COPYRIGHT METABOLIC & HM CO., 2015
ENGINEERING SOCIETAL
TRANSFORMATION
Global Freight Sector Analysis:
Looking Forward to a More
Robust 2030
A Systemic Analysis of the Global Freight Sector &
Suggestions for Maintaining Competitive Advantage
while Increasing Sustainability in the Context of a World
Undergoing Fundamental Change
Version 1.1, Aug. 4 2015
Christopher L. Sparks, MSc
Metabolic
HM Co.
[email protected]
+31 (0) 6 44 37 57 08
[email protected]
+31 (0) 6 16 10 85 77
Sportspark Melkweg
Meteorenweg 280
Metabolic & HM Co., 2015
1035 RN Amsterdam
The Netherlands
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Spoorweglaan 13b
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The Netherlands
Introduction
As humanity has increasingly attempted to
isolate itself from nature and natural cycles, the
consequences of ignoring symbiotic manecosystem relationships has finally taken center
stage in human condition dialogue. Universally
recognized as a driver of global economic
paradigm shifts, climate change and resource
scarcity are fast becoming factors in strategic
decisions made by governments and firms. With
early momentum behind renewable energy
sources and increasingly recognized feasibility
behind systems changes promising to centralize
production and consumption, the global freight
sector is especially vulnerable to loss of market
share. Its considerable contribution to
Greenhouse Gas (GHG) emissions further
exposes the role of freight and its partners in
bringing the global ecosystem to where it is
today.
Sustainability efforts are shifting away from
strict PR matters and are being assimilated in to
the business strategies of industry leading firms.
Humanity’s re-integration with natural systems
and mimicry of eco-cycles is quickly becoming
central to economic discourse. The results of
our distance from eco-cycles have begun to
necessitate our reintegration.
Pipelines, power grids, additive
manufacturing and skyscrapers housing urban
vertical farms are all examples of a future with
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reduced reliance on the movement of physical
goods from production centers to demand
centers. Reliance upon population growth for
future sector growth will not compensate for
these trends and oil prices are only going to
rise.
Preparing for these changes and avoidance
of complacency become central concerns for
those involved in preserving jobs and
shareholder contentment in the freight sector.
With the aim of reducing costs to offset cuts in
market share, this document serves as a project
proposal for systemic change on all levels while
integrating sustainability goals in to growth
strategies for the freight sector.
The analysis will begin with an outline of the
‘now’ challenges of the freight sector along with
economic justifications for a transition to more
sustainable strategies. Concrete and less
quantifiable reasons for change will then be
described briefly. A list of solutions to the
previously described key challenges will be
presented. And, finally, despite the globalized
application of the analysis and proposal, we will
end with an applied example of how a single,
public firm can implement some of the solutions
in anticipation of changes in the future.
Throughout we discuss why a move toward
sustainability is paramount to overall sector
survival well past 2030.
Challenges &
Drivers
Current Perspectives in Freight
The current state of the global freight sector
is consistent with most organizational structures
borne out of the industrial revolution. For many
it is treated as an isolated entity separate from
its close partners: manufacturing and
transportation. This analysis considers all three
to be intricately linked players in a greater
system. Furthermore, from both within the
freight sector and from an analytical
perspective, external costs are rarely accounted
for in both theory and policy. Stakeholders,
including citizens who provide tax-fueled
subsidies for infrastructure, are rarely
considered in current models, let alone as the
economic inputs that are, themselves, moved to
and from productivity centers. Finally, a lack of
incentives programs to incorporate
sustainability in to industry is exceedingly
difficult to implement, as simultaneous
motivations for economic and environmental
goals are viewed, contemporarily, as mutually
exclusive.
Failure to Increase Collaboration and
Unification
Myriad aspects, both tangible and abstract,
contributing to the nonexistence of a global
unified modeling and monitoring system (UMM),
are observable in 2015. Perhaps the most
pertinent and basic issue is the lack of
deployable data available. Data integrity is
necessary to construct workable
demonstrations of how a sustainable freight
sector could look in 2030 and beyond.
Data asymmetry, however, has two cohorts
in creating this barrier. The first is hesitation on
behalf of firms, who enjoy their data
independence for various reasons, in divulging
sensitive internal data to any organization
vulnerable to international corporate espionage.
Recent developments identifying spy agencies
such as the NSA as a broker of corporate
secrets have strengthened this tendency
towards withholding data.
The second is the challenge for small
logistics companies to affordably produce
meaningful, standardized data for a future
UMM. Large publicly traded companies are
likely to have their own in-house data collecting
techniques, but the vast majority of small,
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especially trucking, firms who operate in
specific niches are hindered by the cost of IT
implementation and to a lesser extent
appropriate communication streams to
agencies.
Down the communication chain, failures in
collaboration between government
transportation agencies render meaningful data
useless.
Sector & Technology Shortcomings
Modal challenges and optimizing operations
are immediate issues that must be addressed.
Trucking is worthy of a considerable amount of
attention when incorporating sustainability in to
the freight sector for environmental and external
cost purposes. Trucks contribute
disproportionately to GHG emissions in, for
example, the U.S. despite its world-class rail
freight network (Fig.1). Challenges in reducing
dependence on road freight are compounded
when factoring employment in to policy. It is
hard to imagine politicians holding office in
2015 making a decision so detrimental to the
trucking industry and, in turn, the middle class.
Conversely, certain regions such as Europe
have optimized their rail networks for people
moving, but fail entirely in deploying it for rail
freight applications.
Developing an optimized, mixed modal
strategy, informed by the UMM, performance
measures and increased cooperation can
reduce over and under capacity wasting space
and cargo, along with further cost saving
reductions in fuel consumption. This is an easily
addressable issue that is hindered by lack of
communication.
Why Change?
The simple answer to this question is that we
have to change in order to survive both as a
species and, in turn, as an economy. From a
moral perspective we are obliged to change as
failing to do so would drastically reduce the
quality of life for our future generations. Coming
back to the freight sector, it is a strategic
necessity to adopt sustainability as a goal given
the future energy landscape reducing the need
for transporting bulk fossil fuels. Less
immediate concerns are centralization of
manufacturing within consumption centers
(additive manufacturing), localized farming, and
localized in-vitro meat production. While these
three future trends may seem far off, their
disruptive potential and that of similar
innovations have widespread consequences
that could outpace demand resulting from
population growth.
In the Not-So-Distant Future
On a more tangible level, we can also turn
our attention toward the observable
incongruence in wants, needs, and
expectations between stakeholders. On one
side of the spectrum are freight actors, and on
the other side are citizens absorbing
externalities. Between the two are governments
tasked with making the relationship as fair as
possible. Pollution, taxes for subsidies,
dwindling natural resources, and less tangible
links with cancer rates, QOL in urban centers,
and the effect that growth economies have on
the developing world are all examples of
external costs. Societal degradation contributes
to losses of entire markets, most recently seen
in the Middle East. Environmental degradation
and resource scarcity are direct causes of
regional destabilization.
From an existential, systemic standpoint
how can we solve for conflicts of interest on
such a large scale? Alongside more forceful
means such as taxing carbon and GHG
emissions, managers and policy makers should
be coached in understanding the expectations
of various stakeholders that are affected in
order to comprehend the far-reaching
consequences of their decisions. Collective
measures to promote sustainability are
increasingly viewed as a longevity strategy for
many firms. Without a market and without
consumers to drive demand, businesses and
sectors serve no purpose and cease to exist.
Addressing Key
Issues
Integrating Sectors
Freight being the agent of exchange
between each node on any supply chain, from
raw material to finished product, treating
manufacturing and freight as a single entity will
more directly address emissions issues and
internal/ external costs. Freight and
manufacturing do not simply work with one
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another; they are one in the same and should be
treated as such.
Additionally, including human transport in to
any future freight sector concepts, be they
regional or global, will add to optimizing
commuter rail systems in, for example,
metropolitan networks, especially as legacy
systems become obsolete (ex. NYC MTA). As
indirect sources of funding for infrastructure it
seems fair to include passengers in the system.
Furthermore, this unified approach has
implications for optimizing trade corridors,
cargo exchange hubs, and further upstream to
raw materials shipping. Chinas ‘Neo Silk Road,’
or ‘One Belt, One Road’ (‘OBOR’) is a striking
example of optimizing land use and integrating
sectors. By centralizing hubs and trade
corridors the plan utilizes low GHG emitters to
move goods from raw materials sources, from
hub to hub, and directly in to European markets
overland by rail. As rail is deployed more
liberally and trucking innovation outpaced by oil
pricing, within sector collaborations will
exemplify sector self-regulation free of
government intervention. In the long term,
internal cost reduction from more efficient
operations will reduce external costs that
burden the public.
Admittedly, the most challenging issue to
confront in the freight sector is providing
incentives for sustainability outside of forceful
means such as taxation and crediting. While
some cost savings are obvious and actionable,
others are harder to detect. The next section
describes the UMM system and how it can
identify hidden costs while optimizing
operations.
The Proposed UMM
The vastly compartmentalized freight sector,
with isolated organizations performing
specialized functions within the same system,
cannot move forward without a change in
thinking and structure. Because the sector and
its partners are composed of measurable units,
they can be modeled. For such a complex
system with both unit measurements connected
by different interactions, 15 years is a
reasonable lead-time for delivery. Software
revisions and modifications will occur
indefinitely.
Realistically, any system resembling a UMM
must start regionally. Where logistics have failed
in monitoring everything from loading and
offloading time to individual truck and train
movements, a UMM system would require
details all the way down to excess capacity in
trucking to concentrations of unused pallets by
requiring standardized reporting from all
individuals in the system.
All information would be digitized (eg.
Destination data and BOM lists). Much of the
tracking could be performed by GPS integration
in to all transportation methods and, in the
future, in to reusable plastic pallets as GPS
technology becomes smaller. An auxiliary
application of UMM monitoring is a proposed
excess capacity clearinghouse (ECC). An online
platform where freight space is traded as a
commodity could maximize efficiency and
justify fuel costs for, as an example, an empty
truck driving back to its origin. In the current
international trade environment this seems
feasible only for domestic applications, but as
globalization grows in its reach so to does the
usefulness of a UMM.
Cooperation between players in the freight
sector would have to occur on a monumental
scale for such a plan to roll out and be
successful. A monitoring agency, similar to the
FAA in the U.S., would have to be given the task
of operating and editing the system as well as
field feedback, especially during early stages.
Firms isolated due to their size and financial
restrictions would be worthy of special
attention, and financing arrangements could be
made with subsidies from bigger firms who
stand to benefit from their inclusion as third
parties providing excess capacities.
Overcoming hesitation due to lack of trust
could be particularly perplexing as corporate
culture enjoys a certain distance from
government intrusion by withholding
information. Measures to guarantee anonymity
in the standardized data provided would have to
be secured by encryption. Cost savings
calculations would have to be provided in real
time to the logistics operators of each firm in
the deployed ECC, and enhanced modeling
displays of cost savings would be central in
pitching the idea to executives. Further attention
will be paid to overcoming hesitations borne out
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of suspicions of corporate espionage in future
publications supplementary to this analysis.
A systemic solution for global sustainability
that has been suggested by many is a in shift
our growth based economy away from natural
resource consumption entirely, and replacement
with with closed-loop, cyclical systems. While
this theory may not apply to the short-term
concerns of the freight sector, it may have some
implications suitable for our analysis.
Many of the contemporary models for
freight systems are linear and, true to form,
create energy and material waste. Reverse
logistics can reduce some of the physical waste
and has been implemented, most notably, in the
form of standardized containers and pallets.
Furthering this effort, the freight sector is
challenged to expand standardization in to all
corners of its operations after examining exactly
which materials prove problematic (e.g. Plastic
wrapping, cardboard, damaged goods).
Extending our lens to the end of the supply
chain, penalties should be put in to place for
wasting raw materials and rent charged for the
use of landfills. Warehousing mismanagement
often results in inventory going to waste and is a
problem easily solved with a global UMM
system when incorporating demand and supply
next to capacity in to its functions.
Sector & Technological Shortcomings
Prior to discussing the following changes it
must be stated that because capital entities
need cost/ benefit motivators to initiate a
change toward sustainability, the ‘modeling’
component of the UMM must precede any of
the changes suggested.
Claiming a GHG emissions contribution
exponentially higher than its modal
counterparts, inland and overland trucking
should be targeted for a phase out due to
obsolescence in any application other than local
transport. The lead time for modernization of
legacy fleets is counterproductive to reducing
GHG emissions, and thus it is suggested that
incentives for modernizing railways and
increasing investment in rail infrastructure be
the main focus moving forward and as fossil
fuels grow increasingly scarce and expensive.
It is usually the case that different freight
modes are operated by separate companies.
Strategic partnerships, acquisitions, and
mergers can foster a healthy transition to a
intermodal freight sector, streamline
communication efforts and shorten transfer
times. Freight lobbies would then be tasked
with pressuring governments to provide
incentives for mixed modal approaches and
mergers. This has implications for the
anticipated pivot to rail as well as for a future
rise for oil prices as fossil fuel scarcity and
retrieval problems grow.
The combination of a global transition to rail,
reduction of trucking jobs, and centralized
warehousing and distribution sites will
negatively impact employment. Creative
measures to overcome what will be a wildly
unpopular transition amongst the middle
classes should be treated delicately and with
respect. The freight sector and policy makers
involved in the transition can borrow from urban
planning experts to re-locate and utilize
worldwide work forces, subject to national
contexts.
As we have chosen to treat people as
economic inputs in anticipation of future
developments, the unhealthy relationship
between humans and automobiles, as they
appeal to our individualistic tendencies, must be
addressed. The most effective way we were
able to identify reduction of automobile
numbers was to complement freight corridors
with passenger rail lines over middle to long
distances in developed countries to optimize
land use. Additionally, increasing hi-line urban
rail investment in emerging, currently
underdeveloped countries will promote
productivity. Simultaneous infrastructure
investment and availability of education in the
future through e-learning platforms will help
people in developing countries escape poverty
and contribute to a global system. In all
scenarios, bolstering rail based passenger travel
increases productivity potential for human
capital. In 2050 we would like to see, for
example, highway congestion eliminated as
cause for reduced productivity in what could
otherwise be fully productive hubs and close
the loop on wasted productivity.
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Greater Challenges
This brings our analysis back to an
important, overarching constant that
persistently hinders the human experience:
individualism. Many strict Social Darwinists will
argue that survival of the fittest applies to
humanity without carefully considering what
makes humans fundamentally human. The
ability to communicate and empathize with each
other is what has gotten us to where we are
today. Refusal to recognize the
interconnectedness of humanity by certain
members of our global society, despite readily
available modes of communication, is the
biggest challenge standing in the way of
sustainability. Any system, organization, or team
is only as strong as its weakest link.
Empowering that link to contribute his or her
human capital is essential to species survival.
United Parcel
Service
$58.232 billion in 2014 revenue, operating
income of $4.968 billion, UPS is well within its
means to expand its core competencies by
either purchasing the Central Railroad of
Indiana, or merging with CSX to form the
world’s first, truly intermodal conglomerate.
Utilizing its IT core capabilities it could pioneer
UMM software and license it out as proprietary
IP. Over time UPS would have the option to
either fully merge with CSX or expand its own,
independent rail freight services as heavy truck
freight, due to numerous reasons listed above,
spirals in to obsolescence. Significant lobbying
power would be granted to a company of this
size, and its presence in domestic politics could
transition infrastructure investment toward rail
and away from road, all parties involved
enjoying the fuel cost savings. As the harbinger
of change, UPS would enjoy the cost savings
incurred from its first mover position and further
profit from its IP in incorporating progressively
larger geographical areas and operators in to its
model. In a future with fewer trade barriers, UPS
CSX could position itself in such a way that if
owns the trade corridor crossing the Bering
Strait, it could further increase profits by leasing
to its competitors.
Appendices
Fig. 1
Robinson & Schut, 2014
Share of global CO2 emissions from fuel combustion by sector in 2010, showing that transport is a significant
polluter but also that rail is the least polluting. shows the share of CO2 emissions from fuel combustion by sector
in 2010. The transport sector in 2010 was responsible for 23% of total CO2 emissions from fuel combustion in the
world. In the same year road transport was responsible for 72% of total CO2 emissions caused by the transport
sector globally. This high emission level was created transporting 34% of people and goods. Railway moved 9%
of passengers and freight with an impact of just 3% of total transport CO2 emissions. Overall, railways generate
less than 1% of the total energy-related CO2 emissions.
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