September 8, 2009
Column | big picture

Freight efficiency pays off

A new study calculates how much money could be saved by reducing the amount of oil consumed in transporting goods. The numbers are eye-popping.

By Peter Bradley

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 and curb transportation-related pollution.

According to a recent study by the global consulting firm McKinsey & Co., the transportation of goods consumes 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 enormous opportunity to reduce the consumption of oil.

The study—part of an ongoing series in the consultant's online journal, McKinsey Quarterly—also looked at ways to reduce the amount of oil consumed in transporting 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.

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

More articles by Peter Bradley

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