John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.
If you look up, you might glimpse some of the 88 solar tracking mirrors on the roof moving in unison to capture sunlight as it rises over the Nevada desert, reflecting light to the floor below. If you look around, you'll see walls consisting not of gypsum board, but of compressed field straw. If you glance down, you'll find yourself looking at carpets made from 100-percent recycled polyester. And if you visit a restroom, you'll be dazzled by colorful countertops constructed of 100-percent recycled plastic.
What you won't see in this building are plaques on the walls or display cases. This is no eco-construction showcase or Museum of Environmentally Responsible Design. It's outdoor apparel and equipment retailer Patagonia's distribution center in Reno, Nev., and what you're more likely to see are racks, sortation systems and pallets.
Patagonia, you see, practices what it preaches (or in modern parlance,walks the walk). And what it preaches is conservation and environmentalism. The company's mission statement declares, "Patagonia exists to use business to inspire and implement solutions to the environmental crisis." Not that it doesn't want to make a profit; the company pushes hard to hit its annual financial numbers. After all, the more the company makes, the more it can give away. Patagonia donates 10 percent of its pre-tax profits (or 1 percent of sales, whichever is greater) to grassroots environmental groups each year. Over the years,it has given away more than $17 million in cash and another several million in merchandise.
Green and clean
Built in 1996 for $19 million—the company's largest capital expense ever—the 171,000-square-foot Reno facility, which is constructed mostly of recycled materials, embodies Patagonia's serious commitment to the environment.
"We chose to make this facility as environmentally friendly as possible," says Dave Abeloe, Patagonia's director of distribution, who oversaw the DC's design and construction. "The center features uncommon but very energy-efficient heating, cooling and lighting systems. We also paid a premium for recycled materials instead of using standard off-the- shelf materials."
Like the premium-priced recycled materials, the center's energy-efficient heating system represented a relatively high-cost alternative. But Patagonia, which supports the use of renewable energy, was committed to the idea of generating its own solar power.
The initial plans for the distribution center called for running the entire facility by solar power. However, it would have taken acres of solar panels, so the idea was dropped early in the process. As technology improved and costs decreased, Patagonia revisited the idea in 1999, but on a much smaller scale.
The company invested $55,000 to install 16 300-watt panels that provide just under 5 kilowatts of solar energy. The power is piped directly into the building's local power grid, reducing consumption from the power company. The energy, enough to fully power three average-sized homes, runs Patagonia's onsite outlet store. As funds allow, Patagonia plans to install additional panels to produce more energy. Abeloe projects a 12-year return on investment.
Though 12 years may sound like an eternity for companies pressed to keep ROI to 18 months or less, to Patagonia it seemed a reasonable tradeoff for doing the ecologically correct thing. "For us to make a statement like installing a solar system lets the business world know that if you take a long-term view of the return, these systems can make sense," Abeloe says. "Businesses have to understand that you can do the right thing and be profitable if you take the long view."
Patagonia, however, is already hitting its ROI targets on a number of other environmental projects. For example, use of ample insulation, window glazing and sunscreens reduces heat gain inside, leaving the interior comfortably cool all day without air conditioning, despite temperatures outdoors that reach 95 degrees. (During the night and early morning hours, exhaust fans suck the stale air out of the building.)
Patagonia's energy-efficient lighting systems, which rely on motion sensors, help conserve electricity. In winter, a radiant heating system that uses copper tubing and hot water saves natural gas. A bio-filtration system that employs an oil/water separator moves runoff from the roof and parking lot to percolate back into the ground.
"Depending on the design elements, some of these systems provided shortterm payback of three to four years," says Abeloe. "The lighting control system brought energy savings of over 30 percent a year, and that payback was reached several years ago. One of the other design elements was the radiant heat system. That had an eight-year payback period and based on energy savings, we should see that return completed sometime in the next few months."
However, not too much could be done when it came to the material handling equipment used at the facility. "When we sent out requests for proposals, we didn't specifically mandate the environmental elements into the material handling systems," says Abeloe. "The trays on our Crisplant tilttray sorter and the wood dividers that separate the packing stations are made from re-claimed sources, but those are pretty minor elements in the big scheme of things."
Risky business
Though it doesn't face the same ROI pressures that confront most U.S. businesses, Patagonia most definitely has to meet its annual profit numbers. Nobody knows that b etter than Abeloe. "We have to be profitable —there's no question about that," he says.
And Abeloe was never so aware of that mandate as he was during the DC's design and construction process. An avid rock climber who knows all about taking risks, Abeloe likens the building of the Reno DC to a technical climb, where one miscalculation can easily spell disaster. "The risks of climbing outdoors involve changing weather, routefinding problems in unfamiliar territory, and proper use of climbing gear and equipment," he says. "The risks we faced with developing our facility were also quite daunting. We made the decision to completely change how we operated our DC, which meant creating entirely new material handling systems and methodologies."
One of those changes was converting the company's computer system to run on Manhattan Associates' PkMS warehouse management system (WMS) platform. That may not sound risky today, but it's important to note that Patagonia was an early adapter of the system, serving as the test site when Manhattan deployed the system in 1996. "We were the guinea pig for Manhattan's efforts to modify its existing package by adding a tilt-tray sorter," says Abeloe. "We were pretty nervous knowing that they were modifying something that wasn't quite ready to support the way we wanted to operate our DC, but as it turns out, it supports our business very well."
It's easy to understand Abeloe's concern when you consider the company's order volume: Patagonia records about $225 million in annual sales, with the majority coming during two peak seasons—fall/winter and spring/summer. Combining orders from its catalog, Web site and retail outlets, the DC ships an average of 26,000 units per day in the fall/winter cycle, and 21,000 packages daily in the spring/summer season. The DC has run as many as 51,000 orders through its sorter in a nine-hour shift.
Orders received by noon that specify next-day delivery are shipped the same day to the customer. During peak season, up to 75 percent of mail-order and Internet orders are marked for overnight delivery.
Impressively, overall accuracy has improved every year since the Reno facility opened. During the last physical inventory, Abeloe's team counted 1.7 million units, with a variance of only 792 units. Pick rates for skilled workers are 400-plus units per hour, and shipping accuracy remains steady at 99.98 percent.
"We feel we could easily double our business with the existing equipment and setup," says Abeloe. "We'd merely have to add staff and make a few minor adjustments."
One adjustment on tap calls for improving the current labeling and pre-ticketing functions,as more of Patagonia's retail customers start to request those services. "The larger retailers that buy our products are becoming a lot more sophisticated in their operations," says Abeloe, "and they would like some of the work they are currently doing moved upstream into our facility."
By this summer, the DC should have a system in place to label and pre-ticket merchandise for customers. Although still a work in progress, the blueprint calls for a separate ticketing area where units are routed in a batch, or "wave" of work , to be ticketed with the specific information requested by the customer. That inventory will then be routed ba ck onto a conveyor system to the tilt-tray sorter, which will segregate those units to the order level.
Employees climb on board
None of this would be possible without a dedicated labor force. The company takes great pride in reporting that its 45 full-time distribution center employees (that number grows to 80 when you include returns management and quality service) all share the company's commitment to making the world a better place to live.
Abeloe singles out his staff as a major source of efficiencies within the warehouse, a competitive advantage that in part allows Patagonia to meet its financial numbers and make its charitable contributions each year.
"One of the things that we do in the DC is train new associates to be as flexible as possible," says Abeloe. "We do that with our skill-based pay program. When we hire new people to work in the DC, the expectation is that over 24 months they will learn everything they possibly can about all operations, from receiving through shipping. That allows us to be very flexible in meeting day-to-day needs and special customer requests."
Typically, a worker spends several months in receiving, for example,and receives a salary increase once he has mastered that area. Next, the employee spends time in packaging, receiving another merit increase when he has fully grasped duties at that location. As the volume of work changes from season to season, staffing can be quickly adjusted to cover the seasonal peaks and valleys of order volume for each of Patagonia's business divisions. "[The tasks are] broken down into about a half dozen major categories within the warehouse," says Abeloe. "The system allows our staff to be much more efficient in scheduling themselves. How that relates to giving back is that the employees we have are very well trained and our turnover is extremely low—less than 10 percent.
"Our employees also support what we do as a company, because we do some fairly controversial things as far as giving money to [environmental activist] groups," Abeloe adds."Having employees who support our company's position allows us to continue to give away money and have some impact on the business community and on the world environment."
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."