{"id":8708,"date":"2016-11-03T18:15:43","date_gmt":"2016-11-03T22:15:43","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ups-how-3pls-are-confronting-climate-change\/"},"modified":"2016-11-03T18:15:43","modified_gmt":"2016-11-03T22:15:43","slug":"ups-how-3pls-are-confronting-climate-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ups-how-3pls-are-confronting-climate-change\/","title":{"rendered":"UPS \u2013 How 3PLs are Confronting Climate Change"},"content":{"rendered":"

Climate change will undoubtedly affect the U.S. third party logistics industry.\u00a0 I have decided to discuss how regulatory changes targeting emissions reductions will impact United Parcel Service (NYSE: \u201cUPS\u201d).<\/p>\n

To understand the scope of its daily fuel usage, a quick look at UPS\u2019 2015 annual report demonstrates the magnitude of its shipping operation.\u00a0 UPS performs 1,955 flights daily and contains 110,000 vehicles in its shipping fleet [1].\u00a0 The Company is so levered towards fluctuations in fuel prices that it has implemented fuel surcharges.\u00a0 The company passes on fuel cost increases to its customers when the national U.S. average on-highway spot diesel price increases based on a designated pricing grid published to all customers [2].\u00a0 This is done to insulate the Company\u2019s bottom line from the price of this volatile commodity.<\/p>\n

\"Scope<\/a>
Scope of UPS’ Transport Activities<\/figcaption><\/figure>\n

Due to the extreme fuel usage inherent in this business model, third party logistics will be massively affected by impending EPA emissions requirements.\u00a0 As discussed in the Commercial Carrier Journal, President Obama\u2019s Climate Action Plan created a minimum standard for greenhouse gas (\u201cGHG\u201d) emissions for heavy duty trucks by 2018.\u00a0 Specifically, by mandating certain vehicle weights and fuel efficiency standards, trucks introduced in the post 2018 period will have 25% lower CO2 emissions and fuel consumption than an equivalent tractor introduced prior to 2018 [3, 4].\u00a0 Legislation also targets idle trucking hours, which according to Mechanical Engineering, burns more than 800 million gallons of fuel a year in the long-haul trucking category alone [5].<\/p>\n

\"no-idling-clean-air-sign-k-2931\"<\/a><\/p>\n

UPS has made significant strides to combat these regulatory hurdles, primarily by innovating its current fleet to meet new environmental standards.\u00a0 Per the Company\u2019s investor presentation, of its current fleet of 110,000 vehicles, the company now has 7,270 vehicles which employ alternative fuel sources [6].\u00a0 This includes inputs such as CNG, LNG, Propane, Hybrid Electric and Ethanol powered vehicles.\u00a0 Furthermore, in 2015, UPS was one of the initial 13 leading companies to take the American Business Act on Climate Pledge.\u00a0 In doing so, the Company committed to decreasing it GHG intensity by 20% by 2020 [1].\u00a0 Interestingly, UPS\u2019 10K illustrates just how effective conversions to alternative fuel sources can be for reducing GHG emissions and meeting this 20% reduction goal.\u00a0 Through the fleet conversions UPS has already made (based on abovementioned statistics, that is ~7% of the current fleet), UPS has already decreased its status quo fuel consumption by 6% [1].<\/p>\n

UPS has also introduced truck technology specifically designed to target the tremendously wasteful idling issue.\u00a0 By the end of 2015, telematics were installed on close to 83,000 UPS vehicles [1].\u00a0 This hardware allows UPS to understand specific truck performance in areas such as speed, RPM, oil pressure, seat belt use, number of times the vehicle is placed in reverse and, most importantly, idling time.\u00a0 Using this data, UPS implemented driver coaching to help reduce fuel consumption and emissions (all the while decreasing maintenance costs and increasing driver safety).<\/p>\n

\"UPS<\/a>
UPS Telematics Unearth Valuable Truck Level Data<\/figcaption><\/figure>\n

Although UPS has taken significant steps to address climate change\u2019s impact on its business model, I believe there are additional operational initiatives the company can take to reduce its GHG emissions.\u00a0 First, pricing schematics should be far more punitive for users who choose an energy inefficient strategy to move products.\u00a0 For instance, customers that provide only LTL shipments vs. TL shipments should be charged a penalty payment as they have now caused underutilization at the trailer.\u00a0 In addition, the Company should continue to further explore conversion of its fleet to alternative fuel sources, particularly natural gas.\u00a0 As UPS is largely a U.S. domestic shipper, it should take advantage of the North American shale gas revolution, which has rendered an abundance of natural gas here in the U.S. as a cheap and clean energy source.\u00a0 In fact, the U.S. Energy Information Administration (EIA) estimates that the U.S., as of Jaunuary 1, 2013, had 2,276 trillion cubic feet (Tcf) of technically recoverable natural gas, enough gas to last 80+ years at forecasted consumption rates [7].<\/p>\n

I would lastly compensate drivers not only for hours worked but also for increasing their route density (e.g. ability to fill the trailer with as many packages as possible in a single run), decreasing idle time and using the appropriate technology to execute on the most fuel-efficient driving route.\u00a0 We have studied again and again at HBS how financial incentives drive human decision making (e.g. in the beer simulation game how the excessive cost of backlog vs. inventory holding drove people to over-order; in the Nordstrom case how individuals manipulated their SPH figures to increase financial bonuses).\u00a0 Proper financial incentives around fuel efficient driving will help reduce UPS\u2019 carbon footprint and fulfill their broader corporate goal of a 20% reduction in GHG by 2020. [792 words]<\/p>\n

[1] UPS 2015 Annual Report (SEC Filing 10K). http:\/\/nasdaqomx.mobular.net\/nasdaqomx\/7\/3491\/4988\/.<\/p>\n

[2] http:\/\/www.wsj.com\/articles\/fuel-prices-fall-but-fedex-and-ups-boost-surcharges-1444088938.<\/p>\n

[3] Commercial Carrier Journal. Aug2013, Vol. 170 Issue 8, p15-15. 2\/3p.<\/p>\n

[4] https:\/\/www.epa.gov\/newsreleases\/heavydutyaug162016.<\/p>\n

[5] Mechanical Engineering. Jan2005, Vol. 127 Issue 1, p32-34. 3p. 2 Color Photographs.<\/p>\n

[6] UPS Corporate Presentation.\u00a0 Updated August 8, 2016.\u00a0 http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=62900&p=irol-investorpres.<\/p>\n

[7] “How much natural gas does the United States Have? \u00a0And how long will it last?” \u00a0U.S. Energy Information Administration. \u00a0http:\/\/www.eia.gov\/tools\/faqs\/faq.cfm?id=58&t=8.<\/p>\n","protected":false},"excerpt":{"rendered":"

UPS' battle with climate change. <\/p>\n","protected":false},"author":2240,"featured_media":8709,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-8708","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nUPS \u2013 How 3PLs are Confronting Climate Change - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ups-how-3pls-are-confronting-climate-change\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"UPS \u2013 How 3PLs are Confronting Climate Change - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"UPS' battle with climate change.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ups-how-3pls-are-confronting-climate-change\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/images.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"275\" \/>\n\t<meta property=\"og:image:height\" content=\"183\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/ups-how-3pls-are-confronting-climate-change\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/ups-how-3pls-are-confronting-climate-change\\\/\",\"name\":\"UPS \u2013 How 3PLs are Confronting Climate Change - 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