Third-Party Logistics Turns To Greening Supply Chains

Issue Brief

With Fortune 500 decisionmakers ever more mindful of their companies’ environmental and energy impacts, the Third-Party Logistics (3PL) industry can expect to play a significant role increasing the efficiency of their transportation functions, and reducing their carbon footprints.

This week Wal-Mart, the world’s largest retailer, begins to implement its new sustainable product index, designed to track the sustainability of all of its worldwide suppliers, and ultimately to provide product-level reporting to consumers. The information Wal-Mart is requiring from suppliers includes factors like energy consumption and greenhouse gas emissions, which are largely opaque in most commercial supply chains.

As retailers seek to offer consumers unprecedented transparency, manufacturers and other suppliers will need to drill deeper into supply chains to demonstrate and improve the environmental impact of their products. In many cases, carbon emissions can be seen as a proxy for operational efficiency, especially for larger shippers. Typically, 3PLs achieve their greatest success improving supply chain efficiency along the highest-traffic shipping lanes where shipments can be most easily consolidated. This pattern can be expected for environmental and energy savings as well.

With the smaller trucking companies that move most of the freight across the United States already operating in extremely competitive markets with the slimmest of margins, the work of measuring the carbon footprint of their shipments will likely fall to 3PL providers. But many of the most effective strategies for fuel efficiency will depend on their being implemented by smaller carriers. Nonprofit organizations like Oregon-based Cascade Sierra Solutions are matching government and private funding sources with new technologies, like tire pressure systems, auxiliary power units to reduce engine idling and diesel exhaust treatment retrofits, that should make a significant difference improving fuel efficiency and lowering emissions.

Leveraging technology on behalf of shippers has created markets for value-added services for 3PLs in recent decades. Many larger purchasers of 3PL services rely on the increased inventory visibility they provide to help manage supply chains with smaller inventories, outsourcing logistics functions like warehouse management and point-of-sale analysis.

If retailers recognize this new supply-chain transparency influencing consumer behavior, 3PLs that already track supply chain details will likely see an increased market for such information. A 2008 survey of major 3PL providers noted that most had implemented new environmental sustainability initiatives during the past year. And past patterns indicate these will likely see some success: American households saved an average of $1,000 annually between 1980 and 2000 because of reductions in freight logistics costs.