Runner Up: Freight Demand Management

FREIGHT DEMAND MANAGEMENT

Experiences, Research Results, and Potential to Help Address Climate Change and Foster Economic Productivity

by Dr. José Holguín-Veras

PROBLEM STATEMENT 

The transportation sector consumes 27.8% of the total energy and 70% of the petroleum used in the United States; it produces 53% of the carbon monoxide, 31.3% of the nitrogen oxide, 24.2% of the volatile organic compounds, and 39.3% of the carbon dioxide. Though only 4.3% of all motor vehicles registered, trucks generate 9.8% of the vehicle-miles-traveled (VMT), consume 26.5% of the fuel and produce 41% of the greenhouse gas emissions. Yet we need freight. Without an efficient flow of supplies modern life would not be possible. Policy-makers have been tightening fuel efficiency standards for decades. As a result, between 1970 and 2014 energy use per vehicle-mile decreased at an annual rate of 1.4% and 0.3% for light and medium/heavy trucks respectively, but, still, total energy use by these vehicles increased annually by 4.0% and 3.1%. This is the 21st century version of the “Efficiency Paradox,” whereby technological advances in efficiency help induce demand that outpaces reductions. Demand driven by just-intime production and internet delivery is undermining advances in supply-side energy efficiency. This does not imply that technological advances are not needed, but is merely to point out that (1) technological advances are only part of the solution; and (2) without behavioral changes to counteract the tendency to induce demand, the Efficiency Paradox will materialize. In other words, managing freight demand is key.

Doing so is urgent because of the impact of e-commerce on the number of internet deliveries to households. The figure on the next page shows that the commercial FTG rate declined from 0.15 to 0.12 freight trips/person-day in the 46 years between 1963 and 2009, but the rate of household deliveries jumped from 0.04 to 0.12 freight trips/person-day in the subsequent eight. The result is that the total FTG in 2017 was 50% higher than it was in 2009, and double what it would have been if not for internet home deliveries: 0.12 freight trips/person-day absent internet home deliveries and 0.24 percent with them. 

2019 Better Government Comp… by Pioneer Institute on Scribd

SOLUTION 

Freight Demand Management (FDM) is: “…the area of transportation policy that seeks to induce the demand generator to enact changes in demand patterns to increase economic productivity and/ or efficiency; and/or enhance sustainability, quality of life, and/or environmental justice…”. Receivers set the operational constraints that must be satisfied by carriers and shippers. By seeking to change the behavior of the receivers who generate freight demand, FDM can improve the economic, social, and environmental performance of urban supply chains. Moreover, because congestion and pollution are most acute in busy commercial areas, modifying the time and number of deliveries at these locations can have a noticeable effect where its impact can be most felt. The majority of receivers in urban areas are small businesses of less than nine employees, estimated to produce between 45% and 60% of the freight traffic. Typically, the owners of these businesses do not think much about their ordering patterns and their environmental impacts. They are preoccupied with surviving in the market, but there are ways for FDM to help receivers make more informed decisions, and since receivers in commercial areas are interested in enhancing quality of life and walkability, which translate into more attractive shopping districts, receivers are naturally inclined to support FDM. The focus here is on two FDM initiatives: off-hour deliveries and receiver-led consolidation. 

1 – Off-Hour Deliveries (OHD) Programs 

Freight carriers travel during congested hours only because receivers of the supplies demand it. If receivers were to accept deliveries during off-hours (7PM to 6AM) most carriers would gladly alter their operations. Achieved through incentives offered to receivers in exchange for their participation, OHD leads to: reduced urban congestion and air pollution; increased economic productivity and lower costs; enhanced sustainability and quality of life, with reduced conflicts between freight traffic and passenger vehicles, pedestrians, and bicyclists. New York City is where OHD research started and the first successful pilot took place. Leading private-sector partners include: Manhattan Chamber of Commerce, Truck Association of New York, SYSCO, Anheuser-Busch, Whole Foods, Footlocker, CVS, Duane Reade, Waldorf-Astoria, and Beverage Works. Estimates for NYC indicate that the annual economic benefits amount to between $100 and $200 million. A major portion of these savings represent reductions in delivery costs, estimated to be between 35% and 45%, similar to those achieved in OHD programs in Bogotá and São Paulo, where 30% delivery cost reductions have been reported. The estimated impacts on emissions are even more compelling, even though they consider only the reduction in emissions from the freight vehicle themselves. To estimate the emission reductions, the team developed a computer program that reads GPS data and applies appropriate emission factors. The pollutants estimated are CO2, CO, NOX, total organic gases (TOG), reactive organic gases (ROG), and particulate matter with aerodynamic diameters of less than 10 mm and 2.5 mm (PM10 and PM2.5, respectively). The GPS data come from the OHD programs in Bogotá, NYC, and São Paulo, though the data from Bogotá are from vehicles operated from 6PM to 10PM, while in São Paulo and NYC, the data represent vehicles operated from 7PM to 6AM. Table 1 shows the results. Even the small shift in delivery times in Bogotá reduced emissions by 13%. In the case of NYC and São Paulo, where OHD took place deep into the night and early hours of the morning, reductions reached 48% and 64%. To put these impacts in perspective, the emission standards promulgated by President Obama sought engine efficiency increases of 25% in ten years. Assuming that these OHD programs capture a 30% market share, the emission reductions accrued would reach the amounts in Table 2. On a worldwide basis, if only 10% of deliveries in metro areas with more than 10 million residents switch to OHD, emission reductions would be 11 times greater than the totals in Table 2. Implementing OHD in all metro areas with more than two million residents would reduce total emissions by 22 times Table 2’s totals. In terms of CO2, these scenarios would lead to reductions of 148 million tons/year and 298 million tons/year respectively.

2 – Receiver-Led Consolidation 

Receiver-Led Consolidation (RLC) exploits the power of receivers to foster cargo consolidation across supply chains. By doing so, receivers reduce interruptions produced by receiving supplies; suppliers benefit from increased productivity; while the city benefits from reduced traffic. Surveys indicate that 20.6% of respondents are interested in “asking … vendors to reduce the number of individual deliveries … through consolidation.”3 Depending on the scenario, RLC could reduce by 3.0% to 8.8% the total delivery traffic in the NYC metropolitan area, and between 3.5% and 11.2% in Manhattan3. The estimated total savings for the carriers could range between $376,906 and $1,186,128 per day, as a result of the 4,740 to 15,062 hours saved in operations. In terms of vehicle-miles traveled (VMT), the expected savings range from 33,445 to 104,255 VMT per day. In addition to the savings for the carriers participating in RLC, a reduction in truck traffic of between 6.49% and 14.10% in Manhattan is expected to generate between $57.10 and $84.42 million per year in economic benefits. The environmental benefits are also likely substantial, though they have yet to be quantified.

CONCLUSION 

FDM has demonstrated great potential to foster sustainability, economic productivity, and efficiency in urban supply chains. These initiatives exploit the power of receivers to establish how, when, and how frequent deliveries are made. With increasing freight activity produced by household internet purchases, FDM techniques provide a template for action to contain the negative externalities associated with internet deliveries to households. Amazon recently took a tentative step into FDM by providing an option to its Prime customers, allowing them to consolidate their deliveries on a single day. Essentially, Amazon is inducing its customers to practice RLC.

FDM provides city governments with a new set of tools to foster urban freight sustainability. The estimates produced through the research, based on professionally collected surveys, indicate that between 40% and 70% of urban deliveries could be influenced in a beneficial manner by FDM. Undertaking a global FDM effort is a cost-effective way to start addressing the threat of climate change, while at the same time increasing economic productivity and health across the world.

REFERENCES 

1. Oak Ridge National Laboratory. Transportation Energy Data Book 35th Edition. 2016 3-9-17]; Available from: http://cta.ornl.gov/data/. 
2. Holguín-Veras, J., et al., Direct Impacts of Off-Hour Deliveries on Urban Freight Emissions. Transportation Research Part D: Transport and Environment, 2018: p. 1–20. 
3. Holguín-Veras, J. and I. Sánchez-Díaz, Freight Demand Management and the Potential of Receiver-Led Consolidation Programs. Transportation Research A, 2016. 84: p. 109–130.