Earth Day 2023: Green Strategies for Ocean Freight Procurement
As we commemorate Earth Day in 2023, it’s clear that Earth Day has grown in significance in recent years. We are more aware than ever of the importance of sustainability in achieving a positive global climate outlook, and we can’t underestimate the pressing need to take meaningful action now.
The United Nations Intergovernmental Panel on Climate Change (IPCC) issued a recent report concerning the goal of limiting global warming to 1.5°C in the next decade, warning that the world will miss this climate target unless more drastic action is taken to reduce emissions by 2030.
One of the ways that businesses can affect change is through their ocean freight procurement. The supply chain, especially transportation, is a significant contributor to greenhouse gas emissions, and as a vital component of global trade, ocean freight accounts for approximately 90% of international cargo transportation. When companies select and contract ocean shipping services to transport goods, procurement professionals play a crucial role in optimizing cost, transit time, service quality, and sustainability.
By taking steps to reduce carbon emissions through more sustainable ocean freight choices, companies are not only being environmentally responsible, but they also get to benefit from more optimized supply chains, as implementing green strategies typically supports long-term efficiency and cost savings.
Accurate carbon emission data is essential for making informed decisions in sustainable procurement. It enables procurement professionals to assess their shipping choices’ environmental impact, identify improvement areas, and select greener carriers and routes. With accuracy and precision, companies can adopt more effective measures to reduce their carbon footprint and demonstrate their commitment to sustainability.
This article explores the best approaches for companies to optimize their shipping processes and work toward a greener future for this Earth Day and every year after.
Understanding the Environmental Impact of Ocean Freight
While we’re looking primarily at the greenhouse gas emissions (GHG) of ocean freight, it’s important to remember that GHGs are just one piece of the equation of impact on the environment. In actuality, ocean freight affects the earth in many ways.
Carbon dioxide (CO2) is a heat-trapping gas, earning it the classification of a greenhouse gas. Burning fossil fuels, primarily heavy fuel oil and diesel, to power ships and other forms of transportation in the shipping industry, contribute to approximately 2-3% of global CO2 emissions. Industry growth, coupled with reliance on carbon-intensive fuels, has led to increased CO2 emissions, climate change, and rising sea levels.
Apart from CO2, the shipping industry also generates air pollution in the form of sulfur oxides (SOx), nitrogen oxides (NOx), and particulate matter (PM). SOx and NOx emissions contribute to acid rain and the formation of ground-level ozone, while PM affects air quality and human health. Emissions of these pollutants are particularly concerning in coastal areas and port cities, where shipping activities are concentrated.
Ballast Water and Invasive Species
Ballast water is used by ships to maintain stability during voyages. When taken on board in one location and discharged in another, ballast water can introduce non-native aquatic species, which can outcompete native species and disrupt local ecosystems. These invasive species can cause significant ecological, economic, and public health problems in the affected areas.
Oil Spills and Waste Disposal
Oil spills from ships, either due to accidents or illegal discharge, severely threaten marine ecosystems and wildlife. The resulting pollution can damage habitats, kill marine life, and contaminate local food sources. As the shipping industry generates various types of waste, like plastic, food, and hazardous materials, improper waste disposal practices can lead to marine pollution and harm the environment.
The Role of International Regulations and Agreements in Mitigating Environmental Impact
The good news is that numerous governing organizations are working to reduce the impacts that supply chain operations have on the environment. These include the International Maritime Organization’s (IMO) EEXI and CII regulations, European Union’s Corporate Sustainability Reporting Directive (CSRD), and the US’s National Blueprint for Transportation Decarbonization, which set ambitious goals and guidelines to reduce greenhouse gas emissions and encourage sustainable practices in this sector.
IMO Regulations: EEXI and CII
In 2021, the IMO set a target to reduce ships’ carbon emissions by 40% by 2030. To achieve this goal, the IMO and the Marine Environmental Protection Committee (MEPC) drafted amendments to existing greenhouse gas emissions regulations, introducing the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII).
The EEXI is a metric that determines energy efficiency and carbon emissions for existing vessels over 400 gross tonnages. Under EEXI regulations, the IMO and the MEPC evaluate the required EEXI compliance levels based on the design of a ship. EEXI regulations require container ship owners to calculate their carbon emissions levels and take steps to lower them if they exceed the required limit.
The CII measures carbon intensity over time and requires vessels larger than 5,000 gross tonnages to quantify and report carbon emissions generated on a voyage. Ships are then ranked on a scale from A to E. Ships that earn a D rating for three years in a row or an E in any year must devise a corrective action plan.
Asset owners had to ensure their assets comply with EEXI and CII regulations by January 1, 2023. Ships that do not meet EEXI shipping standards will not receive an International Energy Efficiency Certificate. For CII, ocean carriers must determine each ship’s carbon profile and keep proof of compliance onboard.
EU Regulation: CSRD
The Corporate Sustainability Reporting Directive is an EU directive aimed at promoting sustainability and responsible business practices. It requires large companies operating in the EU to disclose information on their environmental, social, and governance (ESG) performance in their annual financial reports, the first expected for the 2024 fiscal year. The CSRD expands on the Non-Financial Reporting Directive (NFRD) and addresses its shortcomings by requiring more companies to report and providing more detailed reporting requirements.
The CSRD offers benefits of increased transparency, efficiency, and the opportunity for companies to improve their brand reputation. The CSRD uses the concept of double materiality, which means it takes into account both the impact of environmental and social issues on reporting companies and the impact of reporting companies on environmental and social issues.
Reporting companies are required to track and report on a range of ESG-related topics, including:
- Environmental policies
- Social policies and treatment of employees
- Respect for human rights
- Anti-corruption and anti-bribery policies
- Diversity on company boards
- Goals and progress for sustainability and ESG performance
- Impacts on the environment and society caused by company operations
- Risks to the company regarding sustainability
- Effects on company operations and performance caused by environmental and social risks
- The materiality process used for choosing areas of focus
US Regulations: National Blueprint for Transportation Decarbonization
The US government released the National Blueprint for Transportation Decarbonization in January 2023, aiming to eliminate all transportation-related emissions by 2050. The Blueprint sets a sub-goal of a 50% reduction in economy-wide net greenhouse gas (GHG) emissions by 2030, compared to 2005.
The overarching strategy of the Blueprint addresses transportation system design and land use, vehicle and engine inefficiency, and reliance on high greenhouse gas fuels. It details emission reduction opportunities for road, rail, ocean, and air transport.
For ocean transport, the focus is on research for alternatives to traditional fossil fuels, hybridization and increasing energy efficiency, renewable energy sources, exhaust treatment, and carbon capture. The federal government also supports programs and grants for vessel upgrades and port infrastructure improvements.
Companies utilizing freight transportation from outside providers are responsible for their decisions, as the transportation emissions of the providers they choose contribute to their Scope 3 emissions category for reporting. The potential for penalties, such as New York’s Cap-and-Invest program, highlights the importance of prioritizing sustainability for businesses.
More companies are discovering the value of technology platforms to handle their approach to new government initiatives, getting visibility and analytics for Scope 3 carbon emissions. With this data, they can better understand their current performance, opportunities for improvement, and compliance with regulatory requirements.
The Role of Accurate Carbon Emission Data in Sustainable Procurement
Accuracy and precision are both keys to making better ocean freight procurement decisions. Accuracy, how close to the actual value measurement is, is essential for data and reporting to correctly represent the environmental impact. Precision, a measurement’s reproducibility, is vital for collecting and comparing data from multiple scenarios, like different shipping options.
One traditional method of understanding carbon emissions is using carbon emissions average calculations. Despite the benefit of their simplicity, they come with limitations, as they often generalize estimates that may not accurately reflect the specific emissions of individual vessels or routes. These limitations can hinder the ability of companies to make informed decisions regarding sustainable ocean freight procurement, as they cannot effectively compare the environmental performance of different transportation options.
On the other hand, data that is accurate and precise–rather than an average–allows companies to evaluate the true environmental impact of their supply chains and identify areas for improvement. They can make more informed choices that contribute to their overall sustainability goals, helping them meet regulatory requirements, avoid penalties, and enhance their reputation among stakeholders.
3 Approaches to Carbon Emissions Measurement
Companies seeking to reduce their carbon emissions need to understand their position first by measuring their past and present footprint. There are three main approaches to measuring carbon emissions in the transportation sector: primary data, default data, and modeled data.
Primary data involves collecting actual emissions data from the exact source, the ship, truck, train, or plane. Primary data provides the most accurate and reliable information, reflecting the actual emissions generated by the specific transportation activity. The problem is that this major benefit comes at a cost. It is resource-intensive and time-consuming to collect. More importantly, it is not available for all situations, meaning companies must still have another method to fall back on when primary data is unavailable.
Default data relies on predetermined values and averages to estimate carbon emissions, typically provided by industry organizations or regulators. While default data is easier to obtain and apply, it does not accurately and precisely represent the specific emissions of individual transportation activities, leaving the door wide open for poorly informed procurement decisions.
Modeled data uses algorithms and data models to estimate carbon emissions based on various factors, such as ship size, fuel type, and distance traveled. Modeled data can provide a more accurate picture of emissions than default data—as long as companies use a quality model with regard to their underlying data and assumptions.
To achieve the most accurate and granular carbon emissions data, companies should strive to use modeled data, fed by primary data whenever possible for the most accurate modeled outputs. By doing so, businesses can make the best informed and sustainable procurement decisions, understanding the impacts of each option and reporting their carbon emission reduction progress over time.
The Need for Continuous Data Improvement
One final component is needed for companies striving for ocean freight sustainability goals: continuous data improvement. As regulations, technologies, and industry best practices evolve, so must the methods and accuracy of carbon emission measurements. Continuous improvement involves refining carbon emissions data to ensure its relevance, accuracy, and applicability to current industry standards and practices. This ensures companies can keep pace with evolving regulatory changes, take advantage of new technology, and refine their decision-making capabilities.
Green Strategies for Ocean Freight Procurement with Searoutes
When businesses partner with Searoutes for sustainable ocean freight procurement decisions, they gain the quality data and methodology that enables the following strategies.
Selecting Greener Procurement Options
Searoutes uses detailed information on vessel specifics in combination with accurate distances as well as carrier services. This allows procurement professionals to identify alternative, cleaner routes as well as options to utilize other modes of transportation.
Collaborating for Better Carbon Emissions Data Accessibility
Through partnerships, companies can make their data more accessible, using emissions calculations in other systems and platforms. This helps them understand the impact of their procurement decisions from other perspectives within their operations. As an API-first company Searoutes aims to make data integration as easy as possible either directly or through partnerships with logistics technology providers.
Encouraging Additional Green Practices
Searoutes provides a GLEC-accredited methodology, so companies can establish green performance standards and more eco-friendly practices and technologies. The goal is to help shift focus to sustainability, even for service providers, challenging them to consider ways to reduce their carbon emissions.
Key Considerations for Implementing Green Procurement Strategies with Searoutes
How exactly does working with Searoutes facilitate green ocean freight procurement? It’s important to approach procurement decisions with the following considerations.
- Balancing environmental and operational priorities – Weighing options of supplier selection and routes to mitigate risks from disruptions and route optimization while minimizing their environmental impact.
- Engaging with stakeholders and industry partners – Collaborating with suppliers, carriers, and other stakeholders to help drive environmental progress.
- Tracking and monitoring environmental performance – Monitoring the impact of their sustainability initiatives, identifying areas for improvement, and having proof of true emissions reductions.
Take the First Steps Toward Sustainability with Searoutes
Procurement professionals have a role in driving sustainable change within the shipping industry. They can make informed decisions about vessel selection, route optimization, and collaborative procurement initiatives using advanced data analytics and carbon emissions measurement tools.
Searoutes serves the shipping industry as a partner in this journey toward sustainability, providing quality data, insights, and tools to enable businesses to adapt to ever-changing regulatory landscapes and stakeholder expectations. By working together and fostering a culture of sustainability, the shipping industry can contribute to a cleaner, greener future for all.
To learn more about Searoutes, reach out today to schedule a demo.