Role of LSPs in driving Low-Carbon Initiatives within Supply Chains

Freight Transportation and Logistics activities currently contribute 8-10% of global greenhouse gas (GHG) emissions as per Smart Freight Centre’s Global Logistics Emissions Council Report 2023.

It is expected that the demand for freight transport will almost triple by 2050, which makes it critical to improve the efficiency of freight transport and reduce carbon emissions to achieve Climate Targets set in the United Nations’ Paris Agreement.

Going by the current statistics, logistics emissions are expected to witness a 42% hike by 2050 compared to the global Net-Zero emission targets undertaken by businesses and governments.

Why should Logistic Providers & Freight Forwarders care?

In light of the imperative of reducing logistics emissions, many large brands worldwide are trying to reduce carbon emissions concerning product transport. For instance, IKEA has taken an ambitious target to reduce the carbon footprint from logistics operations by 80% by 2030. Similarly, P&G aims to reduce supply chain and logistics emissions by 40% by 2030.

Several large brands are now embedding acting on carbon emissions as part of their RFQ requirements. To take an example, under Amazon’s Climate Pledge for its supply chain, starting in 2024, Amazon will update its supply chain standards to require regular reporting and emissions goal setting. Moreover, the global e-commerce giant also aims to ‘select suppliers’ based on the low-carbon initiatives they deploy, such as using carbon-free electricity. Amazon’s rival Walmart has also been pushing for transparency through its Project Gigaton initiative.

In such a situation it becomes critical for LSPs to measure their carbon emissions, set emissions reduction goals, identify reduction actions, and showcase the progress to their customers if they want to be enlisted with the bigger brands.

Low-carbon deliveries as a differentiator

Here comes into the picture a logistics-focused climate tech platformSangti. According to Hitesh Bhuraria, Cofounder & CEO, Sangti, while the requirements to report and reduce carbon emissions are increasingly becoming more stringent and widespread, LSPs today are taking proactive action on carbon emissions and providing options for low-carbon deliveries to stand apart from their competition.

In doing so, LSPs can aim to secure volume commitment or a higher share of wallets with the brands they are working with. Alternatively, for deliveries using sustainable fuels, LSPs can also charge a premium price, provided it is backed by certified data.

As per a McKinsey report on accelerating zero-emissions freight transport, a group of front-running, shippers indicated that they are willing to pay a premium of between 5-10% for sustainable logistics services.

Taking the Next Step

Sensing an opportunity several LSPs have started building a ‘Green Logistics’ portfolio as a service offering for its customers. A good example would be DHL’s GoGreen Solutions which helps brands understand their carbon footprint, identify carbon emissions optimization levers, and provide low-carbon delivery services such as using Sustainable Aviation Fuel for air freight.

Key elements of a ‘Low-carbon’ delivery service

As detailed below, there are four key pillars of a ‘Low-carbon’ delivery service. Climate tech platforms such as Sangti are building innovative tech solutions in this regard that helps LSPs of all sizes acquire such capabilities in less than a week.

Carbon Reports

The first step that LSPs need to take is to bring visibility to the brands that they are working with on carbon emissions from the shipments handled on their behalf. Along with absolute emissions common KPIs such as Logistics Intensity (gCO2e/tonne-km), they should also establish and monitor % rail trips, % EVs, etc. every month.

Given the current trend, one can soon expect shipments to come with their carbon emission details, just like food packets have calorie information written on the packaging.

To bring trust and transparency to the carbon emissions data provided to brands, LSPs should only use Global Logistics Emissions Council (GLEC) accredited solution providers that have deep expertise in logistics, instead of consultants or generalist carbon accounting platforms that do not use standardized approaches. GLEC framework developed by Smart Freight Centre has been adopted by more than 150 companies worldwide including the likes of DHL, Maersk, H&M, and IKEA.

The above data should be shared as Carbon Reports every month along with invoices and proof of deliveries. To avoid burdening teams with additional work, tech-based systems, such as those provided by Sangti, can be utilized that connect with Transport Management Systems, automatically generate carbon reports, provide real-time sharing options with brands and identify actions that can be taken to reduce emissions.

By analyzing the customers’ carbon emissions data, proactive reduction actions can be suggested with the objective of seeking price premiums or volume commitment for such deliveries.

Multi-modal Transport

Rail and sea-based shipments are, on average, 90% more carbon efficient in comparison to road-based transport and 95% more carbon efficient in comparison to air-based transport on a per tonne-km basis. LSPs should actively develop such offerings.

More efficient design of the supply chain network can also be considered that reduce the overall system carbon emissions by enabling load consolidation and thus utilization of higher capacity vehicles.

Low-carbon Fuel and Vehicles

LSPs can develop a portfolio of low-carbon fuel and vehicle offerings for brands. These offerings can include EVs in the last mile, CNG-based vehicles, sustainable fuels such as biodiesel, etc.

The emissions reduction from these technologies can be quantified and converted into certificates that can be sold independently as insets to brands willing to pay a premium.

Carbon Offsetting

Wherever immediate emissions reduction is not feasible, LSPs can provide brands with access to high-quality carbon offsets to mitigate emissions from shipments. Carbon offsets are generated from the deployment of projects such as forestation, renewables, EVs, and clean cooking stoves that reduce carbon emissions.

To summarize, acting on carbon emissions is no longer a good to have for Logistics Service Providers. Driven by more stringent regulations, this topic will continue to be of focus in the foreseeable future. To future-proof their business, Logistics Service Providers need to invest in resources – technology and people training that help them build capabilities in this regard.

To know more about Sangti, visit their website.

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