When is the right time for carriers to incorporate sustainability?
Article published in CLDA Magazine - Spring 2024
When is the right time for carriers to incorporate sustainability?
By: Emily Phillips, Principal & Founder of E.MISSION Advisory
Spoiler Alert: Start now
Sustainability has been an increasingly ubiquitous topic in the global transportation sector over the past few years. News headlines pop up daily with the latest innovation in alternative fuel technology, zero emission vehicle or regulatory proposal update. Shippers and carriers alike are monitoring these trends, trying to predict where it will all “shake out” and divining just when will be the right time to jump into the mix.
As we take stock in 2024, let’s examine where we are as a sector. And most importantly, how companies can harness these trends to their competitive advantage.
Transportation emissions – by the numbers
The transportation sector is the largest contributor to greenhouse gas emissions in the U.S. at 28% of the pie. Medium- and heavy-duty transportation make up 23% of that total. Additionally the sector contributes 45% of nitrogen oxides, combustion biproducts that aggravate the respiratory system, particularly in children and elderly populations.
Advancements in fuel efficiency and engine technology have helped to reduce net fuel consumption and emissions over time, but gross global emissions are still relatively steady due to increased volume and consumer demand.
In order to truly bend the emissions curve downward, global adoption of zero (or nearer zero) emission technology will need to increase at scale. How close are we to that happening?
Where are we in 2024?
Zero emission adoption is scaling faster in some applications than others. For example, the use case for electrification is more of a current fit for light-duty delivery, metro transit and drayage due to relatively short length of haul, lower weight payload and predictable depot charging. One visible example of this is Amazon’s rollout of over 10,000 Rivian step vans, with a goal to scale to 100,000 by 2030.
Medium- and heavy-duty applications are in a more ambiguous stage, as the more demanding duty cycle exceeds the capability of most EV truck types available in production at present. As the North American Council for Freight Efficiency (NACFE) so aptly coined in 2019, we are truly in the Messy Middle.
With multiple fuel alternatives being considered for heavy-duty applications, the industry is tracking results of recent fleet pilots to see which technology will emerge as a frontrunner for their particular modal application.
Most importantly, the up-front cost of zero emission truck technology is still prohibitive for most carriers, and infrastructure to charge or refuel is expanding but not readily-available in all geographies.
Regulations face pushback
Regulatory pressures in the US exist at the federal, state and local levels, but are experiencing legal pushback in 2024.
The SEC issued its long-awaited final ruling in March, requiring public companies to report climate-related disclosures in their annual reports, beginning in 2025. Of note, the original rule included Scope 3 (supply chain) emissions, but this requirement was eliminated for the final ruling, primarily due to stakeholder pushback on the difficulty of quantifying and validating Scope 3 emissions. As of this writing, the rule has already been temporarily halted by the Fifth Circuit Court of Appeals.
California passed a grouping of similar legislation in 2023, requiring companies larger than $1billion in revenue who do business in California to publicly disclose their Scope 1, 2 and 3 emissions starting in 2026. Similarly, business groups have mounted a legal challenge to these requirements.
California Air Resource Board (CARB) programs such as Advanced Clean Fleets (ACF) and Advanced Clean Trucks (ACT) are already in effect. Ten additional states are adopting the heavy-duty standard of ACT-like legislation. The ACF requires medium- and heavy-duty trucks operating in California to phase to zero emission over a prescribed timeframe based on vehicle type. This program has also seen delays in implementation while it awaits a pre emption waiver from the EPA.
Local regulations such as the South Coast Air Quality Management District’s WAIRE Program and zero emission metro delivery zones are looking to curb emissions within localized geographies.
What does this mean for carriers?
As carriers, we are standing at one side of the Messy Middle bridge, trying to figure out how to get across. Equipment cost is high, infrastructure is still developing and regulation is start and stop. Does that mean that we should wait until the landscape solidifies before we move across?
Not necessarily…
Shippers and employees care about climate
Sustainability is important to your employee base, as well as the labor force you are trying to attract.
According to a Deloitte survey from March 2023, 69% of employed adults say that they want their employers to invest in sustainability efforts. 27% said they would consider an employer’s position on sustainability before accepting a position and 24% said they would strongly consider changing jobs to work for a more sustainable company.
In today’s tight labor market, including sustainability to your company’s core values can directly impact your employee satisfaction, retention, and your ability to recruit top talent.
Not only are companies facing internal grassroots pressure from employees, but they are facing it externally from their investors and their client base.
The MIT Center for Transportation and Logistics’ 4th annual State of Supply Chain Sustainability 2023 revealed an increasing external pressure on supply chains to adopt sustainable supply chain practices.
Many shippers have established a Science Based Target or other net-zero commitment that includes improvements to their Scope 3 emissions. That translates to their supply chain partners.
I speak to 3PL carriers regularly who say nearly every RFP now has questions related to carrier sustainability strategy. Some shippers are requiring participation in EPA SmartWay or a rating from EcoVadis in order to participate in future bids.
So what if you create a strategy that incorporates what your clients and your employees want to see? Even if it doesn’t leap-frog you to the end-game it can incrementally move you across the bridge, and help you retain employees and clients as you go.
How can I start from where I am?
Take stock of your current operations. There’s a high likelihood that your organization already has processes in place today that aid in sustainability.
Routing efficiencies to run fewer miles, increased visibility and communication to eliminate redeliveries. These also eliminate emissions. You may have a recycling program or low-flow plumbing fixtures in your offices. LED lighting in your warehouse. If so, make a list of what you do today and tell that story first!
Next, look at what you can reasonably achieve in the next 3 years. Start with solutions that are available in the marketplace today and are at or near cost parity to legacy technology. For example, electric material handling equipment, motion sensors for lighting, robust recycling programs, water-saving solutions, etc.
When it comes to complex big-ticket decisions about zero or near-zero emissions trucks, consider three things:
1. Evaluate the viability of bridge fuels and other technologies that will lower emissions in the short term while waiting for long-term zero emission options to mature. Start with applications that fit the use case now and learn from those deployments.
2. Partner with a climate-conscious client who is looking for a preferred carrier to help lower their Scope 3 emissions. Define a pilot project you can execute together.
3. Research funding opportunities to reduce your capital outlay. Incentives to help clean fleets are expected to total $32 billion per year for the next four years.
Lastly, develop a solid data plan to track your Scope 1, 2 and 3 emissions. You can’t improve what you don’t measure! This is a key piece of an internal sustainability strategy, but is increasingly important to your clients as well. Regardless of where regulation ends up, your clients with climate commitments will be requesting emission data for their internal Scope 3 programs.
Get in the sustainability game
In the transportation sector, carriers who are leading the conversation are still considered early adopters on the decarbonization curve. The great benefit of being an early adopter is that you have a voice on how the end product is developed!
The end-game on net-zero transportation is years away. That does not mean we should all wait until then to get started. Start with the baby steps now and build each month, quarter, year.
Your company’s learnings and feedback will strengthen the entire sector as we navigate to a lower emission future. And for those seeking partners on their own decarbonization journey, you will be able to differentiate yourself as a carrier and employer of choice along the way.