Transport and Your Value Chain
A manufacturer’s value chain usually begins in the natural world, where ultimate raw materials like iron ore, pulp wood or petroleum originate. The value chain then proceeds through some number of processing steps (often with branching steps and recycling loops) all the way through the final disposition of the finished product at the end of its useful life. Between each processing step, there is a transfer — usually a physical transport – of the work in process or finished product.
This post examines transfers between facilities, especially transfers using highway trucking. It is useful — and sobering – to construct a rough diagram of your Value Chain, starting with the origin of your ultimate raw materials and passing through the many steps through ultimate disposition. The distances involved can be mind boggling, and even a rough guess at the rolled costs of all of the transports involved even more so. Those costs are directly or indirectly reflected in your costs, and the ultimate customer’s cost. Clearly, the costs of trucking matter.
Transport Costs – Fuel Consumption and CO2 Emissions
Transportation represents about 27% of America’s primary energy consumption. The overwhelming majority of that energy comes from petroleum. Access to petroleum (crude oil) has been a major constraint to the American economy and a key determinant of American foreign policy for over four decades. Carbon dioxide (CO2) emissions to the atmosphere from the combustion of fuels derived from petroleum are believed to be a primary driver of climate change.
The chart labeled “Carbon Dioxide: Transportation” projects CO2 emissions from transportation sources through 2040. To good approximation, CO2 emissions can be taken to be proportional to petroleum–based fuels consumed.
The blue line indicates that light-duty vehicles (automobiles and small trucks) are the largest source of emissions (hence petroleum consumed). As you can see, the blue line crests around 2018, then declines rather smoothly. This projected decline is primarily attributed to improvements in vehicle fuel utilization efficiency.
The green line represents emissions (hence fuel consumption) by freight trucks – the vehicles primarily used in schlepping your raw materials and finished goods across your Value Chain. Unlike the blue line, the green line projects rather uniform annual increases into the future. This increase is largely attributed to increasing freight volumes.
Accordingly, for 2016, emissions from light vehicles are about 2½ times those from freight trucks. By 2040, that ratio drops to 1½ times. So, the relative importance of emissions (and petroleum consumption) by freight trucks increases rapidly.
The projections behind the chart just discussed represent the U.S. Energy Information Agency’s “Reference Case”. The “Reference Case” is based on demographic, economic and technical projections. These projections assume timely compliance with applicable laws and regulations, such as the CAFE fuel consumption requirements for light vehicles. On the other hand, the projections do not include compliance with laws and regulations not yet finalized by the time the projections were made. Nor do the projections anticipate future technical developments, apart from those incorporated into existing laws or regulations.
So, there is a lot of good news here for manufacturers:
>> The U.S. government is projecting sustained increases in freight shipment volumes in the years to 2040, entailing increasing manufacturing activity.
>> The Government has recently finalized a second phase of its CAFE regulations on fuel consumption efficiency that will reduce fuel consumption in freight trucks by about 45% by 2027, compared to 2010 figures.
>> Possible future technical innovations, such as the use of natural gas as truck fuel, hydrogen fuel cell powered vehicles or electric (or hybrid) vehicles may prove to be practical.
All in all, manufacturers may look forward to increasing freight volumes and falling per ton-mile fuel costs (with corresponding CO2 emissions reductions) in the coming years.
Thoughtful comments and experience reports are always appreciated.
… Chuck Harrington
This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.
Truck image licensed through www.dreamstime.com