Companies that rely extensively on trucking – such as C&S Wholesale Grocers – are acutely aware of the impacts that climate change poses to their businesses. Fuel price increases and more severe weather patterns are two climate change manifestations that could adversely impact the business and operating models for C&S, the largest wholesale grocery supply company in the U.S.
Increasing Fuel Prices
Although the United States has been in a low-cost gasoline holiday for the past two years, fuel prices are not expected to remain low indefinitely . An OPEC mandated reduction in oil production or U.S. legislation of a carbon tax could ignite an increase in diesel fuel prices.
The concept of a carbon tax on gasoline is foreign to most Americans. Other progressive countries, however, have enacted carbon taxes on fuel to decrease consumption. In 2008, British Columbia instituted a carbon tax on diesel gasoline  and both Sweden and Finland followed suit soon after . Although C&S could pass small gasoline price increases onto their customers, their fleet of almost 1000 trucks means that small price increases greatly impact their business expenses . In addition, an increase in gas prices is an innovation catalyst for the trucking industry, creating an opportunity to disrupt companies who are hedging against potential climate change policies. Fortunately, C&S is already implementing innovations to minimize their environmental footprint…and drive profits.
Back in 2009, C&S made significant investments in their “network optimization technology “to reduce the total number of miles that trucks drove, resulting in an estimated reduction of 400,00 gallons of diesel fuel used between 2008 and 2009. In addition, they adopted aerodynamically efficient trucks to further reduce fuel consumption . A final innovation they’ve employed is to install onboard sensor systems to monitor truck idle time and inefficient driving behavior. The effects of rising fuel prices are tangible; the effects of rising tides and increasingly unpredictable weather patterns, however, is a much more difficult proposition.
According to a recent publication by the National Research Council, “potentially, the greatest impact of climate change for North America’s transportation systems will be flooding of coastal roads, railways, transit systems, and runways because of global rising sea levels, coupled with storm surges and exacerbated in some locations by land subsidence” . The urbanization of coastal cities will further increase C&S’s demand in the very regions most susceptible to coastal flooding and hurricanes. Because C&S cannot control the weather, the algorithms used locate distribution centers and accommodate storm uncertainties while planning deliveries will need to be bolstered.
Investments to Retain Incumbency
C&S is not unique in facing these challenges, and has already made investments to secure its future. But, further tangible steps should be considered to prepare for climate change. First, C&S should implement incentives for truck drivers who driving in environmentally conscious ways. In other words, turn efficient driving into a positive environmental initiative instead of a monitored statistic. In addition, they should explore the trade-space between transport costs under increased fuel prices compared to the number of regional distribution centers. The additional distance driven between retailers and distribution centers may warrant constructing additional smaller distribution centers to reduce total miles driven. A final strategy to remain competitive may be to switch the revenue generation model from weight or quantity of goods delivered to a weight-per-mile pricing structure. This will increase C&S’s competitiveness in the future regions of growth – cities. Although adopting this metric may increase costs for rural retailers, the realignment of distribution centers may help offset the cost.
Regarding the increasing storm uncertainty, C&S should consider systems to buffer retailer inventory before and after storms. Since retailers have limited internal inventory space, one method to avoid stockouts is to develop environmentally controlled containers, for example 20-40ft in length, that can be delivered to a retailer prior to a storm. Since the container can be loaded and unloaded without the truck cab being present, C&S can increase the number of deliveries prior to a storm and leave the containers behind with select retailers until they are retrieved at a later date. Retailers shouldn’t have stockouts just after a storm when the local community need’s food the most. This solution would provide C&S a buffer to recover from order backlogs after a storm and the retailer product to support their community.
Climate Change is a given. The jury is still out, though, on the pace of change. C&S has taken steps to create certainty in this period of increasing uncertainty. The real question is, is it enough?
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