Public Policies on Sustainable Logistics and the Impact on Third-Party Logistics Provider

Table of Contents

Abstract

Acknowledgements

List of Tables

List of Figures

List of Abbreviations

1 Introduction
1.1 Relevancy
1.2 Aiming
1.3 Scope of Dissertation
1.4 Content and Structure

2 Theoretical Foundations about Sustainable Logistics
2.1 Definitions
2.1.1 Sustainable Development
2.1.2 Third-Party Logistics Provider
2.1.3 Sustainable Logistics
2.2 Interactive Relationship between Green Logistics and Sustainable Development
2.3 Logistics Solutions and Supply Chains in Times of Public Policies on Sustainable Logistics
2.3.1 Effects of Logistics Operation on Environment
2.3.2 Green Logistics Strategies based on Sustainable Development
2.3.2.1 The Wheel of Green Logistics
2.3.2.1.1 Green Transportation
2.3.2.1.2 Green Warehousing
2.3.2.2 Decarbonisation Framework for Logistics
2.3.2.2.1 Reducing Freight Transport Intensity
2.3.2.2.2 Shifting Freight to Less Carbon-Intensive Modes of Transport
2.3.2.2.3 Increasing Vehicle Utilisation
2.3.2.2.4 Improved Energy Efficiency in Freight Transport Operations
2.4 The Need for Governmental and Multi-National Intervention
2.5 Summary

3 Public Policies and Regulations on Sustainable Logistics
3.1 The Development of a Conceptual Framework of Public Policies on Sustainable Logistics
3.1.1 Institutional Issues of Public Policies on Sustainable Logistics
3.1.2 A Conceptual Model of Public Policies on Sustainable Logistics
3.2 European and British Policies on Sustainable Logistics
3.2.1 European Union’s Public Policy Measures on Intermodal Freight Transport
3.2.2 European and British CO2 Emission Reduction Policy Measures
3.3 Summary

4 Methodology
4.1 Deduction of the Hypotheses based on the Literature Review
4.2 Empirical Research Design
4.2.1 Selection of the Survey Strategy and Data Acquisition
4.2.1.1 Survey Strategy
4.2.1.2 Data Acquisition
4.2.2 Population and Selection of the Sampling
4.2.3 Procedure of the Semi-Structured Interviews
4.2.4 Preparation of the Qualitative Data for Analysis
4.3 Critique of the Methodology

5 Empirical Research about the Impact of Public Policies and Regulations on Sustainable Logistics on Third-Party Logistics Provider
5.1 Expert Interview Results and Research Analysis
5.1.1 Experts’ Viewpoint on Sustainable Logistics
5.1.2 Experts’ Evaluation of current Public Policies on Sustainable Logistics and the Impact on Third-Party Logistics Providers
5.1.3 Experts’ Evaluation of the Role of Subcontractors and the Outlook of the Market
5.1.3.1 Role of Subcontractors
5.1.3.2 Outlook of the Market
5.1.4 Experts’ Assessment about Public Policies on CO2 Emission Reduction and Intermodal Freight Transport
5.1.4.1 Public Policies on CO2 Emission Reduction and Their Impact on 3PLs
5.1.4.2 Public Policies on Intermodal Freight Transport and Their Impact on 3PLs
5.2 Hypothesis Testing and related Recommended Courses of Action

6 Conclusion and Recommendations for Further Research

List of References

Appendix

Abstract

Background The logistics sector is growing rapidly. Freight transport has increased by 31 per cent between 1995 and 2005. As the volume of world trade rises, the European Com- mission predicts a further 50 per cent increase by 2020. But the logistics sector faces a num- ber of challenges. Besides globalisation, means supply chains have become longer and more complex, increasing traffic congestion and soaring fuel prices, the logistics industry faces public and state environmental concerns, such as air and water pollution, energy con- sumption or waste disposal. Studies show that transportation and logistics can account for up to 75 per cent of a business’s carbon footprint. National governments and the European Un- ion have therefore introduced a number of measures to ‘green’ transport and in order to re- duce greenhouse gas emissions. Policy-makers and their policies and regulations on sus- tainable logistics are assumed to play a critical role in the future development of sustainable logistics.

Aim The empirical research of the dissertation should basically provide information about how public policies and regulations on sustainable logistics affect the day-to-day operation as well as strategic management decisions. The key research questions are

Q1: How do 3PL companies see their current corporate activity in terms of sus- tainable logistics dependent on governmental policies and regulations?

Q2: To what extent do 3PL firms think that governmental policies and regulations are necessary in order to shift the industry towards more sustainability?

Q3: How do 3PLs assess the role of subcontractors on this topic and how will the logistics market be influenced by policies on sustainable logistics?

Method The selection of the sampling is based on the exploratory sample which helps to generate deep insights into new ideas and people’s expertise. In total, five logistics experts were questioned through telephone and face-to-face semi-structured interviews. All experts work in different leading transport and logistics firms in executive positions.

Results of the Research The analysis of the empirical research shows that logistics com- panies do not see their current logistics operation in terms of sustainable logistics neither op- erationally nor strategically dependent on public policies and regulations. They believe that policies and regulations on sustainable logistics is only one factor among other important as- pects that are necessary to drive the logistics industry towards more sustainability. Further- more, all experts expect no market consolidation, which is solely caused by certain policies and measures on sustainable logistics. However, they state that smaller transport existences and subcontractor may have a tough time to comply with latest environmental standards, which is generally caused by aspects, such as low market margins and high competition.

Conclusion The dissertation shows that policies and regulations on sustainable logistics have no significant impact on major logistics companies. Aspects such as customer require- ments and competition are prioritised in order to drive the logistics industry towards more sustainability.

Acknowledgements

It is a pleasure to thank those who made this thesis possible.

I would like to thank to my supervisor Allan Woodburn for his professional guidance during the process of carrying out the dissertation.

I also thank Seb Hoyle and his consulting team from Accenture who helped with words and deeds. They introduced me to logistics executives who eventually took part in my empirical research.

I would also like to thank the five respondents who agreed to take part in the expert interviews for my research. The dissertation would not have been possible without them.

Furthermore, I thank my family for not only encouraging me to study abroad but also supporting me during the entire process.

Special thanks to my girlfriend Mogdeh Rahimi for her constant support and understanding. I also appreciate very much the work of her sister Arezu Rahimi who proofread this thesis.

List of Tables

Table 1: Activities associated with 3PLs

Table 2: Geographical extent of pollutant effects

Table 3: Average emission factors for freight transport modes within Europe

Table 4: Key Findings of Chapter 5.1.1

Table 5: Key Findings of Chapter 5.1.2

Table 6: Key Findings of Chapter 5.1.3

Table 7: Key Findings of Chapter 5.1.4

Table 8: Practicability of Implementation/Recommendations for further Research

List of Figures

Figure 1: Transport CO2 emissions by mode

Figure 2: Historical and projected CO2 emission from transport by modes, 1970-2050

Figure 3: Projection of transport energy consumption by region and mode

Figure 4: German highway sections with projected traffic problems or congestion in 2015

Figure 5: Sustainable Logistics

Figure 6: Value-adding logistics and the environment interface

Figure 7: The wheel of green logistics

Figure 8: Emission Efficiency per Transport Mode

Figure 9: Optimising the Number of Warehouses in Logistics System with respect to CO Emissions

Figure 10: A Conceptual Model of Public Policy on Sustainable Logistics

Figure 11: Relationship between key freight transport parameters and government transport policy measures

Figure 12: The Grounded Theory Approach to the Analysis of Qualitative Data (exemplary)

Figure 13: Green Supply Chain is a strategic priority, immediately or on the short run

Figure 14: Stakeholders expected to have the greatest effect on economic value of respondent's company

Figure 15: Motivations to implement green actions

Figure 16: Effect of Potential Carbon Price Addition to Fuel at EU-ETS Market Rates

Figure 17: Total Development Capital 2011-2010, Europe in Transport Vehicles

Figure 18: Total Development Capital 2011-2010, Europe in Transport Infrastructure

List of Abbreviations

illustration not visible in this excerpt

1 Introduction

1.1 Relevancy

The term logistics basically describes the transport, storage and handling of products as they move from raw material source, through the production system to their final point of sale or consumption (McKinnon, 2010a). As today’s logistics business faces a variety of difficult challenges, modified logistics operations are required. Water pollution, energy consumption, urban development, waste disposal and other aspects of environmental damage (Waters, 2007) has gradually led to important public and governmental concern about the environmental protection. Since logistics serves the public and the government, this has also become an issue for logistics business. The so-called sustainable logistics tries its utmost to help to stop, reduce, prevent or solve the all-encompassing environmental damage by every means and be efficient and productive at the same time.

Industrialization and globalization have stimulated freight transport over the last decade that now consumes 35 per cent of all transport energy (Fulton & Eads, 2004). It is, furthermore, estimated that freight transport accounts for roughly 8 per cent of energy-related CO2 emissions worldwide. All in all, global transport industry encompasses 25 per cent of all CO2 emissions released into the atmosphere (see figure 1). However, CO2 emissions for individual modes of transport vary and have led therefore to a discussion about inventory methodologies in the literature (Endresen, et al., 2004).

illustration not visible in this excerpt

Figure 1: Transport CO2 emissions by mode

Source: Accenture, 2009, p. 1; Kahn Ribeiro, et al., 2007, n. p.

While the energy-efficiency of specific modes has been increased, there has been an ongoing movement to even faster and hence more energy-intensive modes, for instance just-in- time shipments. As a result, alternative modes of transport, such as rail and domestic waterway, are being reduced, whereas airfreight traffic, in particular, is estimated to triple over the next 20 years (Boeing World Air Cargo Forecast Team, 2010).

According to Kahn Ribeiro et al. (2007), following breakdowns can be demonstrated:

- Urban freight is dominated by trucks of all sizes
- Regional freight is transported by large trucks, bulk commodities carried by rail, pipe- line and some water inland transport
- National or continental freight is moved by a combination of large trucks on high speed roads, rail wagons and ships.
- International freight is dominated by ocean shipping.

Transport activity will continue to grow at a rapid level in the foreseeable future; nonetheless, it depends on several factors, such as

- dependency on oil,
- growth rate and shape of economic development (particularly in Asian countries),
- development of transport technology and
- increasing income in developing nations that leads to rapid growth in transport infra- structure (Kahn Ribeiro, et al., 2007).

Consequently, the future transport development has significant impacts on CO2 emissions as CO2 releases will considerably increase in lockstep with energy consumption in the transport industry (consider figure 2).

illustration not visible in this excerpt

Figure 2: Historical and projected CO2 emission from transport by modes, 1970-2050

Source: Fulton & Eads, 2004, n. p.; International Energy Agency (IEA), 2005, n. p.

Therefore, reference cases were developed in order to visualise “what the future would look like if governments essentially continued their existing policies without adapting to new condi tions.” (Kahn Ribeiro, et al., 2007, p. 332). For instance, a recent Reference Case study was prepared by the World Business Council on Sustainable Development (WBCSD) and deals with the projection of the worldwide transport energy use.

According to figure 3, the anticipated growth in greenhouse gas (GHG) emissions varies significantly by regions. Developing regions, as it is the case in some parts of China, indicate a much greater rise of GHG emissions than developed countries. This is not only due to the anticipated growth of transport activities, but also to the lack of vehicle technologies and fuels efficiency in those developing regions.

illustration not visible in this excerpt

Figure 3: Projection of transport energy consumption by region and mode

Source: World Business Council for Sustainable Development (WBCSD), 2004, p. 54

Furthermore, increasing transportation activities result into transport-related issues, such as noise and congestion. As in the case of London, busy roads, major rail corridors, and air- crafts are the main source of ambient noise (Greater London Authority, 2004). Likewise, the German Automotive Association predicts major congestion and traffic problems in 2015 over segments of the German autobahn system which is illustrated in figure 4 (Baum, 2003).

illustration not visible in this excerpt

Figure 4: German highway sections with projected traffic problems or congestion in 2015

Source: Baum, 2003, p. 30

From a business point of view, the consultancy firm McKinsey (2008) revealed in a global survey¹ how companies think about the climate change. Fully 60 per cent of the surveyed global executives regard climate change as strategically important for their corporate activities. Only a few companies, however, act on this point of view. While 44 per cent of the CEOs clearly stated that climate change is not a significant item on their agenda, another 60 per cent of the executives, whose company considers managing environmental issues to be at least somewhat important, declared that their company has not defined clear corporate emission targets for greenhouse gases yet.

According to McKinnon (2010b), it is therefore essential that policy-makers play a critical role in the future development of sustainable logistics “ as the free market on its own is unlikely to deliver the necessary level of environmental improvements - in particular in terms of climate change.” (p. 25).

1.2 Aiming

Firstly, the theoretical foundation aims to provide an essential background for the sake of un- derstanding the empirical research afterwards. It is therefore essential to define, for instance, third-party logistics providers and sustainable logistics. In order to comprehend how the lo- gistics industry can counteract pollution, a wide range of sustainable logistics solutions are to be demonstrated.

Furthermore, public policies and regulations on sustainable logistics, which are proposed and implemented by the United Kingdom (UK) and the European Union (EU), will be described as well. These policies and regulation were used to develop the questionnaire, which is considered the basis for the semi-structured expert interviews, and as a result contribute significantly to the overall understanding.

Secondly, the empirical research is based on several expert interviews with global leading 3PL companies. These interviews should basically provide information on how public policies and regulations of sustainable logistics affect the day-to-day operation as well as strategic management decisions for the foreseeable future. In particular, two major policy measures, namely European Union’s public policy measures on intermodal freight transport, and European and British CO2 emission reduction policy measures, are selected to give an insight in how these policies affect the 3PL’s operation.

The key research questions are therefore:

Q1: How do 3PL companies regard their current corporate activity in terms of sus-

tainable logistics that depend on governmental policies and regulations?

Q2: To what extent do 3PL firms think that governmental policies and regulations

are necessary in order to shift the industry towards more sustainability?

Q3: How do 3PLs assess the role of subcontractors on this topic and how will the

logistics market be influenced by policies on sustainable logistics?

The author aims to bring out several related recommended courses of action in order to help policy-makers and the logistics industry to increase their actions towards greater sustainability. His recommendations are derived from the interviews’ outcome.

1.3 Scope of Dissertation

According to Worsford (2001), the logistics and transport sector have continuously been fac- ing environmental challenges and pressures throughout their history. Meanwhile, a tremen- dous amount of high-profile documented scientific and medical evidence about the climate change, among other things, has become more and more available. Simultaneously, the public concern and awareness of the environmental impact of transport has been growing enormously in recent years. As a consequence, “ the logistics industry became increasingly subject to environmental pressure: internal, external, subtle and non-subtle, from a variety of sources. These included:

- Legislative requirements (UK and EU)
- Local authorities
- Customers ’ expectations
- Green campaign groups
- The media. ” (Worsford, 2001, p. 38f) .

Although political solutions within international reach are widely considered to be vital in en- suring CO2 emission reduction and likewise enhancing sustainability in the logistics industry, the author places emphasis on British and European policies and measures with regard to sustainable logistics only. It is worth to note that today much of the UK environmental legisla- tion is either a response to or a direct consequence of EU legislation (Worsford, 2001). There is therefore not only the British governmental legal framework considered but also environ- mental policies of the EU.

This dissertation focuses on the ‘legislative requirements’ of logistics and transportation within the supply chain. This focus is particularly based on the public policies and regulations introduced by the UK government and EU legislation due to their tremendous impact on logistics’ operations. Therefore, the large amount of public policies and regulations, which aim to increase environmentally-friendly activities in the entire supply chain, such as procurement, production, transportation and disposal, are not being discussed here. Neither are those numerous individuals who also affect the logistics industry in terms of their environmental performance part of this dissertation’s discussion. Nonetheless, these aspects should definitely find emphasis in another piece of scientific work.

1.4 Content and Structure

This dissertation is divided into six chapters. After the introduction in chapter 1, a theoretical foundation about sustainable logistics follows. This second chapter contains definitions as well as new ways and solutions for logistics and supply chains in times of increasing public policies on sustainable logistics. Chapter 2 concludes with the accentuation of the need for governmental and multi-national intervention.

Chapter 3 deals with public policies and regulations on sustainable logistics. At first, a theo- retical and conceptual framework of public policies on sustainable logistics is being outlined. Next, current European and British policies on sustainable logistics are consulted, such as the European Commission’s White Paper, the European Marco Polo Programme and the Eu- ropean Union Emission Trading System. This chapter infers with those public policies and regulations on sustainable logistics that have an impact on third-party logistics providers to certain extents.

After describing the applied methodology in chapter 4, the results and analysis of the empiri- cal research about the impact of public policies and regulations on sustainable logistics on third-party logistics providers are pointed out. Chapter 5 ends with the hypothesis testing and

five related recommended courses of action.

Finally, chapter 6 comprises the overall conclusion encompassing the outcomes of the initial research questions and a brief summary of the recommendations for policy-makers and the logistics industry. At the end of this final chapter, a few more recommendations on further research in this field are provided.

2 Theoretical Foundations about Sustainable Logistics

2.1 Definitions

2.1.1 Sustainable Development

In the economic literature there are more than 100 different definitions of sustainable development (Jacobs, 1995), mostly related to separate sectors, such as environmental, economic or civilization (Ciegis, et al., 2009).

Accordingly, the World Bank (1992) describes sustainable development as “development that continues”. Besides, the Rio de Janeiro declaration of Environment and Development (1992) defines sustainable development as “long-term continuous development of the society aimed at satisfaction of humanity ’ s need at present and in the future via rational usage and replenishment of natural resources, preserving the Earth for future generations. ” (n. p.).

However, the term sustainable development is originally defined by the Brundtland Commis- sion (1987) as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (n. p.). The former Norwegian Prime Minister Gro Harlem Brundtland, who was the chairman for the World Commission on Envi- ronment and Development, alerted the world to the urgency of making progress toward such economic development that could be sustained without exploiting natural resources or harming the environment.

Desai (2007) argues that “the Brundtland Report changed sustainable development from a physical notion based on the concept of sustainable yield in forestry and fisheries to a much broader concept that linked economic and ecological policies in an integrated framework.” (n. p.). The main long-term impact of the report is hence that the economic and environmental policy is no longer considered to be in separate compartments.

It is worth a mention that the Brundtland definition does not provide any more detailed expla- nation of what sustainable development may require in practice or which detailed action should be considered. This has been formulated as a rather universally agreed principle, and in many cases it is rather imagined than related to practical applications (Ciegis R. , 2004).

Furthermore, sustainable development as a general concept compromises three fundamental approaches: environmental, economic and social development (Ciegis, et al., 2009) - which is also known as the triple-bottom line (Elkington, 1999). Meanwhile, this triple-bottom line concept is being applied to government strategies of sustainable distribution, such as that of the UK government (Transport for London Freight Unit, 2007).

illustration not visible in this excerpt

Figure 5: Sustainability: the triple bottom line

Source: Based on Carter & Rogers, 2008

Carter and Rogers (2008) point out that the triple-bottom line suggests that the intersection of social, environmental and economic performance leads not only to positive effect on natural environment and society, but also to long-term economic benefits and competitive advantages for the firms.

2.1.2 Third-Party Logistics Provider

In general, third-party logistics providers (3PLs) are companies which perform logistics activities on behalf of others - at which logistics activities is basically defined as “the process of planning, implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related information flow from point-of- origin to point-of-consumption for the purpose of conforming to customer requirements.” (Council of Logistics Management, 1986, n. p.).

Since more and more companies outsource their logistics functions, 3PLs have grown in importance (Sheffi, 1990). Although third-party logistics provider as a term is widely used, additional terms in the academic literature, such as contract logistics firm (Sink, et al., 1996) or logistics service provider (Delfmann, et al., 2002) are also common.

While a commonly accepted typology for 3PLs is not introduced yet (Delfmann, et al., 2002), some approaches already exist; namely types of services (Muller, 1993), geographical scope of operations and type of goods handled (Niebuer, 1996).

As a result of a survey among buyers of logistics services, Sink et al. (1996) provide an overview of 3PLs’ functions - which is demonstrated in table 1 below.

illustration not visible in this excerpt

Table 1: Activities associated with 3PLs Source: Based on Sink, et al., 1996

Another proposition is made by Niebuer (1996) who divides 3PLs into three major groups:

1) The first group involves 3PLs that only provide standardized and isolated logis- tics services or distribution functions, such as transportation and warehousing. Company examples are traditional carriers and the integrator’s original ex- press parcel services by UPS or FedEx.
2) The second group consists of companies that combine selected standardized services to bundles of logistics services according to their customers’ re- quirements. These bundles of services consist of a core logistics activity, such as transportation, which is combined with secondary activities, e.g. simple quality control activities. Business examples are therefore traditional forward- ing companies.
3) The third group of 3PLs design logistics services and logistics systems accord- ing to the preferences and needs of specific customers. The companies offer not only originally attributable to the logistics functions, but also financing and production activities. Examples are the German WM Group and Ryder System in the USA.

The author considers Niebuer’s second group as the definition of a 3PL company in the following dissertation.

2.1.3 Sustainable Logistics

People began paying attention to environmental issues caused by logistics services after the 1980s (Chunguang, et al., 2008). It was being argued that the impact of logistics on the environment should be considered from various perspectives and not only from the aspect of transportation or the goods and materials stored.

From their academic points of view, the scholars Wardroper (1981) and Whitelegg (1988) analysed the negative impacts of the motor transport on the environment. Van Hoek (1999) presented, on the other hand, a categorization of ‘green approaches’ that were a reactive, proactive and a value-seeking approach. He also recommended the value-seeking approach as being the most relevant in ‘greening’ the supply chain as a whole.

McKinnon, however, argues that the initial research already started in the mid-1960s. Murphy and Poist (1995) state that “prior to the 1960s, there was relatively little concern regarding environmental degradation. For the most part, the environment ’ s ability to absorb wastes and to replace resources was perceived as being infinite.” (p. 16). Whereas Aronsson and Brodin (2006) found out that environmental issues played only a minor role in logistics, supply management and transport journals at that time.

McKinnon (2010a) points out that green or sustainable logistics represents the convergence of several researches which began at different times over the last 40 years. The following figure 6 puts these research outcomes under five headings: reducing freight transport externalities, city logistics, reverse logistics, corporate environmental strategies towards logistics and green supply chain management.

illustration not visible in this excerpt

Figure 6: Evolving themes in green logistics

Source: McKinnon, 2010a, p. 7

Ever since the mid-1990s when green logistics were defined as a new concept (Chunguang et al., 2008), there has not been any other uniform definition. Wu and Dunn (1995) consider green logistics as a logistics system that not only includes forward logistics processes from the acquisition of raw material, production, packaging, transport, storage, to the delivery to end-users’ hands, but also encompasses the reverse logistics dealing with waste recycling and disposal.

Van Hoek (1999) regards reverse logistics as the main possibility of ‘greening’ logistics. Nevertheless, he adds that “( ) reversed logistics alone may not be enough and that a focus on the entire supply chain is more relevant for understanding the impact of business practices on the environment.” (p. 129).

Ping (2009) argues that the purpose of green logistics is to realize economic benefits of certain subjects, and to look after saving resources and protecting the environment at the same time. The aim has therefore both economic and social characteristics.

To sum up, green logistics is eco-friendly, aims to reduce emissions of pollutants, avoids resource consumption, and eventually realizing sustainable development (Chunguang, et al., 2008). Emmett and Sood (2010) add that green logistics can also bring a gain in profits by 10 per cent in contrast to a traditional logistics operation in a supply chain.

Furthermore, with the development of modern logistics management theory-supply chain management, the concept of green supply chain was introduced. Contrary to traditional sup- ply chains, green supply chains consider the environmental effects of all processes of supply chain from the extraction of raw material to the final disposal of goods (Emmett & Sood, 2010).

illustration not visible in this excerpt

Figure 7: Traditional and Green Supply Chain

Source: Based on CEVA Logistics, 2011

As it is shown in figure 7 above, the flow of materials and information in the traditional supply chain (left side) goes from one end to the other. There is only limited collaboration, visibility and information exchange, e.g. regarding carbon footprint and greenhouse gas emission of the other partners. In the meantime, green supply chain (right side) provides much collaboration, visibility and information exchange.

Chunguang et al. (2008) come to the conclusion that in order “to develop green logistics (it) is conducive to getting the whole supply chain ‘ green ’ and making full use of resources in supply chain.” (p. 164). Though, only the transportation and logistics part of the supply chain is considered in this dissertation. It is also worth a mention that despite different terms and definitions in the literature, which basically describe the same objective, e.g. green or sus- tainable logistics, the author refers to the term sustainable logistics in the following disserta- tion.

2.2 Interactive Relationship between Green Logistics and Sustainable Development

Ping (2009) proposes that green logistics systems should promote a healthy development of economic and consumption in order to reduce the environmental damage brought by logis- tics. Thus, sustainable development can be achieved. This measurement “ request the logis- tics enterprises to be charged with the social responsibility in the production and operation activities, and co-ordinate the development of the natural environment and the social envi ronment with the logistics activities” (p. 340).

The green logistics management is therefore introduced and is founded on the theory of sus- tainable development. This kind of management forms the relationship between logistics and environment. As it is shown in figure 5 below, sustainable logistics aims to achieve a more sustainable balance between the three aspects of the triple-bottom line: economy, environ- ment and society.

illustration not visible in this excerpt

Figure 5: Sustainable Logistics

Source: The Green Logistics Research Project, 2010, n. p.

On the one hand, logistics enterprises are supposed create the space and time efficiency of the carrying goods and meet the consumer’s demand. On the other hand, they should be aware of the eco-environmental requirements and protect the natural ecological balance and natural resources (Chunguang, et al., 2008). These measures leave the right of survival and development for future generations according to the Brundtland Commission’s statement.

In the broader sense, Wu and Dunn (1995) introduce the integrative environmental man- agement which serves to minimize the firm’s total environmental impact of every element in the corporate value chain - from start to finish of the supply chain and also from the begin- ning to the end of the product life cycle. Thus, they adapt Porter’s value chain concept (Porter, 1985) for the sake of illustrating the pollution that is generated by the logistics value chain (see figure 6).

illustration not visible in this excerpt

Figure 6: Value-adding logistics and the environment interface

Source: Wu & Dunn, 1995, p. 23

2.3 Logistics Solutions and Supply Chains in Times of Public Policies on Sustainable Logistics

Sustainable measures have a significant impact on third-party logistics companies’ services and costs. Although global regulation will be implemented in all areas of transportation, there has been something of a regulation vacuum. The industry has been therefore working on self-regulation for some time (Datamonitor, 2010).

For example, container and tanker shipping companies introduced ‘slowing steaming’ in late 2008 as a response to the decline for their services. The companies’ intention was to cut the cost of bunkers in order to keeping more vessels in service rather than laying them up and earning no revenue. At the same time, slow steaming results into a reduction of CO2 emission (Song, et al., 2010). According to the global shipping company Maersk (2010), slow steaming leads to a 10 to 30 per cent decline in CO2 emission. Shippers, for their part, realized that slow steaming does actually raise the likelihood of piracy attacks and that is why it has increased insurance costs (Datamonitor, 2010).

Other 3PLs have developed further capabilities in order to make their customers’ supply chain more sustainable, as it is the case of the global shipping line Hanjin. Hanjin introduced a supply chain carbon calculator on its corporate website where customers can calculate the carbon emission of their cargo (Gallagher, 2009; Hanjin Shipping, n.d.). Dambo, another global freight forwarding and supply chain management company, provides a number of tools for the identification of the exact drivers of logistics costs and emissions across the supply chain (Damco, n.d.).

With regard to the 3PL’s activities stated in chapter 2.1.2, the effects of individual logistics activities on the environment are demonstrated next. Further measures on sustainable logistics are assessed, as well.

2.3.1 Effects of Logistics Operation on Environment

With the development of modern logistics systems, it results into a larger amount of profits for the society. Nonetheless, as it has already been mentioned in the introduction, negative aspects are likewise increasing.

Chunguang et al. (2008) divide the negative effects of logistics operation into two different aspects:

1. Logistics activities lead to pollution on the environment. Firstly, there is noise and air pollution mostly caused by vehicle and aircrafts. Secondly, there is pollution caused by toxic and hazardous substances, e.g. vehicle accidents. Thirdly, pollution is generated by waste and used materials.
2. Logistics operation is often affected by a waste of resources. On the one hand, fuel energy is being used with low efficiency due to unreasonable design of distribution centres and distribution lines. On the other hand, goods are often delivered by com- panies themselves as opposed to making use of an outsourced 3PL operator. As a consequence, resources of logistics are left unused and wasted.

Another approach in measuring the environmental effects of logistics is presented by Cullinane and Edwards (2010). Concerning environmental effects of logistics, they distinguish between first-order and second-order impacts. While the first-order environmental impacts are directly related to freight transport, the second-order environmental impacts result indirectly from logistics operations.

Considering the first-order environmental effects, it is to mention that the atmospheric emis- sions are caused by fuel, which is used by goods vehicles. The main fuel continues to be diesel, with relatively small amounts of freight transported in petrol-engined vans. Because of an incomplete combustion process tailpipe emissions of pollutants, e.g. hydrocarbons, car- bon monoxide and nitrogen, oxides result (Holmen & Niemeier, 2003). Furthermore, diesel and petrol have slightly different environmental impacts as their mix of pollutant emissions varies. While diesel engines emit more CO2 per unit of energy, the final impact of diesel en- gines on CO2 emissions is less than that of an equivalent-sized petrol engines due to diesel engines’ energy efficiency (Schipper & Fulton, 2003). According to Hickman (1999), the pol- lutions emitted by transport can be differentiated between local, regional and global effects. This is illustrated in table 2 below.

illustration not visible in this excerpt

PM =particulates, HM = heavy metals, NH3 = Ammonia, SO2 = sulphur dioxide, Nox = Oxides of ni trogen, NMVOC = non-metallic volatile organic compounds, CO = carbon monoxide, CH4 = methane, CO2 = carbon dioxide, N2O = Nitrous Oxide

Table 2: Geographical extent of pollutant effects

Source: Based on Hickman, 1999

Another environmental impact is caused by noise pollution, which is mainly induced by road traffic at the local level. According to den Boer and Schroten (2007), noise disturbance leads immediately to annoyance, communication difficulties, loss of sleep and impaired cognitive functioning, altogether, resulting in loss of work productivity. Long-term effects may be physi- ological and psychological health issues. For instance, 90 per cent of the people in the UK hear road traffic noise while at home and even 10 per cent of these regard this noise as high- ly annoying (Watts, et al., 2006).

Although significant reduction in noise levels have been accomplished through technical im- provements, e.g. engine design, tyres and the aerodynamic profiling of vehicles, the overall noise level have not declined yet. This is because the growth and spread of traffic in space and time have equated both technological improvements and other abatement measures (INFRA, 2004).

Moreover, several databases compiled by various European organizations show that the environmental impact of the different modes of freight transport have. Table 3 indicates one set of energy consumption and emissions estimates for the most atmospheric pollutants. In a global sense, environmental impacts of different transport modes are compiled by the OECD report on Globalisation, Transport and the Environment (2010).

[...]

---

¹ The McKinsey survey was conducted in December 2007 and received responses from 2,192 executives around the world; 27 per cent of them were CEOs or other C-level executives.