Chapter 2.5 – Green Shipping and Supply Chain Management

Author: Dr. Theo Noteboom

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 as there is a growing need for integrating sound environmental choices 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 influence and relationships of supply chain management with the natural environment.

During the 1960s and 1970s, both economists and environmentalists started to underline the role of industrial activities, their outputs and implications on the environment. 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 was spread over a large number of organizational units within corporations. 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.

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 productivity improving. 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, 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

Part of the environmental impact of a resource, good, or even service is determined in its design phase when materials and processes are selected. 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. 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 for 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 the depletion of a scarce resource or increased extraction of other environmentally harmful 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. Eco-design is an important GSCM practice aimed at combining product or service functionality to minimize environmental impacts. Successful eco-design typically requires internal cooperation within the company and external cooperation with other partners throughout the supply chain.

B. Green procurement and purchasing

Organizations have established global networks of suppliers that take advantage of country-specific characteristics. Key factors for green purchasing include providing design specifications to suppliers that include environmental requirements for purchased items, cooperation with suppliers for their environmental objectives, environmental audits, and internal management and ISO 14001 certification. 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 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 incentive 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 the industrial world as a system that is part of local ecosystems and the global biosphere. In practice, green production mainly focuses on:

  • Techniques for minimum energy and resource consumption in order to reduce the use of new materials.
  • A shift towards a more sustainable energy input with fewer environmental and carbon emissions.
  • Techniques of product recovery, often considered within a circular economy.
  • Waste management to 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 at the source. Thus, cleaner production initiatives are also focused on preventing waste creation rather than its post-generation management.

3. Energy and Transportation Efficiency

A. Energy efficiency in supply chain management

Supply chains require energy to fuel production and logistics processes. The world’s energy needs continue to grow, with a 30% rise in global energy demand expected by 2040. Still, higher energy efficiency and the growing use of cleaner energy sources worldwide should help to curb energy-related carbon emissions. The majority of the required energy has conventionally been derived from fossil fuels. However, a shift is taking place with a growing share of renewable energy sources. Changing towards a greener energy mix is a key field of action in GSCM. Efficiency gains from more stringent energy performance standards play an important role in the evolution of energy demand.

The share of electricity in global final energy consumption is approaching 20% and is set to rise further. Electricity is increasingly used in economies focused on lighter industrial sectors, services, and digital technologies. In advanced economies, electricity demand growth is modest, but the investment requirement is massive as electrical generation and distribution infrastructures are upgraded. A common issue with electrification, which has a much lower environmental footprint, is how electricity is generated. The usage of fossil fuels to generate electricity upstream in energy supply chains undermines its environmental benefits downstream.

Renewable energy is expected to see the fastest growth, with natural gas expected to have the strongest growth among fossil fuels, with consumption rising by 50% by 2040. Coal use has seen strong growth in recent years, but consumption levels are expected to stabilize and decline, as is already the case in Europe and North America. Growth in oil demand is expected to peak by 2030, and a shift in the balance of energy consumption is taking place between developing and advanced economies. By the mid-2030s developing economies in Asia are expected to consume more oil than Europe and the United States.

International agreements concerning the environmental footprint of climate change have been implemented with mitigated outcomes. For instance, the objectives of the Paris Agreement on climate change, which entered into force in November 2016, are related to transformative changes that take place in the energy sector. Countries are generally on track to achieve, and even exceed in some instances, many of the targets set in their Paris Agreement. While these efforts may be sufficient to slow the projected rise in global energy-related CO2 emissions, they may be insufficient to limit warming below an additional 2 °C. Therefore, five-year review mechanisms, built into the Paris Agreement, underline the importance of reviewing pledged commitments. This should include actions such as:

  • The acceleration of the deployment of renewables, nuclear power, and carbon capture and storage.
  • Greater electrification and efficiency across all end-uses.
  • Clean energy research and development effort by governments and companies.

By 2040, about 60% of all new power generation capacity is expected to be derived from renewables, with the majority of renewables-based generation being competitive without relying on subsidies. Therefore, it is expected that by the 2030s, global subsidies to renewables will start declining. However, there is a risk that cost reductions for renewables could be insufficient to decarbonize electric power generation systems. Structural changes to the design and operation of the energy grid are needed to ensure adequate incentives for investment and to allow for a higher contribution of wind and solar power.

The rise of solar power and wind power gives unprecedented importance to the flexible operation of power systems in order to secure enough energy at all times. The cost of battery storage is declining fast, and batteries increasingly compete with gas-fired peaking plants to manage short-run fluctuations in supply and demand. However, conventional power plants remain the primary source of system flexibility, supported by new interconnections, storage, and demand-side response. The European Union aims to create an “Energy Union” to deal with imbalances in demand and supply between different member states, replicating the existing electric grid exchange systems in North America.

Despite expectations on renewables, fossil fuels such as natural gas and oil will continue to form the backbone of the global energy system for many decades to come. By 2040 oil demand is expected to drop to levels similar to the 1990s, while coal use will move to levels last seen in the mid-1980s. Only gas will see an increase relative to the current consumption level. Based on an increase in oil prices in the long-term, the trend for exploring fossil energy sources will continue to offshore locations, including deeper waters and harsher environments. More complex energy sources such as tar sands or methane hydrates are also being exploited. Energy production on offshore wind farms will significantly increase, and other water-based energy production devices using wave and tidal current energy will have a broader market. These developments will lead to a massive increase in renewable energy, particularly in Europe. They will also result in a significant increase in the production and transport of cleaner fuels such as LNG, shale gas, and hydrogen.

B. Green logistics, distribution and transportation

The implementation of GSCM has a large impact on how goods move across supply chains. GSCM implies a green logistics approach to reconcile environmental concerns with transportation, warehousing, and distribution activities. Green logistics 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 prepare for upcoming regulations while performing their activities at the lowest possible cost.

Logistics service providers have to focus on supply networks in which clean forms of transport meet shippers’ expectations regarding cost and efficiency. Goods are increasingly transported in an economical, environmental, and sustainable manner. To this extent, shippers expect coordination from service providers in which operational excellence is supported by obtaining a greater convergence between physical and data processes. The main fields of actions in green logistics are related to:

  • Eco-friendly packaging. Packaging characteristics such as size, shape, and materials impact distribution due to their effect on the transport characteristics of the goods. Better packaging, along with rearranged loading patterns, can reduce materials usage, increase space utilization in the warehouse and the transport modes, and reduce the amount of handling required. For instance, having strong and sturdy pallets ensure their long-term use. Systems that encourage and adopt returnable packaging require a strong customer-supplier relationship and an effective reverse logistics channel. Efficiencies in packaging directly affect the environment. In many countries, take-back legislation on the packaging has made packaging operation and planning a critical environmental logistics consideration.
  • Eco-friendly transport mode choice and synchromodality. Environmental pressure from the customer base, society, and legislation forces companies to use greener alternatives for logistics. Advancing GSCM requires a massive re-engineering of supply chains in favor of a modal shift to environmental-friendly transport modes and synchromodality. Modal shift and co-modality policies have been implemented to incite the use of barges, rail, and shortsea shipping. Modal shift and co-modality have been expanded to include the notion of synchromodality, which is defined as “the optimally flexible and sustainable deployment of different modes of transport in a network under the direction of a logistics service provider so that the customer (shipper or forwarder) is offered an integrated solution for his (inland) transport”. Implementing a synchromodal solution requires the involvement of several actors. Shipping lines, terminal operators, inland terminals, inland transport operators, 3PL companies, shippers, and public authorities all play a role in developing synchromodal solutions. A synchromodal approach assumes that the shipper books without specifying the mode, thereby leaving modal decisions to logistics service providers. This renders the whole transport system more flexible in terms of modal choice. Synchromodal transport is particularly effective for corridors and regions where sufficient volumes are present, allowing for economies of scale supported by modes such as rail and barge.
  • Load and route optimization. One example of load optimization can be to send a truck only as a full truckload (FTL). Route optimization is about reducing transport costs, time or distance. By choosing the best route, it is possible to save fuel and reduce emissions. Synchromodality allows for the consolidation of cargo consignments and finds the optimal route, thus achieving additional efficiency benefits.
  • Green distribution networks and distribution hubs. GSCM incites logistics service providers to include green considerations in the design and implementation of distribution networks and the location choice and operational modalities of their distribution hubs and warehousing facilities. The type of product mainly influences these choices and the frequency of delivery, but green considerations are increasingly considered when making such decisions. For example, distribution network configurations might involve internalizing the environmental costs of transport and distribution, such as through environmental taxes such as a CO2 tax. The future configuration of distribution systems has an impact on cargo routing patterns.

3. Drivers of GSCM and Corporate Strategy

A. Green supply chains and Environmental Management Systems

An Environmental Management System (EMS) consists of a collection of internal policies, assessments, plans, and implementation actions affecting the entire organization and its relationships with the environment. In practice, an EMS is a strategic management approach that defines how an organization will address its environmental impacts. An EMS 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 and increasing profits.

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 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

There is a growing need to integrate sustainability principles into supply chain management. There are pressures to consider environmental issues when pursuing portability within supply chains, which is a demand-pull. Simultaneously, government regulations increasingly force companies to become more environmentally friendly, which is a regulatory push. 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 industries.

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, resulting in increasing revenue by a factor of 20% and reducing carbon emissions by 20%. Furthermore, a focus on the environment has a positive impact on brand value. However, corporations cannot roll out green initiatives as part of GSCM without due consideration.

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. Green 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, or by private service providers, such as a commercial bank providing favorable loan conditions for green investments, which are often very important in investment or divestment decisions and to achieve investment recovery.

C. Incentives for GSCM

Financial incentives and penalties are just 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 green investments, can have large ramifications on the soundness of the initial corporate decision related to a green initiative. Thus, government policies and regulations typically significantly impact green strategies, investments, and GSCM initiatives pursued by corporations, but should provide legal and investment stability to the affected companies.

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 is essential to successful environmental practices. Sharing responsibility inter-organizationally for various aspects of environmental performance is the key to successful GSCM.

It is not solely individual companies that can 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. Five fields of action can be distinguished to pursue GSCM objectives; 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 actions include:

  • Reduce ship emissions in ports by decreasing waiting times and the turnaround time of vessels, 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 on a website. Based on the data entered, such as fuel consumption and emissions, each ship has a given score from 0 to 100 (from highly polluting to emission-free). The ports themselves decide what advantages to offer participating ships, but they mostly involves 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. dirty ships are not granted access), such access restrictions have only been implemented in a few ports around the world.
  • 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. There are challenges related to the investment cost (terminal and ship), the division of these costs between different stakeholders, and the break-even cost compared to bunker fuel.
  • Support the transition to LNG as a ship fuel. In past years, investments in LNG bunkering infrastructure in ports 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 that make the port and its environment greener and more sustainable. Multiple instruments and concepts of green port development and operations exist, including:

  • Develop a green concession and lease policy by implementing green elements in terminal concession, lease procedures, and contracts. This involves the setting of standards such as for emissions and waste management.
  • Maximize the ecologies of scale and industrial symbiosis in industrial clusters or ecosystems. 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. This can also involve the restoration of marine ecosystems.
  • Develop wind and solar parks and wave energy, combined with port energy management.
  • Implement Carbon Capture and Storage (CCS) and fume return systems. Carbon can also be used as a base for other products, such as Carbon Capture and Utilization (CCU).
  • Support the production of biofuels and bio-based chemicals.
  • 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 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 provision 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 kilometers, the improvement of vehicle utilization rates, and scale increases in transport modes (vessel scale, train length, and tonnage, truck platooning).
  • Implement smart planning by bundling cargo within a company or between companies.
  • 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 non-fossil fuels.
  • Promote the role of inland terminals and dry ports and port-hinterland concepts in GSCM, for example, 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 to support ecosystems by adopting methods to maximize the efficient use of resources by recycling and minimizing emissions and waste. In a port context, the main fields of action at that scale are:

  • Promote industrial ecology 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 enrich 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 CSR programs to improve the social and environmental performance of the port cluster and to improve communication and exchanges 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 smart-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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