How Logistics Companies Can Route Better for Reduced CO2 Risk
Much of logistics companies’ work falls under the largest segment of carbon emissions—transportation. In the U.S., 27% of all carbon emissions are the result of transportation, and within transportation, 26% are from medium and heavy duty trucks, for a total of 422.8 million metric tons CO2 equivalent.
Logistics companies and freight forwarders have their work cut out for them when it comes to reducing carbon emissions. While companies hire them to meet their needs for transportation, there is an increasing focus on conducting this in an environmentally conscious way.
One technique with significant potential is logistics companies improving their routing decisions to reduce carbon emissions. In doing this, these companies are finding a more efficient way to get freight moved from pick-up to destination that adds benefits for them, the environment, and the customer. In this article, we’re looking at route optimization, why logistics companies should optimize to reduce carbon emissions, plus how to achieve this goal of making better routing decisions.
Why Logistics Companies Should Strive to Improve Routing Decisions
Where transportation routing by itself is simple with only a few parameters, route optimization introduces additional factors to aim for a better result. Often, the goal is cost-efficiency and resource-efficiency for the benefit of the logistics provider or carrier. Another goal can be to reduce their carbon emissions. When logistics companies invest in route optimization solutions and strategies, they can reduce their CO2 risk.
Every supply chain partner has a growing list of reasons to reduce their CO2 risk. The International Maritime Organization (IMO) recently set 2030 as the target for reducing vessel carbon emissions by 40%, and to achieve this, they drafted the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII). Vessel owners must ensure their assets comply with EEXI and CII regulations. The European Union (EU) also introduced the Corporate Sustainability Reporting Directive (CSRD), which requires certain companies to report sustainability risk and environmental impacts starting with the 2024 fiscal year.
These new regulations add pressure to logistics companies, freight forwarders, BCOs, and vessel owners. Vessel owners are directly affected by the need to ensure compliance, but the focus on sustainability trickles down to the logistics provider or forwarder and the shipper. When managing carbon emissions reporting, the shipper needs data from their carriers for Scope 3 emissions, which are not directly within their control. Carriers, owning the assets of vessels or trucks that produce the carbon emissions, report this data as Scope 1 emissions.
The logistics provider has a middleman type of role between the shipper and carrier. They can incentivize carriers to stay up to date on the latest climate regulations and help carriers understand what is needed regarding carbon emissions reporting for other parties to reduce their CO2 risk. Logistics companies also understand shippers’ needs and can consider different options of routing to decrease carbon emissions for each shipment.
In addition to regulatory compliance, here are three reasons logistics companies should make carbon emission reduction their goal through route optimization.
Increase Cost Savings
By using resources more efficiently, logistics providers can drive down cost and maintain a higher profit margin because they are not paying for wasteful usage of transportation. For trucks, this means avoiding empty miles, or the distance traveled with trailers empty while driving to their next pickup location. Loads delivering to a region that have few options of loads exiting that region tend to reflect the likelihood of increased empty miles by being more expensive for the shipper. If the logistics provider can find a way to reduce this waste, they along with the shipper can save on transportation costs while reducing carbon emissions for that shipment.
Become a Provider of Choice
Logistics companies are more likely to win bids with their customers when they can provide services that align with their values, whether that be a cost-efficient network, greener options, etc. When the logistics provider delivers this effectively and reliably, shippers take notice, and their providers earn more business. The provider can develop a positive reputation for their sustainability practices and make the process easy as well as beneficial to them with their own cost-savings.
Positively Impact the Environment
An increasing number of consumers in the U.S. are motivated to pay more for products that are sustainable and environmentally friendly—66% of adults and 80% of the young adult demographic. Sustainability is simply the direction that customers and the entire industry is headed, focusing on the bigger picture goal of taking care of the environment, and companies should consider making this a company value and taking action to effect change.
How Routing Technology Reduces CO2 Risk for Logistics Companies
Route optimization is a valuable goal for logistics companies to have, but how do they translate this goal into action? The answer is finding a technology solution to be the powerhouse behind collecting and analyzing large amounts of data. Without a software or platform solution, companies risk spending too much time strategizing their routes without complete data to drive their decisions.
Logistics companies can find different types of route optimization technology based on their priorities. Cost-efficient routing is one option, but when it comes to lowering CO2 risk, companies must use technology that specializes in carbon emission reporting. To get a complete understanding of the steps to take to optimize routes, it starts with reporting. From there, companies can reduce their carbon emissions.
Report, route, and reduce—these are the basic steps. This framework holds true for any company seeking to make significant and informed change.
Reporting on past carbon emissions data is the essential first step that allows companies to establish a baseline. To do this effectively, data must be both accurate and precise. Without both, the lack of clarity can obscure the facts from companies trying to analyze their data. Accuracy and precision are best achieved with a modeled data methodology—utilizing granular data from a variety of sources to account for the many possible factors and angles of what is being measured, a markedly different method than using primary or default data. The result is high-quality, meaningful data on past performance.
From a visibility platform, logistics companies need an easy-to-use yet detailed dashboard to understand their data. Users can get a snapshot of valuable metrics such as their CO2 emissions by trade lane and by load and the intensity by load.
The next step is where logistics companies interpret their data to develop a plan for route optimization. They can identify their biggest sources of carbon emissions and their biggest potential for reduction, which are not automatically one and the same. Once the selections are made for the trade lanes that need improvement, the company needs further data to assess the alternatives. From there, they have an actionable plan with data-driven proof that it should make an impact on their carbon emissions.
Of course, carbon emission reduction is the focus for optimization, but it is not the only factor that routing decisions are based on. Logistics companies also need data on rates and route schedules so they can compare and decide with complete information, weighing their priorities. For example, one lane may be one day faster than another but produce three times the carbon emissions.
Lastly, companies can clearly see their carbon emission reduction and progress made, as made possible by their visibility data and tools. Reliable reporting methods inform them and their stakeholders, and they can be confident that each routing decision was made toward a more sustainable service for their customers.
No improvement process would be complete without a feedback loop to measure and report the results of the changes made that, in turn, supply data to repeat the process. Companies can continue to track their data with accuracy and precision and make incremental changes that help them reach their sustainability goals.
Get carbon emission visibility and route optimization with Searoutes
Logistics companies are seeing more reasons to focus their efforts on reducing carbon emissions—with pressures from regulations related to EEXI, CII, and CSRD, customer expectations, and their own responsibility to adopt sustainable practices—and they have a significant opportunity through optimization of their routing decisions.
Searoutes offers the carbon emissions visibility and analytics to support these goals across all modes of transportation. Our solution emphasizes accuracy, precision, and reliable data, enabling companies to make informed decisions and track their progress towards sustainability. To see a demo and learn more about how Searoutes helps optimize routing decisions, reach out to us today.