Logistics at a Turning Point: Leveraging the Green Transition for Growth

Somehow I’ve ended up working with companies within the logistics and transport sector for most of my career. It has been great to follow the transition from the transport union; ministry for transportation;  companies developing charging infrastructure; and now helping our client companies leverage the green transition. I wanted to share a couple of insights on what companies need to do to get ahead.

As companies strive to reduce their environmental footprint across their entire supply chains, the logistics and transportation sector faces growing pressure to provide emissions data and actively reduce emissions. Companies that proactively embrace this shift can strengthen their market position, while those clinging to business-as-usual risk being left behind.

Navigating this transition involves dealing with market fragmentation, technological uncertainties, and the economics of new technologies, but clear strategies can pave the way to success.

Read on for some actionable insights on how you can leverage the transition and strengthen your company.

Challenges

The logistics market is highly fragmented, with numerous small companies and owner-operators. Major global logistics firms rarely own the vehicles, ships, or trains they use, relying instead on subcontractors. This fragmentation complicates operational control, investment decisions, and emissions data collection. And while digitalisation increases the volume of valuable data it also raises issues around data ownership and accuracy.

Decarbonising logistics requires moving away from fossil fuels, but viable alternatives vary. Battery electric trucks are effective for regional and urban deliveries, but long-haul and maritime transport face multiple competing technologies. This uncertainty complicates investment decisions, particularly for smaller companies with limited financial resources.

The economics of fossil-free alternatives present a complex landscape. While technologies like electrification can reduce long-term operational costs, they require significant upfront investments. Smaller companies often struggle with these costs. Additionally, new fuels necessitate changes in suppliers and fuelling patterns, with longer charging times posing challenges for trucking companies used to quick refuelling.

Opportunities

Companies that understand their customers’ needs for emissions reductions and can provide the necessary solutions will be well-positioned to reap the benefits of offering added value. It is essential to recognise that the concept of "business-as-usual" is no longer viable. Diesel prices are expected to rise significantly due to increasing carbon prices and the volatility of oil prices. Meanwhile, technological advancements and economies of scale are driving down the costs of electric vehicles and alternative fuels. As a result, the break-even point for cleaner technologies may arrive sooner than anticipated, making it imperative for companies to adapt quickly.

Electrification offers a promising opportunity, with the total cost of ownership (TCO) becoming increasingly favourable. Technological advancements and economies of scale are making electric vehicles more cost-effective. Investing in renewable energy for logistics hubs can further optimise energy use and reduce costs. Furthermore, there may be new income possibilities from emission trading schemes such as ETS2 or from selling flexibility services to the electricity grid.

Companies that offer rail or multimodal transport alternatives can gain a competitive edge by leveraging their experience and capacity in utilising transport modes that already have a lower climate footprint. Digitalisation and new technologies can further enhance the economics of multimodal transports, making them even more efficient and cost-effective.

Governments worldwide are incentivising the green transition. For instance, the European Union's Green Deal aims to mobilise at least €1 trillion in sustainable investments over the next decade. These incentives can significantly ease the financial burden of adopting sustainable practices.

Strategic Actions for Success

Know what your customer needs. Take a look at your key customers’ sustainability reports to see what their goals for reducing emissions from transportation are. Regulations like the Corporate Sustainability Reporting Directive (CSRD) give suppliers access to reliable data on their customers' sustainability goals. Companies should monitor these ambitions and adapt to changing customer expectations for transparency and emissions reduction.

Take control over risks and opportunities. Assessing current operations to identify risks and opportunities related to the green transition is crucial. This includes evaluating the environmental impact and understanding the regulatory landscape to inform strategic decisions. Business leaders usually have an idea of what the key risks are, but failing to dedicate time to manage these risks means they are often taking up unnecessary brain space. A good way to take control over these is to take a few hours to conduct a so-called double materiality assessment. Trust me, it will help you focus on what matters most.

Embrace Electrification. Electrification should be central to a comprehensive decarbonisation strategy. Companies should adopt electric vehicles where feasible and develop the necessary infrastructure and capabilities. Pilot projects can help refine operational patterns and address practical challenges such as charging infrastructure.

Build Strategic Partnerships. Collaboration is key to a successful green transition. Partner with customers to meet their sustainability goals, work with infrastructure providers to ensure adequate fuelling or charging facilities, and engage with other transportation modes for multimodal solutions. Strengthening relationships with subcontractors and aligning on data usage and sustainability goals can create mutual value. Through strategic partnerships you can share the costs and risks of investing in new technologies while at the same time building a closer relationship and sharing the benefits.

Leverage Government Programs. Stay informed about government incentives that support green technologies. Utilise these programs to offset transition costs and accelerate the adoption of sustainable practices.

The logistics and transportation sector stands at a pivotal moment, with significant challenges but also unprecedented opportunities. By understanding customer behavior, assessing risks and opportunities, embracing electrification, and building strategic partnerships, companies can successfully navigate the green transition. Leading the way in sustainability not only contributes to a healthier planet but also secures a competitive edge in the future of logistics.

We’d like to hear from you. Share your thoughts or get in touch to learn how we can help.

//Antti Vainio