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Supply Chain Emissions Overview: Three Trends for Shippers to Know

Governments worldwide are tackling climate change by setting aggressive targets to reduce greenhouse gas (GHG) emissions within prescribed timeframes. Regulatory bodies like the European Union are calling for companies within various sectors to slash their emissions, such as the EU’s emissions trading system (EU ETS) for the European maritime sector, which became effective in January 2024.

For a company to meet the GHG standards set for a sector, it must not only know how much GHG emissions it produces within a given timeframe but also how to report that data to government agencies. That means organizations will have to be familiar with emissions directly and indirectly related to that company’s operations.

The emissions indirectly related to a company’s operations are called Scope 3 emissions. These are emissions that come from the activities of assets not owned or controlled by the reporting organization, such as emissions along the supply chain. According to the U.S. Environmental Protection Agency, Scope 3 emissions, which are also referred to as value chain emissions, often represent the majority of an organization’s total GHG emissions. 

The statistic that Scope 3 emissions constitute a majority of an organization’s emissions can be found elsewhere. According to an April 2023 Bloomberg article quoting the UN Global Compact,

Scope 3 emissions may account for as much as 70% of an average corporation’s total emissions. However, of the roughly 15,000 companies that report environmental, social, and governance (ESG) data, only 20% disclosed their Scope 3 emissions for the 2020 fiscal year, the Bloomberg article said. 

To comply with regulations, shippers will need systems in place that will enable them to report Scope 3 emissions data accurately and efficiently. This is where companies like Searoutes come in. We can help shippers calculate their Scope 3 emissions, and we can provide insights into other areas where emissions reductions can occur.

Regulators Take Aim at Scope 3 Emissions

Regulators are putting major pressure on both shippers and carriers to reduce Scope 3 emissions found along the supply chain.

In Europe, the European Union has developed the EU ETS, which the EU says is a “cornerstone” and “key tool” for reducing GHG emissions cost-effectively. The EU ETS is a cap-and-trade system that reduces GHG emissions via a carbon market. While a reduced supply of allowances through recent regulatory reforms has raised the price of carbon, organizations have also become increasingly far-sighted in their strategy to reduce GHG emissions, according to a May 2024 study in the journal Nature Energy.

In the U.S., the California Air Resources Board in April 2023 voted in favor of regulation requiring locomotives operating in the state to adopt a “zero emissions configuration” starting as early as 2030. The idea behind the regulation is to transition locomotive power away from diesel. California regulators also approved plans in April 2023 requiring cargo trucks operating at ports, rail yards, and distribution centers to be electric trucks

These regulations illustrate not only regulators’ seriousness in reducing Scope 3 GHG emissions but also the need for companies to be aware of how emission reduction mandates will affect their supply chain.

World Powers Make Significant Investments in Decarbonization

Alongside regulation, world powers are also making major investments in maritime decarbonization. 

For instance, Congress passed the Bipartisan Infrastructure Law in November 2021, calling for the creation of the Clean Ports Program and the Reduction of Truck Emissions at Port Facilities Program, both of which strive to reduce GHG emissions. The Clean Ports Program promotes the deployment of zero-emission port equipment and infrastructure, while the truck emissions reduction program seeks to encourage port electrification. 

Another federal program supported by the Bipartisan Infrastructure Law is an infrastructure program affiliated with the U.S. Department of Transportation’s Maritime Administration (MARAD).  That program has $450 million in funding available in fiscal year 2024 to support projects seeking to modernize coastal and waterway ports as well as strengthen supply chains, according to a May 2024 release.

Meanwhile, in the U.K., the Labour Party, which recently won the General Election, has pledged to invest up to £1.8 billion in port infrastructure. According to an April 2024 New Civil Engineer article, the broader intent of this pledge is to encourage significant investments from the private sector into the ports. 

Shippers and Carriers Alike Struggle to Keep Pace with a Changing Industry

As the industry changes, there is contentious debate about the pace of change and how carriers and shippers alike are approaching regulatory compliance

Concerns from European environmental groups over potential profits that ocean carriers might make under the EU ETS have gotten pushback from the carriers themselves. Danish liner giant AP Moller-Maersk contended that it hadn’t recorded profits from the EU ETS, which the European maritime sector has been under since January 2024. The carrier said in a March 2024 TradeWinds article that a highly-publicized report from green group Trade & Environment suggesting that Maersk gets windfall from the EU ETS uses flawed methodology.

Carriers have been seeking to get ahead of the EU ETS and showcase their efforts to be transparent or greener in light of climate change regulations. For instance, carriers such as Evergreen and Hapag-Lloyd have released EU ETS fuel surcharge estimates as a means to show how much the EU ETS might cost shippers. Meanwhile, the CMA CGM Group announced plans in September 2022 to create a Fund for Energies, a five-year, $1.5 billion program aimed at supporting the industrial production of new fuels and promoting low-emission mobility options across its business base of maritime, overland and air freight shipping, and ports and logistics.

In the U.S., the U.S. Chamber of Commerce and other groups are pushing back on two California laws aimed at requiring public and private organizations that have a significant presence in the state and are above a certain revenue threshold to annually disclose their Scope 1, 2, and 3 emissions. The chamber and co-plaintiffs in a federal lawsuit filed in January 2024, the Climate Corporate Data Accountability Act (“CCDAA”) and the Climate-Related Financial Risk Act (“CRFRA”) “unconstitutionally compel speech in violation of the First Amendment and seek to regulate an area that is outside California’s jurisdiction,” according to a February 2024 update from law firm Vinson & Elkins.

Despite these debates between carriers and environmental groups and between shippers and regulators, the tide has already turned. Shippers and carriers alike now have no choice but to go green, and they need accurate analytics to do it. 

In a Changing Industry, Actionable Analytics are Key to Supply Chain Emissions Reduction

Shippers have a lot to navigate. Not only do they have to keep track of their direct and indirect emissions, but they also have to keep an eye on how regulatory changes worldwide affect what they must report and when. Thankfully, companies such as Searoutes have tools to help shippers meet regulatory compliance while also fulfilling their companies’ ESG goals.

Comprehensive Emissions Monitoring

Searoutes offers advanced emissions monitoring tools that enable shippers to track their carbon footprint across various shipping routes and operations. Our Vessel API tool takes existing and historical automatic information system (AIS) data or vessel data from regulatory agencies and analyzes the data to gain insights on emissions, fuel consumption, and other environmental metrics. Through this tool, users can accurately assess their sustainability performance and identify areas for improvement. 

Data Analytics and Visualization

Leveraging advanced data analytics techniques, Searoutes analyzes and visualizes sustainability data, making it easier for shippers to identify trends, patterns, and outliers in their emissions data. 

For instance, our CO2 API tool enables users to see how they can minimize their carbon footprint while still optimizing operational and procurement efficiency. CO2 API uses algorithms to determine optimal routes and their related emissions data. Through interactive dashboards and reports, Searoutes empowers shippers to gain valuable insights into their sustainability performance and make informed decisions.

Route Optimization for Emissions Reduction

Searoutes’ route optimization algorithms minimize fuel consumption and emissions by recommending the most efficient and eco-friendly shipping routes. 

Searoutes’ Routing API enables users to identify optimal routes that reduce emissions, taking into account canal and port entries, piracy zones, and other factors such as transit time and vessel speed. The API takes that information and uses algorithms to estimate carbon emissions and monitor fuel consumption, thus optimizing operational efficiency and enabling shippers to lower their supply chain emissions. 

Searoutes Provides Visibility Into Emissions Data

In today’s shifting landscape of supply chain management, the focus on emissions reduction has never been more critical. This article delves into some of the key trends shaping the industry and what they mean for shippers. 

From heightened regulatory pressure to significant investments in decarbonization, the urgency to go green is undeniable. As the debate on regulatory compliance rages, one thing is clear: actionable analytics are paramount for effective emissions reduction. Searoutes steps in with comprehensive emissions monitoring, data analytics, and route optimization tools to empower shippers in their sustainability journey.

Our tools — CO2 API, Routing API, and Vessel API — enable shippers to feel confident that they are being compliant with regulations. Our insights can help companies understand how well they are fulfilling emissions reduction goals.

Contact Searoutes today to get started

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