The pressure is growing on logistics to deliver more sustainable shipping practices. That means environmental, social, and governance (ESG) supply chain considerations are a must for any shipping strategy. The shift towards greener logistics is gathering pace and companies need to be ready. Here's why.

Key regulations are mandating reductions in transport emissions, especially in major markets such as the United States and the European Union.

The US Clean Shipping Act is one of the most stringent maritime laws in the world, calling for all shipping vessels above 400 GT to be fully zero-emission in US waters by 2040. Plus, shore power is mandatory by 2030 for all vessels.

Under the Paris Agreement, shipping companies across the European Union must cut carbon emissions by 55% by 2030 — compared to 1990 levels — to meet climate targets.

And with shipping currently responsible for 3% of all global CO2 emissions, rising to an estimated 50% by 2050 if stringent action isn't taken, the onus is on shipping companies to reverse the damage. Here's how.

Strategy 1 – Decarbonization

Decarbonization involves reducing greenhouse gas emissions from logistics operations. Bearing in mind the CO2 footprint of shipping, decarbonization strategies should be step #1 for any logistics company.

Carbon Footprint Assessment and Reduction

The key to decarbonizing logistics operations is understanding emissions across all scopes. Emissions scopes are split into three categories.

Scope 1 – which covers direct emissions.

Scope 2 – includes indirect emissions from electricity.

Scope 3 – covers all other indirect emissions.

Using tools like the U.S. Environmental Protection Agency's (EPA) carbon calculator provides a detailed analysis of a company's carbon footprint, which helps with forming targeted reduction strategies.

Reducing carbon emissions isn't just about meeting regulatory requirements but being accountable to stakeholders and meeting customer demands for more sustainable shipping practices.

The EPA's carbon calculator helps companies identify emission hotspots in their supply chain, giving them the power to implement mitigation measures effectively.

For example, if a company finds that a significant amount of its emissions comes from transportation, it can explore options like optimizing shipping routes, consolidating shipments, or transitioning to lower-emission transport modes.

Electric Vehicles (EVs) and Alternative Fuels

The momentum behind the growing movement towards greener logistics is largely being driven by a switch to electric vehicles and alternative fuels. In 2023, 50% of all new ships ordered included alternative fuel capacity, compared with only 7% of ships currently operating in the industry.

Plus, companies like DHL have pioneered initiatives such as the GoGreen Plus program, offering solutions like Sustainable Aviation Fuel (SAF) to cut emissions by up to 80%.

And integration of electric vehicles for last-mile delivery is a key focus, with DHL aiming to have 60% of its last-mile fleet electric by 2030, while the use of biofuels and SAF further reduces reliance on fossil fuels, contributing to a cleaner transportation ecosystem.

Yet, the shift toward electric vehicles and alternative fuels is not only driven by environmental concerns but by economic and regulatory factors, too.

With advancements in battery technology and infrastructure, electric vehicles are becoming increasingly viable for commercial use, offering lower operating costs and reduced maintenance requirements compared to traditional vehicles.

Plus, with governments around the world implementing stricter emissions regulations, companies that invest in clean transportation solutions are better positioned to comply with these requirements and avoid potential penalties.

Strategy 2 – Energy Efficiency

Sustainable logistics relies on improving energy efficiency and optimizing energy use to reduce shipping's environmental impact while cutting costs. In recent years, the International Maritime Organization (IMO) has been implementing technical and operational measures to improve ship energy efficiency.

For example, goal-based and technology-neutral regulations have incentivized the use of energy-efficient technologies such as hull air lubrication, wind-assisted propulsion, and waste heat recovery.

Renewable Energy Solutions

The mission to make logistics even more energy efficient is now sharply focused on renewable energy solutions. Switching to suppliers providing electricity from renewable sources like hydroelectric and wind power is increasingly common. And, as of 2024, 33% of the world's electricity is expected to come from renewables.

The shift to renewable energy is driven by environmental and economic incentives. Renewable energy sources like solar and wind power offer a stable and predictable source of energy, reducing reliance on fossil fuels and mitigating the risks associated with price volatility and supply disruptions.

Plus, as renewable energy technologies mature and economies of scale drive down costs, renewable energy becomes increasingly competitive with conventional energy sources, making it an attractive option for businesses looking to reduce their carbon footprint and energy expenses.

Technological Innovations

Technology is further fueling energy efficiency improvements across logistics. The use of energy-efficient lighting systems such as LED lighting, and the rise of AI integration for energy management in warehouses and distribution centers, are key steps towards greener logistics.

These innovations help identify waste and recommend improvements. Plus, advancements in IoT technologies provide real-time monitoring and optimization of energy use, leading to significant cost savings and environmental benefits.

The implementation of energy-efficient technologies is driven by a combination of regulatory mandates, cost savings, and corporate social responsibility initiatives.

Governments around the world are introducing even more stringent energy efficiency standards for buildings and appliances to reduce energy consumption and combat climate change.

At the same time, businesses are realizing the financial benefits of investing in energy-efficient technologies, such as reduced energy bills, enhanced operational efficiency, and improved employee productivity.

Plus, as public awareness of environmental issues grows, consumers are increasingly demanding products and services from companies that demonstrate a commitment to sustainability. This drives businesses to adopt energy-efficient practices to maintain their competitive edge and brand reputation.

Strategy 3 – Reverse Logistics

Reverse logistics involves returning products from the customer back to the manufacturer for reuse, recycling, or disposal, supporting a circular economy and minimizing waste.

Circular Economy Practices

Product take-back programs, like H&M's Garment Collecting initiative, promote recycling and reusing textiles. By incentivizing customers to return used products, businesses can recover valuable materials and reduce the environmental impact of their operations.

And, refurbishing returned products for resale extends product life cycles, minimizing the need for new production and conserving resources.

Circular economy practices are on the rise due to growing consumer awareness of environmental issues and regulatory pressure to reduce waste and promote sustainable consumption.

In response, more businesses are introducing circular economy principles to minimize waste, reduce resource consumption, and create value from waste streams.

Plus, governments are implementing policies and regulations to incentivize circular economy practices, such as extended producer responsibility schemes and landfill bans, further encouraging businesses to adopt circular business models.

Benefits and Implementation

Reverse logistics not only leads to cost savings by reducing waste disposal fees but also significantly reduces landfill waste and reduces the demand for raw materials, contributing to a more sustainable future.

Equally, circular economy practices drive innovation and economic growth by creating new business opportunities in the recycling, remanufacturing, and waste management sectors.

The benefits of reverse logistics and circular economy practices extend beyond environmental sustainability to include economic and social benefits as well.

By minimizing waste and optimizing resource use, businesses can reduce their operational costs, strengthen their resilience to supply chain disruptions and create new revenue streams from recovered materials.

The Importance of ESG Supply Chain Management

Integrating ESG supply chain management principles into logistics offers significant business advantages beyond environmental benefits, including:

• Customer preference: A McKinsey survey found that 66% of consumers consider sustainability in their purchasing decisions, with 88% of Gen Z wary of greenwashing. Businesses that prioritize ESG supply chain initiatives gain a competitive edge by adapting to the preferences of environmentally conscious consumers.
  
  
• Regulatory compliance: New regulations in 2024 require over 50,000 companies in the EU to report on their environmental impacts, driving the need for transparent ESG supply chain management practices. Compliance with these regulations not only mitigates legal risks but demonstrates a company's commitment to responsible business practices.
  
  
• Financial performance: Companies with strong ESG performance often see improved financial outcomes, such as lower energy bills and increased operational efficiency. Investing in sustainable technologies and practices not only reduces costs but enhances long-term profitability and resilience.
  
  
• Investor interest: ESG investments are growing, with many investors now prioritizing companies that demonstrate strong sustainability practices. Businesses that integrate ESG supply chain criteria into their operations attract investment capital and enjoy lower borrowing costs, reflecting the financial market's recognition of sustainability as a key driver of value.
  
  
• Competitive advantage: Businesses with robust ESG supply chain strategies can improve their brand image and gain a competitive edge in the market. By differentiating themselves as socially and environmentally responsible, companies can attract loyal customers, top talent, and strategic partnerships, driving sustainable growth and prosperity.

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