical relationship between logistics and the environment that reducing costs does not necessarily reduce environmental impacts.

3. A Blueprint for Green Logistics

Although the environment is not a major preoccupation or priority in the industry itself, reverse distribution has opened up new market possibilities based upon growing societal concerns over waste disposal and recycling. Here the environmental benefits are derived rather than direct. The transportation industry itself does not present a greener face, indeed in a literal sense reverse logistics adds further to the traffic load. The manufacturers and domestic waste producers are the ones achieving the environmental credit. Pressures are mounting from a number of directions that are moving all actors and sectors in the economy in the direction of increasing regard for the environment. In some sectors this is already manifest, in others, such as the logistics industry, it is latent. The issue is when and in what form it will be realized. Three scenarios are possible. While not mutually exclusive, they each present different approaches and implications:

• A top-down approach where ‘greenness’ is imposed on the logistic industry by government policies;
• A bottom-up approach where environmental improvements are coming from the industry itself;
• A compromise between the government and industry, notably through certification.

First is that government action will force a green agenda on the industry, in a top-down approach. Although this the least desirable outcome for the logistics industry, it is already evident that government intervention and legislation are reaching ever more directly over environmental issues. In Europe there is a growing interest in charging for external costs, as the EU moves towards a ‘fair and efficient’ pricing policy. A sharp increase in costs could have a more serious impact than a more gradual, phased-in tax. In North America there is a growing interest in road pricing, with the re-appearance of tolls on new highways and bridges built by the private sector, and by congestion pricing, especially in metropolitan areas.

Pricing is only one aspect of government intervention. Legislation controlling the movement of hazardous goods, reducing packaging waste, stipulating the recycled content of products, the mandatory collection and recycling of products are already evident in most jurisdictions. Indeed, it is such legislation that has given rise to the reverse logistics industry. Truck safety, driver education, limits on driver’s time at the wheel, are among many types of government action with a potential to impact the logistics industry.

A difficulty with government intervention is that the outcomes are often unpredictable, and in an industry as complex as logistics, many could be unexpected and unwanted. Environmentally-inspired policies may impact on freight and passenger traffic differentially, just as different modes may experience widely variable results of a common regulation. Issues concerning the greenness of logistics extend beyond transport regulations. The sitting of terminals and warehouses are crucial to moving the industry towards the goal of sustainability, yet these are often under the land use and zoning control of lower levels of government whose environmental interests may be at variance with national and international bodies.

If a top-down approach appears inevitable, in some respects at least, a bottom-up solution would be the industry preference. Its leaders oppose leaving the future direction to be shaped by government action. There are several ways a bottom-up approach might come about. As with reverse logistics, these occur when the business interests of the industry match the imperatives of the environment. One such match is the concern of the logistics industry with empty moves. With the growing sophistication of fleet management and IT control over scheduling and routing, further gains are achievable.

Less predictable, but with a much greater potential impact on the greenness of the industry, are possible attitudinal changes within logistics and without. These changes are comparable of that which has already occurred in recycling. There has emerged striking public support for domestic recycling. This has been extended by some firms in successfully marketing their compliance and adoption of green strategies. Firms have found that by advertising their friendliness towards the environment and their compliance with environmental standards, they can obtain an edge in the marketplace over their competitors. Traditionally, price and quality characteristics formed the basis of choice, but because environment preservation is seen as desirable in general, greenness can become a competitive advantage. Ultimately, pressure from within the industry can lead to greater environmental awareness and respect. Companies that stand apart will lose out because purchasers will demand environmental compliance.

Somewhere between the bottom-up and top-down approaches are the moves being implemented with environmental management systems. Although governments are involved in varying degrees, a number of voluntary systems are in place, notably ISO 14000 and EMAS (Environmental Management and Audit System). In these systems firms receive certification on the basis of establishing an environmental quality control tailored to that firm, and the setting up of environmental monitoring and accounting procedures. Obtaining certification is seen as evidence of the firm’s commitment to the environment, and is frequently used as a public relations, marketing, and government relations advantage. This represents a fundamental commitment of the corporation to engage in environmental assessment and audit that represent a significant modification of traditional practices, in which efficiency, quality and cost evaluations prevailed.

It can be argued that the paradoxes of green logistics make it impossible for the logistics industry to become significantly greener. The internal inconsistencies between the goal of environmental sustainability and an industry that gives undue preference to road and air transport can be seen as being irreconcilable. Yet internal and external pressures promoting a more environmentally-friendly logistics industry appear to be inexorable. Of the three possible directions by which a greener logistics industry may emerge, it is realistic to consider that they will concomitantly help shape the industry of the future.