Army National Guard's (ARNG) 2010 Logistics Management Seminar (LMS) Louisville, KY, May Green Logistics and its Paradoxes: What Drives Supply Chain Management? Jean-Paul Rodrigue Associate Professor, Dept. of Global Studies & Geography, Hofstra University, New York, USA

What Drives Supply Chain Management?

A Paradigm and Its Externalities: The Environmental Vicious Circle of Logistics Network changes Space consumption Network changes Space consumption Energy consumption Pollutant emissions Energy consumption Pollutant emissions Added value EfficiencyControl EfficiencyControl Paradigm Externalities Less spatial constraints More ton-km transported transported

Network Changes: Hub-and-Spoke Network and Externalities Feeder HubHub Rationalization Improvement of system-wide performance Concentration of externalities Local / regional pressures Increased vulnerability to disruptions

The Commercial Gateways of the Global Economy 39 Gateway Regions 90% of the World’s Freight Transport Pearl River Delta: 16.7%

Land Requirements for Freight Distribution: A Form of Externalization Networks Terminals Warehousing Outdoor Storage Port terminals Rail terminals Airports Energy Roads / lines Rights of way Distribution centers Cross-docking Freight Village Transportation Storage Inventory in transit 1 1 Inventory at terminal

Willow Springs Freight Distribution Center Site, Chicago N

The Pitfalls of Green Logistics: Trying to be Green Leads to Being in the Red ■Green Logistics The bulk of “greenness” is actually regulatory compliance. Asymmetric (impact more some than others). Arbitrary cost structure. May cost a lot of green… and put you in the red… Green plus red equals brown… Possibly unsustainable. Regulations ComplianceCosts “Brown” Logistics

Potential Impacts of Energy and Environmental Issues on Freight Distribution

1. Principle of “Demand Destruction” Price Quantity P1 ΔPΔP P2 Q1 ΔQΔQ Q2

Change in Vehicles-Miles Traveled and Nominal Spot Oil Prices (Crossing the Threshold) OS(1)OS(2) OS(3) CS(1) CS(2) CS(3) CS(4)

Breaking the Comparative Advantages Threshold

Containerization Growth Factors: Which Opportunities are Left? Derived / Organic (A) Economic and income growth. Globalization (outsourcing and global sourcing). Fragmentation of production and consumption. Substitution (B) Functional and geographical diffusion. New niches (commodities and cold chain) Capture of bulk and break-bulk markets. Incidental (C) Trade imbalances. Repositioning of empty containers. Induced (D) Transshipment (hub, relay and interlining). ABCD

2. Principles of Modal Shift Price Modal Share A/B P1 ΔPΔP P2 (A/B)1 ΔQ(A/B) (A/B)2

Distance Travelled for One Ton of Cargo Using One kWh of Energy

Logistics, Modal Shift and Intermodal Integration Short Sea Shipping Domestic Rail Drayage INTERMODAL INTEGRATION

Share of the Northeast Asia – U.S. East Coast Route by Option

3. Service Area Changes Range ΔAΔA ΔBΔB R1 Cost ΔR(B) R2 A B

Optimal Location and Throughput by Number of Freight Distribution Centers

4. Gateway / Hub Selection BB AA CC

Transit Times from Shanghai and North American Routing Options (in Days) Vancouver Seattle / Tacoma Prince Rupert Oakland Los Angeles Lazaro Cardenas Panama Houston Savannah/Charleston Norfolk New York Chicago Dallas Atlanta Toronto

Gateway and Hub Selection is Controlled by Private Commercial Interests Container Terminals of the World's Four Major Port Holdings, 2009

5. Network Configuration Rail Road

Distribution based on RDCs Distribution based on two gateways Distribution based on tiered system Distribution based on local DCs

BNSF Logistics Park, Chicago BNSF Intermodal Yard Distribution Centers Wal-Mart Maersk California Cartage Chicago (60km) ►

6. Supply Chain Propagation: Input Costs or Transport Costs? RawMaterials DistributionCenters Retailers Manufacturing Input costs Transportation costs Reverse Distribution Costs

American Foreign Trade by Maritime Containers, 2008 (in TEUs): Reverse Distribution on Steroids

Logistical Strategies to Cope with Energy and Environmental Constraints Shipping less Demand responsive systems. Reduce returns. Changing suppliers Reassessing sourcing both at the global and domestic levels. Shipping scheduling Allow greater shipping time and outside rush periods. Efficient packaging Reduce the shipment size (volume) of the same load. Modal shift Use a mode or a route that is more energy and environmentally efficient.

“Double Green” Logistics ■The “double green” concept Environmental endeavors that are not grounded in efficiency and productivity improvements are bound to fail, unless subsidized (which also leads to failure). Green logistics is rife with unintended consequences (complex system). Greenness, particularly if regulatory (compliance) based, may be unsustainable. DistributionalEfficiency EnvironmentalPerformance Green Logistics

The Paradoxes of Green Logistics DimensionOutcomeParadox Costs Reduction of costs through improvement in packaging and reduction of wastes. Benefits are derived by the distributors. Environmental costs are often externalized. Time / Flexibility Integrated supply chains. JIT and DTD provide flexible and efficient physical distribution systems. Extended production, distribution and retailing structures consuming more space, more energy and producing more emissions (CO2, particulates, NOx, etc.). Network Increasing system-wide efficiency of the distribution system through network changes (Hub-and-spoke structure). Concentration of environmental impacts next to major hubs and along corridors. Pressure on local communities. Reliability Reliable and on-time distribution of freight and passengers. Modes used, trucking and air transportation, are the least environmentally efficient. Warehousing Less warehousing per unit of freight. Inventory in circulation. Inventory shifted in part to public roads (or in containers), contributing to congestion and space consumption. E-commerce Increased business opportunities and diversification of the supply chains. Changes in physical distribution systems towards higher levels of energy consumption.