The most impactful sustainability decision made by logisticians is the choice of transportation mode to move their freight. Planes emit 47 times more carbon per ton mile than container ships; trucks emit six times more carbon per ton mile than trains.
The more carbon intensive modes typically cost more as well. A recent article in the Wall Street Journal mentioned that air freight cost five to six times more than ocean freight. So why do companies utilize air freight? Well, as the article also points out, the use decision is all about inventory trade-offs.
Longer supply chains and slower, more carbon-efficient transportation modes require higher levels of inventory in the system. As it can take nearly a month to get goods to the U.S. from Asia, companies need to have more than a month’s worth of inventory in their distribution system. This leads to two main problems: holding this inventory costs money and there is a risk that it won’t all be sold.
Many companies are making great strides for sustainability and their bottom line by finding ways to make ocean freight fit within their supply chain. In Smart Moves, Environmental Defense Fund highlighted several of these companies. They include:
Nike, which since 2003 has been using air freight more carefully and sending an increasing amount of its cargo by ocean freight. As a result, it saved over $8 million in 2009 alone while also reducing its emissions per product moved by four percent reduction with these changes. On an absolute basis, it was able to limit growth in its carbon emissions from inbound logistics to 14 percent while increasing revenues by 70 percent.
HP also found savings in switching from air freight to ocean freight while still meeting time and inventory carrying cost pressures. The company changed most shipments of its Visual Collaboration studio – a TelePresence conferencing system – to ocean freight. This resulted in a savings of $7,000 and nearly 900 tons of carbon per shipment.
Michael Kors utilized an innovative ocean freight service that matched loads into full containers and quickly transferred the goods from ship to truck once in port. As a result, the company was able to reduce the transit time 30 percent and cut freight costs by $20 per bag.
D.W. Morgan, a transportation and logistics provider, partnered with a client to reduce inventory on the client’s books, which enabled its freight to flow via ships. D. W. Morgan picked up product at the manufacturing facility in Asia and then took title to the shipment. It also arranged for transportation to its U.S. facilities. The client arranged for delivery, only as needed, from D. W. Morgan’s U.S. fulfillment center. By doing so, the client did not take ownership of the product until it was delivered to its door.
Abercrombie & Fitch, as described by the Wall-Street Journal, also has had significant success in reducing its use of air freight. Since 2008, the company has reduced “the percentage of its inventory flown into the U.S. to 12%, from 60%”
Clearly it is possible for many companies to significantly cut their use of air freight.
For me, the key take away from the WSJ article, was the target role for air freight at Abercrombie & Fitch going forward. The company’s Senior Vice President of Supply Chain stated that its aim was to keep air freight “between 10% and 20% of products.”
This target recognizes that, given the length of supply chains and the nature of many industries, air freight has a role. Obviously from the sustainability perspective, the more limited the role of air freight the better. It can enable companies to quickly introduce trendy products and to expedite replenish stock hot-selling goods. It probably shouldn’t be the primary transportation choice, though.
Like the items on the top of the food pyramid, air freight is best when used sparingly.