RMIT University International Logistics

Family name

Given name

Student number

Student signature

Date

Ninan

Hamish

s3171304

31-10-2012

31-10-2012 Thi Hein Le s3094836

Shah

Rohit Dayal

s3317805

31-10-2012

Jose

Sunny

s3341033

31-10-2012

Yuan

Yachun

s3195123

31-10-2012

RMIT University International Logistics

Implications of International Logistics on Climate Change and Sustainability

RMIT University International Logistics

Abstract
This paper concentrates on the role of freight and transportation systems, which has been playing an increasing role in globalization. As we know today that the world has shrunk due to Globalization has reduced the distances around world as better freight systems have changed the necessities of the population. A decade ago Duncan and Youngquist (1999) had expressed concerns over long-term damage to the planet done by the logistics industry. Transport and logistics is one of the complex factors that has been most researched for its effects on our environment and the role it plays in climate change. This paper reports a study of pollutant impacts from cargo transport sources on the environment. Our goal is to identify trends that have negatively influenced transport sector sustainability i.e., fundamental changes in demand for transporting goods and suggest areas that require informed decision making to reduce the impact of this sector on the environment with a particular emphasis on the impact of climate change on logistics infrastructure that would have a bearing on how the industry reacts to the climate change phenomenon. We have also discussed about strategic policies adopted to reduce the affects of transportation on the environment. We have concluded with challenges and suggestions that could increase sustainability of this sector by providing information of their influence on future environmental outcomes.

RMIT University International Logistics

Contents
Abstract ............................................................................................................................................ 3 Climate Change and Global Warming................................................................................................. 5 How Logistics affects Climate ............................................................................................................ 5 How Climate Change Impacts Logistics Infrastructure ........................................................................ 6 The Environmental Effects of Freight Modes ..................................................................................... 7 Shipping ........................................................................................................................................ 8 Airfreight ....................................................................................................................................... 8 Land freight or Trucking ................................................................................................................. 9 Railways ........................................................................................................................................ 9 Pipelines ........................................................................................................................................ 9 Policies and Regulations .................................................................................................................. 10 Sustainability in International Logistics and other Solutions ............................................................. 11 Macro Domain ............................................................................................................................. 12 Vehicle technologies ................................................................................................................ 12 High-speed rail......................................................................................................................... 12 Alternative Fuels ...................................................................................................................... 12 Micro Domain.............................................................................................................................. 13 Conclusion....................................................................................................................................... 13 Reference ........................................................................................................................................ 14 Appendix ......................................................................................................................................... 15 Journal Articles Review ............................................................................................................... 15

RMIT University International Logistics

Climate Change and Global Warming

The Green Trends Survey has identified Climate Change as the most serious issue facing the world at this point (Figure 1).Al Gore through his documentary The inconvenient Truth has presented the stark reality of climate change and its effects on global warming leading to changes in our environment. He has discussed the consequences of climate change which could result in melting of ice sheet in Greenland that could increase the sea level by upto20 which would have disastrous consequences. Global warming could lead to droughts, floods, climate extremes and hence leading to threatening theexistence of several animal species (Gian-Reto, 2002). IPCC (2007) through their research on continents for over 50 years, concluded that global warming was due to increased Green House Gas (GHG) concentrations. Considering the world economic growth of 2.5%, the world would emit more than hundred million tons of CO2.

Figure 1: Rankings of the problems in the world (McKinnon, 2010)

How Logistics affects Climate

Logistics accounts for approximately 9% of global GDP and this share is higher in developing countries due to infrastructure constraints. This in turn is a significant driver of wealth creation, employment generation and economic growth (Logistics Today, 2010).According to Intergovernmental Panel on Climate Change (IPCC 2007), the logistics industry accounts for 13.1% of GHG emissions around the world (Figure 2). The logistics industry is accountable for approximately 2.8 m metric tons of GHG emissions annually which represent 5.5 % of total GHG emissions (The World Economic Forum, 2009). As shown in figure 4, road transport accounts for 60% of CO2-equivalent emissions with 1,500 megatons. In terms of emissions per ton kilometre, air transport is most carbon intensive mode while rail and ocean are most carbon efficient. In future, the logistics sector is expected to grow at a rapid pace thus increasing the energy consumption and further escalating the GHG emissions.

RMIT University International Logistics

Due to increased consciousness about climate change and governments proactive regulations, in future the success of business would be linked to its sustainable logistics practices. For instance, Deutsche Post DHL have aimed to reduce its carbon emissions by 30% by 2020 which would also lead to reduction in operating costs by implementing improved technologies or other specialised market ready solutions.

Figure 2: GHG Emissions in different sectors (IPCC, 2007)

How Climate Change Impacts Logistics Infrastructure

Climate change can impact logistics infrastructure physically and economically. Climate change will increase the temperature which in turn would lead to, intense and longer heatwaves, increased intensity and frequency of rainfall which could lead to flooding, increased sea levels and salt water invasion in the coastal area leading to disruption in the infrastructure. If we consider Australia according to department of climate change and energy efficiency (DCCEE) Australia has 1,200 to 1,500 km of rail lines which are at potential risk of inundation. There are risks of seawater encroaching land area (prediction of 2100) which can cause damages of around $4.9-$6.4 billion (value replaced with year 2008). In the same way, shoreline recession and inundation can affect 26,000-33,000 km of road infrastructure which has the potential to cause damage of around $46-$60 billion (value replaced with year 2008). The report also identified the risk of cascade failure, which is the risk of failure of one sector that could lead to failure of other sectors (DCCEE, 2011). In Australia, 6% of greenhouse emissions are aggregated from the freight industry. The Australian Government is committed to reduce national emission of 5% below 2000 level by 2020;The main approaches used by the government is implementing policies like carbon tax which was rolled out in July, 2012. These policies aimed at reducing environmental impacts, have indirectly impacted the economics of freight. This factor has potential of changing the internal dynamics of land freight network and also impacts different freight modes.

RMIT University International Logistics

Therefore to minimise climate change impacts on logistics, the transport industry needs to reduce carbon emissions, which can be managed by logistics carbon management system (Figure 3: Logistics carbon management).

Figure 3: Logistics Carbon Management (Wang, 2012)

Logistics industry is in a fix as they are forced to trade-off between cost, service levelsand emission and therefore need to choose warehouse type, shipment size, fuel option and transportation mode very cautiously. To implement the management system, carbon assessment need to be done by using complex technology specifications as prescribed by technology standards such as IPCC Guidelines for National GHG Inventories and GHG Protocol emissions from transport or mobile source. Thereafter, it can be implemented by specified complex decision trees provided by the system (Wang, 2012).

The Environmental Effects of Freight Modes

Freight modes like shipping, Air, Trucking, Pipeline, Rail and other intermodal freight have varying environmental effects. That range from Pollution (Water, Air, and Noise), accidents, and habitat fragmentation etc. Moreover certain aspects are normally completely ignored as they do not have a direct impact on climate that we can measure for example disposal of dredged materials or introduction of foreign species caused mainly by shipping. Now let us

RMIT University International Logistics

take a brief look at the main causes of pollution by different modes of transport (Duncan, 1999).

Shipping
Shipping mainly threatens inland waterways and oceans. Water pollution is the main concern with shipping industry polluting water by discharging operating oil and ballast water into the water. There are instances of dumping non-biodegradable solid wastes in ocean. Accidental spills which are less common are again a major source of water pollution ships carrying dangerous cargo like oil and chemicals can severely affect the local environment. Even though ships are not a major source of air pollution they are still powered by ICE and run on cheaper heavy oil which releases a lot of toxins into the air. The maintenance and operations of inland terminals are another source of pollution even though they are not directly linked to ships (Duncan, 1999).

Airfreight
Presently cargo accounts for low volumes in airfreight. But the scenario is rapidly changing as companies are adopting new methodologies like Just in Time (JIT) to make their supply chains more responsive and agile. As we can see from figure 5 airfreight causes maximum emissions of CO2 Kg/ton-km (WEF, 2009).

Figure 5: Carbon Intensity of various transport modes (WEF, 2009)

They mainly effect the environment in three significant ways. Low altitude emissions which include nitrogen oxides, hydrocarbons etc. cause smog. High altitude flights emit significantly high amounts of GHG emissions further these emissions are more potent in the upper atmosphere. The third main problem is Airports are normally located in City areas that pollute noise and is a major nuisance for the people who live in the vicinity (Duncan, 1999 and WEF, 2009).

RMIT University International Logistics

Land freight or Trucking

The impact of trucking has received a lot of attention. As we can see from figure 4 that trucks are the major contributor of GHG. And their share is increasing as they are the most convenient transport mode. The effects of trucking on congestion is major cities is also well documented. Trucks also cause a significant amount of amount of noise pollution (Duncan, 1999 & WEF, 2009).

Figure 4: GHG emissions in different Logistics modes (WEF, 2009)

Railways
Railways are normally known to be less damaging to the environment around it compared to Road and Air. Modern trains are powered by electricity or by diesel fired an electric generator which then uses electricity hence there is a substantial reduction in pollution. The noise pollution is also comparatively lower than trucking (Duncan, 1999).

Pipelines
They are primarily used to transport Natural gas and oil they pollute the least among all forms of transport. But accidents pose significant risks. They also cause some air pollution as the

RMIT University International Logistics

10

goods moving through the pipelines are either compressed or pumped emit pollutants into the atmosphere (Duncan, 1999).

Policies and Regulations

In order to achieve long term environmental sustainability for international logistics, governments around the world and organisations have placed policies and regulations in place. Regulations and policies have been divided into three categories: Traditional regulatory instruments, Economic instruments and Infrastructure instruments as delineated in Figure 5. Individually they represent the stages for the international logistics environmental sustainability improvement. By having these policies in place, the aims are to reduce Green House Gas emissions, encourage alternative fuel research and adaption, research technologies for environmentally friendly solutions (McKinnon, Kreie, 2010).

Figure 5: Various Policy instruments to improve GHG Emissions in Transport (McKinnon, Kreie, 2010)

There have been policies implemented to reduce GHG emissions during logistics operations; they are the Traditional regulatory instruments. Policies and standards such as emission, fuel efficiency, vehicle access restrictions, lower emission zones and speed limits are implemented in nearly every country .However they are not unified standards or policies that are applicable in every country .The current norm is that developed countries have much better traditional regulatory instruments, and developing countries are adopting these policies and standards at a much slower pace than their developed counterparts (McKinnon, Kreie, 2010). Shanghai is a clear case of the traditional regulatory instruments, through the past few decades; Shanghai has become the economic capital of China supporting a populous of 200 million people. International logistic operations demand increases exponentially every year. But government introduced strict traditional regulatory instruments to reduce the GHG emissions only a few years back due to the continuous decline in air quality due to increase in pollutants. Therefore, traditional regulatory instruments are the fundamental to achieve environmental sustainability for international logistics operations (Tu, 2010).

RMIT University International Logistics

11

The second category of policies and regulations are the Economic instruments. This category closely related to current economic trends, environmental requirements, and can be adjusted according to the needs by the governments (Hodgkinson, 2011). The Economic instruments can be divided into Push and Pull policies; the Push policies are emission trading, carbon taxes, vehicle taxation and road charges. In recent years, especially in developed countries Economic instruments have been perfected. These policies and regulations are adding additional expenses for companies that require logistics operations (Tu, 2010). As the result companies often seek alternative solutions for logistics operations to reduce expenses, in a way Push companies to contribute for environmental sustainability. Ideally, the funds collected from the Economic instruments are used to fund for R&D on environmental friendly technology and Green investment incentives, hence the Pull strategy. However there is not enough real financial support for environment friendly R&D. (McKinnon, Kreie, 2010). Main cause is the current economic down turn which has led governments to prioritise use of funds, but in the near future this would be implemented (Hodgkinson, 2011). Infrastructure instruments are the last policyin the standards category. Different to the two categories above, this category is mainly implemented by a non-profit, government recognised organisation, the World Ports Climate Initiative (WPCI). This organisation involves fifty five key ports in the world, and was established in year 2008; their main aim is to replace current port equipment, and encourage using renewable energy for international logistics operations. Since establishment, four stages for infrastructure improvement have been established. Firstly assess the present condition of the ports, their emission levels and efficiency. Secondly, to commence improvement of equipment used by ports and replacing traditional energy with renewable energy sources .Third function is optimisation. i.e., increasing the use of environmentally sustainable equipment and use of renewable energy for port operations. Then the ultimate goal is to neutralise all GHG emissions occurring during logistics operations at ports. The Infrastructure instruments cost are high and takes time to implement, but it is something that is worth working on. For example, the first project WPCI took on board is the Port of Japan. Theiraim was to replace equipment improve the port infrastructure to combat the potential increase in sea level and storms caused by climate change. This operation is estimated to cost more than 1 billion Euros and is estimated to be complete by the year 2058 (Hodgkinson, 2011).

Sustainability in International Logistics and other Solutions

Modern logistics solutions are not often environmentally friendly. Global companies are progressing towards building a more competitive environment. In order to increase operational effectiveness, firms are focusing on lower costs and shorter lead times, which usually have an impact on environmental issues (Aronsson & Brodin, 2006).Here we explore solutions and strategies to achieve environmental improvements based on macro and micro

RMIT University International Logistics

12

levels. Aronsson & Brodin (2006) suggest that the macro domain issues can be tackled or improved through actions taken by the government or legislative authorities while the micro domain concerns mainly with actions taken by individual companies.

Macro Domain
It has been long known that the transport sector is one of the main causes of environmental pollution. Governments have taken initiatives such as introduction of environmentally friendly fuels. Measures and initiatives taken so far have been good, but cannot keep pace with the growing transport volumes (Aronsson and Brodin, 2006). Governments and legislative bodies should, rather look for longer term strategies in ensuring a sustainable macro environment.
Vehicle technologies

Most vehicles today are equipped with internal combustion engines (ICE). GHG emissions are emitted mainly from the combustion of carbon contained in fuels. The emission of these harmful gases can be reduced in vehicles by improving the drive-train efficiency that would lower energy consumption in vehicles, by reducing the amount of energy vehicles need, and by using alternative drive-trains. Improving technologies in vehicles is a step forward to being sustainable, but relies more on government pressure and the capabilities of the automobile industries. It is also a solution that can be effective in short term.
High-speed rail

High-speed rail will put land transportation of goods in direct competition with air transport. This mode of transport will allow for speeds from 250-400 km/h, making this mode better than air transport in terms of time savings, extra capacity, and reduced externalities. The author also mentions that it is 2-3 times more efficient in energy consumption than airfreight.
Alternative Fuels

Alternative fuels have the ability to lower harmful gas emissions. Natural gas, for example emits 20% lower CO2 per MJ fuel compared to gasoline because it contains more hydrogen. The author also states that conversion of natural gas to synthetic fuels, e.g. Synthetic Diesel is a form of very clean fuel that lowers emissions of harmful gases. Renewable fuels from biomass and waste offer a balanced carbon cycle in comparison to fossil fuels while having a positive impact on GHG emissions. This form of fuel does however have strong barriers that prevent them from being mass produced, like higher costs, compatibility with other fuels, and limited availability of technology. Renewable fuels however show hidden costs and undesirable impacts on the environment and population due to its large scale production. Hydrogen is advantageous in the sense that it can be produced from a variety of energy resources such as, fossil fuels and other renewable sources, i.e. wind, solar-thermal and tidal energies. Hydrogen does not emit any harmful gas when used in fuel cells. From a long term perspective, the only incentive for firms to progress to economical investments in alternative fuels would be due to the rise of oil prices as many alternative fuels are just not cost-effective for firms to invest in at this point in time (Uherek et al, 2010).

RMIT University International Logistics

13

Micro Domain
On a micro level, companies need to rethink where their facilities are located in terms of travel time or transport mode, whom they cooperate with within partnerships or the supply chain, what technology is being utilized and the overall logistics structure. Aronsson & Brodin state that environmentally friendly logistics structures are defined by factors such as fewer movements, shorter travelling distances, lesser handling, and more direct shipping routes. They offer two physical methods as solutions to structures in logistics; standardization and consolidation. Standardization involves two levels in the physical system; transportation vehicles and load carriers. A load carrier that is able to fit a train system and a ship makes full use of vehicle capacity while making the loading and handling of equipment of a standardized nature. This ultimately reduces costs and delivery times. The concept also decreases the total volume of carriers in the system as any carrier coming back can be used for the next load. Consolidation involves increasing the size of warehouses, centralizing distribution, a reduction in the number of warehouses while changing the location of these warehouses. The number of deliveries could be significantly minimized in certain cases when companies work more actively with vehicle routing. Although this leads to increased lead times, such changes contribute to increased fill rates of vehicles, minimizing total distance travelled and its fuel consumption (Aronsson & Brodin, 2006).

Conclusion
In a nutshell, climate change has been identified as one of the most serious problems the world is facing today according to the Green Trends Survey (Beckmann, 2010). The increasing demand for sustainability and lower emissions in the logistics industry is now seen everywhere and is becoming a key criterion for end consumers, business customers and the government. This report, serves as a frontline contributor in calling attention to how companies' actions impact the environment and the communities in which they operate. The report also recognizes that the logistics industry is a major source of GHG emissions, especially the transport sector. In long term policies will secure the environmental sustainability for international logistics operations. The incentives for environmental friendly logistics technologies will improve the efficiency of international logistics operations and reduce GHG emissions. However, the policies do come with substantial cost, and can take decades to implement (McKinnon, Kreie, 2010). Just as logistics which is a driver of globalization and a major contributor to the world economy, the logistics industry needs to create an ecologically-sustainable, low-carbon environment which is seen as creating long-term business value. In other words, economic growth and environmental protection should be embraced by firms as the two parallel values instead of a contradiction.

RMIT University International Logistics

14

Reference
Aronsson, H, Brodin, M., 2006, The environmental impact of changing logistics structures, The International Journal of Logistics Management, Vol 17, Iss 3, pp 394-415 An Inconvenient truth documentary by Al Gore, 2006 Beckmann, C et al. 2010, Delivering Tomorrow: Towards Sustainable Logistics, Deutsche Post, HG, Germany- Company Report Duncan, R.C., Youngquist, W., 1999, Encircling the peak of world oil production, Natural Resources Research,8, 219232. GHG emissions from transport or mobile sources: GHG Protocol Initiative, 2009. Hodgkinson D, 2011 "Ports, climate change and the virtues of anticipation", Transport and Logistics Insights IPCC, "2006 IPCC Guidelines for National Greenhouse Gas Inventories," 2006. IPCC, "Climate Change 2007: Synthesis Report," 2007. McKinnon A., 2010, Green Logistics: The Carbon Agenda, Electronic Scientific Journal of Logistics, Vol.6, Issue 3, No.1 McKinnon A, Kreie A, 2010, "Adaptive Logistics: Preparing Logistical Systems for Climate Change Logistics Research Centre, Heriot-Watt University, Edinburgh, UK National Land Freight Strategy Discussion Paper 2011:Submission of the Department of Climate Change & Energy Efficiency (DCCEE) Tu S, 2010, "Investigation on the Strategy of the Development of Low-Carbon Logistics in China in Low-Carbon Economy" School of Business Administration, Jiangxi University of Finance and Economics W. Gian-Reto, P. Eric, C. Peter et aI., "Ecological responses to recent climate change," Nature, vol. 416, pp. 389-395, 2002 Wang, X. Ding, H. Wang, W. Zhang, L. &Xue, Y. (2012), A Review of Carbon Emission Management from the Perspective of Logistics Industry, BAO & SCM/Logistics Research, China

RMIT University International Logistics

15

Appendix
Journal Articles Review
JOURNAL ARTICLE The environmental impact of changing logistics structures THEME Improvement in environment by structural changes of logistics system. METHODOL OGY Journal Articles, Reports and their study KEY FINDING The paper various logistical restructuring measures such as logistical standardisation, IS/IT solutions (Visibility support system & understanding of flexible warehousing and transportation) and different types of consolidation to improve the environment. The paper presents the challenges of conduction research in the area of Logistics and Climate Change due to uncertainty of climate change and variability in geographical impact. It suggests five themes in the area of adaptive logistics that needs to be focused which can be divided into three categories such as a) Effects of mitigation measures on logistics , b) Responses to indirect environmental impacts and c) Responses to direct environmental impacts The study suggests that for the concept of low-carbon logistics to be feasible in China, major changes has to be made in logistics system, eg-Design of logistics system and supply chain, Emphasis On controlling and promoting carbon emission, Introduction of favourable policies, Recycling of used logistics facilities, etc, The paper addresses carbon emission management system, carbon footprint evaluation framework and low carbon technologies which may be important for enterprises. It suggests the implementation of

Adaptive Logistics: Preparing Logistical Systems for Climate Change

Study of logistical system adaption capability to improve climate

Journal Articles, Discussions with logistics professionals and brainstorming sessions.

Investigation on the Strategy of the Development of LowCarbon Logistics in China in Low-Carbon Economy

Development of lowcarbon logistics for sustainable growth in China

Journal Articles, Reports and their study

A Review of Carbon Emission Management from the Perspective of Logistics Industry

Optimization of logistics carbon emission

Journal articles, Reports and their study

RMIT University International Logistics

16

Ecological responses to recent climate change

Trend of climate change (specially global warming) in the environment

Journal articles

Transport impacts on atmosphere and climate: Land transport

Impact of land transport on climate and atmosphere

Journal Articles, reports and their own study

Transport and climate change

Role of transport in Climate change and the mitigation & sustainability measures

Journal Articles

Green Logistics: The Carbon Agenda

Framework for carbon reduction from the logistical activities

Journals, Governmental and other institutions reports

optimised carbon emission management system; the paper discusses the case of IBM and further suggests that further research needs to be done for evaluating carbon emissions at key stages of logistics activities. The article concurs that there are already observable change (temperature) in the climate. There are considerable adaptations taken, to keep up with considerably low average rate of change in the climate. There is definite concern about how to deal bigger climate change in future, which may have bigger impact on socioeconomic and ecological consequences. The study suggests that noncarbon emissions would stagnate and reduce in future. However, the future for reduction of carbon and halocarbons emissions is predicted to rise. Land transport would further increase hence it is of prime importance to have improved vehicle which would reduces the emissions in the air. Bio-fuel would not be able to cope with rising transport requirement and thus it is importance to further research and innovate in the area of lowcarbon fuels. The study suggests finding about how behavioural and technological change could reduce GHG emissions and combustion of fossil fuels from the transport industry. It also focuses on how policies would help in emission reduction. It presents framework for GHG emissions by altering freight transport parameters. It discuses how decarbonisation process will help companies to cut down their costs which will make them economical and environmental friendly. It also

RMIT University International Logistics

17

presents the view that in few cases, it is important for carbon emissions from logistics sector to rise to eventually reduce the carbon emissions from all the other different sectors. Lastly, if all the sectors implement the framework to reduce the carbon emissions, the carbon footprint for logistics would increase however that would be for overall good.