DC Velocity - October 2009

bigpicture

freight efficiency pays off

FOR AS LONG AS THERE HAS BEEN COMMERCE, THOSE WHO SHIP goods have sought ways to do it more efficiently. The Phoenicians succeeded as the great sailors of their age. The Romans built roads to move armies and goods. The steamship supplanted sail, the locomotive far surpassed the ox- or horse-drawn wagon, trucking and paved roads helped speed goods to their destinations faster than ever before.

Today, the efforts to boost efficiency continue through both advances in
transportation technology—cleaner, more efficient engines propelling
trucks, trains, and steamships; intelligent transport systems; and the like—
and by continued honing of the way shippers and carriers manage freight.

Those efforts grow increasingly important as world economies become
more interconnected and interdependent, and governments and industries
struggle with ways to reduce dependence on petroleum.
According to a recent study by the global consulting
firm McKinsey & Co., the transportation of goods con-
sumes 15 million barrels of petroleum each day—one-
fifth of total production. So it is no surprise that freight
transportation offers a tempting target and an enor-
mous opportunity to reduce the consumption of oil.
The study—part of an ongoing series in the consul-
tant’s online journal, McKinsey Quarterly—also looked
at ways to reduce the amount of oil consumed in trans-
porting goods. The study’s author, Tobias Meyer of the
firm’s Frankfurt, Germany, office, grouped these
opportunities into what he called six “levers” and then
developed estimates of the potential savings offered by
these levers based on low, medium, and high oil and
electricity costs. And his analysis of the potential savings is striking.

By Meyer’s reckoning, development of an energy-efficient supply chain by 2020 has the potential to cut supply chain fuel costs by 23 percent with oil at $40 a barrel. The potential savings climb to 38 percent with oil at $100 a barrel. Increase the projection to $250 a barrel, and the potential fuel savings reach a whopping 51 percent.

As for the levers themselves, some are opportunities that shippers are already exploiting in their own operations—for example, increasing freight density, reducing transportation distance through strategies like nearshoring, and changing the mix of transportation modes. Others center on carriers’ equipment and other transportation assets—using advanced technology, making better use of individual carriers’ assets, and optimizing the use of public transportation systems and infrastructure.

There’s not a lot there that isn’t already on the radar of most shipping
executives. But by quantifying the potential benefits, the study provides a
useful reminder of the importance of continued attention to those factors.

Peter Bradley Editorial Director peter@dcvelocity.com Karen Bachrach Executive Editor karen@dcvelocity.com Toby Gooley Managing Editor tgooley@dcvelocity.com David Maloney Senior Editor, Special Projects & eContent dmaloney@dcvelocity.com Mark Solomon Senior Editor mark@dcvelocity.com Susan Lacefield Associate Managing Editor slacefield@dcvelocity.com James Cooke Editor at Large jcooke@dcvelocity.com Steve Geary Editor at Large sgeary@dcvelocity.com George Weimer Editor at Large gweimer@dcvelocity.com Erica E. Mac Donald Assistant Editor Sean Maloney Assistant Editor Keisha Christopher Director of Creative Services keisha@dcvelocity.com Jeff Thacker Director of eMedia jeff@dcvelocity.com Columnists:

Clifford F. Lynch Don Jacobson Shelly Safian Kenneth B. Ackerman Art Van Bodegraven Barry Brandman

Gary Master
Publisher
gmaster@dcvelocity.com
Mitch Mac Donald
Group Editorial Director
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Jim Indelicato
Group Publisher
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