An article in Sunday’s New York Times describes in intricate detail the impact that increased shipping costs are having on one key aspect of globalization – global supply chains:
Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages.
Until recently, low fuel prices had allowed companies to ignore shipping costs in favor of reducing labor costs, meaning that wood from the United States could be shipped to China to make furniture, and then shipped back to the U.S. for sale. The fuel and environmental costs of this practice can be considerable. However, in the new era of high oil prices (and other demand-driven inflationary issues), it seems companies are beginning to consider new strategies in the sourcing, manufacture and distribution of goods:
Instead of seeking supplies wherever they can be bought most cheaply, regardless of location, and outsourcing the assembly of products all over the world, manufacturers would instead concentrate on performing those activities as close to home as possible.
The article itself is a complex and informative take on this issue, and well worth a read. However, this article brought to mind another concern I’ve been experiencing, around the growing association of all business initiatives remotely connected to the environment as being “green”. There are a number of environmental benefits to be found in the short-term development (and perhaps long-term trend) of high shipping costs limiting our utilization of global supply chains. But these types of market transformations shouldn’t necessarily be associated with the burgeoning “green business” trend. To wit, near the end of the article:
Global companies like General Electric, DuPont, Alcoa and Procter & Gamble are beginning to respond to the simultaneous increases in shipping and environmental costs with green policies meant to reduce both fuel consumption and carbon emissions. That pressure is likely to increase as both manufacturers and retailers seek ways to tighten the global supply chain.
“Being green is in their best interests not so much in making money as saving money,” said Gary Yohe, an environmental economist at Wesleyan University. “Green companies are likely to be a permanent trend, as these vulnerabilities continue, but it’s going to take a long time for all this to settle down.”
Gary Yohe has been studying climate change for a decade, and this post in no way is meant to call him out. But I believe his comment, and the line above, are relevant to the point I’m making here. One of the challenges facing us in the environmental community, may be learning to distinguish between “green business” (a nebulous and at this stage clichéd phrase) and common sense business strategy that is made with no thought towards environmental impact. While I welcome operational changes that reduce fuel consumption (and associated carbon emissions), and increase local sourcing, do we in the environmental community face some risks in labeling all things that can be construed as having an environmental angle as “green policies”?
For example, in the face of higher shipping costs, a large multi-national company may pursue a number of fuel saving measures. But if those measures are not undertaken with an eye towards reducing carbon emissions, limited environmental impact and improving overall environmental performance, any return to the low fuel prices of the 80’s and 90’s could entail a subsequent re-emergence of those same fuel-intensive practices.
Further, it opens our community up to continued charges of fostering green-washing. A company that brands bottom-line decisions as “green” may not be considering the complexities associated with a long-term sustainability strategy. Thus the follow-on effects of this seemingly environmentally-focused decision could in reality cause significant ancillary environmental damage (think the palm-oil biodiesel push in Europe that increased deforestation in Indonesia in the quest for palm oil). It also clutters the marketplace, pushing out the message and marketing of companies that have incorporated “green business” as a core element of their operating approach, and detracts from what we consider truly environmentally sustainable business practices.
No doubt, we are entering a period of potentially massive economic transformation, where the promise of cheap energy (both for transportation and electricity) and a changing climate force great change in how we conduct business and how we consume goods and services. The private sector will need to manage this new world accordingly, and may in doing so, adopt risk-mitigating practices that also meet the environmental community’s goals. For the reasons outlined above, I believe it is important that we not paint each of these developments with a green brush, but rather save our praise for the truly innovative and environmentally sustainable.