How to Build a Green Supply Chain?

Green Supply Chains, also referred to as Sustainable Supply Chains, have been in the limelight in recent years, with most large organisations having launched ambitious initiatives to make their supply chains green.

Traditional supply chains, which include the international transportation leg, as well as inland transportation, storage, packaging, etc, are essential to international trade and have grown in importance, scale, and complexity as globalization has gained prevalence. Each activity and element of the supply chain contributes to emissions.

The degree of emissions attributable to each aspect depends on factors such as the mode of transport, source of energy, and efficiency of planning and cargo movement. 

To take an example, air is the most polluting mode of transport, while water transport is considered the most eco-friendly mode; however given the sheer volumes transported via vessels, the aggregate emissions are extremely high (so much so that if international shipping were to be a country, it would be the world’s sixth largest emitter of GHG, ranking above Germany).

Likewise, while some vessels now use clean fuels, a large number of vessels, trucks, and other vehicles involved in transportation still use fossil fuels.

Matters are exacerbated by geopolitical factors and military conflicts. Examples of the former include Western corporations moving manufacturing capacity out of China, which while being a sound supply chain and procurement strategy in itself, is rendered suboptimal because the alternate manufacturing centres (such as Vietnam, Thailand, Mexico etc) rely on Chinese factories for raw materials and components required to make the final product.

The net effect is that the overall transport distance increases as components are sent from China to various countries, whereafter, the final product is shipped to European and American markets. This in turn increases the amount of emissions. Likewise, the ongoing military hostilities in the Middle East are an instance of the latter, where the elevated threat levels (of attacks on commercial shipping interests) have compelled Carriers to reroute vessels plying the Asia to Europe trade route via the Cape of Good Hope.

Whilst relatively safer, the route is also considerably longer than the traditional route traversing the Suez Canal. The longer distance inevitably involves greater bunker consumption, which increases emissions.

Weather also plays its part, with low water levels at key maritime gateways/ paths such as the Panama Canal or the Rhine River reducing the effective capacity of vessels, which necessitates the infusion of additional tonnage, leading to higher emissions. Even more concerning is a modal shift, whereunder cargo owners shift from the sea route to the land route (using road connections), which emits more greenhouse gasses.

Designing a Green supply chain involves analysing each aspect of the supply chain, with the intent of reducing emissions ascribable thereto, with the ultimate purpose being to minimize the carbon footprint of the holistic supply chain. 

 Companies designing green supply chains essentially measure the carbon footprint/ emissions of each element of the supply chain and activities therein and then consciously attempt to eliminate or reduce these emissions.

The ultimate objective is to ensure that the supply chain is carefully designed, with due consideration to the environment and GHG emissions, and to reduce carbon footprint as much as is feasible. 

How do Green Supply Chains differ from traditional Supply Chains?

The fundamental difference between a traditional supply chain and a green supply chain is that while the traditional supply chain focuses overwhelmingly on operational effectiveness and commercial viability, a green supply chain incorporates environmental impact as well and emphasizes reducing the carbon footprint at the aggregate and specific activity levels, by selecting eco-friendly options throughout the supply chain. 

The scope of Green, Sustainable supply chains is also broader, including reverse logistics, refurbishing and recycling options, and eco-friendly end-of-life-cycle disposal planning.

This is also referred to as a Circular Supply Chain.

Steps to Make Supply Chains Green

Mapping supply chains

The very first step in designing green supply chains is to map the current end-to-end supply chain and then evaluate the carbon footprint for each activity/ element with its scope. Thereafter, each activity and emissions attributable thereto need to be analysed to identify possible opportunities to reduce emissions, whilst taking care to ensure the commercial viability of the proposed changes.

Use biodegradable or eco-friendly packaging material and Reduce packaging and plastic waste

Packaging represents a significant opportunity for reducing carbon footprint, by using eco-friendly or biodegradable packaging material. Besides, packaging techniques can be optimized to reduce the use of packaging material and also avoid the use of plastic.

Use less polluting transport modes

Exporters and importers can also make a conscious decision to select less polluting transport modes. Maritime transport is the most eco-friendly mode of transport while air transport is the most polluting, wherefore a modal shift from air to ocean can help reduce emissions significantly.

Likewise, for inland transport, the two most common modes are road and rail, where rail emits less pollution. While the decision between road and rail depends on factors such as connectivity, distance involved, and final origin/ destination, buyers and sellers can, where possible, select rail transport – which is not only eco-friendlier but also more cost-effective, especially over long distances.

Decisions such as these need to be taken after giving adequate consideration to factors such as incremental costs, impact on transit times and schedule reliability, increase in landed costs, additional inventory requirements, availability of regular and sufficient transport capacity etc.

Use green transport products instead of traditional products

In response to increasing demand from customers for logistical and supply chain solutions that are eco-friendly, transport and logistics service providers are now expanding their product offerings to include green options (generally at a premium over the standard product). 

This enables them to offer customers who are conscious of their carbon footprint the option of selecting an eco-friendly product, which in turn helps the customer reduce their supply chain’s carbon footprint.

These green transport products could include:

1. Sea-air transport: where the commodity is not time-sensitive, exporters could utilise sea-air options rather than the all-air option.
2. Inland waterways: where inland transport options are available, exporters and importers could select these instead of road transport. 
3. Green fuels: Exporters can book their cargo on services or container vessels which use less-polluting green fuels, instead of the traditional HSFO.

Partner with Carriers to create customised green transport options

Generally speaking, awareness about the need to reduce the carbon footprint of supply chains is greater amongst bigger corporates/MNCs, who also possess the resources to redesign supply chains and absorb the associated costs. These manufacturers, exporters or importers operate at a massive scale, making them crucial customers for transportation and logistical service providers. 

Such large customers often enter into partnerships with container carriers, whereunder the carrier creates customized green transport solutions, that are aligned with the customers’ HSSE objectives and environmental priorities. 

Carriers on the other hand are thus enabled to invest in sustainable innovation and design products that are eco-friendly, assured in the knowledge that they have a ready customer for these products. Later on, carriers can scale these products and make them available to other smaller customers as well.

Carriers thus benefit by reducing their scope 1 emissions, that too without the resultant pecuniary pressures on their profit margins, while customers/ exporters/ manufacturers are enabled to reduce their scope 2 and scope 3 emissions, making this a mutually beneficial proposition. 

These customised green solutions could prima facie comprise:

1) Transporting the customers’ cargo only on vessels that use green fuels

2) Offering a multimodal option that causes less pollution

3) Using transport routes that bypass or avoid environmentally and ecologically sensitive areas

Using green fuels

Carriers are increasingly biofuels or LSFO as bunkers, instead of the traditional HSFO (which was more polluting). This change is driven partly by legislative mandates making it obligatory to use marine fuel with low sulphur content, and partly by consumer preference for products with a lower carbon footprint.

This potent combination of commercial and legal considerations has abetted the growing utilisation of clean fuels, which is further reflected in the fact that a greater proportion of the new builds ordered by carriers are capable of running on green fuels. What this implies in the long run is that as the global fleet becomes alternate-fuel-ready, the demand for traditional (polluting) bunkers will steadily abate.

Electric Vehicles and Electrified rail networks

For inland transportation, drayage and inland transport providers are incorporating electric vehicles in their fleet. 

Rail networks too are steadily being electrified, moving away from coal. To take the example of railways in India, large-scale electrification projects have helped Indian Railways electrify 95% of its broad gauge network (as of April 2024).

We are thus witnessing a distinct trend towards clean energy sources for rail and road transport.

At the government level, countries such as Germany and Italy are financing rail infrastructure augmentation projects and introducing CO2 surcharges in the form of truck tolls, to encourage a shift from road to rail.

Green shipping corridors

Green shipping corridors are a relatively new concept, where 2 ports are connected in a manner that facilitates lower emissions through the development of an all-encompassing ecosystem, comprising apposite legislation, financial incentives and availability of green fuel along the route.

While the concept has tremendous potential, it is as of now catching on rather slowly, given the subdued economic environment and market volatility, underpinned by weak industry fundamentals.

A recent notable instance was the signing of a MOU between Singapore and Australia, to establish the Singapore-Australia Green and Digital Shipping Corridor.

Green corridors are however considered to hold considerable potential and more and more stakeholders are exploring this option. Therefore, as macro level conditions stabilize in forthcoming months and years, it is conceivable that the development of green corridors will gather pace, with the support of the industry, governments, and consumers.

Work with Supply Chain partners who are eco-friendly / Buy from sustainable suppliers

While most manufacturers and exporters are in a position to control their Scope 1 emissions, they face challenges in reducing emissions attributable to their supply chains, primarily because these are Scope 2 and Scope 3 emissions (that are not directly within the exporters’ control). 

To tackle this challenge, exporters and importers now prefer partnering with supply chain partners and vendors of transport and logistics services, who offer ‘cleaner’ or ‘greener’ services and have a better record of sustainable operations. 

This entails thorough vetting of all available vendors to determine partners who are just as committed to environmental protection as the exporter/ importer is, and thereafter forming long-term partnerships with such vendors.

From the procurement perspective, this means that manufacturers make a conscious effort to identify and source from vendors whose operations have been proven to be eco-friendly.

Companies can look for vendors who have green certification or have been certified as following eco-friendly practices.

Carbon offsetting

Container Carriers have introduced carbon offsetting programmes whereunder the Carrier, on behalf of the customer, invests, donates or allocates an amount enough to offset the carbon emissions generated in the transport of the cargo. 

For example, the Carrier might tie up with an organization that plants a certain number of trees that is equivalent to the carbon footprint of the cargo movement. 

While this does not directly reduce the carbon footprint, it at least offsets the emissions generated and can be used in instances where green transport options are not yet available.

Choose components and raw materials carefully

This is a corollary of the point about selecting vendors who are eco-friendly, where companies also make a conscious effort while procuring their raw materials and components to ensure that the inputs selected/ used are relatively less polluting. 

Make a recycling part of your company’s green supply chain management

Supply chains should be redesigned to reduce waste and ensure recycling of as much material as possible. Minimising waste will entail lesser consumption of raw materials while recycling will extend the usable life of the raw material and result in lower demand for the material.

Leverage Technology, such as Artificial Intelligence / Machine Learning / Automation / Robotics / Planning Tools

Manufacturers and transportation service providers can use technology to optimize their operational efficiency and thus eliminate waste, through careful planning, accurate forecasting, and automated operations.

An example could be Container Carriers deploying route optimization software to select the best routes for their vessels, taking into consideration weather forecasts, tidal patterns etc, which will help reduce bunker consumption and emissions.

Future of Green Supply Chains

Growing environmental consciousness amongst businesses and increasingly stringent regulations will drive a steady shift towards green supply chains and eco-friendly transport. 

While the International Maritime Organisation has set a target to reach ‘Net Zero’ by 2050, the major container carriers have set themselves even more ambitious targets.

Maersk has committed to a 70% reduction in emissions by 2030 and to be completely net zero by 2040. 

Hapag Lloyd’s goal is to operate a net zero fleet by 2045.

As these carriers partner with like-minded manufacturing and exporting companies, supply chains will gradually become greener, resulting in an inexorable shift to processes and products that are sustainable and eco-friendly.

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• Guide to Cold Chain Logistics – Things You Must Know
• Understanding Supply Chain Resilience
• Freight Forwarder Vs Supply Chain Professional – What To Choose?
• 10 Ways To Mitigate Impact Of Poor Schedule Reliability and Supply Chain Disruptions

About Author

Jitendra has over 20 years of international experience in the Container Shipping, Ports and Logistics industry, spanning 3 diverse geographies, wherein he has been involved in the commercial and strategic aspects of the container business.

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