Green logistics saves money

Why reducing carbon emissions is not enough

As a result of climate change and the intensifying pressure to reduce carbon emissions, logistics is increasingly being discussed from the viewpoint of green logistics.

In the past 50 years, the management of logistics has fundamentally changed. During the 1960s, companies primarily viewed this activity in purely financial terms. “Today, logistics and supply chain management not only have to increase company earnings by being organized more effectively and economically. They also have to be more environmentally- compatible and take air quality in metropolitan areas, noise disturbance, vibrations, safety hazards and, especially, global warming into account,” said Professor Alan McKinnon. All this will become more difficult as the global economy continues to grow and with it the level of logistical activity. Tougher environmental regulations are likely to be imposed and agreements ultimately reached on binding environmental standards.

 

“The emissions from international transport are rising in proportion to the increase in trade volumes and the growing complexity of the value chains that criss-cross the planet,” explained McKinnon. As the global economy becomes more integrated, value is added to products more incrementally in more locations. In turn, the quantity of transport services required and the associated level of environmental pollution increase. One of the results is that between 2010 and 2050, transport- related CO2 emissions from international trade are forecast to rise almost four-fold. Against this background, limiting global warming in 2100 to an increase of only 2°C above average global temperature in pre-industrial times will become a major challenge for mankind.

Given the scale of this challenge, we need more than rhetoric and mere cosmetic changes to companies’ logistics systems. While logistics service providers and their clients are emphasizing more and more that their services and products are green and they are helping to save the planet, studies show that the classical goals of price, quality and punctual delivery still dominate corporate decision-making. On the other hand, there is no doubt that consumer behavior strongly influences the environmental impact of production and distribution. If people demand more goods and services that have been produced and transported in an environmentally-friendly manner, it will become more difficult – if not impossible – to ignore their wishes. An interesting aside: Logistics service providers often complain that their clients are not sufficiently interested in the green initiatives they are taking. For this reason, price, quality and punctual delivery usually remain the main criteria in carrier selection and evaluation. “Unfortunately, there is still too much rhetoric in the world of green logistics,” said McKinnon.

 

“You have to understand that even substantial reductions in CO2 as a result of ongoing improvements in transport technology are likely to be more than offset by the underlying growth in the demand for freight transport,” McKinnon added. “Making logistics sustainable in the longer term will involve more than cutting its so-called carbon intensity, that is, the amount of CO2 emitted relative to the level of logistics activity.” He believes that a combination of strategic, commercial, operational and functional decisions will be needed to restrain the overall growth in freight traffic volumes. According to McKinnon: “This will require companies to instill green principles into strategic logistics planning and coordinate environmental management at all levels of logistical decision making.” The experts say that cutting carbon emissions will be a greater challenge for logistics managers than maintaining an adequate supply of fuel. Some of them are convinced that by 2030, supply chain design and the location of logistics facilities will be strongly influenced by the cost of energy and carbon.

 

A study by Deutsche Post/DHL envisaged extreme scenarios for life in 2050. At one end of the spectrum we could have mega-efficient mega cities with sustainable urban structures, green growth and high carbon efficiency in production and logistics – or, at the other extreme would be continued, unregulated growth, unchecked consumption, a massive increase in the demand for logistics and transport services and a world of 9 billion people heading for an ecologically catastrophic 6°C temperature rise. “The greening of logistics over the next 40 years – as part of a more general drive for sustainability – should help to minimize the risk of that kind of scenario materializing,” said Prof. McKinnon. He thinks that carefully managing a few parameters should help to keep us on a successful, controlled path toward sustainability. They include: modal split (the division of freight among transport modes), average handling factor (the number of links in the supply chain), average length of haul (the average length of these links), vehicle utilization, energy efficiency, emissions per unit of energy consumed and the monetary valuation of externalities. He says that most of the things that companies need to do to reduce environmental impacts can also save them money. “The available evidence suggests that across the logistics sector there is a close correlation between cutting costs and cutting carbon emissions,” McKinnon explains. We have little choice but to pursue sustainable logistics and production strategies. The KLU professor puts this in business terms: “Ultimately, the most fundamental green objective should be to maintain a physical environment that can support a high level of economic activity in the longer term.”