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What can major corporations teach us about green freight transportation?

Amsterdam, 26 January 2021 - By Sophie Punte, Executive Director, Smart Freight Centre.

The En Route to COP26 event in December 2020 included a webinar moderated by Sophie Punte of Smart Freight Centre. Entitled “Decarbonising freight – a wider perspective of solutions, business experiences and government ask”, it brought together academics, specialists from NGOs and experts from industry. The session considered why the decarbonization of freight transportation is a vital part of any climate strategy and how it can be achieved.

The webinar started with a presentation by Professor Alan McKinnon of Kuehne Logistics University. He explained that fast freight decarbonization is only possible through the combination of five solutions covering the carbon content of energy, fleet energy efficiency, asset utilization, freight-transport modes, and freight demand. Bonne Goedhart, Business Development Manager at Smart Freight Centre described how roadmaps for zero emission logistics can be developed by countries, cities and companies in alignment.

One of the most interesting parts of the webinar was when the discussion turned to what four companies (DHL Global Forwarding, FM Logistic, IKEA Supply Chain, FM Logistic, and Procter & Gamble) have already achieved in the field. It quickly became clear that — even with today’s vehicles, fuels and technologies — there’s a great deal that both freight transport operators and their customers can do to cut their emissions and make their logistics greener. Here is what they had to say.

All solutions matter - it’s a matter of timing

“IKEA’s decarbonization agenda rests on the three Rs: reduce, replace and re-think. ‘Reduce’ is about working with effectiveness — increasing equipment utilization, energy efficiencies and so on. ‘Replace’ is about finding alternatives to fossil fuels, for instance biofuels. It also covers multimodal solutions, which IKEA already uses to transport 45% of its products. ‘Re-think’ is about integrating innovations into our value chain. This can mean technology but can also mean finding new ways to collaborate on sustainable transport. A fun example is IKEA’s flat-pack Easter Egg. Of course, this is a bar of chocolate. You get the same amount of chocolate as in an Easter Egg, but it’s far more efficient to transport.”

Freight forwarders take a practical approach

Charlotte Migne, Group Sustainable Development director at FM Logistic, talked about collaboration with customers. “Pooling distribution between multiple companies is really the most efficient way to optimize the network. It also protects the logistics firm against the impact of losing any single client. After that, the next most effective lever is to switch to alternative energy sources. And then there’s supply-chain design. We have almost two hundred warehouses around the world. We can help clients more efficiently organize their supply chains to make best use of the network as a way of cutting energy consumption.”

Different role for shippers without fleets

Sergio Barbarino, a research fellow at Procter & Gamble (P&G), explained that shippers don’t own fleets and therefore focus on solutions where they have an influence. He described how his company had instituted a policy of co-locating manufacturing facilities, as a way of reducing empty miles. The example he gave was putting factories making detergent and nappies at the same location. This allows the light and heavy items to share the same truck, ensuring each trailer is full but still under weight limits.

Urban freight goes electric

For last-mile freight, electrification is the main focus. IKEA committed to zero-emission home deliveries by 2025 in cities around the world and is therefore a catalytic agent for change. It neatly complements zero emission freight zones in cities in The Netherlands, UK, China and elsewhere.

Kathrin Brost explained why DHL as a logistics company decided to make its own electric vehicles. "We were already at an early stage exploring opportunities of a greener and more sustainable last mile delivery to address the growing emission output especially in urban areas. But there was no electric vehicle that suited our needs. And at that time there were none in the pipeline from the major vehicle manufacturers. So, we found a start-up with a very promising solution. And we started to produce our own electric vehicles. I think what this shows is how much companies can do even without regulations. Now we see more vehicle manufacturers producing electric vans and trucks, so we don’t need to continue doing this ourselves.”

Long haul freight is different

“About 60% of freight travels less than 300 km. For this kind of traffic, the electrification of light and medium-sized trucks makes sense,” said Sergio. “The long-distance electric truck already exists. It’s called a train and is absolutely the best long-term solution for green transport. Most rail networks around the world are electrified. It’s much easier to influence the source of that electricity to ensure that it is sustainable.”

“What is important is that companies don’t wait until someone makes a decision for us,” said Kathrin Brost. “The most obvious solution for long-distance trucking is to make sure that the truck is full, including on the return trip. Hydrogen is a possible solution that should be explored, but the infrastructure needs to be there.”

Measurement and KPIs are key

P&G also adopted the GLEC Framework for reporting logistics emissions in its 2020 annual report. This is combined with KPIs that make sense for the people in the organization. For example, a target was set to reduce truck kilometers per unit of product by 20%. This made people focus on concrete actions, for example fitting 34 instead of 30 pallets in a Euro 6 truck.

Charlotte Migne added that data are very important in her firm’s collaboration with customers, who often complain that they don’t have a good understanding of the emissions produced. Standardized accounting also allows companies to issue a clear emissions declaration to both their customers and to governments.

Put freight in a bigger context

“Transportation part is only about 5% of IKEA’s total footprint, so we shouldn’t separate solutions for freight from the bigger picture,” says Elisabeth Munck. “There are also a lot of other benefits than just to the climate, such as improved traffic flow, road safety, and working conditions for drivers.”

Sergio Barbarino echoes that. “The biggest part of the footprint is the use of the product. So, an emissions label for just transport would be misleading. Rather, include transport inside the product lifecycle footprint and communicate that to consumers.”

“What people often forget is that it’s not only about decarbonizing freight but also about what this means to passenger transport,” Sergio continues. “Using a private car to take groceries and purchased goods home is very inefficient. A condition for home delivery to produce less emissions is that it is well organized. There was a fantastic study done by TNT, the international courier, that if you deny access to vans with fewer than three consignment this would lead to 60-70% fewer vans on the road.”

Combine procurement with collaboration

“It is not enough to just say as a shipper that we want to only buy fossil-free freight transport,” said Elisabeth Munck. “The value comes from having a dialogue with logistics service providers about what we want to achieve. Then make that journey together.” She explained that at IKEA business and key account managers who work with service providers take an active role: conducting supplier surveys to understand what measures they are taking, helping suppliers see where they are compared to others, and organizing webinars to share good examples.

Kathrin Brost underscored the importance of sustainable logistics procurement. “In the past as logistics was outsourced the focus was on getting the lowest price. But we cannot continue to just ask for rates. We need price, reliability, and CO2 figures to make the right decision. Emission reductions of 20-30% are possible if shippers partner with their logistics service providers. This isn’t always more expensive. Sometimes the solution is to depart from a different airport or to allow for an additional day lead time.”

Of course, this also has challenges. Sergio Barbarino explained how P&G participated in several European projects on supply-chain collaboration. The reality is that despite some beautiful examples, doing joint procurement with other shippers remains an incredibly difficult exercise. This is not because of economic or logistics barriers but because of their different business models. “If we declare that climate change is a collaborative issue and not a competitive one then we can work together on standards. For example, standardized box sizes between manufacturers and retailers in Germany for B2B delivery already produce a 20% tonne-km reduction to date.” Ideally, this would be applied across Europe and other markets.

What companies’ want from governments

• Give policy clarity on what solutions to focus on today and in the years ahead, so that companies can invest, and freight operators have to spend less time explaining and convincing customers about the different options.
• Provide financial incentives for alternative fuels and clean technologies – de-risk the investment.
  Invest in standards infrastructure to make the shift to electric vehicles happen, starting with urban environments - the business case and willingness for companies to make the change is already here.
• Recognize emissions reductions of companies that invest in solutions within their own value chain through their logistics service providers, also called “insetting”.
  Make a distinction between what works in developing and developed countries and apply a flexible approach.
• Put life-cycle analysis at the center of new solutions: from a climate perspective it has to work across all phases of the energy and product cycles.
• Make digitalization a priority – set standards for digital data sharing and champion open data across government agencies making the flow of information easy.
• Make clear that “free delivery” is not really “free” when it comes to the environment. A lot of companies are already using internal carbon pricing to make the hidden costs of freight transportation visible.

“What I experience today with service providers and others, is the openness and willingness to share and learn from each other. We are in this together and must tackle the climate challenge together, governments included. Let’s color the road to COP26 with solutions,” concluded Elisabeth Munck.

Photo source: Baumeister and Ward, Unsplash
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