Sustainability in the supply chain: More emissions-reporting challenges ahead?
Transportation companies face new carbon-reporting mandates as well as increased scrutiny from investors, shippers, and consumers concerned about their eco-impact. What’s a transportation provider to do?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
Sustainability programs and the demand to accurately measure, track—and ultimately reduce—greenhouse gas (GHG) emissions are moving into a new chapter, thanks to new rules finalized earlier this year by the U.S. Securities and Exchange Commission (SEC). And that is bringing about new challenges for fleet operators, third-party logistics service providers (3PLs), brokers, and shippers as they develop and refine strategies, practices, and tools to gather, validate, and effectively report emissions not just from direct operations but from other activities up and down the supply chain.
At issue is the SEC’s adoption this past March of new business reporting rules for “Climate-Related Disclosures for Investors.” Under study for over two years, the final rules reflect some 24,000 comment letters and input from dozens of groups. And while focused on publicly traded companies, the new rules also affect nonpublic businesses whose services—like trucking and warehouse operations—contribute to the carbon footprint of a public company.
WHAT THEY COVER
The new regulations will require disclosure by public companies of so-called Scope 1 and Scope 2 emissions. Scope 1 emissions are typically defined as emissions produced by assets that are owned or controlled by the operator, like fleet trucks, yard tractors that move trailers around trucking yards, or fossil-fuel powered forklifts used in a warehouse. Scope 2 emissions are those that are generated indirectly, such as purchased energy (electricity and natural gas) used in operating facilities, manufacturing plants, or offices.
Not included in the current SEC regulations are so-called Scope 3 emissions (although California will soon require businesses to report their Scope 3 emissions within the state). These are other emissions, not generated by a company itself, but which occur up and down the business’s supply chain and are generated by other related parties that touch the business or its products in some fashion. One example would be emissions produced to make fabric that goes into clothing, or those related to a consumer using a product.
The SEC noted that some 40% of affected companies currently report Scope 1 and 2 emissions, often as a component of an overall sustainability program, but not in a standardized manner. “The rules will provide investors with consistent, comparable, and decision-useful information [to guide investment decisions] and issuers with clear reporting requirements,” said SEC Chair Gary Gensler in a March 6 news release.
A SLOW GRIND
While most businesses, particularly those in transportation, have had some awareness and started preparing for emissions-related reporting, it’s been a slow grind, which likely now will gain some traction with the new SEC mandate.
A study done by the Boston Consulting Group late last year found that while some 50% of firms surveyed were disclosing at least some Scope 3 emissions, “virtually no progress has been made on the proportion of companies comprehensively reporting” across all scopes. The report surveyed 1,850 executives with emissions-reporting and reduction responsibility, at organizations with at least 100 employees and revenues of $100 million to $1 billion, across 18 major industries and 23 countries.
One of its findings was that only 10% of surveyed companies comprehensively measure and report Scope 1, 2, and 3 emissions, making no progress on improvement in the past year.
However, the lack of progress on carbon-reporting and reduction goals didn’t diminish recognition among survey respondents of the significant benefits of decarbonization (and the upside of formal sustainability programs). More than half of respondents cited advantages to reputational value, as well as lower costs (50%), higher valuations (41%), higher revenues (41%), and the ability to attract the best talent (38%). Forty percent of respondents also estimated financial benefits of at least $100 million from meeting emissions-reduction targets.
STEPPING UP
Some logistics companies already are well underway with tackling the challenge, as are existing transportation-related software providers and some emerging new technology offerings (see sidebar).
“I’ve been in this field for 15 years,” notes Stephan Schablinski, vice president of the “Go Green” program at global 3PL DHL Supply Chain. “In the past three to five years, sustainability has made its way into board meetings and business review meetings with customers. It’s gone mainstream with much more interest by real decision-makers to understand and address the need.”
He says DHL is seeing increasing demand from shippers to help them 1) understand and quantify the true nature and scope of their carbon footprint, and 2) look at the totality of a supply chain and uncover opportunities to change and decarbonize it. “This is something we have been doing very frequently with customers,” he notes, adding that regulatory mandates in both the U.S. and EU are accelerating activity.
“Carbon reporting has changed from being something you do [just] for reporting’s sake, to an active influence on real decision-making” in how you plan and run a business, he notes. And in a nod to the old saw “You can’t manage what you don’t measure,” he notes that interest in accurately measuring and consistently reporting GHG emissions naturally leads to follow-on plans to reduce them.
It’s about quantifying the “abatement cost” (for example, the cost of investing in energy-saving devices or hybrid or all-electric vehicles for freight transport) and the opportunity for economic as well as climate benefits, says Schablinski. A typical measure is the equivalent dollar amount per carbon ton reduced. “We do these calculations for customers and help them understand the tradeoffs and opportunities.”
As of year-end 2023, DHL operated a fleet of more than 123,000 road vehicles, of which over 37,000 had alternative drive systems (electric, hydrogen, LNG, CNG, LPG, etc.).
DATA IS THE BIG ASK
Trucking firms are embracing the challenge as well, building out or buying reporting tools to provide emission reports to shippers, partnering with startups pioneering new carbon-reduction or -capture technologies, and taking action on their own to track and measure emissions, as well as instituting programs and making investments to reduce them.
“Being sustainable and being environmentally responsible has been part of our DNA since our founding in 1931,” says Sara Graf, vice president of sustainability, culture, and communications at less-than-truckload (LTL) carrier Estes Express Lines. “Data is the big ask right now, and how and what we are doing to reduce our carbon footprint,” she notes. “Many shippers are prioritizing sustainability not only to address regulatory risk but also to respond to investor and consumer sentiment.”
The company plans to issue its first comprehensive sustainability report this year, including disclosures of its Scope 1 and 2 carbon emissions. It is working with some customers to pilot an emissions calculator that will produce allocated emissions reports per shipper. “That’s the biggest challenge,” Graf says. “LTL networks are complex; it’s not as easy as truckload [where emissions reporting means] producing one report on one truckload going from point A to B. We continue to refine that [reporting] to be able to provide a per-shipment per-customer measure.”
As for reducing emissions, Estes has 12 all-electric Class 8 tractors in service in Southern California, all in local pickup and delivery routes with ranges of between 150 and 270 miles. Additionally, Estes is a CARB (California Air Resources Board)-certified company, which ensures all its trucks operating in California comply with the state’s emissions standards. This has led to new awarded business, Graf says.
Across its network, Estes has 330 electric forklifts in deployment and this year took delivery of two electric yard tractors, which it is testing in its Charlotte, North Carolina, terminal, with plans to buy more. It also has installed solar-generating arrays at seven terminals and has three more on the drawing board for 2024 alone. And it is the first LTL carrier to sign up with carbon-capture tech firm Remora, which is developing a truck-mounted carbon-capture system that takes carbon dioxide (CO**subscript{2}) from the tailpipe and stores it in a device on board the vehicle.
Overall, Graf says the sustainability journey “has been a double win for us, becoming more efficient and lowering cost while achieving results that reduce our carbon footprint.”
Another early success story has been truckload operator Schneider National. With 92 battery-electric Freightliner eCascadias and two electric yard spotters (or hosteling tractors), it’s deploying the largest heavy e-truck fleet in the industry. The charging depot alone is half the size of a football field.
The Schneider e-fleet, based in Southern California, late last year reached a significant milestone when it became the first major carrier to surpass 1 million zero-emission miles with the Freightliner eCascadia. That performance translated to avoiding about 3.3 million pounds of CO**subscript{2} emissions, equivalent to removing about 330 gas-powered passenger cars from the road for a year.
“We believe in a future where clean technology helps transform the way we move goods and reduces our environmental footprint [while still delivering reliability and efficiency for customers],” said Schneider President and CEO Mark Rourke in a statement. “This milestone is just the first of many.” The first shipper to contract with Schneider to use its eCascadia fleet: FritoLay. The engagement is helping the company reduce its Scope 3 emissions.
FROM COST TO VALUE
The impetus for a business to change—especially when that change may initially be driven by social or other issues and does not immediately present a clear opportunity for a defined business value or benefit—often can be difficult for it to embrace. Sometimes those businesses need a nudge—often from a regulatory mandate.
“Without the incentive of regulation, some people still see [emissions reporting] as a cost,” observes industry analyst Bart DeMuynck. Yet from an investment perspective, an aggressive sustainability program can have benefits to the balance sheet and income statement as well.
One example he cites is financial institutions paying more attention to emissions scores and reduction programs. “If you have a low emissions score and are making progress reducing your carbon footprint, you could conceivably get more favorable loan terms” than a business with a higher score.
“Some investors are very focused on sustainability and will set part of the investment value they see in you based on your overall ESG [environmental, social, and corporate governance] score,” DeMuynck says. “And that’s only going to continue to become more prevalent.”
New tech incubated in academia may offer solution to carbon-reporting challenge
Accurately reporting carbon emissions from the nation’s trucking operations presents a daunting, and seemingly overwhelming, challenge.
Shippers and brokers engage with thousands of motor carriers to move freight. There are literally hundreds of thousands of trucks—of all classes, sizes, powertrain configurations, and use cases—operating today, all generating different levels of emissions. Data is available from the Environmental Protection Agency’s (EPA) SmartWay program as well as the Department of Transportation and other government sources, but there is no one central repository or “source of truth” that captures it all.
Collecting, validating, consolidating, and then assembling data from a widely diverse set of sources, securing and maintaining it in one place, keeping it timely and accurate, then developing the software to effectively utilize the data to create something of value is an incredibly complex challenge—made even more pressing by today’s new regulatory reporting mandates.
Alex Scott believes he has the answer.
An associate professor of supply chain management at the University of Tennessee–Knoxville Haslam College of Business, he’s the inspiration and the driving force behind the University of Tennessee’s Fleet Sustainability Index.
The index collects, crunches, organizes, and stores data from sources that include the Department of Transportation, the EPA’s SmartWay program, the National Highway Traffic Safety Administration, OEMs (original equipment manufacturers), and others. It then applies proprietary software algorithms to do a deep dive into the data and generate a unique “emissions factor” that can be as granular as that for a specific truck/engine configuration or a fleet.
Not unlike many ideas that are incubated in academia and then commercialized, the index has become the basis for a business. Scott has since founded a company called Sustainable Logistics, which was set up to sell the index’s services to the market. Customers include carriers, brokers, and 3PLs.
“Carriers all have different emissions profiles,” which the index helps identify and define, he notes. “[The index] provides data and insight into about 400,000 carriers, into all the equipment they use, and the emissions those trucks generate. The database holds over 4 million observations on truck emissions performance,” he explains. “And it’s constantly being updated and refreshed.”
Once its emissions factor—typically a measurement of grams of CO2 per mile—has been set, a fleet can then be assigned an emissions measurement, or score.
“As a shipper (or broker or 3PL), you need to know all the miles your freight runs with each carrier. Then once you know your historical shipments by carrier and the miles they run, you apply that to the emissions factor and you come up with an emissions rate, or score, per mile for that carrier,” Scott notes. “That gives you an accurate measure of the total CO2 output for that carrier for a period of time.” And it provides the basis for a carrier to report Scope 1 emissions and for a shipper to report Scope 3 emissions related to their supply chain operations.
It also provides a baseline emissions report from which carriers and shippers can then begin to better understand their emissions profile, set targets, and then design and implement initiatives to achieve those reduction targets. Scott compares the index to the EPA’s mpg (miles per gallon) ratings for passenger vehicles. “It’s similar to that,” he says. The index’s software also recognizes and accounts for different truck classes and types of fuel used.
One surprising outcome from initial user feedback is how shippers want to use the index to find and employ carriers with the lowest emissions scores. Shippers recognize and want the benefits of using cleaner carriers, Scott has found. “Comparing one carrier to another with similar service and price, if one has a significantly lower emissions score, that can help your overall carbon footprint profile—in some cases by millions of pounds of CO2 annually,” he notes. “That’s contributing to reduction goals and helping save money in other areas of the business.”
Scott says that Sustainable Logistics is working with 20 clients at the “proof of concept” stage and has about a half-dozen who have launched with the platform. Typical customers are larger freight brokerages (who deal with hundreds, if not thousands, of different carriers) as well as high-volume shippers and 3PLs who source and manage transportation on a client’s behalf—and now have to provide reporting to their client to meet SEC mandates.
Its latest expansion adds both specialized U.S./Mexico cross-border and international trade compliance services. "JAMCO's capabilities align perfectly with our growth strategy and commitment to providing comprehensive, highly specialized premium logistics solutions,” Imperative CEO Dante Fornari said in a release. “JAMCO will significantly enhance our service offering by adding highly differentiated and integrated cross-border trade and logistics services. We'll be better positioned to support existing customers who manufacture in Mexico while providing JAMCO clients with our expedited mission-critical shipping and global forwarding capabilities."
According to Imperative, that move is significant because Laredo, Texas-based JAMCO is well located to serve the growing nearshoring trend that saw Mexico become the largest trading partner of the United States in 2023, surpassing China with over $800 billion in trade value. Amid that growth, Laredo, Texas, has also solidified its role as the top U.S. port, measured by trade value, representing approximately 40% of all U.S.-Mexico trade flows.
Seagull Software, which makes “BarTender” label management software, today said it has combined with Mojix, a provider of item-level inventory management and traceability.
As a single company, the combined firms will offer new capabilities in end-to-end supply chain management, leveraging BarTender’s global customer base and value-added channel partner network with more than 250,000 customers across 175 countries.
“We believe that labeling is the key to addressing the traceability challenge,” Dan Doles, now acting CEO and Director of Seagull, said in a release. “BarTender’s labeling software is ubiquitous at the front end of the supply chain, enabling the printing of more than 100 billion labels each year. By combining with Mojix, we will capture and track that data through the supply chain, providing unparalleled item-level traceability and visibility.”
That approach will allow the partners to provide their customers with value-added solutions for compliance, sustainability, serialization, and inventory and asset management requirements across the supply chain ecosystem, according to Chris Cassidy, the newly appointed Chief Revenue Officer of Seagull.
The features are based on SAP’s “generative AI copilot” platform called Joule, launched about a year ago. The latest upgrades to that product add collaborative AI agents that truly speak the language of business, expand Joule’s capabilities to support 80% of SAP’s most-used business tasks, and embed Joule more deeply within the company’s portfolio.
Specifically, collaborative multi-agent systems can now deploy specialized AI agents to tackle specific tasks and enable them to collaborate on intricate business workflows, adapting their strategies to meet shared objectives. SAP is infusing Joule with multiple collaborative AI agents that will combine their unique expertise across business functions to collaboratively accomplish complex workflows. These AI agents enhance productivity by breaking down silos and freeing workers to concentrate on areas where human ingenuity thrives.
And Walldorf, Germany-based SAP also said it had met its goal to train workers how to use those powerful new AI tools by upskilling 2 million people worldwide by 2025. That approach has lowered the world’s digital skills gap through role-based certifications, free training materials, and hands-on opportunities for developers. To continue that program, SAP says it will continue to expand its portfolio of AI-related learning opportunities, including courses on generative AI, AI ethics, and the company’s advanced AI tools and platforms.
For players in the drug distribution business, the countdown is on. In less than two months, every business involved in the pharmaceutical supply chain must be fully compliant with the Drug Supply Chain Security Act (DSCSA)—a 2013 law containing strict traceability requirements for the distribution of certain prescription drugs. Over the past decade, the DSCSA has been implemented in phases, but now the clock is running out. The law takes full effect on Nov. 27, barring any further adjustments or delays.
Among other measures, the DSCSA requires drug manufacturers to affix a unique product identifier, essentially a barcode, to every package so it can be tracked and traced during its journey through the supply chain. To thwart drug counterfeiters, the new law further requires wholesalers and drug dispensers to verify the validity of products they handle to assure they are genuine.
Is the pharmaceutical industry ready for all this? To find out, we spoke with Elizabeth Gallenagh, general counsel and senior vice president, supply chain integrity at the Healthcare Distribution Alliance(HDA), a national organization that represents U.S. health-care distributors. In addition to serving as HDA’s chief legal officer, Gallenagh is also the group’s primary expert on prescription drug traceability, supply chain safety and integrity, distributor licensure, and tax issues. She is a graduate of the George Mason University School of Law and George Washington University.
Gallenagh recently spoke with David Maloney, **{DC Velocity’}s group editorial director, about the enactment of DSCSA for an episode of the “Logistics Matters” podcast.
Q: First of all, can you tell us a little bit about the Healthcare Distribution Alliance?
A: Yes, the Healthcare Distribution Alliance, or HDA, is a national trade organization representing pharmaceutical distributors, also known as wholesalers. We have about 40 members that purchase drugs from manufacturers. They store the products in their warehouses and then fill orders for pharmacy customers throughout the country.
Q: The Drug Supply Chain Security Act will go into final effect in November. What’s the intent of the legislation?
A: The Drug Supply Chain Security Act—or as we call it, the DSCSA—is a law that was enacted in 2013. Its intent was to put together a national framework for drug supply chain security, essentially to enable a tighter, safer, more secure supply chain for the domestic U.S. market.
It involves all trading partners and ultimately will create an interoperable system that enables investigations by tracing a product with every transaction or sale of that product throughout the supply chain, down to the provider level.
Q: What are the law’s major requirements?
A: The law was actually phased in over a period of about 10 years. Many of the major requirements went into effect throughout that initial 10-year period—things like requirements mandating that manufacturers serialize their products and stipulating that trading partners only do business with other authorized trading partners. Authorized trading partners are defined as those that are duly licensed or registered with the Food and Drug Administration (FDA) or licensed by the states.
It also requires tracking of product with every transaction. A transaction is defined as a sale of the product, essentially from one authorized trading partner to another. And as we progress into the final phase, the law will also require serialized data, basically transaction information at the serial-number level that moves with the product through every transaction throughout the supply chain.
Q: You’ve said that the industry has had years to ramp up to comply with the law. Are our pharmaceutical supply chains ready for the final phase?
A: I think that’s still the $64,000 question. I can speak for our members, who have been doing everything in their power to get their own systems and processes ready to receive the serialized products and data, and then to transmit that serialized data with the product to their pharmacy customers.
That said, there are still some gaps in the system. We have been in a “stabilization” period that expires on Nov. 27. During this period, everybody has been testing and bringing product and data transactions live into production. I will tell you that many are ready, but there are still bugs that are being worked out as we race toward November.
I should also note that on Aug. 19, the HDA sent a letter to the FDA stating that “despite a concerted effort, some in the supply chain appear to remain short of reaching our joint goal of complete implementation.” In its letter, the group urged the FDA to “take immediate action to forestall potential disruptions to the drug supply chain and patient care that could stem from incomplete implementation of the enhanced drug distribution security (EDDS) requirements” and asked the agency to adopt “a phased, stepwise approach” to implementing the requirements in order to avoid disruptions to the movement of drugs through the supply chain.
Q: Will penalties be imposed on companies that fail to meet the deadline?
A: There will be penalties. But it’s important to note that the DSCSA is really about setting up the framework for tracking and tracing products—so that a manufacturer will only be permitted to sell its product downstream if it is a serialized product and the manufacturer can transmit the corresponding serialized data with the product. And then a distributor can only receive that product and purchase it if it has the corresponding data.
Q: Of course, this is only possible if you have the right technology in place to monitor and track drugs as they move through the supply chain. What kind of technologies are being deployed to make this possible?
A: The key to all of this is the barcode, which is mandated under the law in terms of the way that product is serialized. Everybody in the supply chain has to have the capability to utilize the barcode. If you’re a manufacturer, you have to incorporate that 2-D barcode with the serialized data into that product’s label. And that should already be in place under the first phases of the law.
Downstream partners will have to be able to read that barcode and import that data into their systems. This also enables verification of the product at the unit level.
In addition, we’re also deploying what we call EPCIS [a global data-sharing standard developed by the global standards organization GS1 that allows businesses to capture and share information about the movement and status of goods]. That is the backbone for getting all of this serialized data flowing to all of the requisite trading partners throughout the supply chain.
Q: As we learned during the push to distribute Covid-19 vaccines, a good number of pharmaceutical products must be temperature- or humidity-controlled. Will these new regulations help ensure that they’re properly handled as they move through the supply chain?
A: The DSCSA doesn’t speak specifically to temperature controls. However, there are other parts of the law [the overall Drug Quality and Security Act, which includes the DSCSA as well as the Compounding Quality Act] that do require those controls to be in place. That said, the DSCSA does require affected parties to do business with authorized trading partners. And in order to be an authorized trading partner, you have to adhere to temperature controls and safety rules for products, product handling, etc.
Q: Many of our pharmaceuticals are manufactured overseas, in China and India, for example. Do foreign manufacturers have to comply with DSCSA requirements?
A: If a foreign entity is producing product for use in the U.S. domestic market, the product has to be approved by the FDA. And it also has to meet DSCSA requirements.
Q: We hear a lot about counterfeit products infiltrating the drug supply chain. Will these new regulations reduce the number of counterfeits in the market?
A: We certainly hope so. All of this really started [as an effort to combat the rise in] counterfeit products and transactions back in the early 2000s. Obviously, the idea is to deter counterfeiters from infiltrating the U.S. drug supply chain. But really, what the law does is provide tools for the FDA and regulatory agencies to investigate suspect and illegitimate product, as well as tools that will enable the trading partners that are involved in the transactions to identify suspect product, flag it, quarantine it, investigate it, and deem it OK or deem it illegitimate based on their investigations.
So it really gives some investigatory and prosecutorial tools to the agencies. And it puts a process in place with the technology and serialization to pinpoint whether something is good product through verification with the manufacturer or through tracing of the product data that has accompanied the product throughout its journey through the supply chain.
Q: Drug prices in the U.S. are notoriously high compared with prices in many other countries. Will these new requirements add to the overall cost of supplying medication?
A: I haven’t seen any data that alludes to DSCSA compliance adding to drug costs. It’s an industry that’s built around efficiency, and so my sense is that [pharma industry players] probably have also built in plans over the last decade to absorb some of those costs. That said, the law also established a national tracking and tracing framework, where before we had a 50-state patchwork of regulations. So there would likely be some efficiencies gained from following a single, nationwide protocol, even though it’s a huge undertaking, versus doing it 50 different ways across the country.
Q: Now that DSCSA is nearing full implementation, how are your members feeling about the process?
A: Our members have been committed to this from the very beginning. We were very involved in negotiating on the legislation and pushing these concepts. We really have been working toward implementation from the get-go and throughout this entire 11-year period; we very much want to get to full implementation. But in the beginning, there may be some hiccups. We may hit a few bumps along the way.
A colleague of mine used to say, “We don’t know what we don’t know.” And I think that at each phase as we deploy new technologies and new processes, we will learn new ways to do things more efficiently. So we’re pushing hard toward November, and we are very hopeful.
Autonomous inventory management system provider Corvus Robotics is delivering drone technology for lights-out warehouse environments with the newest version of its Corvus One drone system, announced today.
The update is supported by an $18 million funding round led by S2G Ventures and Spero Adventures.
“Corvus Robotics fits our mission to invest in companies that truly transform the way business is conducted,” Marc Tarpenning, co-founder of Tesla and partner at Spero Ventures, said in a press release Tuesday. “Other than a landing pad, its drone-powered system requires no infrastructure, is quick and easy to deploy, and cost-effective to manage. It literally merges with the existing warehouse environment.”
Corvus Robotics’ drone-based inventory management system uses computer vision and generative AI to understand its environment, flying autonomously in both very narrow aisles—a minimum width of 50 inches—and in very wide aisles. It uses obstacle detection to operate safely in warehouses and features an advanced barcode scanning system that can read any barcode symbology in any orientation placed anywhere on the front of cartons or pallets, according to the company.
The lights-out feature is already in use at customer locations.
“Being able to run inventory checks 24/7 without operator assistance has been a game changer,” Austin Feagins, senior director of solutions at third-party logistics services (3PL) provider Staci Americas, said in the release. “The lights-out capability in the Corvus One system allows our inventory teams to correct discrepancies off-shift and pre-shift before production starts each day, limiting fulfillment delays and production impacts.”