The only sustainability conference designed and presented by retailers, for retailers. The SmartWay to Sustainable Goods Movement

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1 The only sustainability conference designed and presented by retailers, for retailers. The SmartWay to Sustainable Goods Movement Buddy Polovick, US EPA

2 Environmental & Economic implications from global goods movement Goods movement is a growing piece of the global GHG inventory; As global trade grows, so do the emissions associated with goods movement. The transportation sector in U.S. is outpacing other economic sectors in GHG growth. Goods movement is also a significant portion of criteria i pollutant t inventory in the U.S. Rising energy and fuel prices underscore the need for sustainable goods movement strategies; Freight sector is vulnerable to volatile and increasing fuel costs because fuel is significant part of operating costs.

3 Transportation GHG & Goods Movement

4 Transportation Greenhouse Gas Emissions Increased more rapidly than other sectors Source: US Emissions Inventory (April 2008) EPA 430-R

5 Energy Costs

6 Growth in Shipping Source: UNEP - / / hi / h i hi i d

7 What Have We Learned? There is a strong business case for more sustainable goods movement Transportation is a significant piece of corporate emissions footprint Transportation becoming greater portion of operating costs Transportation often has great potential for efficiency gains Globalization introduces new challenges and opportunities Multinational corporations are linking their operations across more of the world s ports and borders Longer, multimodal l supply chains can also mean more emissions i from trade Increased pressure to reduce embedded carbon emissions Government/Industry Partnerships can move the marketplace EPA s SmartWay Transport Partnership is a business friendly mechanism to reduce GHG emissions from supply chains

8 SmartWay Transport Partnership What is SmartWay? Successful government/industry collaboration Voluntarily achieves improved fuel efficiency Reduces environmental impacts from freight transport Partnership Categories Carriers Shippers Logistics Rail Partners use models to: Benchmark freight operations Measure transportation footprint Identify technologies & strategies to reduce emissions Track emissions reductions and project improvement Equipment Manufacturers SmartWay certified cars & trucks Auto manufacturers Tractor manufacturers Trailer manufacturers

9 How Does SmartWay work? Shippers: Top of the supply chain, drive marketplace demand Give preferred status to SmartWay Carrier Partners Get better data to improve their own shipping operations Modify logistics operations to improve efficiency and reduce emissions, for example: Inter-modal Shipping Full Truck Loads Warehouse Improvements Idle-Reduction at Docks Get recognition and PR value with SmartWay brand Carriers: Gain competitive advantage: Preferred status, plus Fuel efficiency, savings Reduce emissions Integrate fuel saving technologies and strategies into fleets, such as: Idle Reduction Improved Aerodynamics Efficient Tire Systems Driver Training Renewable Fuels Advanced Lubricants Get recognition and PR value with SmartWay brand

10 SmartWay Partner Results Over 1,100 Partners, as of 9/19/08 Drive approximately 600,000 trucks (7% of industry) Travel over 51 billion miles per year (24% of industry) Consume over 12 billion gallons of fuel (24% of industry) Are on track for 2008 to: reduce greenhouse gas and pollutant emissions by: 6 million tons of CO 2 (carbon dioxide); 800 tons of PM (particulate matter); 30,000 tons of NOx (oxides of nitrogen); Save over 540 million gallons of diesel fuel this year; Save the freight industry over $2 billion in annual fuel and maintenance costs.

11 SmartWay as a Template to Transform the Global Supply Chain Multiple countries and NGOs are now inquiring about implementing i SmartWay programs abroad: SmartWay-like programs already in Canada & Mexico Leading Shipper Partners asking for broader Partnership to cover their global supply chains: Measurement - Industry needs to assess CO 2 footprint Demand for multi-modal Supply Chain CO 2 model Optimization - Industry needs to optimize transport mode; For example; shifting from air to marine, saves fuel & reduces CO 2 Demand for transparent carrier performance data information; Shippers can select the most efficient carriers

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13 The only sustainability conference designed and presented by retailers, for retailers. Rick Bingle, REI

14 What is REI? Recreational Equipment, Inc. Founded in 1938 by Lloyd & Mary Anderson All about finding quality climbing gear Our Competition An increasingly sedentary lifestyle from TV, to computers to video games We are a Co-op We are not publicly traded We have no outstanding debt Members exercise voting rights over the Board of Director ($15 on-time life time membership) Key Facts 100+ stores this year (6-8 stores per year) 2 Distribution Centers Approximately 8500 employees Multi-Channel Retailer, Direct to Consumer, Outlet and Adventures

15 REI Purpose We inspire, educate and outfit for a lifetime of outdoor adventure and stewardship.

16 The Future - Green Building Aspiration: All new REI buildings will meet national green building standards to: 1. Enhance the retail experience 2. Reduce our environmental impacts 3. Reduce cost of operations 4. Align our buildings with our values (brand) Milestones: Seattle, WA Flagship 2000 Denver, CO Flagship Portland, OR LEED-CI Gold 2006 Pittsburgh, PA LEED-CI Silver 2007 highlights: Boulder Store LEED-Retail Bedford DC LEED-NC

17 FW2.0 Life Cycle Stages From ex-factory to the consumer s hands

18 2007 REI Corporate Stewardship Report Kevin Hagen - Dir., CSR Program Kevin Myette Dir., Research & Development

19 Logistics Sustainability Strategy Mission Support and lead the sustainability mission within REI Approach 1 Develop a detailed understanding of the logistics footprint 2 Focus on process excellence 3 Develop a strategic plan that includes your partners

20 REI s Current Carbon Footprint

21 ACTION #1: Review the data Developing a detailed understanding of the REI Logistics Footprint Operational excellence drives Costs Emissions Product obsolesces Customer Fulfillment 16,096 kg = 2,470 Tons 1037 Containers = 1,714 Tons

22 ACTION #2: Opening the Bedford DC Focusing on Process Excellence Opening a new DC in Bedford, PA required detailed analysis comparing lead-times, costs and CO2 emission impacts. Fact: All water delivers a 147% reduction in CO2 vs. use of rail Fact: All water delivers a reduction in costs over use of rail Fact: All water requires 6-10 additional days in LT REI Decision Reduce CO2 Key Origin Ports Kilometers CO2 g/teu Total CO2 Origin Port Port Code To Seattle To Bedford Assume 114g/TEU km Inbound To Seattle Bedford All-Water Bedford Via Rail Hong Kong HKG 10,633 21, ,212,174 2,504,990 3,375,174 Keelung KEE 9,820 21, ,119,498 2,441,869 3,282,498 Kaoshiung KAO 10,189 21, ,161,508 2,484,724 3,324,508 Shanghai SHA 9,437 21, ,075,799 2,404,926 3,238,799 Qingdao TAO 9,446 21, ,076,854 2,405,981 3,239,854 Yantian YAN 9,455 21, ,077,910 2,409,148 3,240,910 Total Kg 47,430,149 69,565,776 CO2 Impact 147%

23 ACTION #2: Consolidation Opportunities Focusing on Process Excellence Using EXPo, new REI dating protocols, and volume mapping key, consolidation centers were established in mid 2007 Hong Kong Yantian (Shenzhen) Shanghai Qingdao Kaohsiung Year Destination Move Type HKG SHA TAO TWN YAN Total 2006 SEA LCL 21% 18% 5% 10% 2% 11% FCL 79% 82% 95% 90% 98% 89% 2007 SEA LCL 2% 2% 2% 4% 1% 2% FCL 98% 98% 98% 96% 99% 98% 2006 vs 2007 Gross Cost savings Reduced $223, vs 2007 TEU Reduction Eliminated 132 TEUs 2006 vs 2007 CO2 Reduction Removed 145,063 KG/CO2

24 ACTION #3: A Strategic Plan to achieve 2009 Goals Planning that includes your partners Reduce / Eliminate airfreight through operational excellence Reduce TEU movement through continued Consolidation Reduce total shipment volume through improved packaging Align with partners that are impacting and leading reductions Partner with Technology - MIT & EPA Project Participation Leverage the RFP for Action and Change

25 ACTION #3: Leveraging the RFP Planning that includes your partners REI uses the Triple Bottom Line principle People Planet Profit Key 3PL Partners to REI must be able to meet High Standards; Rate Expectations Lead-time Commitments Equipment Availability / Flexibility Peak Season Protection Enhanced OM Services, Metrics Reporting and Analytics AND, Present CO 2 Emission Impact of Transportation Options

26 The only sustainability conference designed and presented by retailers, for retailers. Peter Capozucca, Deloitte

27 Thank You!