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The Path to Net Zero Supply Chains – How Much Change is Possible?

The lofty aim of world leaders to reach net zero emissions by 2050 will require a radical change in the global approach to fuel economy. Most countries are working towards reducing the fuel consumption of vehicles, but the progress is slow. The consensus is that we must do more to expedite the pace of limiting emissions.

Globally, average fuel consumption reduced with only 0.9% over the past two years, according to the Global Fuel Economy Initiative’s (GFEI) report.

According to GFEI, halving fuel consumption of vehicles by 2030 compared to 2005 will require a near tripling of the average annual pace of improvement seen over the past 15 years.

A direct contribution will be using more battery electric vehicles, plug-in hybrids and hydrogen fuel cell electric vehicles.

In the UK, reducing emissions will affect automotive manufacturers, fuel suppliers, and everyone involved in distribution and transport logistics. The UK transport sector accounts for 27% of the total Greenhouse Gas (GHG) emissions and is struggling to make significant reductions. Temperature-controlled distribution is currently responsible for large part of GHG and air quality emissions.

What it means for supply chains

Net-zero commitments by companies are becoming the norm, but the demand for solutions and systems to meet them currently outstrips the supply. To respond, businesses should focus on five fundamentals:

  1. Companies can gain advantage from translating net-zero pledges into net-zero plans
  2. The money to finance the transition is forming; markets and institutions are needed to channel capital
  3. Securing green(er) materials will mitigate risk amid shortages and price volatility
  4. Measurement and disclosure are unavoidable; using digital to create cost and price transparency can have benefits
  5. Investments in resilience can protect people and companies from physical climate hazards

Companies will continue to experience supply chain interruptions as physical and economic risks increase. Resilience and agility will be required more than ever to maintain business continuity.

Reporting on carbon emissions must be more robust, this will demand more visibility into data and the extended use of technology tools to record and track it. Once you have the data, the next step is to drive improvements through collaboration with suppliers and other participants in their supply chain.

What it means for the fuel companies

While major European energy companies like BP and Total Energies are moving away from oil and gas, American firms are less likely to move away from their core products. At COP26, Sergey Vakulenko, head of strategy and innovations at Gazprom Neft, warned just how much an energy shift will cost consumers. He said the firm would remain an oil and gas company for at least the next decade but added that it would shift to a more equal mix of oil and gas and will be looking at new green fuels.

What it means for logistics

Last-mile logistics is one of the greatest contributors to supply chain emissions and is getting worse with the explosion of e-commerce. David Shillingford of Everstream Analytics proposes some practical actions that will help change direction: 

  • AI-powered routing software – reduces empty space in trucks, miles traveled and idling time.
  • Electrification of delivery vehicles – is easier than for other modes and much progress has been made in developing and preparing to scale this technology.
  • Nighttime delivery – helps break the vicious cycle of more-congestion-more-emissions.
  • Customer pick-up from shared delivery points such as stores and lockers.
  • Incentives to encourage consumers to consolidate orders and accept more-than-one-day delivery
  • Rethinking last mile as a shared ecosystem where shared DCs consolidate deliveries from different companies into shared delivery vehicles.
What it means for humans

McKinsey found that in a 2.0°C world, roughly a billion more people would be exposed to climate hazards than in a 1.5°C world. In a scenario where 1.5°C of warming occurs by 2030, almost half the world’s population could be exposed to a climate hazard related to heat stress, drought, flood, or water stress. And compared with high-income nations, lower-income countries have larger shares of the population that are likely to be exposed to at least one climate hazard.

Despite the critics that doubt that COP26 was a success, there is some momentum. There will be a general shift in the goal to net zero, it may not be at the required speed. Supply chain executives must help their leadership navigate the transition.

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