The federal government’s carbon-pricing mechanism (aka the carbon tax) will come into effect on July 1 and, although it has been widely covered in the media, it is not yet clear what the impact on individual sectors will be.
In a nutshell, the tax will require Australia’s top-500 carbon emitters to pay $23 a tonne on carbon emissions. This fixed price will increase incrementally, by 2.5 per cent in real terms each year, until June 30, 2015, when Australia will move to an emissions trading scheme (ETS).
The government has said ”some business transport” and ”industrial processes” will be affected by the carbon tax, which means those in the industrial sector should start considering the possible impact on operating costs.
But how can industrial tenants prepare for or offset the potential rise in costs?
The Property Council of Australia has developed tools to help those in the retail and office sectors prepare. They include a carbon price impact calculator, which helps building owners determine the tax’s effect on their properties’ operating or construction costs.
For the industrial sector, the task is somewhat more complex. It’s not just about estimating the increasing costs of maintaining a property, it’s about how rising costs could influence the business strategy and property decisions of industrial tenants.
There are some strategies that industrial tenants can look to implement now. To start with, they should regularly review their supply chain to identify inefficiency or opportunities for improvements to network, sourcing and transport.
According to AMR research in Chicago: ”Average companies model their network every 2½ years. Best-in-class companies model their network every quarter.” With network and sourcing optimisation, tenants can review the location of their facilities, model seasonality and analyse the frequency of inbound shipments to best manage inventory levels.
Transport optimisation is another key area. Tenants should consider analysing their routing, back-haul costs, mode selection and fleet size to minimise their ”on-road” costs and subsequent carbon emissions.
In undertaking network and transportation modelling, industrial tenants may be led to consider having multiple smaller distribution centres.
Alternatively (and for leading retail groups), the ”hub-and-spoke” methodology may be implemented to reduce transport costs, particularly in a city as expansive as Sydney.
Through these strategies, industrial tenants have the opportunity to explore supply chain cost savings of about 5 per cent to 15 per cent while also achieving a 10 to 30 per cent reduction in transportation costs.
These are compelling figures and are now even more significant with the carbon tax just a couple of months away.
Andrew Maher is the head of industrial, NSW at Jones Lang LaSalle.