The new UPS sustainability report has come out and so has the company’s latest financial report. That coincidence provides an opportunity to take a closer look at the strategies that mature companies can enlist to maintain profitability while juggling two colossal new challenges to their business model: the demands of an increasingly carbon-constrained economy and the emergence of significant new market forces enabled by online technology.
The financial report makes it clear that UPS has recognized that new online shopping trends demand new investments. The shipping giant was overwhelmed by a rush of online orders last holiday season, and it is determined to step up its game this year with a $175 million stake in new sorting infrastructure and software improvements.
That investment resulted in a short-term hit on profitability, but UPS is confident that it will pay off in the long run. With that in mind, let’s take a look at the company’s new ‘Committed to More’ sustainability report.
The new UPS sustainability report
The highlight of the new UPS Committed to More sustainability report (here’s a direct link to the .pdf) is the company’s achievement of an initial “carbon intensity” reduction goal of 10 percent, three years earlier than expected.
Though 10 percent appears relatively modest in the context of the increasing urgency of climate action, that goal has enabled the company to up the ante. When UPS announced the new sustainability report yesterday, it also announced that it has set a new goal of 20 percent by 2020, measured by carbon intensity from transportation.
Carbon reduction addresses only one of the aforementioned twin challenges. As indicated by the choice of ‘Commitment to More’ for the name of its sustainability package, UPS is also determined to reduce emissions while also expanding its business.
Doing more with less
The sustainability report highlights how UPS’s transportation initiatives have reduced emissions for the past two years in a row, even though the company’s global shipping has increased.
In summing up the company’s achievements to date, UPS Chairman and CEO Scott Davis had this to say:
Our ability to grow our global shipping volumes and reduce total carbon emissions should be a signal to business that it is possible to do more for the environment while also serving more customers and adding more value.
UPS global shipping was up 3.9 percent in 2013 compared to 2012, while “absolute” carbon emissions went down 1.5 percent. Though that’s not particularly impressive in terms of raw numbers, UPS has only just begun to tap into its potential for reducing transportation-related carbon emissions.
The company credits a good deal of its progress to the ongoing transition of its fleet to alternative fuel vehicles and energy efficient vehicles. Currently, UPS has 3,647 such vehicles and plans to add many more. At last count the total number of UPS delivery vehicles was well over 96,000, so there is ample room for even more improvement.
This is where things get a little complicated, though. On the part of electric vehicles, while tailpipe emissions are low-to-zero, whenever UPS charges batteries on the grid there may be fossil fuels involved.
The company’s recent foray into solar power indicates one possible path toward resolving electricity supply chain issues for its EVs. UPS was once in the vanguard of EV experimentation, and with that corporate legacy under its belt the company is in a good position to develop new strategies for ensuring that its EV fleet runs on renewably-sourced electricity.
UPS is leaning heavily on natural gas vehicles to reduce transportation emissions, but that is also problematic. While fossil natural gas is cleaner at the burn point than petroleum fuels, it is not a clean fuel. That has been amply demonstrated by studies on lifecycle methane emissions as well as mounting evidence of the environmental risks of fracking.
On the other hand, the opportunities are growing to harvest renewable gas from landfills, food waste, livestock farms and even industrial wastewater as well as municipal sewage, so the potential exists for UPS to transition from clean tailpipes to a cleaner lifecycle for its natural gas vehicles.
Clean fuels, clean strategies
Problematic fuels aside, the UPS sustainability report also underscores the importance of transportation strategy in maximizing the return on investment in alternative fuel vehicles and energy efficient technology.
In 2013, UPS introduced a new computer-aided navigation system called the On-Road Integrated Optimization and Navigation (ORION). Described as the “brains and backbone” for achieving future emissions reduction, the system identifies optimum routes on a daily basis for package pickup and delivery.
With guesswork eliminated, ORION alone is expected to lead to a fuel savings of 1.5 million gallons of petroleum fuel.
Customer responsibility and corporate responsibility
The UPS sustainability report also hightlights ORION-type strategies on the customer side, in the form of its voluntary “My Choice” and “Smart Pickup” programs. These initiatives enable customers to choose pickup and delivery options that reduce emissions, including unnecessary emissions resulting from unsuccessful deliveries.
UPS also offers customers carbon-neutral shipping, using offsets validated by the Carbon Neutral Co. and verified by Société Générale de Surveillance (SGS). Interestingly, one of the offsets includes biomethane capture.
As for corporate social responsibility, in addition to numerous community-based efforts UPS has focused on leveraging its global transportation network for emergency response and disaster relief, an area that will increase in importance as climate change intensifies. In that regard, the company’s transition to clean vehicles will also come into play as the benefits of renewable energy in disaster relief become widely recognized.
It’s also worth noting that UPS is a member of the Obama administration’s Clean Fleets initiative, which aims to reduce petroleum dependency in the transportation sector. As a Clean Fleets partner, UPS has committed to using its emissions reduction efforts as a learning laboratory and best practices model for the transportation industry as a whole.
Clean Fleets kicked off in 2011, with UPS joining AT&T, Fedex, PepsiCo and Verizon as a charter member. This kind of corporate leadership has a significant ripple effect that goes beyond a company’s sustainability report. In just three years Clean Fleets membership has climbed to 23 partners, including other major fleet owners such as GE, Ryder and Frito-Lay.
Image courtesy of UPS