The Current Landscape of Ground Transport and Logistics
The logistics sector is the largest emitting sector in many developed countries. Globally, it accounts for over 33% of carbon dioxide emissions. This is largely attributed to their heavy reliance on fossil fuels, such as gasoline, to power their transport assets. Hence, land transport can be an enormous part of a logistics company’s Scope 1 emission as owned vehicle fleets or Scope 3 emissions if these vehicle fleets are leased or rented. This scenario can be seen in one of the top 10 global logistics companies. For example, according to DHL group 2022 sustainability report, DHL group has released approximately 26 million tCO2e of carbon emissions under the Scope 3 category of upstream transportation and distribution. This is an immense amount of carbon emissions that would require more than 160 million mature trees to sequester.
Source: Circularise (Nov 2022)
Different Types of Land Transport Vehicles
Different operations such as regular deliveries, postage, last-mile solutions, and freight would determine the mode of transport required to deliver products to consumers. Another factor influencing the mode of transport required would be the geographic area that a company covers. Vehicles such as e-scooters are more applicable to short-distance travel while vans or trucks are more suited for long-distance travel. For the case of SingPost, Singapore’s designated postal service provider, they operate mostly with two-wheelers. With reference to their 2022 sustainability report, their fleet was made up of 687 fuel-powered motorcycles and e-scooters. This is because packages delivered in Singapore are generally smaller in size, and the country also has a smaller land area. Conversely, Amazon is a multi-national corporate that operates in many countries such as China. According to Amazon’s 2022 sustainability report, Amazon owns a road fleet of roughly 40,000 semi-trucks and 30,000 vans as of 2021 because of the larger land area they cover and the sheer quantity of goods they deliver.
When designing the least carbon intensive fleet, it is not as straightforward as simply selecting vehicles with the lowest carbon footprint. Amongst land transport vehicles, while vans have the highest carbon footprint, it also has a relatively large carrying capacity. For instance, using a van can complete a set of deliveries within one trip, while using an e-scooter would require multiple trips. In this case, the use of an e-scooter could potentially lead to greater carbon emissions. This illustrates the complexity of creating a less carbon intensive fleet. That said, a more certain decarbonization approach would be the electrification of the fleet.
The Potential of Fleet Electrification
One popular solution to decarbonize transport emissions is fleet electrification. This refers to replacing conventional internal combustion engines with electric-powered vehicles (EVs). Electrification allows companies to shift their Scope 1 emissions to Scope 2 emissions as tailpipe emissions are replaced by emissions attributed to purchased electricity. This is favorable as Scope 2 emissions are easier to decarbonize as compared to Scope 1 emissions. Power required to charge transport assets can be drawn from on-site solar systems which could also potentially reduce the cost of electricity for their vehicles. Alternatively, firms can choose to decarbonize their Scope 2 emissions with electricity generated by off-site renewable plants via Power Purchase Agreements (PPAs) or Renewable Energy Certificates (RECs). However, a common concern logistics companies have is the availability of EV charging infrastructure in the relevant geographies. There needs to be sufficient EV charging ports spread across the region so that vehicles can easily replenish their fuel to transport goods daily. To address this concern, government support would be instrumental.
The Role of Government in Encouraging EV Adoption
Governments play a crucial role in determining the adoption of EVs. This is because a robust EV market requires huge investment in capital expenditure such as electric vehicles and EV charging ports. As such, it is challenging for some companies to replace their existing operations with EVs. Government policies can shape the EV market landscape by releasing strategies such as subsidies and tax incentives to bring down the cost of this transition. Such government strategies can also attract EV manufacturers as their business models may become profitable with the introduction of financial support strategies.
The Power of Public-Private Partnerships
Besides national targets, regulations, and policies, public-private partnerships are also vital in engaging the corporate sector to decarbonize and transition into an electric fleet. Leadership campaigns such as the K-EV100 in South Korea, target large corporations to convert their fleets to 100% EVs by 2030. As of October 2023, 56 companies such as Samsung SDI, Lotte Chemicals, and SK Innovation are part of this leadership campaign. Some of these first-mover companies are also encouraging other corporations to join the K-EV100 campaign to further bolster their reputation in sustainability and energy transition. Moreover, the support of these companies pushes for the growth of EV charging infrastructure in the country. According to CJ Logistics 2022 sustainability report, CJ Logistics aims to replace all their owned vehicles (weighing < 1 ton) with EVs by 2030 – this would reduce their GHG emissions by 37%.
How Corporates Can Approach Fleet Electrification
Source: Jie Jun Yan
Large corporates with international operations can also choose to electrify their transport assets in countries with a lower grid emission factor. This would give a more significant reduction in carbon emissions. With the 2022 emission factor values, the electrification of land transport assets in New Zealand would yield 89% more avoided carbon emissions than in Vietnam (assuming that electricity load is similar in both countries). Therefore, it is crucial for companies to be strategic in their fleet electrification approach.
The Road Ahead
Recent articles have claimed that the current business trends have been insufficient to fulfill the global target of capping surface temperatures by 1.5˚C under the Paris Agreement. As such, more ambitious decarbonization efforts are required, especially in carbon intensive sectors like logistics. Fleet electrification has the potential to significantly reduce tailpipe emissions and logistics companies should begin this transition. Additionally, many APAC government organizations have created policies to build a robust EV market with targets in 2030. This eases the amount of funds needed and commercial and industrial firms could start strategizing their fleet electrification approach now and move towards the use of EVs to decarbonize their business value chains in the near future.
This article is our first publication that is part of an ongoing series to discuss challenges and solutions commonly faced by logistic companies. In the next article, we will discuss other key topics so that logistics companies can have a more seamless decarbonization journey.
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JJ Yan, Schneider Graduate Program Associate
Keith Wo, Schneider Graduate Program Associate
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