Time for a Sustainability Moonshot
The world shined a bright light on global supply chains and shipping with the grounding of the Ever Given. Stories of fragility, importance and interconnectedness bounded across media channels, and an industry came out of the shadows during a moment of crisis. This is often the case for essential but complex businesses; most people do not realize the impact on their lives until they are no longer working as normal.
Another crisis is upon us, and the global logistics and shipping industry can play a role in the solution. Unabated climate change and the warming of Earth is altering our environment, and experts forecast a myriad of effects. Changes to weather patterns, food production, drought, and rising sea levels, to name a few, will alter our lives in the years to come. All of the above changes make the drive to zero net carbon emissions in shipping and logistics even more pertinent, and the vision to create sustainable global supply chains deserves our full investment of time, money and intellectual capacity.
Ocean carriers have invested millions in switching fuels to less emission-ridden variants and installing scrubbers to clean ships’ exhaust. Terminals are running shuttle trucks on hybrid or electric engines and making investments in solar farms to power their operations. Shippers are pledging net zero-emission goals and leaning on their logistics providers to act. The shift to carbon-neutral fuels is the first step, and fuel transitions are accelerating as bunker fuel is replaced by biodiesel, e-methanol and other burgeoning types. These various efforts are expected to make a resounding impact, but is it enough? International shipping accounts for about 2.2% of all global greenhouse gas emissions and 2.1% of CO2 emissions, according to the UN International Maritime Organization's 2018 data. The figures are significant; they are comparable in magnitude to Germany’s global percentage of emissions. Regulation can impose certain requirements and international bodies can set targets to advance sustainability across the industry. There are, however, limitations, and the desire for companies to do “what’s right” butts up against the weight of economics and finance. Consumers may want more sustainable products, but they must become willing to shoulder a higher price for their shipments.
"...until the economies of scale flip the equation in favor of environmentally neutral structures, emission results will be less than needed to reverse climate change."
'Pre-COVID, consumers were signaling a genuine desire to see more circular economies, bringing supply chains and transportation into the spotlight. That faded as the global pandemic took charge but never went away. Two factors could now revitalize efforts to move forward. First, the pandemic is waning despite oscillations in cases worldwide, and second, with rates at all-time highs, this is the moment to shift price expectations in favor of sustainability. Sustainable shipping products have been rolled out but arguably with mixed results. Some early forays were services to measure the emissions of a supply chain and offered metrics to understand where to focus reductions. Current services offer eco-friendly transportation, and while they move sustainability forward, the benefits are opaque within carbon-based networks. The efficiency of shipping, especially container shipping, resides in the scalability of networks, and until the economies of scale flip the equation in favor of environmentally neutral structures, emission results will be less than needed to reverse climate change. Individual actions across our global industry are powerful, indeed, but they create true momentum when they coalesce.
Initiatives between shippers, logistics providers and carriers are positive and demonstrable. Maersk is the shipping lead in Transform to Net Zero, which includes Danone, Mercedes-Benz, Microsoft, Nike and other notable brands. CMA CGM launched an alternative energy coalition in December 2019 in support of its transition to LNG, and DHL joined Amazon, Ikea and others on the Corporate Electric Vehicle Alliance in January 2020. Each has merit in creating the scale economies to drive substantial change.
With the potential for an infrastructure revolution looming, the opportunity to produce lasting network effects has even greater potential. Not only smoother roads sans potholes, but smarter highways and cities using next-gen wireless communications could reduce unnecessary road miles. Investment in new fuel supply chains could bolster adoption on the water similar to efforts to expand electric vehicle charging stations. A vision recognizing the criticality of network effects is awaiting the momentum nascent in shipping.
Network effects need compatible products to thrive. If containers did not fit on chassis, shipping networks would falter. The same can be said of sustainability and innovation of fuels. Compatibility will accelerate the adoption of new fuels and zero-emission services. The converse is also true; the threat of incompatibility will slow down necessary innovation. When we look at the global industry today, the time is now to push forward and find common strategies and approaches to combat global warming.