In conjunction with recent Earth Day observances, the "Third-Party Logistics Sustainability Report" was released by Penske Logistics; Robert C. Lieb, professor of supply chain management at Northeastern University; and Kristin J. Lieb, assistant professor of marketing communication, Emerson College.
The report reveals that despite the global recession of 2008 and 2009, many large third-party logistics companies increased their commitments to developing greener practices and building environmental sustainability programs during that time. The report is based on key findings from the 2008 and 2009 "3PL Provider CEO Perspective" surveys, which interviewed 35 third-party logistics company CEOs across North America, Europe and Asia-Pacific whose companies were responsible for generating approximately $60bn in revenue each year.
The report indicated that "a corporate desire to do the right thing" was by far the most important reason to commit to sustainability initiatives; "pressure from customers" ranked second. According to the surveys, CEOs were not only dedicated to providing customers with more environmentally-friendly services but to applying such practices internally within their organizations, employing a variety of tactics, from reducing company-printed materials to using windmills at distribution centers for electric-power generation.
Corporate dedication to sustainability programs yielded overwhelmingly positive results for 28 out of the 35 CEOs surveyed, including reduced operating expenses, positive impacts on company employees, substantial savings in fuel costs, and even reduced fuel costs by 40 percent, as noted by one CEO. Six CEOs reported that company sustainability efforts led to increased business with both existing and new customers. However, despite these investments, most CEOs noted that sustainability was very infrequently a determining factor in either extending existing contracts, or securing new 3PL business.
"Compared with other industries, 3PL service providers are ahead of the game," commented Dr. Robert Lieb. "They appear to be planning for the long-term by recognizing emerging customer preferences and providing services consistent with them, even in the current market downturn."
The full report follows.
THE THIRD-PARTY LOGISTICS INDUSTRY GOES 'GREEN'
Purpose The purpose of the research was to document the extent to which large third party logistics (3PL) companies have committed themselves to environmental sustainability goals. It also examined the sustainability initiatives undertaken by these companies and the impact of those initiatives on the 3PLs and their customers. Finally, the research examined the impact of the global recession of 2008-2009 not only on the commitment of the 3PLs to their sustainability goals, but also how the recession impacted 3PL customer interest in such goals.
Design/methodology/approach The data upon which this paper is based was generated in two annual surveys of the CEOs of 40 large 3PL companies operating in North America, Europe, and the Asia-Pacific region. These surveys were conducted in 2008 and 2009 and were part of a long-term series of annual surveys that began in 1994.
Findings The finding indicated that nearly all of the companies involved in the surveys have made substantial commitments to environmental sustainability goals during the past several years, and launched a broad range of related projects that have had quite positive impacts on those companies. Despite the recession, none of the 3PLs scaled back their commitment to those goals; in fact, many launched new sustainability projects during that period. 3PL customers have also shown increasing interest in the environmental sustainability capabilities of the 3PLs.
During the past several years, many articles have appeared in supply chain management publications that have tracked the efforts of manufacturers, retailers, and carriers to become "greener" (Cooke, 2008) and (Murphy, 2008). However, very little attention has been given to such activity in the context of the third party logistics (3PL) industry. This paper shows that despite the global recession of 2008-2009, many large third-party logistics (3PL) companies increased their respective commitments to developing greener practices and building environmental sustainability programs during that period. It also examines the reasons such companies are investing in "going green" and initiating other sustainability efforts at a time when many other initiatives are being cut or postponed.
The 3PL industry provides a broad range of logistics services to its clients, and has been estimated to generate approximately $500 billion dollars per year in global operating revenues. In the past decade, the 3PL industry has become global in nature, with particular emphasis given to its clients in the North American, European, and Asia-Pacific region markets. While the industry consists of thousands of service providers around the globe, it is dominated in each of the aforementioned markets by a modest number of large 3PLs. These dominant 3PLs are often subsidiaries of such companies as United Parcel Service, Deutsche Post, Schenker, Kuehne + Nagel, Panalpina, Penske, and UTI Worldwide.
The data upon which this paper is based was generated in two annual surveys of 40 CEOs of many of the largest 3PLs operating in the North American, European and Asia-Pacific markets. The first survey was conducted in 2008, while the second was conducted in 2009 (Lieb and Lieb, CSCMP, 2008) and (Lieb and Lieb, CSCMP, 2009). Among the companies participating in the survey were 17 of the Top 50 Global 3PL Providers, as measured by gross revenues (Burnson, 2009). Collectively, the companies that participated in the surveys generated in excess of $60 billion in operating revenues in each of the survey years.
The surveys were part of an annual series of surveys of the CEOs of large 3PL companies that originated in 1994. Each year, the survey asks the CEOs to identify the major dynamics, opportunities, and problems of their industry. Surveyed CEOs provide annual estimates of the growth rates of their specific companies and of the overall 3PL industry in their regions. In the 2008 survey, the CEOs were also asked a number of questions concerning the involvement of their companies in green/environmental sustainability activities. Among the issues examined were the reasons for the CEOs' companies' involvement with sustainability efforts, the extent of that involvement, how that involvement impacted their companies, and the importance of sustainability issues to their customers. The sustainability questions included in the 2009 survey focused on the impact of the global recession on 3PL sustainability initiatives, and also sought to determine the level of interest 3PL customers had in such initiatives.
While all 40 of the CEOs invited to participate in the two surveys agreed to complete the questionnaires, 39 submitted completed surveys in 2008 and 35 completed the survey in 2009. The same companies and CEOs were participants in both surveys.
The 2008 Survey
Formal Sustainability Programs and Leadership
Surveyed CEOs were asked if their companies had formal green/environmental sustainability programs in place, and 28 of the 39 respondents said they did. It should be noted that most of those programs were relatively new, with 16 of them being established between 2006 and 2008.
In many instances when a company establishes a formal sustainability program it also develops a formal corporate sustainability statement. Twenty-four CEOs indicated that by 2008 their companies had written formal sustainability statements. Such sustainability statements typically outline the goals of the company, and the general approach to be taken to realize those goals.
It is important to note that even if a CEO reported that his/her company did not have either a formal sustainability program or a formal sustainability statement in place, the company could still be actively involved in responding to environmental issues in other ways.
Twenty of the 29 companies with formal sustainability programs in place in 2008 had also established a management position to oversee company efforts in the area. The titles accorded those individuals varied widely and are shown in Exhibit 1.
Reasons for Establishing Sustainability Programs
The 2008 survey also sought to determine the most important reasons the 3PLs had established sustainability programs by asking the CEOs to indicate the three most important reasons for doing so. The resulting CEO responses were weighted, and three points were given for a "most important" response; two points were given for a "second most important" response, and one point was given for a "third most important response." Their collective responses are shown in Table 1.
As shown, "a corporate desire to do the right thing" was by far the most important reason, accounting for 85 total weighted points. It should also be noted that 24 of the 39 CEOs indicated that this was the "most important reason" their companies had established sustainability programs. Ranking second, with 57 total weighted points was "pressure from customers." Seven respondents also selected this customer pressure as the "most important reason" for establishing their programs. Rounding out the "Top Five Reasons" were "a desire to enhance the company's image" with 41 points, "a desire to attract green customers" with 28 points, and "competitive pressures" with 20 points.
Interestingly, most of these responses speak directly to brand-maintenance issues. The desire to "do the right thing" speaks to a company's wish to position itself and be a responsible member of an industry, of the world marketplace, and of society. These dimensions of a brand become more important in situations where brands offer more or less the same services and seek a legitimate basis for differentiation. This is particularly applicable in the 3PL industry in which there is broad concern about the possible commoditization of the industry's service offerings (Lieb and Lieb, CSCMP, 2008).
Steps Taken to Address Sustainability Issues
The CEOs were also asked to identify any steps their companies had taken to support their sustainability goals. Twenty-eight CEOs responded to that question, and their responses covered a broad range of activities. Those activities might be clustered into four categories: administrative, analytical, transportation-related and a rather broadly defined "other" category.
Steps taken by these companies that were categorized as administrative were: setting specific sustainability goals for individual operating units (mentioned by seven respondents); establishing committees to oversee company sustainability efforts; developing a formal sustainability statement for the company; establishing pilot programs directed at reducing emission levels, and instituting a 4x10 hour work week for members of the company's administrative staff.
Many of the CEOs indicated that their companies had approached their sustainability goals from an analytical standpoint. Those analytical steps included: investing in evaluation software (mentioned by three CEOs); improving control of a company's service providers through the use of environmental checklists; benchmarking a company's carbon footprint against other 3PLs; developing environmental KPIs to be monitored on a regular basis; reconsideration of a company's network design; and measuring the carbon impact of various network designs and transportation strategies.
A wide range of transportation-related steps were mentioned by those surveyed as important components of their commitment to sustainability goals. These included:
• Experimenting with alternative fuels (mentioned by three CEOs)
• Purchasing more fuel efficient vehicles
• Reducing vehicle mileage operated
• Participating in government-sponsored programs such as the EPA's SmartWay program in the trucking industry
• Promoting freight consolidation initiatives within the company
• Retro-fitting a company's aircraft with more fuel efficient engines
• Shifting freight to more fuel efficient modes
• Limiting the speeds at which company equipment is operated
• Qualifying fleet operators based upon their equipment and performance
• Sharing vehicles across multiple customers
• Reducing vehicle idling time
The "other" category included a number of interesting initiatives, including efforts to: reduce company-printed materials; recycle office supplies and packaging materials; install solar panels in warehouses; promote company use of LEED (Leadership in Energy and Environmental Design) warehouses-this involves third-party certification of buildings in a program sponsored by the U.S. Green Building Council; install more energy-efficient lighting and motion sensors in company facilities; develop new initiatives in recycling company waste materials; and use windmills at distribution centers for electric-power generation.
Impact of the Sustainability Steps Taken by the Companies
In the 2008 survey, the CEOs were also asked to evaluate the impact of the sustainability steps their companies had taken to date. Twenty-five CEOs responded to that question, and their responses were overwhelmingly positive. Nine CEOs cited positive impacts on company employees who have helped foster a "green culture" within their organizations. Interestingly, eight respondents indicated that company sustainability efforts had reduced operating expenses, with several highlighting substantial savings in fuel costs. One CEO noted that company sustainability efforts had reduced fuel costs by 40 percent! Another cited savings of 15 percent of direct costs, and "in some places, up to 23 percent." Another said that the sustainability efforts had produced "satisfaction and fun for the staff." These documented cost savings related to 3PL sustainability initiatives are quite interesting in that generally the discussion of potential sustainability initiatives focuses on possible cost increases rather than cost savings.
Six CEOs reported that company sustainability efforts led to increased business not only with existing customers, but also with new customers. Improvements in company image were also cited by five respondents who mentioned "positive press" and "useful marketing spin-offs" as benefits of their sustainability initiatives.
Partners in Sustainability Efforts
Many companies that have established formal sustainability programs work with other organizations to pursue common sustainability goals. The 2008 survey sought to determine how many 3PLs worked with partner organizations on sustainability initiatives, and to determine the types of organizations that the 3PLs aligned themselves with in those joint efforts. As shown in Table 2, this approach is widely used in the 3PL industry, and the industry's environmental partners come in many forms.
By far, the most frequently mentioned sustainability "partners" were government agencies. Twenty-two CEOs reported working with government agencies on sustainability issues. This is not surprising in that environmental regulations have already been tightened in many countries, and 3PLs are naturally interested not only in complying with existing regulations, but also in influencing subsequent regulatory measures that might affect the industry. An illustration of the type of 3PL-government sustainability alliance is the U.S. EPA's SmartWay program, which is a collaborative program between the EPA and the freight sector in which vehicles and carriers may become certified as SmartWay-compliant. The second most frequently mentioned 3PL sustainability partner was transportation companies (cited by 15 CEOs). Many 3PLs are focused on such issues as using cleaner fuels, reducing route mileage operated, establishing better loading practices, and changing fleets to better support sustainability goals. Transportation companies can provide valuable inputs into 3PL discussions of such topics, and modify their operating practices in providing services to 3PL clients. Among the other types of environmental partners mentioned by at least ten CEOs were trade organizations (12), consultants (11), and non-government organizations (10).
These environmental "partnerships" are very important to the success of the 3PL industry's sustainability efforts. Partner companies provide access to data, experience, different perspectives, and larger networks to help 3PLs meet sustainability goals. At the same time, the collective political power of such partnerships enhances the 3PL industry's potential to influence public policy in this area.
Importance of Sustainability Issues in the Sales Process
The 2008 survey also attempted to determine how often existing or potential customers raised sustainability requirements in their contract discussions with 3PLs. The CEOs responded by saying that on average 21 percent of existing customers and 20 percent of potential customers raised sustainability issues in their discussions with the 3PLs.
The CEOs were then asked to report the major sustainability issues most frequently emphasized by existing or potential customers in those meetings. Their responses clustered into two areas. The first area concerned the current performance of the 3PL service provider in dealing with sustainability issues within its own organization. In this area, customers typically asked the 3PL to discuss its internal practices related to such issues as recycling, energy conservation and reduction of its carbon footprint.
The second area related to the 3PL's ability to aid the customers in reaching their specific sustainability goals. More specifically, 3PL customers asked about the 3PL's ability to:
• Support customer efforts to reduce their carbon footprints
• Enhance existing return logistics programs
• Reduce fuel, water and electricity consumption
• Help customers comply with various industry certification programs
• Dispose of hazardous materials
• Develop recycling programs
• Improve the performance of customer vehicle fleets
• Develop renewable energy sources, especially at customer facilities
Having determined the breadth of existing and potential customer interest in such topics, we were also interested in knowing how important sustainability issues were in closing deals with 3PL customers. Toward that end, those surveyed were asked how frequently sustainability issues were a major determining factor in either extending existing contracts, or securing new 3PL business. The options given were frequently, infrequently, or very infrequently. Surprisingly, only three CEOs said these issues were frequently a major determining factor in such situations, and the other 36 indicated that it happened very infrequently. In a related question, the CEOs were also asked what percentage of their companies' existing contracts included sustainability performance metrics, and the average response was 2.5 percent.
While the 2008 survey results clearly demonstrated that there was considerable customer interest in discussing sustainability issues with major 3PLs, those issues were not yet playing a major role in either the 3PL selection or retention process, and they were not being significantly reflected in 3PL contracts.
Success of Sustainability Efforts
The survey also asked CEOs about the success of their companies' sustainability efforts relative to those of their competitors. In response to that question, 14 CEOs believed their companies' efforts had been more successful than those of their competitors, 20 said the success of their sustainability efforts were comparable to those of their competitors, one said his company's efforts lagged behind those of its competitors, and four were not sure.
Short-Term Sustainability Challenges for 3PLs
For a large 3PL to become and remain "green," it must deal with important corporate challenges and trade-offs. To explore those issues, the 2008 survey asked the CEOs to identify and rank-order the three most important short-term sustainability challenges faced by their companies. Again, a first-place vote was awarded three points, a second-place vote earned two points, and a third-place vote equaled one point. The results are summarized in Table 3.
As shown, balancing sustainability efforts with customer expectations for low-priced 3PL services ranked first with 55 total weighted points and ten "most important" votes. Finishing second was identifying appropriate environmental benchmarks/targets with 48 points and six "most-important" votes. In third-place was establishing sustainability priorities within the company with 47 points and nine "most-important" votes. Fourth, with 22 points and four "most important" votes, was generating accurate company information related to current environmental practices. Finishing a distant fifth with ten points and one "most important" vote was developing an organizational sensitivity to sustainability issues.
Importance of Sustainability Issues Three Years from Now
The CEOs were also asked how important they believed 3PL provider "greenness" would be three years from now, and they were clearly divided in their opinions. While 16 respondents said they believed it would be substantially more important, 17 indicated that they thought it would be marginally more important, three suggested it would be about at the same level of importance, and two believed it would be marginally less important.
The 2009 Survey
The 2009 survey also included sustainability questions designed to test the impact of the global recession on the commitment of the 3PLs to their sustainability goals and to determine how the 3PL customer base viewed sustainability goals during a challenging economic climate.
Continued 3PL Commitment to Sustainability
The CEOs involved in the 2009 survey were asked if their companies had scaled back their commitment to sustainability goals as a result of the recession, and all 35 indicated that they hadn't. In fact, 22 of the 35 (63 percent) reported expanding the existing sustainability programs during the previous year, and 25 of the 35 (71 percent) indicated they had launched completely new sustainability initiatives during the same time frame. Further, as discussed below, CEOs reported that despite the economic downturn their customers continued to express interest in sustainability issues.
These developments are quite interesting, and the actions of the 3PLs are consistent with the views expressed in a recent Harvard Business Review article that urged companies to position their brands for "inevitable recovery" by "preparing now for possible long-term shifts in customers' values, attitudes and purchasing behaviors" (Quelch and Jocz, 2009). 3PL service providers are ahead of the game in that respect, and appear to be planning for the long-term by recognizing emerging customer preferences and providing services consistent with them, even in the current market downturn.
Expansion of Existing Sustainability Programs
The 22 CEOs who reported that their companies had expanded existing sustainability programs in the past year identified a wide range of expansion efforts in the administrative, analytical, transportation-related, and "other" categories introduced earlier in this paper. Typically these expansion efforts involved extending small-scale pilot programs to other organizational units or geographies.
The most notable of the expansion efforts were in the analytical category. These efforts included: development of more robust analytical capabilities to quantify a company's carbon footprint with respect to its freight optimization efforts; establishment of a review process for new technologies and their potential impact on the carbon footprint of the company; and the development of diagnostic technologies that give customers real time visibility into a company's fleet performance - with the goal being to monitor and improve vehicle routing, fuel usage, speed, idle time and driver shifting patterns.
As noted earlier, in the 2009 survey 25 CEOs reported new sustainability initiatives were launched by their companies in the previous year. Among the new administrative initiatives reported were: development of a Web site to update customers on a company's green initiatives and how they impact customer needs and the community; establishment of a formal company procedure to anticipate and understand future government sustainability actions and develop appropriate company responses; expansion of collaborative partnerships with other 3PLs and customers to include sustainability; institution of a work-from-home program for some employees; introduction of a Green Training Program which involves telecom/webinar training sessions about climate change regulations; experimentation with a paperless office concept; establishment of a dedicated team to review procedures for energy savings and fuel use in facilities and equipment; integration of sustainability issues into a company's broader business agenda and objectives; and development of methods and tools to encourage employees to focus on sustainability agendas both at work and at home.
Among the new transportation-related initiatives reported were: participating in the EPA's SmartWay Program; establishing an Eco-Transport program to not only use more ecologically-friendly modes, but also to promote cargo consolidation; mandating reduced vehicle-speed on the company's fleet to save fuel and reduce emissions; releasing a prototype for an eco-friendly containership; installation of solar panels on Roll-on-Roll-off vessels to power ancillary services; investment in a line of tractors and trailers engineered to reduce fuel consumption and greenhouse gas emissions; making ultra low sulfur diesel available at all company refueling stations, and bio-diesel available at some locations.
Among the new analytical initiatives reported by respondents were: calculation of a company's carbon footprint so that it can be prepared for "carbon pricing"; development of a carbon footprint calculator for logistics solutions so customers can consider and weigh the environmental costs and benefits of a particular solution as well as the traditional cost and service benefits; incorporation of sustainability cost/benefit in customer solutions and proposals; development of a carbon footprint metrics tool to measure and report greenhouse gas emissions based on ton-mile, average-weight-per- load, average-miles-per-load, and average number of loads related to customer operations; measurement carbon footprints for customer supply chains operated by a company; establishment of a company target to reduce its carbon footprint by 5 percent annually against existing guidelines; and development of Think Green services through a company's consulting division to help clients to reduce their carbon footprints.
Among the "other" new initiatives reported were: use of third parties to identify potential lighting upgrades to reduce KWh consumption, utility costs, and GHG emissions within all company facilities; development of an eco-consumption program focusing on management of the purchase, consumption, reuse and recycling of office supplies and packaging materials; implementation of high-efficiency lighting projects at DCs; tracking of gas and electricity use at company operated warehouses and DCs; establishment of pilot programs to substantially reduce energy consumption in company warehouses; consolidating a company's warehousing network; raising sustainability awareness within a company and extending it to vendors and customers; promoting a paperless environment within a company; and incorporation of sustainability guidelines into all new building designs and materials.
Customer Interest in Sustainability Issues
We also wanted to know how much attention was being given to sustainability issues by the existing customer base of the 3PLs involved in the 2009 survey. On average the CEOs reported that 13 percent of their customers were giving substantial attention to such issues during this time, 50 percent were giving moderate attention to them, 30 percent were giving little attention to sustainability issues, and only 7 percent were giving no attention to them. If nearly two-thirds of the customers of these large 3PLs were giving at least moderate attention to sustainability issues during the economic downturn, this indicates a growing sensitivity to sustainability issues in the 3PL customer community. The motivation for this interest may vary widely from company to company, but the implications to the 3PL service provider community are clear. These issues will become more important in the marketplace, and the commitment to sustainability issues of individual 3PLs is likely to become a significant differentiation factor in that marketplace.
Summary and Implications
Our research indicates that many of the major global 3PL service providers have made important commitments to green/environmental sustainability improvements during the past several years. Those companies have made capital expenditures, implemented organizational changes, and modified operating practices to address such issues. While the reasons for making these commitments vary from company to company, the most commonly cited reasons have been an organizational desire to do the right thing with respect to environmental concerns, and pressure from customers. In pursuing sustainability goals, many of the 3PLs have closely worked with customers, transportation companies, trade associations, non-governmental organizations, and government agencies. Interestingly, as noted in the paper, in many instances their efforts have resulted in significant cost savings for the companies.
While 3PL CEOs remain committed to sustainability issues, the recession will likely limit some of their initiatives in the coming months. While low-cost operational changes that can yield sustainability gains will likely continue through the financial crisis, related financial pressures and board concerns will likely lead to the postponement of more capital-intensive initiatives.
However, longer-term sustainability issues are likely to attract even more managerial attention in the 3PL industry. The combination of a continuing desire to do the right thing on the part of the 3PLs, growing customer interest in sustainability, and increasing governmental regulation of environmental issues would all seem to point in that direction.
Selected Titles of Managers Overseeing 3PL Sustainability Programs
VP Environmental Sustainability
VP Environmental Affairs
VP Quality Assurance
VP of Sustainability
Senior Manager for Enterprise Sustainability
Chief Quality Officer
Corporate Sustainability Manager
Global Sustainability Officer
Group Environmental Officer
Senior Sustainability Manager
Most Important Reasons for Establishing Sustainability Program
Total Weighted Points*
Corporate desire to do the right thing
Pressure from customers
Corporate desire to enhance company image
Corporate desire to attract green customers
*Number of "most important" mentions in ( )
Most Frequently Mentioned Sustainability "Partners" of 3PLs
Number of Mentions
Industry trade organizations
Most Important Short-Term Sustainability Challenges Faced by 3PLs
Total Weighted Points*
Balancing sustainability efforts with customer expectations for low-priced 3PL services
Identifying appropriate environmental benchmarks/targets
Establishing sustainability priorities within the company
Generating accurate company information related to current sustainability practices
Developing an organizational sensitivity to sustainability issues
*Number of "most important" mentions in ( )
Burnson, Patrick. (2009), "The Top 50 3PLS: Treading Water", Logistics Management, Vol. 49, No. 6, pp. 48s, 50s, 52s (3PL Special Supplement).
Cooke, James A. (2008), "The Greening of Whirlpool's Supply Chain", CSCMP's Supply Chain Quarterly, Quarter 2, pp. 46-49.
Murphy, Jean V. (2008), "Supply Chains Reduce Carbon Footprints and Save You Money", Global Logistics and Supply Chain Strategies, Vol. 12, No. 3, pp. 30, 32, 34-36, 38, 40-42.
Lieb, Kristin J. and Lieb, Robert C. (2008), "The North American, European, and Asia-Pacific Markets for 3PL Services: The 2008 3PL Provider CEO Survey", presented at the CSCMP Annual Conference, Denver. Sponsored by Penske.
Lieb, Kristin J. and Lieb, Robert C. (2009), "The North American, European, and Asia-Pacific Markets for 3PL Services: The 2009 3PL Provider CEO Survey", presented at the CSCMP Annual Conference, Chicago. Sponsored by Penske.
Lieb, Kristin J. and Lieb, Robert C. (2008), "Why 3PLs Need to Build Their Brand", Supply Chain Management Review, Vol. 12, No. 8, pp. 46-50=52.
Quelch, John A and Jocz, Katherine E. (2009), "How to Market in a Downturn", Harvard Business Review, pp. 1-12.
Source: Penske Logistics
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