Burning Less Cash Means Burning Less Carbon

BRUSSELS, BELGIUM, Sept. 19, 2013 (PPI Magazine) - Boise has launched two initiatives to improve its logistics operations and environmental performance. The Carload Direct Initiative is shifting product transport to rail, and the Three-Tier Pallet Initiative is increasing railcar utilization. Both initiatives have resulted in a combined 62-72% reduction in the company's CO2 emissions, as well as cost savings on those shipments. 

Reducing CO2 emissions through Carload Direct: Traditionally, manufacturers use trucks, or a mix of trucks and rail, to transport their products to customers. As trucks produce greater emissions than trains, a logical way to reduce emissions is to minimize the use of trucks and maximize the use of rail. Boise coordinated with its customers to promote rail transport so that the product could be sent directly from the manufacturing plant to the customer's warehouse. The transition from using a mix of truck and rail to exclusively rail eliminated more than 2,600 tons of CO2, the equivalent of saving over 264,000 gallons of fuel consumed by road vehicles.

image003Emission savings from carload direct shipments [/caption]

Optimizing railcar utilization with Three-Tier Pallets: Prior to this project, railcars were loaded two pallets high, leaving a space from the top of the second pallet to the roof of the railcar, thus underutilizing the full capacity of the railcar. Boise redesigned its pallets and loading structure by creating a half-pallet, which allowed them to rethink pallet stacking and maximize shipping capacities for its loads. These redesigns maximized carloads by reducing the number of shipments required to deliver product. Using just 930 railcars in 2011 reduced the company's CO2 emissions by 190 tons, which is equal to the CO2 emissions from 21,637 gallons of fuel consumed by road vehicles.

An interesting aspect of the Boise initiatives is that they were first set up as sustainability developments from a business, not environmental perspective. Or, as Boise's general manager, Trucking Division, Ross Corthell says, the company was looking to burn "less cash, not less carbon. But, often, cost-saving measures have a good tie-in to reducing your carbon footprint."Karen Blanchard, Boise's communications manager, says, "We do pursue sustainable business practices and take advantage of initiatives that have a cost advantage and are environmentally responsible."

Corthell explains that the MIT Center for Transportation & Logistics became involved when he was invited to speak about the initiatives at the Council for Supply Chain Management Professionals (CSCMP). It was in the sustainability track being led by the Center's director, Dr Edgar Blanco, the Research Director of the Carbon-Efficient Supply Chains projects. During that meeting, Blanco indicated an interest in doing a "deeper dive" into Boise's work to get the carbon calculations. Blanco then involved Environmental Defense Fund (EDF), which sponsored the further work. "We give credit to Edgar for pursuing it," adds Corthell.

He says that that the effect was a collaborative process between the Center and EDF to do the hard analytics on the carbon. Boise provided the data and the other two parties came back with the analyses.

Jason Mathers is Senior Manager, EDF. He says EDF works to identify places where companies can make improvements environmentally in a way that will also help their bottom line and saw an opportunity in the transport and logistics sector. That mission, in turn, prompted EDF to reach out to the MIT experts at the Center for Transportation Logistics. The two then collaborated in identifying and measuring ways companies can make changes that benefit the environment and provide a business return.

Although EDF works cross-industry it has had more than two decades" experience with the pulp and paper industry, the Boise scenario was an ideal opportunity.

Carload Direct: Maximizing rail to minimize emissions

The Carload Direct Initiative was launched by Boise to increase the use of rail from Boise manufacturing facilities to its customers. It involved a comparable analysis between truck direct and rail direct modes, explains Corthell. The customer, OfficeMax, was willing and capable of receiving rail shipments. "We had to help them manage that," Corthell adds.

Office Max had received rail shipments from Boise prior to the study. Boise was the only company using rail to supply Office Max.

Prior to this initiative, OfficeMax shipments could be shipped via full truckload to facilities that were rail accessible. Through a collaborative process between Boise and OfficeMax, more than 200 carloads were shipped via rail to OfficeMax distribution centers in 2011.

Using rail not only is more cost-effective than shipping full truck loads for Boise, but also emits less CO2: Moving 1 ton of cargo 1 kilometer on rail generates 10 times less CO2 compared with a full truck movement. However, there are operational barriers to increasing the use of rail. Typically, rail transit times are longer than truck movements and may require drayage (e.g., short truck movements) between facilities and rail lines. Since Boise and select OfficeMax distribution centers are rail accessible, drayage was not required. Another important barrier is order size. A Boise carload direct shipment will include over 70 tons of products, while a truckload shipment will have an average of 20 tons. Unless there is enough volume, waiting for orders to fill a carload direct shipment will increase transit times and may impact the inventory investment of the customer. Given the large product volumes, OfficeMax orders were adequately pooled to fit a carload direct shipment without compromising customer service. In 2011, 5% of the volume shipped to OfficeMax was ultimately carload direct.

Calculating CO2 emission reduction

To calculate the reduction of CO2 emissions associated with the Carload Direct Initiative, we computed the difference between the CO2 emissions generated by rail transportation of the carload direct shipments. Then we compared it with the emissions generated if those shipments had been shipped via truck. Boise provided data for 250 shipments across four lanes corresponding to 2011 carload direct US lanes to OfficeMax. Each lane started at a Boise plant and led to an OfficeMax distribution center, both of which had direct rail access. Each shipment included the date, mileage traveled between the origin and destination cities, and the shipped tons.

For each carload direct shipment, the following formula was used to estimate the CO2 emissions:

CO2 Emissions Carload Direct = Weight * Rail Distance * Rail Emission Factor

The Rail Emission Factor represents the amount of CO2 generated by moving a ton of cargo one mile using rail transportation. The study used 25.2 grams of CO2 per ton-mile as the rail emission factor. For example, the CO2 emissions for a carload direct shipment of 76 tons, traveling 604 rail miles will be 1,156 kg of CO2.3 To estimate the equivalent truckload emissions for each carload direct shipment, first, calculate the number of truckloads required for each rail shipment. Based on historic data provided by Boise, an average customer truckload shipment contains 20 tons of products. Continuing with the example above, if the carload direct shipment is 76 tons, it is equivalent to four truckload shipments (rounding up 76/20 = 3.8). The CO2 emissions for each of the truckloads can be estimated using the following formula:

CO2 Emissions Truck Load = Road Distance * Truckload Emission Factor

The Truckload Emission Factor represents the average CO2 generated by moving a full truck for one mile. We used 1,717.12 grams of CO2 per mile as the truckload emission factor. The distance for every truckload corresponds to an over-the-road distance. For the case study, this was estimated using Google Maps. For example, for each of the truckloads estimated above, the total road distance was 611 road miles, generating 1,049.2 kg of CO2 per truckload.

One can now estimate the amount of CO2 avoided by using the Carload Direct Initiative between Boise and OfficeMax by applying the procedure outlined above for each of the carload direct shipments. Figure 1 summarizes the final results of the carbon emission calculation. Based on the analysis, by implementing carload direct, Boise reduced its transportation emissions by over 70%, avoiding emissions of 2,690 tonnes. This is equivalent to saving over 264,000 gallons of fuel, or the annual GHG emissions from 460 passenger vehicles. The Carload Direct Initiative also is delivering transportation savings to Boise on those shipments.

Corthell adds that focus of the study was just to compare modes, not an effort to increase rail traffic. He says that about 85% of Boise's white paper business comes out of its or its partners' distribution centers and most of these are rail served. Shipments are then trucked the shorter distances from the centers. He stresses that there is complete inventory visibility even in third-party warehouses so Boise can maximize rail shipments.

Three-Tier Pallets - Optimizing carload to increase volume

This initiative has an interesting story, says Corthell. It came about during a brainstorming session on how to reduce costs, one of those meetings where "no idea is too crazy," he adds.Corthell credits Bensenville, IL, distribution center manager Ron Tomaczewski with the idea. "He saw rail cars with room in them all the time, but not enough for a full pallet. We were cubing them out in such a way that we could not put in another pallet. Also, we were not weighing out the cars. There was a lot of innovation done to make this happen,. The carbon footprint was the extra benefit."When leaving the Boise factory, pallets did not reach from floor to ceiling, and a small space was not being utilized on the railcars. Since the space was not large enough for a traditional pallet to be added, Boise tried placing a half-size pallet on top of the existing pallets. After a few operational trials, they determined that the half-size pallets were best positioned in the bottom layer of the stack in a "step-down" configuration starting with the highest and heaviest at the far end of the railcar. Cardboard sleeves were added around the top-layer units in order to further increase protection and reduce the risk of damage. This configuration was labeled a "three-tier pallet" railcar and had the potential to increase railcar utilization by 14%.

Once the operational configuration was solved, Boise needed to work with its customers to be able to obtain orders that would fit three-tier pallet shipments: To ship a half-pallet in a railcar, there needed to be an order for a half-pallet of product. Customers needed to create new SKUs and modify ordering and receiving systems to allow for the new half-pallet product configuration. It turned out that a half-pallet was a perfect solution for seasonal or lower-demand specialty items. As these items did not move as quickly, they often sat in Boise customer warehouses. The half-pallet allowed the customer greater order flexibility, creating a win-win situation for both Boise and its customers. The three-tier pallet configuration was finally added as an optional configuration for Boise customers in 2011. Boise can now put more volume in a rail car and does not have to pay the railroad extra. EDF's Mathers really likes the three-tier initiative. "One of the things we talk about is getting the most out of every load. Even with rail, which is more efficient than trucking, you can make it better and lower costs.

"One of the main messages we want consumers of freight services to see is that you can really look at efficiency; do what you're doing better."

He adds that although a change may seem relatively minor in magnitude, when multiplied across the entire supply chain, the benefits accrue and are actually much higher than originally believed.

Three-Tier Pallet and CO2 Savings

image004Extra utilization from three-tier pallet use[/caption]

Boise provided data for 5,553 railway shipments within the United States in 2011. Out of those, 928 included the three­tier pallet configuration. The shipment data included origin and destination cities of the railcar, date, car type, the number of pallets in the shipment, total weight, and the number and weight of three­tier pallets. Using this historic data, we were able to estimate that railcars with three­tier pallets added an average of 8.2% extra product compared to regular railcar shipments, Fig. 2.As noted earlier, rail emissions are computed using the following formula:

CO2 Emissions Rail = Weight * Rail Distance * Rail Emission Factor

image005 Estimated CO2 savings from using three-tier pallets[/caption]

Notice that the weight of the product placed in a three-tier pallet will still travel the same distance to the client location. Thus, if one uses the rail emissions formula above, three-tier configured railcars generate the same CO2 emissions as regularly configured railcars. Can it be then concluded that the extra railcar utilization does not save any CO2 emissions?This is indeed a limitation of the approach used for rail emission calculations: the rail emission factor already takes into account the average network railcar utilization and does not provide any parameters to capture any extra CO2 savings due to the Boise three-tier pallet (see Understanding Emission Factors" boxed copy for a discussion about emission factors). In other words, the ton-mile rail emission factor used in the formula above does not capture marginal changes in railcar utilization levels. More information will be needed about the marginal fuel consumption of the rail locomotive due to the three-tier pallet configuration.

There are two approaches for estimating the CO2 savings. One approach is to assume that Boise will need to ship those three-tier pallets in a different mode (e.g., in a truckload) to provide the same level of service. This approach will follow the same lines of analysis we used for the carload direct CO2 savings. However, this will not be a realistic estimate since customers most likely will not be willing to pay more for a half-pallet being shipped in a more expensive mode. This also will significantly overestimate the CO2 reductions since truck emissions are much higher than rail emissions.

A second approach is to assume that the marginal CO2 contribution of placing half-pallets in an existing railcar is negligible. The savings of the three-tier pallet can be estimated by assuming that the weight of the three-tier pallets would have shipped in additional railcars that will generate new CO2 emissions. Thus, to estimate the CO2 savings, we subtracted the average weight of a "regular" car (i.e., those that did not carry three-tier pallets) from cars that carried three-tier pallets, taking into account the different car types. We then multiplied this extra weight with the rail distance and the rail emission factor (25.2 grams of CO2 per ton-mile). This number will be used as a proxy estimate of CO2 savings due to higher railcar utilization.

Figure 3 summarizes the results of these calculations from the Three-Tier Pallet Initiative. Boise saved approximately 190 tonnes of CO2 (6.8%) by using three-tier pallets. This is equal to the CO2 emissions from 21,600 gallons of fuel, or the annual GHG emissions from 38 passenger vehicles. Together, the Carload Direct Initiative and the Three-Tier Pallet Initiative have yielded carbon emission reductions of more than 2,800 tonnes of CO2.

Summary

Implementing carload direct and three-tier pallets is a perfect example of how environmental initiatives can benefit both the supplier and the customer. Greening a company can be good business and increase profitability. In this instance, there was a significant reduction in emissions and cost savings, and the customer benefitted from a more flexible supply chain. It is important to note that, by evaluating one aspect of their shipping process, a domino effect took place. By implementing additional modifications, Boise was able to increase supply and simultaneously decrease carbon emissions - a perfect example of carbon-efficient logistics.

Corthell points out that no capital expenditure was needed to develop these initiatives. "We do manage a fleet of rail cars but we did not incur any additional capital expense as we already used high-roof rail cars (needed for the three-tier pallet design).

Dr. Edgar E. Blanco is Research Director, MIT Center for Transportation & Logistics

1. In this document, we will use the word "ton" as commonly used in the United States: one ton is equal to 2,000 pounds. This is internationally referred to as a "short-ton" to differentiate it from a "tonne" or "metric-ton," which is equivalent to 2,204 pounds.
2. Source: GHG Protocol, CO2 Emission Factors by Weight Distance, August 2012. Since this is an international standard, CO2 emissions are commonly reported in metric units (i.e., grams, kilograms, and tonnes).
3. 1 kilogram (kg) = 1,000 grams (g) = 2.20462 pounds (lbs.).
4. Source: GHG Protocol, CO2 Emission Factors by Weight Distance, August 2012.
5. http://maps.google.com. Accessed July-August 2012.
6. 1 tonne = 1,000 kg = 2,204.6 lbs.
7. EPA, 2012. http://www.epa.gov/cleanenergy/energy-resources/calculator.html. Accessed November 2012.
8. http://www.boiseinc.com/sustainability.html#tabId=tab4. Accessed November 2012.
9. http://www.boiseinc.com/index.html. Accessed November 2012.

Acknowledgments

This research would not have been possible without the funding and support of Environmental Defense Fund (EDF). Special thanks to Jason Mathers, Senior Manager at EDF, for his support, guidance, and encouragement despite the numerous delays. Most importantly, I appreciate his commitment to allow the research to proceed independently throughout the case study development process.I would like to thank my research team and collaborators at the MIT Center for Transportation & Logistics: Dr. Tony Craig, Dr. Cissy Yang, Peter Oberhofer (visiting from WU Vienna), and Professor Jan Fransoo (visiting from TUE Netherlands), who participated in the analysis and review of the case study at various stages. I also would like to acknowledge the incredible help from Lena Goodwin, whose writing and editorial support made this case study a reality. To all the MIT Center for Transportation & Logistics staff, especially Tara Faulkner and Ken Cottrill, who suffered the deadlines and pressures of getting this case study out the door, I extend my deepest thanks.Finally, I would like to express my gratitude to Brian Thompson and Ross Corthell from Boise and Chris Brady and Steve Raetz from CH Robinson, who invested their time and effort in providing all the contacts and information we needed and who had the patience to answer our questions despite our long periods of silence. Dr. Edgar E. Blanco.PPI 

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