Date: Friday, March 17, 2023
Source: Wall Street Journal
Freight operators are rolling out a growing array of options for shippers looking to reduce pollution, from low-carbon aviation and marine fuels to electric trucks.
But some shipping executives say companies are proving reluctant to pay the higher prices for alternative fuels and zero-emissions vehicles that can easily double or triple transport costs.
Tim Scharwath, chief executive of DHL Global Forwarding, Freight, part of Deutsche Post AG, said talk about sustainability gains often falters when decisions reach procurement departments, where suggestions to use aviation and marine biofuels for transport are vetoed in favor of heavier-polluting but cheaper options.
“It’s not happening enough,” Mr. Scharwath said. “If you talk to purchasing guys they have one thing to do: to get the best deal. And they get paid for less spend.”
The gap between environmental goals and implementation highlights a growing fault line in the logistics arena as research on sustainable alternatives to traditional freight transport starts moving into real-world operations.
The broad changes in fuels, infrastructure and transport equipment aimed at slashing carbon emissions are expensive: The maritime industry alone will have to spend some $3 trillion to eliminate emissions over the next few decades, according to shipping services provider Clarksons. But there is little agreement across the freight business on how to cover such costs.
A recent study by Boston Consulting Group found that 82% of companies are willing to pay more for sustainable shipping, but the premium they are willing to pay falls far short of the investment needed to significantly reduce emissions.
Freight executives say electric trucks cost about three times more than regular trucks and can be particularly expensive in parts of Europe where electricity costs are high. Marine and aviation biofuels cost several times more than regular fuels.
DHL, one of the largest forwarders in the world, moves hundreds of billions of dollars worth of freight each year by ocean, air and land. The company has a target of spending up to 7 billion euros, the equivalent of roughly $7.4 billion, on decarbonization by 2030. During the past two years, it has spent €440 million on measures such as green aviation fuels and electric vehicles, according to company data.
DHL officials say the slow progress is caused in part by a scarcity of alternate fuels and sustainably-powered aircraft, ships and trucks. They expect to significantly increase green spending in the next few years as more options become available. But Mr. Scharwath said advances will depend on customers’ willingness to pay a premium.
Some shippers say they are willing to pay more. They say sustainability is increasingly important for consumers and is playing a bigger role in supply-chain decision making, but their options are limited.
Because few aircraft and ships run on biofuels, importers and exporters can’t easily pick passage on sustainable modes of transportation while maintaining the pace of their supply chains. Some shippers say they hesitate to use carbon offset programs, such as planting trees, because the benefits can take years to pay off and there are no reliable global standards.
Tapestry Inc., the New York City-based owner of the Coach and Kate Spade New York brands, is testing an emissions-reduction fuel purchase program run by Netherlands-based GoodShipping BV. Under the GoodShipping plan, Tapestry will book cargo on regular container ships but will pay additional fees for biofuels to be used in other ships to offset some of its emissions.
“We like it because it is directly impacting the industry we are operating in and it allows us to have a specific and clear reduction,” said Logan Duran, Tapestry’s vice president of ESG and sustainability.
Mr. Duran declined to say how much Tapestry is spending on the initiative or how much biofuel it is buying. The company has a goal of reducing its greenhouse-gas emissions by 42.5% by 2030.
Some freight and logistics companies say they need more government help to spur the kind of investments needed to make sustainable transportation more widely available.
Regulators are looking to add incentives for green operations. The European Union is expected to introduce carbon-emission taxes next year on ships calling at the continent’s ports. In the U.S., the Biden administration last year proposed tougher new standards for emissions from heavy-duty trucks.
California plans to phase out the use of diesel-powered trucks at its ports starting next year, with a goal of having only hydrogen- and battery-electric trucks calling at its docks by 2035.
Trucking provider NFI Industries Inc. expects to have a fleet of 100 electric trucks serving the state’s ports by the end of this year.
Bill Bliem, senior vice president of fleet services at Camden, N.J.-based NFI, said customers are increasingly asking about electric trucks, but the costs remain high even with subsidies provided by the state of California.
“Some of them are willing to pay to reduce their emissions,” Mr. Bliem said. “Others, when you tell them the cost, say: ‘Well, we want to be green, but we don’t know that we can afford to be green.’”