EXPLAINER

How to Increase the Fuel Efficiency of Road Freight Transport


The Green Freight Initiative in the Greater Mekong Subregion is improving fuel efficiency and reducing costs and emissions of trucking companies.

Introduction

In the Greater Mekong Subregion (GMS), freight transport plays a crucial role in the expansion of trade and economic development. Within transport, freight transport is also a major emitter of greenhouse gases (GHG) that cause climate change.

The subregion comprises Cambodia, the People's Republic of China (specifically Yunnan Province and Guangxi Zhuang Autonomous Region), Lao People's Democratic Republic, Myanmar, Thailand, and Viet Nam.

More than 80% of goods are transported by roads in the GMS, mostly by truck fleets run by small and medium-sized enterprises (SMEs). Fuel costs are the major operating cost for these enterprises and contribute to logistics costs in the GMS being much higher than in other parts of the world.

The economic competitiveness and environmental performance of road freight SMEs is constrained by a number of issues. These include the predominance of truck fleets that are aged and fuel inefficient, inadequate logistics management capacity, low safety standards and weak driver training, and a lack of access to financial capital.

Green freight programs in the GMS can help address many of these issues, helping SMEs to become more competitive, and in doing so aiding the transport sector to increase its contribution to economic development in the subregion as well as reduce its carbon footprint.

This article was adapted from Green Freight in the Greater Mekong Subregion, which summarizes lessons learned from green freight feasibility analyses conducted under the GMS Core Environment Program between 2010 and 2014. It presents five key messages that policymakers and practitioners need to be aware of while developing strategies and projects to improve road freight fuel efficiency in the GMS.

1. Reducing the cost of logistics and transport will improve economic performance

Improving logistics has become an increasing focus of transport policy in the subregion due to the strong link between logistics and economic performance. For example, the GMS Economic Cooperation Program has driven the development of cross border road infrastructure in the subregion since 1992. It has invested more than $15 billion in transport infrastructure and a considerable portion of the $66 billion of planned investments under the Regional Investment Framework, 2022 will also be in this sector.

To maximize the economic return on infrastructure investments in the GMS, supplementary investments on improving logistics and freight efficiency, including reducing fuel costs, are needed.

2. Efficient road freight offers a major opportunity to reduce emissions

Improvements in transport infrastructure in the GMS have spurred an increase in transport and traffic and a corresponding increase in GHG emissions. The number of vehicles registered has almost doubled between 2010 and 2015, with transport accounting for approximately one fifth of energy-related carbon dioxide (CO2) emissions in the subregion, excluding the People’s Republic of China.

Among the different users of road transport, freight vehicles are responsible for a major share of GHG emissions despite accounting for fewer vehicles. An analysis of the GMS East–West Economic Corridor—traversing the Lao People’s Democratic Republic (Lao PDR), Thailand, and Viet Nam—showed that emissions from freight traffic account for more than 60% of total transport emissions. This is despite freight traffic making up less than 30% of traffic along the road. As a result, road freight fuel efficiency has the potential to support significant reductions in GHG emissions.

Reducing the Carbon Footprint of the GMS East–West Economic Corridor

A carbon footprint analysis of the East–West Economic Corridor was conducted as part of the Core Environment Program’s green freight feasibility studies. The analysis found that green freight interventions have the potential to reduce 23% of emissions expected from the corridor over a 20-year period. The analysis compared approaches, such as implementation of fuel standards, vehicle fleet upgrades, use of cleaner fuels, use of green technologies in trucks, and improving driver behavior and logistics management capacity. Figure 2 below shows the CO2 emissions expected from the corridor under a business-as-usual scenario and compares this with low carbon freight and forestry scenarios.

3. Key target areas are technology, logistics management, and driver capacity

Fuel costs often account for 40% to 60% of the overall operating costs for road freight transport companies in the GMS. Several factors affect road freight fuel consumption.

For one, the sector is burdened by ageing truck fleets. Overall in the GMS these fleets average more than 10 years, while in Cambodia and the Lao PDR, the average fleet age is between 15 and 20 years.

Another issue is that road freight management and movement is often inefficient. Companies surveyed during the green freight feasibility studies of the Core Environment Program found that 25% to 50% of trips were run with empty loads, illustrating a clear mismatch of fleet and load carrying capacities. The situation is exacerbated by the overloading of vehicles, a common practice that increases fuel consumption and has implications for road safety and the quality of road infrastructure.

Fuel use is further increased by the prevalence of poor driving patterns such as speeding, idling, and disregarding safe driving practices.

Therefore, the key target areas to increase road freight fuel efficiency are efficient truck technologies, logistics management solutions, and driver capacity building.

4. Freight fuel efficiency actions should target SMEs

Successful fuel efficiency interventions in the subregion need to consider the unique environment of stakeholders that dominate the sector. The transport industry is highly fragmented. The majority of truck operators are classed as SMEs and operate fleets of less than 10 trucks.

Transportation costs have increased, due largely to successive hikes in fuel costs, lower trading volumes, increased competition, and system inefficiencies (such as poor infrastructure and customs-related inefficiencies). SME road freight operators are finding it difficult to realize sustainable profits. A large proportion of the operators in the subregion continue to be fuel inefficient, lack logistics management skills and techniques, have low safety standards, and are capital deficient.

Institutionally, there are strong associations for industry and goods transport in each country, which play an important role in setting the policy agenda, particularly on regulations affecting the road freight industry, fiscal incentives and taxes, and on issues related to access to finance. These include national associations that represent the interests for companies to the government and local-level goods associations that manage freight forwarding services for many smaller transport companies or owner/drivers. In the public sector, the responsibility for policy making regarding road freight is dispersed across multiple agencies.

Cross-sector coordination is particularly important when implementing fuel efficiency actions for road freight. There are several policy challenges to be faced, including a lack of policies on fuel efficiency that target freight transport, and weak implementation and enforcement of existing regulations. Compounding this are a lack of driver training facilities, particularly for truck drivers, which impedes improvements in driver behavior.

5. Green freight programs could reduce fuel consumption, increase logistics efficiency, and reduce emissions

In their simplest form, green freight programs offer a way to simultaneously reduce fuel costs and GHG emissions. GMS countries are increasingly realizing the importance of programs, such as green freight to support capacity development and technology improvements in SME road freight companies, to increase transport efficiency and thereby reduce the overall cost of logistics.

There are some key lessons to be learned from existing green freight programs across the world and in Asia. First, successful green freight programs emphasize multi-stakeholder approaches, either within the private sector or by bringing the public and private sectors together. Second, testing of technologies in a local context is important to build private sector confidence. Third, changing driver behavior is an important focus for green freight projects.

Financing support is an essential element to improve road freight fuel efficiency and competitiveness. Limited and costly access to finance is an issue faced by many SME freight transport companies in the subregion and is one of the main barriers for investments in fuel efficiency technologies and new vehicles. Financing solutions should be explored to bridge this gap, and can learn from models for energy efficiency financing used in other sectors, such as energy service companies (ESCOs).

A Modified Energy Service Company for Green Freight

An ESCO is usually an entity set up with the purpose of improving energy efficiency in a company, area, or building. Services offered by ESCOs often include energy analysis and audits, energy management, monitoring of energy savings, and equipment supply. ESCO earnings can be tied to the energy savings they deliver. The ESCO model has been applied successfully to the industrial and building sectors in the PRC, Thailand, and Viet Nam in the GMS.

A study of SME financing options for green freight was conducted as part of the Core Environment Program’s green freight feasibility studies. The study proposed a modified ESCO model for the freight sector (see diagram). The ESCO model proposed is a not-for-profit entity that would incentivize freight SMEs to invest in energy efficient technologies and provide technical support for energy efficiency. ESCO members would benefit from “cooperative purchasing” (i.e., discounts negotiated by the ESCO on a range of items purchased by companies from suppliers). The ESCO could be financed from a portion of the discounts.

The Green Freight Initiative

Economic corridors are being established across the GMS to improve transport connectivity, facilitate trade and economic development, and boost regional cooperation. Under the Core Environment Program, interventions to increase fuel efficiency and reduce GHG from freight transport are being implemented along the East–West Economic Corridor in the Lao PDR, Thailand, and Viet Nam.

The Core Environment Program is overseen by the environment ministries of the GMS countries and implemented by the Environment Operations Center, which is administered by the Asian Development Bank (ADB). Cofinancing is provided by ADB, the governments of Finland and Sweden, the Global Environment Facility, the People’s Republic of China Regional Cooperation and Poverty Reduction Fund, and the Nordic Development Fund.

Countries: Cambodia, Lao PDR, Thailand, and Viet Nam

Timeline: 2012 and 2014

Several background studies have analyzed the factors affecting fuel efficiency in Cambodia, Lao PDR, Thailand, and Viet Nam.

Countries: Lao PDR, Thailand, and Viet Nam

Timeline: 2014 to 2016

These pilot projects test the use of financial incentives to support the uptake of fuel efficiency technologies such as aerodynamic equipment, the use of truck Global Positioning Systems, and tire pressure monitoring. In addition, curriculum and standards for driver training were developed and logistics solutions to reduce empty backhauls tested.

Government partners: Ministry of Public Works and Transport, Lao PDR; Ministry of Transport, Thailand; Ministry of Transport, Viet Nam.

Industry partners: GMS Freight Transport Association, Viet Nam Transport Association, Federation of Thai Industries.

Countries: Lao PDR, Thailand, and Viet Nam

Timeline: 2014

This study analyzed the potential of financial models for upgrading SME freight fleets and encouraging the uptake of efficient technologies, driver training, and logistics solutions. These include guarantee mechanisms and ESCO financing.

Countries: Lao PDR, Thailand, and Viet Nam

Timeline: 2015 to 2016

This study analyzes how carbon financing, particularly Nationally Appropriate Mitigation Actions (NAMAs), could be harnessed to encourage green freight actions and programs nationally. It quantifies the carbon reduction potential of freight fuel efficiency interventions and identify potential synergies with emerging carbon finance mechanisms.

Resources

Asian Development Bank. 2015. Green Freight in the Greater Mekong Subregion. Mandaluyong.

Greater Mekong Subregion Economic Operations Center (GMS-EOC). GMS Green Freight Initiative.

Greater Mekong Subregion. Transport.

N. Crishna Morgado, P. Aniwattkulchai, and A. Fraser. 2011. Carbon Neutral Transport Corridors: Reducing emissions from freight and forestry in the EWEC. Feasibility study report. Greater Mekong Subregion Environment Operations Center: Bangkok, Thailand.

Related Links

Case Study: A Clean Solution for Moving People and Goods

Policy Brief: How an Efficient Port Impacts the National Economy

Ask the Expert

  • Pavit Ramachandran
    Principal Environmental Specialist, East Asia Department, Asian Development Bank

    He has more than 22 years of experience in integrated natural resource management and agriculture sector diagnostics, project design, development, management, and appraisal. He has a master’s degree in Public Management from the University of Maryland, College Park and a master’s degree from the Delhi School of Economics.

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   Last updated: May 2018



Disclaimer

The views expressed in these articles are those of the authors and do not necessarily reflect the views of the Asian Development Bank, its management, its Board of Directors, or its members.




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