Supply chain laws, compliance requirements, the new EU CSRD and changing consumer behavior – in view of a new awareness of sustainability and against the backdrop of legal regulations, acting in an ecologically responsible manner is increasingly becoming a strategic corporate goal. An important factor in this context is the reduction of CO2 emissions: Yet, how high are the emissions generated during the transport and delivery of goods? Where is potential for optimization in order to make transports more efficient and environmentally friendly? In this interview, Tobias Ruscheweyh, Head of Branch Group Service and Lead Sustainability & Risk Management at Hermes International, explains how companies can use the 3-phase model of Hermes International, a business unit of Hermes Germany, in order to reduce and offset their CO2 emissions when transporting goods.
Mr. Ruscheweyh, Hermes International has developed the 3-phase model for more sustainability in the supply chain. Can you briefly explain what’s behind it and what the main goals are?
Tobias Ruscheweyh: The 3-phase model includes the successive steps of transparency, control and compensation. The main goal is to achieve a reduction or avoidance of CO2 emissions in the supply chain. If all control means for reduction or avoidance are exhausted, offsetting offers a valid and effective way to create a balance. In our Business Intelligence Tool, the actual status of CO2 emissions is clearly visualized through analysis and reporting: This allows customers to know how high their emissions are at any given time. Hermes International then supports its customers in evaluating the data and helps to identify areas with potential for a more sustainable design and to develop individual strategies for reducing CO2 emissions.
The first step is transparency: Which data have an influence on the CO2 value, and according to which calculation logic are the emissions determined?
Tobias Ruscheweyh: In our BI tool, the CO2 analysis is conducted on the basis of key facts: Which mode of transport did the customer choose (sea, air or rail), how long is the route, what is the volume and weight of the goods? We use the calculation logic of the Clean Cargo Working Group (CCWG). For example, for sea transport, the number of containers, the distance of the route and the CO2 emission factor are relevant to calculate the CO2 emissions. By listing the data in detail in our system, customers have insight into how busy the containers and transports were, in which section of the supply chain which emissions were generated and where the CO2 drivers were located.
Tobias Ruscheweyh, Head of Branch Group Service and Lead Sustainability & Risk Management at Hermes International.
In the near future, we also plan to expand the transparency of the CO2-related data: For even more precise results, for example, not only the type of transport, but also the exact ship model with its individual consumption will then be included in the calculations. If companies pursue a multi-carrier strategy, it is also possible to manually add the relevant third-party data to the system and thus include even more sections of the supply chain in the CO2 analysis. In this way, transparency over the entire transport route can be achieved in one tool, even if different service providers are involved. In addition, the future CO2 emissions calculation will also include other factors, which will then map the CO2 emissions on the basis of the TTW (Tank-To-Wheel) or WTW (Well-To-Wheel) approach, as required.
What happens in the control phase?
Tobias Ruscheweyh: In this phase, we analyze the data generated during the first step and determine where there is potential for savings and optimization. The solutions are very much individualized, as each customer has different transport requirements. For the reduction of CO2, a catalog of measures is first developed together with the customer. Using our SCM platform, an intelligent control of the supply chain is enabled in order to make the best possible choice of carriers and transport routes or to achieve better utilization of containers. Then the active redesign of processes can begin in order to fully exploit the optimization potential. Sometimes intermediate solutions are also a suitable way to do this: let’s assume that a company needs a certain good quickly and has so far preferred to ship it exclusively by air: the optimal way could then be to ship only 20 percent of the goods as air freight and to send the remaining 80 percent as ocean freight. In this way, the initial demand can be met, and CO2 emissions can be reduced at the same time.
For large companies with their own sustainability strategy, it is usually also worthwhile to take a holistic view of all CO2 polluters along the entire supply chain and to develop a strategy accordingly. Topics such as near-sourcing are once again increasingly coming into focus: If procurement and production are relocated to regions closer to home, transport distances are shortened and CO2 emissions are reduced as a result.
The more the airlines and ocean carriers expand their sustainable offer, the more a proactive sustainability control of the transports can be carried out in perspective by implementing CO2 key performance indicators (KPI).
However, not all emissions can be saved through the above-mentioned controlling steps. Which compensation measures can companies use to further develop their sustainability strategy?
Tobias Ruscheweyh: Today, there are several certified offset providers on the market, each with a different focus. Hermes International cooperates with various offset providers that are certified according to the Gold Standard and supports its customers in the selection process. Carbon offset projects not only save CO2, but also promote sustainable development through technology transfer and the fight against poverty. Nevertheless, the avoidance of greenhouse gas emissions takes priority over offsetting.
What are the challenges related to reducing CO2 emissions, and what advice do you have for companies that want to make their supply chain more sustainable?
Tobias Ruscheweyh: The necessary rethinking and modification of existing work processes often pose a challenge for companies. In order to save CO2, a longer transport route may be necessary, which can lead to the goods arriving later at the customers’ destination. But for a more sustainable supply chain, priorities need to be reset, because there will be no short-term solutions.
The inclusion of external data – for example from sub-suppliers – for the CO2 calculation of the entire value chain is also quite complex. And yet, there is much development in this regard: The Supply Chain Act and the new EU directive CSRD, for instance, can create further transparency along the supply chain and make it easier for companies to access the relevant data. In this context, our strategic SCM supports the transfer of the necessary information between all parties involved along the supply chain and creates the basic prerequisite for valid and traceable calculations. A close relationship with suppliers becomes an essential factor: After all, the more forward-looking and transparent companies are in their processes, the more flexibly they can act and implement measures together with their suppliers. This not only reduces CO2 emissions in the long term, but also ensures greater resilience along the supply chain.
CO2 savings are currently still associated with additional costs, some of which are high and which companies are not necessarily prepared to spend. On the other hand, sea freight rates, for example, were extremely high at the beginning of last year and are currently at a very low level. This volatility has not been reflected to this extent in consumer prices, so I think there is still potential there. Alternatively, compensation options, which are usually much cheaper, can be used temporarily. In addition, awareness of sustainability is increasing and with it the acceptance that this also costs money. In the transport sector, prices will gradually rise as a result of the CO2 tax. These costs will then need to be borne by the end consumer anyway.
Hermes International supports its customers in developing and implementing a forward-looking sustainability strategy. With the 3-phase model, we want to put the efforts for sustainability in logistics on as broad a basis as possible and promote rethinking: In order to survive on the market in the long term, companies must find a sensible balance between economic thinking, production reliability and sustainability goals.
Mr. Ruscheweyh, thank you for the interview.
Do you have any questions about making your supply chain more sustainable and need advice? Please feel free to contact Tobias Ruscheweyh directly and send him an e-mail at: fragen@hermes-supply-chain-blog.com