Sustainable Operations and Supply Chain Management

Instructions:
Read the case study carefully and answer all questions at the end of the case. You do not need to use other resources rather than the case text itself.

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Case study: Strategic sustainable choices for container shipping lines
The growth of container shipping over the past 30 years has also meant an increase in non-sustainable activities. What are some of the strategic choices and hence trade-offs facing shippers and ocean shipping lines as they endeavour to become more sustainable? Sustainability here means reducing the amount of CO2 emissions from shipping activities, both in port and on the high seas, which results from shipping fewer containers, increasing container fill, shipping containers more efficiently and reducing movements and amendments, slow steaming, and switching fuels to lower sulphur diesel.

McKinnon (2012) argued that by packing more products into containers, shippers could reduce the number of container movements and related CO2 emissions. The pressure to minimize shipping costs would also give these firms a strong incentive to maximize fill. However, there are virtually no statistics in the public domain on the weight or cubic container (or cube) utilization of deep-sea containers.

McKinnon surveyed 34 large UK shippers and found that inbound flows into the UK were of predominantly low-density products bound for retail stores that ‘cubed out’ before they ‘weighed out’, i.e. 46 per cent of respondents importing containerized freight claimed that 90–100 per cent of containers received were ‘cubed out’. On the other hand, weight restrictions were more of a problem for UK exporters, with 25 per cent of respondents reporting that 90 per cent or more of outbound containers were weight constrained, with 33 per cent of respondents ‘weighing out’ with more than 70 per cent of their containers. However, the composition of McKinnon’s sample reflected a huge imbalance in the UK deep-sea container trade, with inbound containers outnumbering exports five to one. Thus, market flows inhibit the ability of shipping lines and customers to be more efficient in this area.

McKinnon also found that only around 40 per cent of the shippers have so far measured the ‘carbon footprint’ of their deep-sea container supply chains with just 6 per cent implementing carbon-reducing initiatives. The firms surveyed also assigned a relatively low weighting to environmental criteria in ocean carrier selection. So, while many shippers have the means to influence the carbon footprint of their maritime supply chains, the survey suggested that they are not currently using them explicitly to cut carbon emissions.

However, many of the measures that the UK shippers and their ocean carriers are implementing to improve economic efficiency, most notably slow steaming, are assisting carbon mitigation efforts.

Slow steaming involves reducing the speed of a ship while at sea to reduce engine load and emissions. Slow steaming was mooted by the Maersk Line as a response to the 2008 economic recession as the spot-market price Maersk Line received in late 2008 for shipping containers from Asia to Europe or North America was around US $500 below their operating costs (Kolding, 2008). The relationship between ship speed and fuel consumption is non-linear and Maersk Line calculated that by redesigning their shipping schedules, using nine ships instead of eight to ensure customer volumes were handled and slowing their vessels’ sailing speeds from 22 knots to 20 knots, they could reduce annual fuel consumption from 9,500 to 8,000 metric tonnes (Mt) and thus also reduce carbon emissions by 17 per cent from 30,000 to 25,000 Mt of CO2. Maersk Line was also looking to make client processes more efficient as they had to make 1.6 million shipping amendments per year at that time, 80 per cent of which were due to client requests including booking cancellations of 20 per cent per year.

Finally, sulphur emissions as part of overall shipping-related particulate matter emissions are a problem for ships in port (Corbett et al, 2007). Around 18 shipping lines signed the Fair Winds Charter (FWC) in 2010, which was an industry-led, voluntary, unsubsidised fuel-switching programme for ocean-going vessels calling at Hong Kong. The shipping lines committed to using fuel of 0.5 per cent sulphur content or less; however, if they all switched to the cleanest type of fuel available with 0.1 per cent sulphur, SO2 emissions would drop by 80 per cent. The Charter expired at the end of 2014 as regulations mandating emissions control measures in port negated the need for it (Laursen, 2015).

In return for joining the scheme, ship operators got a 50 per cent reduction on port and navigation charges if registered vessels switched to burning low-sulphur diesel while berthed or anchored in Hong Kong. However, low-sulphur diesel is about 40 per cent more expensive than more heavily polluting marine ‘bunker’ diesel and the scheme only covered between 30 and 45 per cent of this higher cost. Thus, while shipping companies including Maersk Line, Orient Overseas Container Line (OCCL), Mitsui OSK Lines and Hyundai Merchant Marine registered fleets of 10–90 ships, other cost-conscious carriers were more reticent. APL and Hanjin Shipping were among the firms that signed the Fair Winds Charter, but neither registered any ships with the incentive scheme.

Thus, corporate strategic decision making for shippers and ocean shipping lines is not easy when it comes to sustainability in the face of thin profit margins, rising fuel and other operating costs and global economic uncertainty.

Questions

1. How many actors have been mentioned in this case?
2. Which strategies did the ship liners use to reduce CO2 emissions in their activities?
3. What are the benefits of packing more products into containers?
4. What are the characteristics of inbound container flows of 34 large UK shippers?
5. What is the key problem with the flow of the UK deep-sea container trade? And from your own understanding, can you identify the likely cause(s) of this problem?
6. What is the percentage of shippers who measured their carbon footprint for their ocean transport? What is the percentage of shipper who implemented the carbon-reducing initiatives?
7. When selecting ship liner, how do shippers often think of environmental criteria?
8. Among all strategies listed in Question 2, which one not only mitigates CO2 emissions but also improves cost efficiency? When and why was this strategy proposed?
   Fill in the table below for the case of Maersk Line:

Number of ships
Sailing speed Annual fuel consumption (Mt)
CO2 emissions (Mt)

8 ships
22 knots

9 ships
20 knots

Saving (%)

9. Besides CO2 emissions, what is other emission indicator to reflect environmental performance of ocean shipping? Which scheme was initiated to reduce this emission? Specify the costs and benefits for ship liners to join this scheme? List all ship liners who joined this scheme?
   Is this scheme still active?
10. To conclude, why is it challenging for shippers and ship liners to incorporate sustainability in their operations?

References
Corbett, J., J, Winebrake, J., Green, E., Kasibhatla, P., Eyring, V., & Laurer, A (2007) Mortality from ship emissions: a global assessment, Environmental Science & Technology, 41 (24), 8512–18
Kolding, E (2008) Challenges and Opportunities, Presentation at the 25th German Logistics Congress, October, Berlin

Laursen, W. (2015) The demise of the Fair Winds Charter, Maritime Executive. Available at: https://www.maritime-executive.com/features/the-demise-of-the-fair-winds-charter
McKinnon, A (2012) The possible contribution of the shipper to the decarbonisation of deep-sea container supply chains, Proceedings of the 16th Annual Logistics Research Network (LRN) Conference. Cranfield University, Sept 2012.
Wallis, K (2013) Shipping lines face host of obstacles in jump to cleaner fuel. South China Morning Post, 14 Jan. Available at: https://www.scmp.com/news/hong-kong/article/1127309/shipping-lines- face-host-obstacles-jump-cleaner-fuel