Tag: Sustainability

Carbon emissions of ocean freight: what is your value at risk?

When looking to invest your savings in a portfolio, you are likely to scout for asset managers with good past performance. It is natural to seek reassurance by examining the history of the returns of a fund. Most often than not, it’s even in the brochure: “Our alpha lambda fund has shown an average past performance of 5.6% per year over the last 10 years”. Should you invest?

On the fallacy of averages.

As a seasoned investor, you know the fallacy of averages. On average, a drunk man will walk in a straight line, right in the middle of the road, with cars driving left and right. On average, the drunk man is alive. In real life however, his walk will take him left and right, randomly. Almost surely, he will hit a car on either side, and die. 

There is no doubting our ability to make wise investment decisions. And, admittedly, the portfolio allocation problem has somewhat been solved today, with a panoply of tools allowing one to make the right choice, factoring in value at risk, volatility, max drawdown, and other metrics.

That’s for investment strategy. In the world of logistics, when talking carbon reduction strategy, why is it that we still rely on averages in 2022?

Carbon emissions of ocean freight.

For the purpose of illustration, let’s consider a transpacific trade, between Shanghai (CNSHA) and Los Angeles (USLAX). We are seeking to estimate the CO2 emissions of one twenty-foot equivalent (TEU) container, the standard unit of measurement of ocean freight.

The Global Logistics Emission Council (GLEC) has designed a framework which unifies methodologies to estimate carbon emissions of all transport modes. For ocean freight, the methodology follows the recommendations of the Clean Cargo Working Group (CCWG), which provides emission factors per trade lane (publicly) and per carrier (for CCWG members). This methodology provides a good baseline for our estimations. From the GLEC methodology document, one can read:

TradelaneContainer typeAggregate average trade lane emission factor, in g CO2/TEU -km
Asia to-from North America WCDry67.1
Reefer116.5

With these numbers in mind, the CO2 emissions of 1 TEU is 1 TEU x Tradelane Emission Factor x Distance (CNSHA – USLAX) = 0.69 tons CO2. In this simple equation, only the distance is an adjustable parameter. It is commonly accepted that one should use the shortest sailable distance, adjusted by 15% [see GLEC]. But we already see how this will be problematic.

Difficult to make an investment decision based on averages. Difficult to make an allocation decision based on averages. 

Someone working in procurement, at a large retail company, may find himself stuck with this one number: 0.69 tons of CO2 between Shanghai and Los Angeles, whatever the vessel, whatever the sequence of port calls, whatever the fleet or the carrier. 

Difficult to make an allocation decision based on averages!

The physics of ocean freight as the better estimator.

If we look closer at the physics of ocean freight, carriers operate fleets of vessels of different sizes and ages, they form alliances around a particular sequence of port calls (called a service), on which the speed and distance sailed vary. Because of this reality, the CO2 of a portfolio of ocean freight, just like the return of a portfolio of stocks, shows value at risk, volatility, max drawdown, and other metrics.

When moving away from averages, and estimating the CO2 emissions of every vessel assigned to a service sailing the Asia to-from North America WC trade lane, the picture looks like this:

Screen Shot 2022-02-24 at 6.30.29 AM.png

In this picture, each green bubble represents a service operated by a carrier and its alliance, between an Asian port and a North America west coast port. The bubble is placed horizontally on the x-axis depending on the average CO2 of that service. The radius of the bubble shows the volatility in carbon emissions of that service. The more inhomogeneous the fleet of a particular service (and its alliance), the larger the bubble.

Just as in the case of the random walk of the drunk man, what is striking on that picture is the spread of values. The conclusion of our modelling is that the carbon emissions reported by carriers are likely to fluctuate left and right. The amplitude of these fluctuations, and the baseline average is specific to each carrier and its alliance. The good news: there is a lot of room to allocate wisely!

For our specific port pair, Shanghai to Los Angeles, we can look at the specifics of 5 services operated by the 3 largest ocean alliances. We report in the table below the  CO2 emissions averaged across the vessels operating each service. Which service would you pick to reduce your carbon emission bill?

co2 avgco2 minco2 maxco2 stdintensityservice names
1.050.881.180.090.96Alliance Service A
0.610.380.860.140.57Alliance Service B
1.160.911.400.131.09Alliance Service C
0.820.750.980.070.75Alliance Service D
1.060.991.160.070.99Alliance Service E

We notice that the service with the lowest average CO2 values (Service B) is also the most volatile. This means the fleet on this service is heterogeneous in size and age. As comparable transit time and rates, we’d most likely choose service D, which has the best risk / return ratio, as see on the graph below.

The physics of ocean freight shows us there are many more colours to the rainbow than a single average. Like in the case of an investment decision, carbon emissions management starts with an understanding of the right metrics of volatility and risk.

The question remains however, if Searoutes model is a better estimator of the future (than one average value), is the past an even better predictor?

Is the past a good estimator of the future?

To continue our portfolio management analogy, returns and volatility cannot only be based on models. Models are useful to estimate the future, but only the raw data will paint the right picture of the past.

Luckily, data is not a scarce commodity in ocean freight. The AIS revolution has given us the position and the speed of every vessel worldwide, and this comes in handy for our CO2 estimation story. Not unexpectedly, raw data shows a wide variation in distances, and speeds. We plot 3 trajectories of the same vessel, at 3 different time periods.

January 21

July 21

Pacific.png

September 21

Pacific.png

Focusing on the real trajectories of vessels, we can compute the actual emissions of Service C below.

Vessel imoco2 minco2 maxco2 averageco2 std
9xxxxx11.812.011.880.07
9xxxxx21.611.781.700.09
9xxxxx31.651.981.810.10
9xxxxx41.821.961.900.04
9xxxxx51.942.172.050.08
9xxxxx61.611.781.700.09

Conclusion

Managing carbon emissions in the logistics is a bit like portfolio management. One cannot realistically make good choices solely based on averages. Ocean freight has inherent physics which creates spreads and volatility in carbon emissions. The right model helps frame and estimate these, so the right objectives, and subsequent reduction strategy is put in place. Just like in finance, past data points can be used to better calibrate our models. And, just like with your 401k, your long term trend will converge to your goals.

Let us know if you would be interested in getting detailed carbon emissions data or to further explore your entire logistics footprint and gain control of your logistics carbon emissions today!

Searoutes raises €2.4 million to reduce shippers’ GHG emissions

Marseille, 22 November – Searoutes, the Marseilles-based start-up that helps shippers reduce the carbon footprint of their transport, has announced a €1.3 million financing round led by WSB Beteiligungs, the venture capital firm founded by Wolf Scheder. 

Created in 2019 by Dr. Pierre Garreau and Carsten Bullemer, Searoutes has designed its own, proprietary eco-calculator to compute the carbon footprint of a container along its journey. Incubated and accelerated by ZEBOX, the international incubator and accelerator founded by the CMA CGM Group, the start-up already has some sixty key accounts including Roquette, a global leader in plant-based ingredients for food, nutrition and health markets and Ceva Logistics a global logistics and supply chain company and is rapidly adding new customers.

Technology to help shippers reduce GHG emissions 

Currently, greenhouse gas (GHG) emissions from transport account for up to 10% of shippers’ total GHG emissions. This is compounded by the fact that calculating emissions in the logistics sector is a laborious task and prone to poor quality data. 

Searoutes sees an opportunity to replace outdated spreadsheets with its data rich API and developed a SaaS platform using its own data and proprietary algorithms to help shippers find ways to reduce their emissions. Searoutes’ technology can process and transform extensive datasets of freight information (historical ship positions, satellite data, engine specifications, schedule information, weather data, etc.) into meaningful information. The start-up helps shippers do more than just report their carbon footprint, by identifying opportunities to reduce and better manage their greenhouse gas emissions. 

For example, a shipper can reduce their GHG emissions by 30% when making purchasing decisions by choosing newer, larger and slower fleets, and by up to 60% by choosing the right combination of ports and mode of transport when planning a door-to-door route.

Becoming the standard in GHG transparency for freight transport

Searoutes aims to become the standard in GHG transparency for freight transport, and its “data first” approach is already leading the way. The deal will fund the acceleration of the deployment of the solution to shippers and freight forwarders as well as other related technology platforms. Searoutes is also continuing to invest in research, in partnership with AI laboratories, to optimise the door-to-door loading-unloading cycle. 

Dr. Pierre Garreau, Founder and Managing Director adds “Shippers have to deal with purchasing and managing logistics throughout the entire supply chain, not just the ocean piece. We need to help them shape better procurement strategies. For instance by choosing greener modes of transport, or more appropriate port of loading or discharge. Searoutes’ vision is to give more visibility to green carriers, and enable shippers to select them more proactively.”

International Recognition

Wolf Scheder-Bieschin, leading the seed investment round through WSB Beteiligungs GmbH, added: “Searoutes is rapidly winning over international transport professionals with its innovative approach. 

Searoutes services bridge the gap between current market solutions and a need to tackle climate change issues facing the supply chain and maritime industries. I’m impressed by the technology and R&D in place at Searoutes for developing powerful complex algorithms to analyse and process data. This offers a significant advantage for everyone involved in the industry.”

The funding round includes several investors with significant expertise in logistics and freight transport, including OHB venture Capital GmbH, the venture capital arm of the OHB Group, Team ABC venture, CMA CGM, a world leader in maritime transport and logistics, and angels such as Thomas Sørbø, founder of the leading ocean freight rate benchmarking and market intelligence platform, Xeneta. 

In addition, in August this year, the start-up was awarded a grant of €1.1 million from the European Maritime and Fisheries Fund (EMFF), financed by the European Commission as part of the project n°101038570 “CO2NTROL” in partnership with BuyCo, bringing Searoutes’ total funding to €2.4 million. 


About Searoutes

Searoutes is a start-up specialising in innovative digital solutions for the sea, air and logistics sector. It was founded in Marseilles, France, in January 2019. The company was set up by two co-founders – Dr. Pierre Garreau and Mr. Carsten Bullemer, two sailing enthusiasts and experts in the logistics and maritime industries. Searoutes is the first distance calculation service that uses historical ship data collected from AIS signals. The company developed the backbone of its routing algorithms in collaboration with LIS – QARMA at the University of Aix-Marseille. Searoutes provides the maritime and logistics industry with real-time routes and a CO2 emissions calculator to encourage more environmentally friendly routing and greener freight transport. Searoutes joined the ZEBOX fast track program in January 2019. It also has an office in Hamburg, Germany, to forge new partnerships in the logistics industry. 

About OHB

OHB SE is a German space and technology group and one of the leading independent forces in the European space industry. With over 3,000 highly qualified employees and 14 locations in 10 countries, the OHB Group is excellently positioned to face international competition and has made a name for itself as a reliable partner for government institutions and private companies. OHB SE's activities are spread across three business units: Space Systems, Aerospace and Digital. While satellite systems and space missions are realised in the Space Systems segment, the Aerospace segment is a major supplier to the European aerospace industry. The third and newest business unit, Digital, combines launch services, satellite operations and the development of IT applications based on satellite data.

About Team ABC

Team ABC is an international venture capital fund that invests in sustainability and digital transformation in the transportation and tourism industries.Team ABC finds, supports and scales early-stage disruptive technology focused on increasing sustainability and digital transformation. The Fund is headquartered in Dublin, Ireland and operates globally. Team ABC mentors early-stage products with large potential market opportunities that solve a clear industry problem.



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