Sustainable Transportation for Aluminum Recycling

Author: Blake Jones

Novelis is the world’s largest recycler of aluminum and a global leader in the production of flat rolled aluminum products used in the automotive, beverage can, specialty packaging, and aerospace industries. The company has over 40 locations worldwide between North America, South America, Asia, and Europe. Novelis also prides itself on its commitment to sustainability through both its extensive recycling operations to produce flat rolled aluminum that is infinitely recyclable. This key focus is clarified in its mission, “Shaping a sustainable world together”, and not only supports internal initiatives, but greatly helps the sustainability initiatives of customers as well. The last important note on the company is that it is a subsidiary of Hindalco Industries Limited, and part of the Aditya Birla Group based in India. Novelis, however, has its corporate headquarters in Atlanta, GA.

Motivation for the Project:

The inspiration for this project stems from my personal experience in shipping this commodity as part of my primary role at Novelis as the Logistics Manager for the company’s Recycling operations (all 3^rd party purchases of metal inputs and movement of sheet ingot). I have worked with various dry van brokers, asset-based carriers, and intermodal specialists over the last four years which has given me a unique perspective. This role has also provided me with increased insight into the benefits of shipping by railcar and eventually by EV truck in specific applications. In addition to the logistics background, I am able to draw on a previous role’s experience forecasting raw material input needs over various time horizons. While this project would require the existing supply chain to adapt and upfront cost, it will provide significant benefits operationally through reducing risk of stockout, financially in transportation cost savings, and sustainably through notable progress toward carbon footprint reduction initiatives.

For ease of understanding to the reader, the sustainability focused project will be listed here (concisely), and then appropriate backstory provided below to give the necessary information regarding Novelis business operations. It will show as being “restated” with additional detail and context.

Initial Proposal and Project’s Value Proposition:

Change mode of transport on contracted volumes of raw material inputs from dry van trailer to a combination of railcar and battery electric truck. Shipments will move to a dedicated warehouse first by rail, and then to the final destination by EV powered dry van trailers. After upfront costs are covered, the project will result in both transportation cost savings of up to 80% per ton shipped and reduced carbon emissions by 50% or more (reported estimates) on roughly 50KT (110.2MM lbs.) per year. (UN SDGs 12,13)

Related Background for Novelis Recycling of UBC

The proposed project centers around a new sustainability initiative that also streamlines business costs and supply chain operations for its beverage can value stream, and focuses on the primary commodity purchased for production of finished good 3104 – aluminum commonly referenced as “can body”. This designation is one of two key alloys produced for customers of this value stream and uses roughly 85% available machine time across two manufacturing plants. The commodity, Used Beverage Cans (UBC), is the single largest raw material input to produce this alloy and is potentially sourced from all 48 contiguous states in the USA as well as Puerto Rico. While individual shipments are purchased from suppliers in various locations, only specific suppliers sell UBC to Novelis as part of annual contracts. This contracted volume of UBC is almost exclusively sourced from California and British Columbia with weekly volumes shipping at consistent rates year-round. There are a number of reasons for this procurement strategy, but the most straightforward explanation is simply that high concentrations of people and infrastructure around community recycling programs support the volume of UBC Novelis must consume to produce 3104 grade sheet ingot that eventually is sold as flat rolled aluminum coil to beverage can manufacturers.

Today, all UBC is shipped from these individual locations out of southern California by dry van trailer or intermodal container. Intermodal is the desired mode in many cases, but ever-changing requirements from the two primary manufacturing plants in Berea, KY and Greensboro, GA have created challenges with shipment by intermodal transport. Intermodal utilizes both diesel powered vehicles and freight train to move specialized containers from origin to destination. The containers are loaded at origin (much like a dry van/box truck trailer) and driven to the nearest rail hub for the region. Then the containers are shipped by railcar to the nearest rail hub to the destination, and transported once more by diesel powered vehicles to the destination. This is convenient when volumes are consistently moving from one origin to one destination, but is challenging when material needs to be redirected without notice. Given shifting supply chain needs to move UBC between Berea, KY and Greensboro, GA, intermodal transport has become a less than ideal option. It is also significantly more expensive than shipping material by rail. Actual per ton freight pricing will not be disclosed, but in comparison to dry van shipment, intermodal transport typically offers a 25% savings. Solely looking at per ton pricing of transportation rail can offer 80% savings or more. The challenge for Novelis is that rail transport providers require consistent volumes week to week and have little to no flexibility in destination. There are also significant charges incurred for delayed unloading of rail cars. As it stands today rail is not a feasible option for shipment of UBC to Novelis Recycling plants. Dry van remains the best option to meet the supply chain flexibility needed by Novelis in order to keep the right volumes of material onsite. This is determined by space constraints of these sites typically requiring that no more than 5-6 days of raw material inputs to be stored onsite at any given time.

Project Proposal restated with added context:

Ship all contracted volumes of UBC (Used Beverage Cans) from California and British Columbia to a new centrally located warehouse in Chattanooga, TN by railcar instead of dry van. This material will then be shipped from Chattanooga, TN to its final destination in either Berea, KY or Greensboro, GA by a dedicated carrier partner with a newly purchased fleet of EV trucks. Chattanooga is selected to benefit the carrier since that allows the carrier to “backhaul” shipments back to Chattanooga and reduce costs. Novelis will benefit from transportation cost savings of 50-80% per ton of material shipped, and reduce Greenhouse gas emissions by up to 75% (Association of American Railroads) from the switch to rail shipments. Specific metrics around carbon footprint reduction through switch to battery electric truck is not a straightforward estimate without firm commitments in place, but these vehicles are projected to produce 63% lower emissions over the lifetime of the truck compared to its diesel counterpart (International Council on Clean Transportation). (UN SDGs 12,13)

Project’s Business Model:

Progress will be measured through assigning a related carbon emissions benefit to every ton shipped to the central warehouse by rail, and by every ton shipped to a Novelis Recycling plant by EV truck. This will result in progress toward UN SDGs 12 and 13 through its deployment. Contingency planning will be in place in the event of capacity issues by rail or battery powered vehicle, and this will also allow the project to be completed in stages. Business operations are rarely able to shift overnight and those realities should not be excluded from this proposal. The key takeaway is that Novelis sees improved financial gains from the implementation of the central warehouse regardless of the mode of transport. But shipping the material by rail will allow all shipments moving from the supplier locations to land at the same place regardless of where the material is eventually consumed. The facility operates as a traditional lean/six sigma kanban that reduces process variation and uncertainty of material supply. The project can begin with traditional modes of transport and transition to the proposed rail and EV combination as able. There are cost savings opportunities and operational benefits at every stage of the process, but provides the most benefit to Novelis financial and sustainability focused metrics when the new transportation modes have been deployed. The ability to introduce change incrementally vs a sweeping change is what makes this project realistic for a company of Novelis’ size. In addition to the phased ramp up, this same method can be trialed and deployed with other commodities for an expanded benefit. It would be unwise to plan for this prematurely, but the value is driven in both the project’s simplicity, and ease of replication in various applications TBD.

The execution of rail shipment combined with EV shipment will be an undertaking, but feasible as Novelis has already been approached by various external parties to implement both increased rail shipments as well as EV shipments from an existing asset-based carrier well versed in Novelis operations. The challenge up until now has been the difficulty of focusing efforts into specific projects. Rail providers have been reaching out to Novelis for years to find ways to ship various materials by rail. There is an active pursuit of rail shipment outbound from two new Novelis Greenfield sites. This has opened the door to a new relationship with Novelis and these companies to move Recycling metal inputs as well, but the challenges around Novelis Recycling frequent destination changes have made proven to be too difficult to pursue. The reality is that all contracted volume of the material in question (UBC) is already shipped by rail to other customers. If Novelis has a central location to ship the material, our suppliers and potential rail partners are all able to begin rail shipments. Agreements will need to be in place regarding volume shipments, and the suppliers will have little issue with loading railcars instead of dry vans. With the bulk of material moving from 3-5 locations, this material flow is likely to move without issue once a central warehouse is established.

Once unloaded at the warehouse, there are several ways to get the material to Novelis Recycling plants. Luckily the commodity is baled aluminum scrap and requires no special handling or securement for safe transport. Legitimate damage from handling is also unlikely given the nature of the material. The asset based carrier moving shipments from the warehouse in Chattanooga has several strategic advantages making this project feasible. The first is that this carrier has worked with Novelis for decades and is already a strategic partner within the Novelis “Closed Loop Recycling” operations for the Automotive value stream and partnership with Ford. Transitioning these skillsets to a dedicated program between two Novelis Recycling plants is significantly less complex. The second advantage is that the carrier has already purchased several EV trucks in anticipation of future need. They have previously expressed interest in purchasing additional trucks if they could have them assigned to dedicated Novelis business operations. The location is also ideal for strategic growth of this carrier and would match with an existing business need. While many elements of the greater project would have to come together, this would be advantageous for both dry van and rail providers.

Along with these benefits, there are indeed risks and operational issues to address. Supply chains are not easily modified, and any change is likely to result in a compromise elsewhere. Some risks can be readily understood from the start, but they can also arise quickly without warning. Along with buy in from senior management, this project relies on trust and cooperation between Novelis Supply Chain Planning, Metal Procurement (raw materials), Non-Metal Procurement (warehousing and other related purchases), Logistics Operations, Logistics Procurement, Finance, and operations teams from both manufacturing plants affected in order to succeed. Any disruption to material supply can risk stock out and downtime due to lack of material. That risk cannot be minimized in the pursuit of this project, regardless of the long-term gains. Novelis still has a responsibility to its customers and shareholders (by way of subsidiary ownership through ABG in India). Representatives from every department affected must work together to address potential risks and keep the immediate business needs met in the pursuit of greater project initiatives. Outside of business risks few negative social or environmental consequences seem likely, but potential impacts will need to be closely monitored and addressed.

Even taking into account the risks of this project’s implementation it is more than feasible to achieve these goals within the next five years. The project is no small undertaking, but ultimately a solution to many other existing challenges within the Novelis Recycling network. The project allows Novelis to begin with as much or as little volume as possible to mitigate risk, and grow the project to include all contracted volume of its primary commodity for production of its beverage can value stream. It also allows for Novelis Recycling to scale up shipments into central warehousing to allocate material as needed significantly more flexibility than given today. Ultimately these efforts benefit suppliers, operations personnel, customers, shareholders, and key sustainability initiatives for years to come.

By Blake Jones