Chapter 2.5 – Green Shipping, Ports and Supply Chain Management

Author: Dr. Theo Noteboom and Dr. Jean-Paul Rodrigue

Green shipping integrates environmental concerns into organizational and operational practices, with ports as key nodes in environmental strategies.

1. The Greening of Supply Chains

Green shipping and supply chain management (GSCM) has gained increased attention within the maritime industry with a growing need for integrating environmental strategies into supply chain management (SCM) practices. The growing importance of GSCM goes hand in hand with environmental concerns such as the scarcity of some resources, the footprint of human activities on ecosystems, waste disposal, and the emission of pollutants, including carbon emissions. Adding green components to supply chain management involves addressing the externalities it generates.

During the 1960s and 1970s, both economists and environmentalists started to underline the role of industrial activities, their outputs, and their implications on the environment. This led to the first environmental regulations, mainly addressing emission standards. In the 1980s, industrial ecology and life cycle assessment concepts were conceived to better assess and quantify environmental impacts. The pursuit of environmental standards in product development, process design, operations, logistics, regulatory compliance, and waste management increasingly became part of corporate policy. This led to a multitude of uncoordinated mitigation attempts, which started to change with the SCM revolution of the 1990s as environmental management became more integrated with operations. Still, this approach was mainly seen as a cost center since compliance usually results in higher production and distribution costs.

Environmental practices for gaining competitive advantage and economic benefits became a formal field of investigation with the formalization of strategies. Investments in greening can be resource-saving, waste-eliminating, and improving productivity. Thus, the greening of supply chains does not have to be just a cost center but could constitute a potential source of competitive advantage. These ideas further developed in the early 2000s with a shift from environmentally friendly approaches to integrating green initiatives to achieve good business sense and higher profits. The industry started to show a growing awareness that GSCM could constitute a business value driver, not just a cost center.

The main idea behind GSCM is to strive for a reduction in environmental impacts by focusing on a series of strategies throughout the supply chain. They include Reduce, Re-use, Recycle, and Remanufacture, also known as the four “Rs” that comprise reverse logistics. GSCM is often linked to life-cycle assessment (LCA), a process for assessing and evaluating the environmental, occupational health, and resource-related consequences of a product or service through all the phases of its life cycle. This includes extracting and processing raw materials, production, transportation and distribution, use, remanufacturing, recycling, and final disposal. The scope of LCA involves tracking all the material and energy flows of a product, from the extraction of its raw materials to its disposal. The fields of action in GSCM include product design, process design and engineering, procurement and purchasing, production, energy use and mix, and logistics (including distribution and transportation).

2. Green Design, Procurement and Manufacturing

A. Eco-design and green process engineering

A significant part of the environmental impact of a resource, good, or even service is determined in its design phase when materials and processes are selected. This can go beyond the choice of materials, and encompasses the entire procurement and distribution process. For example, effective reverse logistics practices largely depend on an eco-design focused on design for disassembly, design for recycling, and design for other reverse logistics practices.

Eco-design, also called design for environment (DfE) or environmentally conscious design (ECD), helps improve environmental performance by addressing product functionality while simultaneously minimizing the life-cycle environmental impacts of their supply chains. It is an important GSCM practice aimed at combining product or service functionality to minimize environmental impacts. One of the key aspects of eco-design is facilitating reuse, recycling, and recovery through designs such as easy disassembly of used products. Eco-design also involves other fields of action, such as the design of products for reduced consumption of material or energy, or the design of products to avoid or reduce the use of hazardous goods and their manufacturing process. For example, a company might decide to replace a potentially hazardous material or process with one that appears less harmful, thereby taking into account potential impacts on resource use or increased extraction of other materials.

The roles of eco-design and environmental processes change with the stage in the product life cycle. When a new product is introduced, the eco-design of the product is a crucial aspect. In the more mature and declining stages of the product life cycle, more focus will be on improving processes and having an efficient reverse logistics system in place. Successful eco-design typically requires internal cooperation within the main corporation involved in the design and procurement of a product, and external cooperation with other partners throughout the supply chain. This leads to a lower environmental footprint but requires coordination, standardization, and compliance.

B. Green procurement and purchasing

Organizations have established global networks of suppliers that take advantage of country-specific characteristics in their endowment of labor and resources. Key factors for green purchasing include providing design specifications to suppliers that include environmental requirements for purchased items, cooperation with suppliers concerning environmental objectives, environmental audits, internal management, and ISO 14001 certification (concerning Environmental Management Systems). Companies can encourage or even require their suppliers to develop environmental management systems in compliance with ISO 14001, or their suppliers to be certified with ISO 14001. Procurement or purchasing decisions will impact the green supply chain through the purchase of materials that are either recyclable or reusable or have already been recycled.

Many large customers, such as multinational enterprises, have exerted pressure on their suppliers for better environmental performance, which results in greater incentives for suppliers to cooperate with customers for environmental objectives. Also, the pressure of the final customer is a primary driver for enterprises to improve their environmental image and practices.

Green procurement strategies are typically supported by national or supranational regulations. For example, the European Community Directives on Waste Electrical and Electronic Equipment (WEEE) and Registration, Evaluation and Authorization of Chemicals (REACH) have led many European and non-European suppliers to increase organizational efforts for product recovery. Environmental compliance is increasingly becoming a criterion for accessing a specific market.

C. Green production and remanufacturing

Green production complements eco-design, green purchasing, and green logistics. Cooperation with suppliers and customers is indispensable for moving towards cleaner and greener production processes. Green production has often been associated with the concept of industrial ecology, which views manufacturing as a system that is part of local ecosystems and the global biosphere. Conceptually, the term is ambiguous and confusing, but in practice, green production mainly focuses on:

  • Resources. Techniques for minimum resource consumption in order to reduce the use of new materials.
  • Energy input. A shift towards a more sustainable energy with fewer environmental and carbon emissions.
  • Product recovery. Techniques for product recovery, often considered within a circular economy where parts and value can be reclaimed within a supply chain.
  • Waste management. Minimize the environmental footprint of waste disposal.

Product recovery refers to the broad set of activities designed to reclaim value from a product at the end of its life cycle in order to reuse products and materials. This can be achieved through recycling, remanufacturing, repair, or refurbishment. Recycling is performed to retrieve the material content of used and non-functioning products and is often driven by regulatory and economic factors. Remanufacturing is recycling-integrated manufacturing that implies a thorough rethinking of traditional production planning and scheduling methods. Industries that apply remanufacturing typically include automobiles, electronics, and tires. The purpose of repair is to return used products to working order. The purpose of refurbishing is to bring used products up to a specified quality standard allowing their sale on second-hand markets. Remanufacturing and the associated recycling activities typically involve disassembly to separate a product into its constituent parts, components, subassemblies, or other groupings.

Cleaner production requires effective waste management for products and materials that cannot be reused. The supply chains of non-reusable waste involve waste collection, transportation, incineration, composting, and disposal. The general idea of cleaner production is to prevent pollution derived from manufacturing and across a product’s life cycle. Thus, cleaner production initiatives are also focused on preventing waste creation rather than post-generation management.

D. Green logistics, distribution and transportation

The implementation of GSCM has a large impact on how goods move across supply chains, which implies a green logistics approach to reconciling environmental concerns with transportation, warehousing, and distribution activities. It ties environmental and economic efficiency into logistics by reducing the impact of the sector on the environment. Logistics service providers are challenged to be eco-conscious, comply with existing environmental regulations, and anticipate potential technological changes and regulations while providing their services at a competitive price. This represents a complex paradox to navigate.

Logistics service providers have to focus on supply networks in which forms of transport meet carriers, shippers, and cargo owners’ expectations regarding cost and efficiency, with additional expectations that this is done in a sustainable manner. To this extent, shippers expect coordination from service providers in which operational efficiency preconized by green logistics is supported by obtaining a greater convergence between physical and information processes. The most common realms of application of green logistics involve:

  • Packaging. Lowering the material requirements to support the transport of goods while maintaining their integrity.
  • Modal choice. Selecting transportation modes having a lower environmental footprint and synchronizing these modes along a sequence.
  • Distribution. Organizing a distribution system where conveyances carry an optimal load over the shortest distance possible.

3. Drivers of GSCM and Corporate Strategy

A. Green supply chains and Environmental Management Systems

An Environmental Management System (EMS ISO 14001) consists of a collection of internal policies, assessments, plans, metrics, and implementation actions affecting the entire organization. In practice, an EMS is a strategic management approach that defines how an organization will address its environmental impacts. It typically includes establishing an environmental policy or plan and performing internal assessments of the organization’s environmental impacts. This includes the quantification of environmental impacts, how they change over time, and how to create mitigation strategies, provide resources, train workers, monitor implementation progress, and undertake corrective actions if goals are not met. An EMS can be regarded as a valuable element in improving environmental and business performance. Once an organization implements an EMS, it may elect for its certification to the ISO 14001 standard. Organizations that develop an EMS typically show higher regulatory compliance, enhancing their corporate image, which can lead to stock market valuations and better lending terms.

There are different views on the relations between EMS and GSCM. One of the limitations of an EMS is that it mainly focuses on enhancing the environmental performance of an individual organization and not on extending this strategy throughout the supply chain. A corporation with an EMS may have little incentive to green its supply chains since it can market itself as being environmentally focused without undertaking additional efforts. However, by developing an EMS, a company develops skills and insights, helping develop more comprehensive GSCM initiatives. Therefore, organizations that adopt an EMS may have a stronger focus on implementing GSCM practices as well.

B. GSCM and corporate profitability

Sustainability principles are increasingly integrated into supply chain management. Pressures to consider environmental issues when pursuing portability within supply chains exist. Simultaneously, government regulations increasingly incite corporations to lessen their environmental footprint. Thus, organizations might initiate several environmental practices due to drivers such as sales to customers and legislative and stakeholder institutional pressures. Even though GSCM has significant environmental motivations, regulatory, competitive, and economic pressures also play roles in its adoption across economic sectors.

When focusing on the corporate context, there are clear signs that not opting for green supply chains can negatively affect cost base and profitability. A focus on GSCM may help secure revenue growth, achieve cost reductions, develop brand value, and mitigate risks. However, corporations cannot roll out initiatives as part of GSCM without due consideration of their costs, benefits and impact on profitability. There is a lack of key evidence of successful practices across economic sectors as success stories (often circumstantial) are publicized while failures are barely mentioned.

Logistics and supply chain managers have to balance efforts to reduce costs, improve service quality, increase flexibility, and innovate while maintaining environmental performance. When deciding on green initiatives, corporations consider strategic performance requirements, which may not be environmentally based, such as cost, return on investment (ROI), service quality, and flexibility. Initiatives should not only support green supply chains but also make business sense. Otherwise, the competitive and financial position of the organization may be negatively affected.

Investment recovery is often cited as a critical aspect of GSCM, typically at the back end of the supply chain cycle. Financial incentives or penalties are available from public authorities, such as subsidies and tax breaks for green investments or penalties for non-compliance. They are also available by private service providers, such as commercial banks providing favorable loan conditions for green investments, which are often very important in investment or divestment decisions and in achieving investment recovery.

C. Incentives for GSCM

Financial incentives and penalties are one way for governments and public entities to support the greening of supply chains. Whatever governments and public entities do in terms of environmental policy development, the business world is very sensitive to coherence and continuity in existing policies, the legal coherence of implemented policies, and the enforcement of policies through inspection and control. As many investment decisions have a medium to long-term amortization, any changes in government policy, such as abolishing subsidy schemes for certain investment classes, can have large ramifications on the soundness of the initial corporate decision related to a green initiative. Thus, government policies and regulations typically impact green strategies, investments, and GSCM initiatives pursued by corporations, but should provide legal and investment stability to the affected sectors.

There is a growing awareness that GSCM can be an important business value driver and a source of competitive advantage. However, this does not imply that all organizations follow the same approach when dealing with GSCM challenges. Corporate attitudes towards GSCM can range from reactive monitoring of the general environment management programs to more proactive practices implemented through the various Rs (Reduce, Reuse, Recycle, Remanufacture, Reverse logistics).

Internal environmental management is central to improving corporate environmental performance. A supporting managerial structure is necessary and often a key driver for successfully adopting and implementing most innovations, technology, programs, and activities in GSCM. Successful GSCM initiatives often involve several departments (at times several corporations), and such cooperation and communication are essential to successful environmental practices. Sharing responsibility inter-organizationally for various aspects of environmental performance is the key to successful GSCM.

Individual corporations cannot solely opt for cooperation on a bilateral or multilateral basis. Industry and branch organizations often play an essential role in coordinating several organizations to take joint initiatives in GSCM. In other cases, private companies, sometimes with different backgrounds, and organizations such as public entities form coalitions to advance the design and implementation of GSCM solutions.

4. GSCM and Ports

Seaports are active environments for multiplying the scale and scope of initiatives to improve green supply chain management, particularly since they are nexuses where international and regional supply chains interact. Five fields of action can be distinguished; green shipping, green port development and operations, green inland logistics, circular economy, and knowledge exchange and development. A broad array of market players and public entities have a role to play in each of these fields.

A. Green shipping

Ships are major contributors to emissions in ports, even when they are idling or berthed. Next to shipowners, ship operators, and supranational organizations such as the International Maritime Organization (IMO), ports play a role in reducing ship emissions. The main fields of action include:

  • Reduce operational ship emissions in ports by decreasing waiting times and vessel turnaround times, such as by synchronizing and integrating the nautical chain through optimized vessel traffic management systems.
  • Implement green port dues and voluntary green shipping schemes to incentivize operators to improve the environmental performance of their ships. The Environmental Ship Index (ESI) initiated by the International Association of Ports and Harbours (IAPH), is a certification scheme that ranks a ship’s environmental performance, which is correlated with port dues. Shipping companies can register their ships for this index. Based on the data provided, such as fuel consumption and emissions, each ship has a given score ranging from 0 to 100 (from highly polluting to emission-free). Ports decide what advantages to offer participating ships, but they mostly involve a rebate in port dues. While ports or other public authorities could, in principle, also decide to implement strict regulation on emission criteria for ships entering the port (i.e. low score ships are not granted access), such access restrictions have only been implemented in a few ports around the world. The concern is that such a system could undermine the competitiveness of a port if competing ports do not follow.
  • Implement Cold Ironing, Shore Power Supply, or Alternate Marine Power (AMP) whereby seagoing vessels and barges at berth use shore power for auxiliary engines instead of bunker fuel. At present, cold ironing is most widespread in the cruise shipping market and ferry business, particularly since these ships consume more electricity and spend more time at the terminal. There are challenges related to the investment cost, the division of these costs between different stakeholders, and the break-even cost compared to bunker fuel.
  • The transition to LNG as a ship fuel. In recent years, investments in port LNG bunkering infrastructure have taken off. Several public port authorities play a proactive role in facilitating LNG as a marine fuel, often in close partnership with industrial actors.

B. Green port development and operations

Green port development is about actions to reduce its environmental footprint and implement sustainability goals. Multiple instruments and concepts of green port development and operations exist, including:

  • Develop a green concession and lease policy by implementing green clauses in terminal concession, lease procedures, and contracts. This particularly involves setting standards for emissions and waste management across port users.
  • Maximize the ecologies of scale and industrial symbiosis in industrial clusters or ecosystems. The goal is to find and promote related industrial, manufacturing, and distribution activities. Environmental zoning and co-location can help to achieve these effects.
  • Develop green zones and buffers in the port area, with nature forming a shield between heavy port industry and residential areas. A common form is the setting of linear parks. This can also involve restoring marine ecosystems.
  • Develop wind and solar parks and wave energy, combined with port energy management and the port as a procurement and maintenance platform.
  • Implement Carbon Capture and Storage (CCS) and fume return systems. Carbon can also be used as an input for other products, such as Carbon Capture and Utilization (CCU).
  • Support the production of biofuels and bio-based chemicals, which are particularly used for drayage.
  • Facilitate the use of low-emission or zero-emission quay and yard equipment on terminals, particularly through electrification.
  • Reduce idling of ships and inland transport modes and waiting times at terminals through information sharing and appointment systems via data platforms.
  • Develop green warehousing and distribution activities in ports through optimal location choice, optimal distribution system design, sustainable warehouse design (LED lighting and smart cooling and heating systems), energy, and material recycling.

C. Green inland logistics, modal shift and inland terminals

Inland logistics comprises the transportation of goods from the hinterland to the port or from the port to the hinterland via barge, rail, truck, or pipeline. Port authorities can play a role in the following GSCM areas:

  • Stimulate a modal shift and implement multimodal transport solutions through pricing (taxes and incentives), regulation on emission standards, information to users, a liberalization of freight markets, and infrastructure investments to make specific transport modes more attractive.
  • Optimize the use of each modality by reducing empty movements (backhauls), improving vehicle utilization rates, and increasing the scale of transport modes (vessel scale, train length and tonnage, truck platooning).
  • Implement cargo bundling strategies where port users can combine cargo into bigger loads.
  • Support the transition to a greener energy input for transport by imposing minimum emissions standards on vehicles entering the port area (e.g. the Clean Truck Program, part of the San Pedro Bay Ports Clean Air Action Plan) and giving incentives for the use of low-emission vehicles, including electric vehicles.
  • Promote the role of inland terminals, dry ports, and port-hinterland strategies in GSCM, such as by incorporating inland terminals as extended gates to seaport terminals.
  • Develop advanced and integrated traffic management systems for rail, barge, and truck.
  • Implement pricing mechanisms and other instruments to make fleets greener or to spread traffic in time and space. These include appointment systems, peak pricing, or extended (night) opening hours of terminals.
  • Develop pipeline networks (intra-port, inter-port, and port-hinterland) to transport liquids over short and long distances.

D. Seaports and the circular economy

There are three circular scales in which ports and maritime shipping are embedded. At the largest scale, the circular economy is all about restructuring industrial systems by adopting methods to maximize the efficient use of resources by recycling and minimizing emissions and waste (circular economy issues are discussed in details in chapter 2.7). In a port context, the main fields of action are:

  • Promote industrial ecology clusters to optimize waste management through interactions between stakeholders within the same geographical area, such as exchanging materials, water, and by-products.
  • Develop seaports as hubs for recycling flows where flows are delivered, transformed into new products, and re-exported worldwide.
  • Use renewable energy sources through hydro and offshore power installations.

The second scale concerns the circular processes directly related to shipping and port operations and their supply chains. The third is related to the specialized container market with circular processes involving the repair, repositioning, and recycling of discarded containers. By design, containers are circular goods that can be constantly reused and exchanged on transport markets.

A circular system is not necessarily sustainable as reusing or recycling costs may exceed linear procurement costs. For instance, recycling goods such as waste paper and some plastics is more expensive than sourcing from new resources. Under such circumstances, circularity becomes a political or societal choice requiring regulations and subsidies, which results in higher costs and potential disruptions related to the availability of resources.

E. Knowledge development

The last possible field of action for GSCM in ports includes measures that facilitate knowledge development, information sharing, and exchange of best practices. A non-exhaustive list of some areas for initiatives include:

  • Develop interactive environmental and energy information and management systems that support business processes with new knowledge about energy consumption and emissions. This can help set up benchmarks and standards.
  • Cooperate in the framework of port-related associations, such as WPSP (World Port Sustainability Program) and Ecoports, that provide a forum to discuss strategies and best practices.
  • Develop sustainability and corporate social responsibility (CSR) programs to improve the social and environmental performance of the port cluster and to improve communication with a broad range of stakeholders.
  • Implement sustainability reporting at the corporate, port authority, or port industry level. Larger port authorities are the main actors that have started producing sustainability reports.
  • Develop the local knowledge base on GSCM in ports by setting up incubators and labs for start-ups and scale-ups, hackathon events, and creating a good business environment for R&D-focused firms, research centers, consultancy firms, and start-ups.

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