Green logistics: What is it and why it matters | SAP Insights (2024)

Green logistics includes any business practice that minimizes the environmental impact of the logistics network and delivery. Sustainable logistics or green logistics secure a strong bottom line without sacrificing customer satisfaction, or the well-being of the planet. Intelligent businesses are rushing to understand and embrace sustainable logistics management, supported by powerful technologies such as artificial intelligence, machine learning, and advanced analytics.

As enterprises make the shift toward greener logistics, they realize benefits across the business, including improved profitability and good corporate citizenship. But a primary driver is customer demand. As customers (both businesses and consumers) see the real-world results of climate change on newsfeeds and streaming channels daily, they are quickly shifting loyalties to companies that demonstrate significant, permanent steps toward a sustainable future. Customers (and shareholders) advocate for a circular supply chain that incorporates reverse logistics, and are not content with or influenced by “greenwashing.”

Traditionally, supply chains have been linear and unidirectional: raw materials are processed into products and shipped to customers, who then dispose of them. Today, this flow is being disrupted with two practices – reverse logistics and circular supply chains – that add bottom-line value to supply chains while reducing environmental impact.

• Reverse logistics: As the name implies, reverse logistics refers to processes related to the return of items and goods traveling backward through the supply chain. This can include repairs and maintenance, returns of defective items, reuse of packaging, or recycling and reclamation of end-of-life products. For businesses, today’s reverse logistics challenges most often come in the form of customer returns. Online purchases contribute to a much higher rate of customer returns than in-store purchases. This issue is further exacerbated by the business model of “subscription box” brands (typically fashion), which are based entirely on the concept of customers selecting from a wide assortment of delivered goods and returning whatever they decide not to keep. In fact, as this trend progresses, estimates are for the global amount of e-commerce returns to exceed one trillion dollars over the coming decade. Furthermore, transporting returned inventory creates more than 15 million metric tons of CO2 in the U.S. alone each year.
• Circular supply chains: A circular supply chain is a loop in which organizations reclaim as much as possible, from raw materials to finished products. In its simplest form, this means realizing value from end-of-life products, often by recycling their primary components. For example, plastics can be shredded and repurposed – even into the very shipping pallets that are used to move goods. And as the world’s metal supplies diminish, there is meaningful value to be had in extracting gold, copper, and other recyclable commodities from otherwise discarded items.
  

At the height of the COVID pandemic, online shopping rose to an all-time high with parcel volume in the US alone, growing 37% from 2019 to 2020, reaching 55 million deliveries each day. The Amazon Effect put further strain on logistics operations with consumers expecting deliveries within a day – and sometimes even within a few hours. This means goods can no longer be warehoused in a single location and distributed nationally. To achieve such aggressive delivery speeds, items must be stored in local distribution centers and then rushed to consumers in smaller batches. This calls for larger fleets of smaller vehicles.

And as the pandemic shifts and restrictions lift, these trends show no sign of slowing. According to the World Economic Forum, we should expect demand for urban last-mile delivery to grow as much as 78% by 2030, and add up to 36% more delivery vehicles in the world’s largest 100 cities.

To meet these changing delivery demands, businesses are rapidly shifting to EV fleets. At less than half the cost per mile for electricity as for gas or diesel, and without any need for tune-ups or oil changes, EV fleets have lower operating costs and less downtime. For businesses, another advantage of EVs is the ease with which they can be integrated into a greater cloud-connected supply chain network. This means that businesses can use AI-powered technologies to analyze both past and real-time operational data – delivering powerful (and actionable) insights into ways to save money, lower fuel consumption, and streamline their operations overall.

The capacity and size of modern EVs is also becoming increasingly diverse. Today, we are seeing a rise in not only light commercial vehicles (LCVs) like cargo vans but also a growing range of electric semi-trucks and long-haul transport vehicles.

And when it comes to greener transport, let’s not forget that some 80-90% of the world’s goods are transported by sea. Each year, container ships spew about 1 billion metric tons of carbon dioxide into the air — about three percent of all greenhouse gas emissions — and tons of toxic waste left in the oceans.Recognizing this, in September 2021, the International Maritime Organization (IMO), representing 150 industry leaders, set adecarbonization goalto reduce emissions by 50% by 2050, compared to 2008 levels.

Danish company Maersk (whose ships emitted33 million tons of CO₂ in 2020) ordered eight new vessels that run on carbon-neutral methanol to help meet that ambitious goal. Shipping companies in Japan and Norway are also bringing significant innovation to the marine cargo sector, unveiling fully electric tanker ships and even the world’s first autonomous electric cargo carrier which (using radar, infrared, and automotive integrated solutions cameras) can be operated and moored entirely via remote control.

Of course, making the switch to EVs and alternative fuels is probably the most significant change when it comes to greener logistics. However, as McKinsey’s Bernd Heid points out “in an 'ecosystem scenario' in which both public and private players work together effectively, delivery emissions and congestion could be reduced by 30%...when compared to a 'do nothing' scenario”. To achieve maximum cost efficiency, faster delivery speeds, and meaningful reductions in emissions and waste, businesses will need to consider more collaborative logistics methods, and a more sophisticated array of optimizations.

A few additional optimization strategies include:

• Load pooling: A growing trend in optimized supply chain management sees similar (even competitive) companies working together to pool their warehouse and logistics resources. At first glance, this can seem like a challenging concept but fortunately, cloud-connected logistics management technologies are helping businesses to collaborate and cooperate with maximum visibility and control.
• Unbranded parcel lockers: Amazon pioneered the idea of neighborhood parcel lockers to shorten routes and speed up delivery. This is highly effective but has tended to shut out the competition. Unbranded community parcel lockers function similarly to the existing Amazon locker networks, but are accessible to a much broader range of delivery providers. By making this resource more widely available, the major logistics providers can work together to save time and money – and improve consumer choice.
• Automated load optimization: This refers to coordinating items (held in warehouses and distribution centers) with similar delivery ETAs and destinations. With today’s volumes, it’s essentially impossible to achieve this via manual efforts but smart supply chain solutions can identify and automate vehicle loading, to help eliminate the costly practice of sending delivery vans out with only half a load.
• Night-time delivery: The more time vehicles spend on the road, the greater the amount of fuel and energy used. Especially in urban areas, making deliveries at night can reduce road-time and congestion by up to 15%. Furthermore, with EVs being quieter, there is less risk of adding to night-time noise pollution.
• On-demand micro-mobility networks: Micro-mobility refers to small – often two-wheeled – vehicles like electric scooters and e-bikes. Modern logistics technologies now give drivers easy access to cloud-connected apps. This means connectivity with the home base (dispatch) and the customer (delivery ETAs) in real time. By leveraging an on-demand network of independent drivers (not exclusively employed by any one business), companies are reaping significant savings in both fuel usage, and the cost of maintaining standing fleets.
• Dynamic route allocation: In urban settings, cloud-connected route allocation tools can assess traffic, parking, even construction or other delays. In rural areas, other factors may be more relevant such as road and weather conditions, or distance from EV charging stations. By incorporating this kind of intel into real-time route planning, companies can increase delivery speed and minimize fuel consumption.
• Drones and automated vehicles: It’s visually compelling to think of drones crossing the skies and dropping packages like mechanized storks, or unmanned robots rolling down city sidewalks, laden with parcels. In reality though, we are still a few years away from fully automated logistics networks. But innovation is fast in this sector and digital automation is at the fore of many green solutions – so watch this space…

The advantages of green logistics accrue to the company, its suppliers and partners, its customers, and every member of society. Here are just a few:

• Improved long-term profitability: From first to last-mile delivery, green logistics cut waste, cost, and carbon emissions. Although realizing the advantages of green logistics requires an upfront investment, the downstream benefit outweighs the cost. A recent study found “evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market as well as accounting performance.” The bottom line? Green business equals good business.
• New or enhanced partnerships: When businesses use sustainable supply chains and green logistics, they’re not only more attractive to customers but to corporate partners as well. A recent study from HBR found that the largest global multinationals are using the United Nations Global Compact or the Carbon Disclosure Project’s (CDP’s) Supply Chain Program to assess their suppliers’ levels of sustainability and environmental impact. Suppliers, in turn, are eager to partner with the largest brands and are making investments to try to reduce their carbon footprints.
  
• Happier, loyal customers: Customers – both retail and business – demand fast delivery and the flexibility to make easy returns. They want to know where their products came from, whether they’re sustainably sourced and transported, and where they are in their journey – in real time. Companies that offer these insights and transparency gain new customers and earn long-term loyalty among existing ones.
• Better corporate responsibility reputation:Large companies are increasingly called to the mat to answer for their contribution to global warming, which is considered a social justice issue. Publicly leveraging the advantages of green logistics will help companies win in the court of public opinion. Smart companies are scrutinizing their environmental footprint locally, as well as globally. Those that aren’t willing to change, especially in moving away from fossil fuels, risk their reputation and are at a competitive disadvantage.
• Easier recruitment:In the tightest job market in decades, every company advantage matters. An organization focused on green logistics is more attractive to young professionals who desire to work for a company that embodies their values.

Organizations that combine a cloud-based smart supply chain with mobile technologies get a birds-eye view of their entire logistics process, from manufacturing to delivery to returns. But green logistics isn’t achieved in isolation. Successful implementation requires planning and the inclusion of all the various stakeholders. Below are a few suggested steps:

• Collaborate with suppliers, vendors, third- and fourth-party logistics (3PL and 4PL) partners, and experienced advisors to develop environmentally-friendly procurement protocols and eco-friendly shipping options.
• Use AI-powered technologies like supply chain control towers to integrate carbon footprint analysis into all stages of the business.
• Engage with corporate networks to share logistics resources and data-driven insights. Even brands that are typically competitive can become partners for a shared purpose.
• Strategize and right-size your fleet. Build in the ability to handle fluctuating demand with elastic logistic networks so that trucks aren’t sitting idle. For last-mile delivery, consider adding micro-mobility vehicles, such as e-bikes or drones.
• Educate customers on the impact of fast delivery speeds versus more sustainable choices. Amazon, for example, encourages customers to pick an “Amazon Day” that groups packages into fewer shipments, which saves money on packaging and transportation.

Robust, AI-powered, cloud-based logistics solutions are at the core of the supply chains of the future – helping businesses to consolidate loads, automate dispatch and tracking, optimize routes, determine when and where to charge batteries, calculate ETAs, monitor vehicle maintenance, and more. Data modeling and simulations can test routes and fleet capacities, and integrated technologies can help incorporate and analyze supply chain and delivery data across the entire value chain. Every step toward the smoother and faster movement and delivery of goods, is a win/win, making customers happier and more engaged, and helping businesses to improve both their sustainability profiles and their bottom lines.