The logistics industry itself is not just responsible for ensuring that the right product reaches the right place at the right time. It is also responsible for its own environmental impact. The industry must transform itself into one that is increasingly carbon efficient.
What forces will drive this transformation and how soon will it occur? As the leading logistics company, Deutsche Post DHL (DPDHL) has staked out a clear position – one that is outlined in our study “Towards Sustainable Logistics.” In this blog post, I would like quote from this study, which I was fortunate enough to be a part of along with a large group of experts, and explore the conclusions outlined in it – our key expectations for the future. I will then take a look at how some of the future trends we expected measure up to the world that has emerged in the three years since the study was released.
1. Logistics counts – it is not a commodity. Logistics is not only a chief catalyst of global trade and a defining component behind value creation – it is also a business of strategic importance in the move toward a low-carbon economy.
2. Technological change will be achieved through a concerted drive from companies, financial institutions and governments. Given the higher price tag attached to new technologies, mutual support and long-term planning by all key players is essential.
3. Collaboration will increasingly be seen as an enabler to attain sustainability. Even erstwhile competitors will cooperate more closely. As carbon-emission reduction becomes a priority for suppliers, business customers and logistics companies, cooperative business models will expand both vertically and horizontally along the supply chain.
4. Business models of logistics companies will change as sustainable innovations open up new opportunities.
5. CO2 labeling will become standardized. CO2 labels allow customers to compare “green” products. Transparency will raise confidence among logistics customers and end consumers when making climate-friendly choices.
6. Carbon emissions will have a price tag. As reducing carbon emissions becomes more important for companies, governments and customers, it will assume a place in a business’s accounting and decision-making process. This will increase calls for a price to be attached to CO2 emissions.
7. Carbon pricing will lead to more stringent regulatory measures. Companies will only accept a price tag on carbon emissions if governments ensure a level playing field.
World of logistics today
Naturally, forecasts like these run up against opposing points of view. We had intense internal debates of our own before the study was released. And the discussion is far from over. I hope that the conversation will be continued with you.
Some of the trends – like direct carbon pricing – sound like pipe dreams. Others have actually become reality in just the three years since the study was released. One example is the first: Increasing numbers of customers are now demanding energy-efficient supply chains from their logistics providers. We are seeing that these customers will not just accept estimates. Rather, they want reliable numbers and specific improvement ideas. Sustainability has evolved from a buzz word to a necessary and integral part of our customers’ business operations – and, as a result, it is essential for our business, too.
Another one of our 2010 forecasts that is a reality today is trend number 5: that carbon labeling would become standard. At the beginning of 2013, we saw DIN EN 16258, a methodology for calculating greenhouse gases in logistics, take effect. As the first official standard, it offers recommendations for calculating logistics chains – a huge step forward. But it falls short of providing the foundation for a 1:1 comparison of logistics companies’ carbon reports. This is because the standard allows extensive leeway regarding sources of data and approaches to calculating the carbon footprint due to the wide variety of business models in the logistics industry. The chief problem here is data quality. Consumption and utilization data must either be obtained from transport subcontractors or modeled in a time-consuming process. DPDHL is continuously working to improve data quality and transparency. As part of this effort, we have joined a really interesting initiative called Green Freight Europe . The participating logistics and freight forwarding companies – both competitors and customers – provide data from their transport and logistics operations to a neutral third party. The third party analyzes, validates and compares the data for environmental impact. This initiative also substantiates our future trend number 3: that we would see increased collaboration not only between logistics and shipping companies, but also between competing logistics companies.
Number 4 is a development we have not seen over the past three years. It forecast that the business models of logistics companies would change and that sustainable innovations would create business opportunities. We are now applying the concept of shared value that Michael Porter introduced to the sustainability conversation a few years ago. To us, shared value means developing business models that will benefit both the company and society. As the sales figures of our green products demonstrate, we made the right decision: In 2012, our customers sent about 2.42 billion carbon-neutral letters, parcels and express shipments– up from 1.86 billion the year before. Thirty percent growth rates like that are normally reserved for start-up companies.
Looking at trends 6 and 7, the pricing carbon emissions price tag and how it will be regulated at the national and international level, we have set some high targets for ourselves. Today, we already examine every investment for improvement potential as we prepare for the introduction of carbon pricing. This will have a significant commercial impact. For conventional commercial vehicles, the purchase price makes up only about one-fifth of the vehicle’s service-life costs. The rest is spent mostly on diesel fuel. A single-digit percentage reduction in fuel consumption would have a major impact on a fleet’s efficiency.
In terms of the more stringent government regulation predicted in future trend number 7, we welcome, for example, the introduction of emission-trading systems in air freight, overland transports and ocean freight. One principle applies to new regulations: Logistics is a global business. The greater the geographic sweep of a regulation, the more effective and fair it will be. We think it would be inadvisable to create a potpourri of political measures imposed at the national level. This would set off a race to see who could offer the least amount of regulations and prevent the creation of a level playing field. Devising a joint emissions-trading system for all logistics companies around the world is illusory. But a regional trading zone encompassing, say, Europe would mark a beginning. For this reason, we are closely monitoring developments in the EU Emission Trading System and the debate about a global, market-based mechanism to cut aviation emissions being pushed by the International Civic Aviation Organization.
The need for companies, financial institutions and the government to work shoulder to shoulder (trend 2) is already being exemplified by the Carbon-free Delivery in Bonn project currently underway in our MAIL division. There we are putting electric-mobility technology to a large-scale test for the first time. It’s a major and unprecedented effort that has been made possible by public funding. What’s more, the results will be made available to the general public (and this includes our competitors). We expect collaboration to increase as a result – and prove once again that the third future trend we predicted three years ago is becoming commonplace in the industry today.