Greater Than Position Paper
July 2012
Greater Than Position Paper Meeting the CO2 Challenge in the Haulage Sector Introduction Road freight transport is one of few sectors in Europe that continues to increase its CO 2 emissions. Greater Than believes that transport buyers hold the key to addressing this priority challenge. With current business models, buyers assume responsibility for the cost of fuel, so they should also ensure that transport providers provide a process that delivers the best in fuel efficiency. By obliging transport providers to also measure their driver fuel efficiency on top of fuel consumption, this worrying trend can be curbed, making an immediate impact on the drive towards a low carbon economy.
Background The European Union 2020 Strategy sets out a plan to decouple economic growth from CO2 emission increases and a lack of progress in this area for road transport has been singled out. The challenge of meeting this objective in the haulage sector is particularly great, where today only 8% of the market considers fuel savings a priority. Consequently, trucks are still driven in a manner that leads to 15% higher than necessary fuel consumption and despite technological advances CO2 emissions from the sector continue to grow. The following paper highlights some of the key challenges preventing the haulage sector from reducing its carbon footprint and proposes the necessary action to meet the haulage sector’s CO2 challenge.
Meeting the Haulage CO2 Challenge 1.
Fuel responsibility
Prevailing business models in the haulage sector are by definition preventing improvements in fuel efficiency, demonstrating the failure of the shared fuel responsibility that currently characterizes the haulage market. The haulage sector has three key actors: transport providers (hauliers), third party logistics providers (3PLs) and transport buyers (such as retailers). a)
Transport providers pass on the cost of fuel to the buyer; hence they have limited incentive to reduce fuel consumption. The two main types of contractual agreement used between transport buyers and transport providers reflect this. - Under open book contracts, transport buyers agree a fixed operational margin with transport providers, who have no incentive to reduce fuel costs as they are sheltered by the protected margin. Under fixed price contracts, both parties agree on a fixed price per unit but the price is protected with fuel surcharge clauses and resulting cost increases are passed on to the transport buyer. Fuel surcharges not only remove resistance to price increases; the higher the consumption the higher the surcharge and therefore counterproductive to fuel savings.
b) Third party logistics providers add a commission on top of the haulage cost, again resulting in a limited incentive to reduce fuel consumption. As large logistics companies outsource the haulage part of the value chain and operate on a commission basis, this gives rise to the wrong incentives because the higher the overall cost to the transport buyer the higher the commission for the 3PL. Transport buyers require driver training and latest truck technology. However, limited attention is given to actual process performance even though the process is something the haulier can influence, while truck performance is in the hand of the truck manufacturer.
With suppliers not responsible for fuel cost, brokers that benefit from commissions and buyers addressing truck but not process performance, fuel savings are today a problem among others but not a priority for hauliers and 3PLs.
Energy smart driving is fun and challenging, inspiring drivers to bring about 15-20% CO2 reductions and improved traffic safety.
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July 2012
2. Put the driver in focus (capitalizing on driver skills) Today a range of solutions exist to reduce CO2 emissions. Among them, eco-driving training and monitoring of driver behaviour are popular practices and widely recognised. However, a lack of progress is evident as monitoring behaviour is deterring for the driver, and does not involve him/her in the ultimate objectives. It is time for the sector to involve the drivers and shows them the importance the play in the contribution to lower CO2 emissions. The haulage sector must give recognition to the drivers and acknowledge them as important players by involving them in the task and rewarding their achievements in driver fuel efficiency, not fuel consumption. Fuel consumption is a result of many factors and as the driver is able to influence only a small part, rewarding drivers on gross fuel consumption is counterproductive. Although the desired achievements in driver fuel efficiency are missing, the haulage sector believes it has played its part in to improving its fuel efficiency.
3. Truck Performance versus Process Performance Both freight transport providers and buyers are focused on renewing its fleets to the latest European standards. However, no focus is given to the process, which is something the provider actually can influence. As one consequence, trucks are still being driven in a manner that leads to fuel consumption being 15%-20% higher than necessary. Despite over 10 years of eco-driving training, the sector is still talking about the lowhanging fruit of driver training, while process performance remains poor. The freight transport providers must get better understanding of the root causes to the fuel consumption, this is a knowledge, fundamental and vital to improving the performance.
Greater Than’s position The European Union’s 2020 Strategy singled out the lack of progress in road transport in reducing CO2 emissions. Greater Than believes that the CO2 challenge for road transport requires continuous innovation, with a focus on results, not means. In order to incentivise and channel the right measures towards a more CO2 efficient haulage industry, Greater Than believes we need to: a) Buyers must demand that providers measure driver fuel efficiency, on top of fuel consumption; b) Transport providers must measure driver fuel efficiency on top of fuel consumption; c) Inform providers and buyers about the differences between driver fuel efficiency and fuel consumption. Applying the correct measures allows the haulage industry to improve its process performance, while a sole focus on truck performance lacks the desired results, particularly those envisaged by regulators in the 2020 strategy. By applying the abovementioned measures the process performance would be measured and improved. This results in fuel and cost savings, reduced CO2 emissions and improved driver well-being. *Greater Than is a Belgian/Swedish based company that specialises in IT solutions to help road transport become more sustainable. Greater Than have developed an algorithm that measures driver fuel efficiency, which is the first objective measurement of energy smart driving, regardless of type of vehicle, fuel consumption, traffic and other external factors. As a result, all drivers are comparable on the same platform, making energy smart driving fun and challenging. For more information, please view the 4 minute story https://vimeo.com/43170366 or contact Greater Than at [email protected], or www.greaterthan.eu/en Greater Than clients currently include Alfredsson Transport AB, Coca Cola Enterprises Benelux, Nybro Transport AB along with over three hundred other European hauliers. Greater Than is a European Road Safety Charter signatory.
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Greater Than endorsers include: Sveriges Åkeriföretag (Swedish Road Haulage Association), Transport Gruppen (Transport Group trade association), Q3 (Quality in Road transport procurement).
Energy smart driving is fun and challenging, inspiring drivers to bring about 15-20% CO2 reductions and improved traffic safety.
Greater Than Position Paper Meeting the CO2 Challenge in the Haulage Sector Introduction Road freight transport is one of few sectors in Europe that continues to increase its CO 2 emissions. Greater Than believes that transport buyers hold the key to addressing this priority challenge. With current business models, buyers assume responsibility for the cost of fuel, so they should also ensure that transport providers provide a process that delivers the best in fuel efficiency. By obliging transport providers to also measure their driver fuel efficiency on top of fuel consumption, this worrying trend can be curbed, making an immediate impact on the drive towards a low carbon economy.
Background The European Union 2020 Strategy sets out a plan to decouple economic growth from CO2 emission increases and a lack of progress in this area for road transport has been singled out. The challenge of meeting this objective in the haulage sector is particularly great, where today only 8% of the market considers fuel savings a priority. Consequently, trucks are still driven in a manner that leads to 15% higher than necessary fuel consumption and despite technological advances CO2 emissions from the sector continue to grow. The following paper highlights some of the key challenges preventing the haulage sector from reducing its carbon footprint and proposes the necessary action to meet the haulage sector’s CO2 challenge.
Meeting the Haulage CO2 Challenge 1.
Fuel responsibility
Prevailing business models in the haulage sector are by definition preventing improvements in fuel efficiency, demonstrating the failure of the shared fuel responsibility that currently characterizes the haulage market. The haulage sector has three key actors: transport providers (hauliers), third party logistics providers (3PLs) and transport buyers (such as retailers). a)
Transport providers pass on the cost of fuel to the buyer; hence they have limited incentive to reduce fuel consumption. The two main types of contractual agreement used between transport buyers and transport providers reflect this. - Under open book contracts, transport buyers agree a fixed operational margin with transport providers, who have no incentive to reduce fuel costs as they are sheltered by the protected margin. Under fixed price contracts, both parties agree on a fixed price per unit but the price is protected with fuel surcharge clauses and resulting cost increases are passed on to the transport buyer. Fuel surcharges not only remove resistance to price increases; the higher the consumption the higher the surcharge and therefore counterproductive to fuel savings.
b) Third party logistics providers add a commission on top of the haulage cost, again resulting in a limited incentive to reduce fuel consumption. As large logistics companies outsource the haulage part of the value chain and operate on a commission basis, this gives rise to the wrong incentives because the higher the overall cost to the transport buyer the higher the commission for the 3PL. Transport buyers require driver training and latest truck technology. However, limited attention is given to actual process performance even though the process is something the haulier can influence, while truck performance is in the hand of the truck manufacturer.
With suppliers not responsible for fuel cost, brokers that benefit from commissions and buyers addressing truck but not process performance, fuel savings are today a problem among others but not a priority for hauliers and 3PLs.
Energy smart driving is fun and challenging, inspiring drivers to bring about 15-20% CO2 reductions and improved traffic safety.
Page1
c)
July 2012
2. Put the driver in focus (capitalizing on driver skills) Today a range of solutions exist to reduce CO2 emissions. Among them, eco-driving training and monitoring of driver behaviour are popular practices and widely recognised. However, a lack of progress is evident as monitoring behaviour is deterring for the driver, and does not involve him/her in the ultimate objectives. It is time for the sector to involve the drivers and shows them the importance the play in the contribution to lower CO2 emissions. The haulage sector must give recognition to the drivers and acknowledge them as important players by involving them in the task and rewarding their achievements in driver fuel efficiency, not fuel consumption. Fuel consumption is a result of many factors and as the driver is able to influence only a small part, rewarding drivers on gross fuel consumption is counterproductive. Although the desired achievements in driver fuel efficiency are missing, the haulage sector believes it has played its part in to improving its fuel efficiency.
3. Truck Performance versus Process Performance Both freight transport providers and buyers are focused on renewing its fleets to the latest European standards. However, no focus is given to the process, which is something the provider actually can influence. As one consequence, trucks are still being driven in a manner that leads to fuel consumption being 15%-20% higher than necessary. Despite over 10 years of eco-driving training, the sector is still talking about the lowhanging fruit of driver training, while process performance remains poor. The freight transport providers must get better understanding of the root causes to the fuel consumption, this is a knowledge, fundamental and vital to improving the performance.
Greater Than’s position The European Union’s 2020 Strategy singled out the lack of progress in road transport in reducing CO2 emissions. Greater Than believes that the CO2 challenge for road transport requires continuous innovation, with a focus on results, not means. In order to incentivise and channel the right measures towards a more CO2 efficient haulage industry, Greater Than believes we need to: a) Buyers must demand that providers measure driver fuel efficiency, on top of fuel consumption; b) Transport providers must measure driver fuel efficiency on top of fuel consumption; c) Inform providers and buyers about the differences between driver fuel efficiency and fuel consumption. Applying the correct measures allows the haulage industry to improve its process performance, while a sole focus on truck performance lacks the desired results, particularly those envisaged by regulators in the 2020 strategy. By applying the abovementioned measures the process performance would be measured and improved. This results in fuel and cost savings, reduced CO2 emissions and improved driver well-being. *Greater Than is a Belgian/Swedish based company that specialises in IT solutions to help road transport become more sustainable. Greater Than have developed an algorithm that measures driver fuel efficiency, which is the first objective measurement of energy smart driving, regardless of type of vehicle, fuel consumption, traffic and other external factors. As a result, all drivers are comparable on the same platform, making energy smart driving fun and challenging. For more information, please view the 4 minute story https://vimeo.com/43170366 or contact Greater Than at [email protected], or www.greaterthan.eu/en Greater Than clients currently include Alfredsson Transport AB, Coca Cola Enterprises Benelux, Nybro Transport AB along with over three hundred other European hauliers. Greater Than is a European Road Safety Charter signatory.
Page2
Greater Than endorsers include: Sveriges Åkeriföretag (Swedish Road Haulage Association), Transport Gruppen (Transport Group trade association), Q3 (Quality in Road transport procurement).
Energy smart driving is fun and challenging, inspiring drivers to bring about 15-20% CO2 reductions and improved traffic safety.
