Struggles in Logistics Transformation: The price of Going Green

In a world that is increasingly focused on environmental consciousness, businesses face growing pressure to adopt sustainable practices, especially in logistics. The potential benefits are significant – from reducing environmental impact to enhancing brand reputation. However, as companies, particularly small businesses, embark on this eco-friendly journey, the hidden costs of sustainability become apparent. In this feature story, we aim to shed light on these concealed expenses, providing insights for businesses aiming to balance their environmental commitments with financial realities.

In today’s business landscape, there is a heightened demand for companies to adopt environmentally conscious practices, reduce their ecological footprint, and contribute to the overall well-being of the planet.

The logistics sector, in particular, is under intense scrutiny due to the substantial environmental impact resulting from the extensive fuel and energy requirements of traditional transportation. The logistics and transport industry plays a substantial role in global Carbon Dioxide (CO2) emissions. The International Transport Forum reveals that this sector is responsible for slightly over one-third of worldwide CO2 emissions, making it the largest contributor.

Freight transportation alone contributes about 8% of global greenhouse gas emissions, and when factoring in warehousing operations, this percentage increases to 11%. Overall, the transport and logistics sector accounts for approximately 24% of global CO2 emissions.

A number of stakeholders, including transportation companies, logistics providers, and environmentally conscious consumers, are looking for ways to make logistics operations more sustainable. Whether the goal is to transport goods, materials, or supplies as freight or to ensure the efficient delivery of small parcels to consumers, the concept of green logistics has gained traction.

Nevertheless, the implementation of green logistics practices often involves a substantial initial investment. This includes expenses related to acquiring fuel-efficient vehicles, retrofitting existing fleets, and installing environmentally friendly technologies.

Green Logistics: Unpacking the Cost Challenges

 In the practice of making the logistics operations more environmentally responsible, it largely comes to vehicles considering that much of logistics comes down to transportation. And, there is no denying that the choice of picking electric transport is much heavier on the pocket upfront when compared to traditional fuel-burning vehicles.

The cost of a heavy-duty truck in India can vary based on model and manufacturer, with prices typically ranging from INR 37.50 lakh to INR 61.96 lakh, and going north for certain models. On the other hand, the cost of an electric heavy[1]duty truck with a lithium-ion battery can be 4x – estimated at around INR1 to INR 1.5 crores. This is attributed to the high fixed cost of the truck, with the battery being a significant component of it.

The average cost of a lithium-ion battery for heavy-duty trucks in India ranges from INR 15,000 to INR 20,000 per kWh. Heavy vehicles require a battery size of around 800-1,000 kWh to deliver a range of 800 km, equating to a battery cost of around INR 1-1.5 crores.

The average age of a truck in India is 9.5 years, and the first buyer typically owns it for 4-5 years before reselling it to get around 50% of the capital cost. Due to the low residual value, fleet operators have realized that they cannot resell the truck beyond 6-7 years, which leads to truck owners deferring the purchase of new vehicles. In the case of electric trucks, the upfront cost increases by a whopping eight times.

Moreover, the Indian trucking industry is highly fragmented with only around 10% of operators owning a fleet exceeding 25 trucks while around 75% of the market is run by small owners who own less than 5 trucks. For such small operators making the most of their budget is critical to success and it becomes even more challenging to convince them to make the high upfront cost.

“For small businesses, subsidies and other incentives help offset upfront capex deployment. Despite the potential benefits of adopting a more cost-effective fuel source, the current economic feasibility remains a concern along with the underdeveloped infrastructure for EV charging,” says Vishwachetan Nadamani, Chief Operating Officer, Ecom Express.

It is noteworthy that, the Indian commercial vehicles market stands out from other markets, such as the US and EU, primarily because the presence of Heavy Commercial Vehicles (HCVs) on highways is minimal. This is predominantly attributed to the substandard road infrastructure in India, encompassing insufficient wayside amenities, maintenance and repair facilities, charging infrastructure, and parking spaces. Addressing this issue necessitates a comprehensive approach to designing and integrating wayside amenities that align with the specific requirements of truck operators.

In addition to this, there are technical constraints that will cost truckers in terms of payload loss. The currently available models do not provide as much tonnage and range, which is critical for the long haul. “For the long haul, a range of 200 km (2X the current) and capacity of 3.0 tonnes (3X the current) will be required. The currently available top EV models in the market enable a weight of 0.8 tonnes and 100 km range per charge which is useful in the first mile,” shares Nadamani.

Considering current energy densities, the weight and space constraints would typically fall within the range of 5,000-6,000 kilograms, resulting in a payload reduction of 5-10 percent compared to diesel equivalents. Moreover, the prolonged charging times for trucks would likely act as a deterrent for truck owners contemplating the conversion of their fleets to electric vehicles.

Furthermore, the challenge of cost also persists in 2-wheelers, Nadamani says. “The vehicle utilization for delivery of EVs is far lower today than ICEs and this impacts the manpower productivity. This also may extend the time taken to deliver a shipment and hence increase holding costs in the ideal case and customer dissatisfaction (and hence increased cancellations) in the base case. The cost of maintaining an EV also today is higher than ICE 2-wheeler.”

Although electric trucks are costly initially, they are environmentally friendly.

“Adoption will aid in controlling pollution and reducing the country’s carbon footprint. The indirect cost of upgrading existing equipment for sustainability may temporarily inflate costs. Nevertheless, in the long term, this approach proves highly beneficial and cost-effective,” says Mahesh Fogla, Executive Director, Patel Integrated Logistics Limited.

This is an abridged version of the feature story published in the February edition of the Logistics Insider Magazine. To read the complete story, click here.

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