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Girotti Says:
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 One very interesting aspect of this is that FSC programs are not the same for all modes.
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In transportation, there is a direct correlation between being Green (environmentally responsible) and saving green (money). As with almost everything else, reducing one’s carbon footprint translates to using less energy (petroleum-based fuels). The difference for transportation is that there is a built-in economic incentive for companies to reduce their carbon footprint - it is called a Fuel Surcharge (FSC). A fuel surcharge is the additional charge that shippers pay carriers, over and above the negotiated base rate for transporting freight. It is typically tied to the DOE’s weekly publication of the national price of diesel. As diesel goes up, transportation costs go up - instantly. So if a shipper can reduce the amount of diesel their carriers consume, they will directly reduce their cost, and thereby reduce their carbon footprint.
One very interesting aspect of this is that FSC programs are not the same for all modes. As the mode of transport becomes more fuel efficient, the FSC per ton-mile should be less. So as a shipper shifts from truckload (TL) service to intermodal service to rail service, the amount they pay on FSC per ton-mile should decrease. The question is how much. It is relatively easy to estimate a fair TL FSC program because there is only one fuel burning unit for the entire service (i.e., one engine per load). If the average truck engine gets 6 miles to the gallon, then for every $0.06/gallon the price of diesel goes up, the FSC should go up $0.01/mile. The issue is more complex with intermodal service and even more so for rail, where a single fuel burning engine services many shippers’ loads on a single train. This is where the carbon footprint comes in. The railroads are advertising they produce 3-4 times less carbon per ton-mile than trucks and most intermodal service providers will calculate their carbon footprint relative to truckload service by specific lane. Since the entire delta in the carbon footprint between the modes is from using less fuel, it can be argued that the FSC programs between modes should use the same ratio. For example, if your TL FSC program is $0.01 for every $0.06/gallon increase in the price of diesel and your Intermodal service provided is telling you they produce 60% less carbon then a comparable TL move, shouldn’t your intermodal FSC be 60% less than your TL program (i.e. $0.004/mile increase for every $0.06/gallon increase in the price of diesel)?
The fairness of intermodal and rail fuel-surcharges aside, if fuel is going to remain at, or near, these record-high levels (or even worse, continue to climb in future years), the economic incentive to shift to less fuel-intensive modes of transport is going to require more intense analysis. This economic incentive is compounded by the corporate social responsibility incentive (and the looming ability to monetize reductions of carbon footprint through “cap & trade”). Shifting to these modes generally results in longer transit times and higher variability (although not always – on certain lanes, intermodal is very service competitive with TL).
The basic premise is that this will lead to more inventory in the supply chain, requiring companies to evaluate and implement more complex transportation and inventory strategies - rethinking the entire design and operating model of the supply chain network.
In the short term, here’s what you can do to reduce your carbon footprint:
- Reduce miles
- Improve load factors
- Shift volume to less fuel-intensive modes
Oh, and by the way, it will save you a lot of money too.
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