How sustainability is gaining importance in logistics services

The global climate emergency has prompted organisations and companies to take effective measures for sustainability. A major force of change, the United Nations is calling for countries to adhere to net-zero greenhouse gas (GHG) emissions by 2050. This has led to governments setting targets for reducing emissions by 2030 and reaching net zero goals by 2050.

In the GCC region, sustainability in the logistics sector will be crucial as logistics-related activities intensify. A substantial portion of these activities stem from developments and progress in the non-oil sector. Non-oil sector productivity in the region have also raised exports considerably. The support of trade agreements and international cooperation will further strengthen import and export activities.

Re-exports are also predicted to heighten, attributable to GCC’s geographical placement on the trans-continental trade route. This makes the region ideal for redistribution of goods and services. Leveraging this advantage, countries in the GCC region are developing their logistics hubs for facilitating the movement of domestic as well as transit goods.

While the GCC region has made significant improvement in infrastructure development, the logistics services market is highly fragmented, resulting in inefficiency and high costs in the transportation and distribution of goods.

As the GCC region embarks on improved economic and international trade relations, it is expected to standardise and align its sustainability goals with trading partners. Specifically, focus will be on emissions reduction across different nodes in the logistics value chain, which are expected to influence environmental performance and support trade and investment growth between 2023 and 2030.

Focus towards emissions reductions

Globally, major contributors of emissions include energy, industrial process, agriculture and waste. About 75 to 80 per cent of total emissions arise from electricity, transportation, manufacturing and industrial processes. Under the 2015 Paris Agreement, the annual global temperature increment must be limited to under 1.5°C. To achieve this, global GHG emissions need to meet net-zero targets by 2050.

National sustainability goals: To curb these emissions, sustainability initiatives such as the Saudi Green Initiative, UAE Energy Strategy 2050 and Qatar National Vision 2030 are expected to prioritise development of carbon free industrial and logistics activities through renewable energy resources.

The UAE has committed to the net-zero target year of 2050, while Saudi Arabia and Kuwait have committed for 2060. As a result, countries in the GCC region are expected to prioritise emission reduction through various green initiatives.

Emissions in freight transportation: Globally, transportation accounts for 23 per cent of the energy-related CO2 emissions. Current estimations reveal this number to reach 40 per cent by 2030 and 60 per cent by 2050 under the business-as-usual scenario. Estimates suggest that transportation accounted for more than 15 per cent of GHG emissions while aviation and shipping accounted for 8 per cent of GHG emissions in the GCC region. As 2030 approaches, countries are likely to push towards more policy initiatives to improve sustainability.

Net zero emission goals are expected to compel supply chain participants to take measures in lowering their GHG emissions. As a result, alternate transportation fuel, low-emission maritime vessels and fuel efficiency are expected to gain more interest in the GCC region. To comply with international emission norms and align with global supply chains, transportation and logistics infrastructure development in the GCC region will focus on modernising industrial parks, economic zones and freight infrastructure to comply with national targets.

Sustainable smart warehouses: Companies in the GCC are modernising their warehouses by automating business processes and adopting robotics. This involves experimenting with the use of autonomous vehicles and drones for efficient and faster deliveries. To make warehouses more efficient and cut down logistics costs, businesses are also digitalising their supply chain management.

In addition, the kingdom is exploring renewable sources of power, which is projected to make warehouses more sustainable. Sustainable smart warehouses are expected to shape the future of green logistics in the Middle East as companies struggle to remain competitive.

Emerging sustainable supply chain opportunities

As part of long-term development goals, GCC countries have prioritised economic diversification and also made environmental sustainability an integral part of their industrial development plans. Due to an increasing awareness of sustainability across the globe, companies with business models that prioritise sustainability are more likely to gain an international customer base. Green packaging, renewable energy and smart warehouses are gaining more and more interest.

Compliance with global ESG requirements is gaining more interest and it will drive logistics firms to offer environment-friendly services. Following sustainable practices will place companies at a competitive advantage which is expected improve their brand image.

Aside from appealing to customers, the companies must also comply with environmental regulations to help them reach national net-zero targets. As a result, logistics service providers are expected to accelerate investments for sustainable supply chain practices. Though it comes at a higher price, its long-term benefits and returns assure a step towards success in the future.

Rapid advances in digitalisation is leading to an increased demand for innovative supply chain solutions in the region. There is no unique pathway to make the transition towards sustainability, innovation in logistics services will play a major role.

Logistics for circular economy: The shift from linear to closed loop supply chain practices will increase focus on sustainable supply chain solutions. Recycling of waste such as packaging materials, pallets and containers are likely to be given priority in controlling emissions.

Third-party services boosting the circular economy will drive efficiency and reduce carbon footprint across logistics processes. Clean disposal of materials and extraction of valuable materials from wastage can potentially further reduce carbon footprint. With high wastage rates, the region will observe growth in resource recovery. This is projected to generate the need for efficient reverse logistics solutions.

Fuel efficient technologies: A significant part of transport emissions are due to freight movement through road transportation. Therefore, technologies focusing on fuel efficiencies are likely to be given priority by both public and private sectors. Increased adoption of electric fleets and alternative fuels in the urban settings will play a key role in meeting the targets associated with net-zero logistics. Improvement in fuel efficiency of commercial vehicles, maritime vessels and air cargo carriers will play a key role in decarbonising the freight transportation sector.

Investments in research and development related to advancement of fuel efficiency, capture technologies and direct air carbon capture are likely to gain more attention. This arises from the logistics sector lagging behind in terms of aligning with net-zero goals.

Sustainability and smart warehouses: Holistic perspectives of energy and resource consumption will be taken into account for calculating emissions from different types of warehouses. These include electricity, transport fuels, heating oil and packaging materials required for warehouse operations. Modern warehouses are becoming automated with more use of stationary and mobile robotics. More and more companies are likely to adopt the use of autonomous vehicles and drones for efficient and faster picking, sorting and packaging activities.

Last-mile delivery models: Logistics service providers are expected to focus on innovations in the last-mile solutions to meet the growing demand for e-commerce logistics. Address accuracy, route optimisation, inefficient packaging and returns management are some of the critical factors that determine the success rate of last mile deliveries. Intelligent delivery management platforms, fuel-efficient and environmental-friendly vehicles, and delivery automation, are some of the areas expected to limit growth in emissions from last-mile delivery services.

Conclusion

Sustainability and supply chain resiliency are expected to reshape the global business environment. This can serve as an opportunity for GCC members as they can gain customer trust and improve trade opportunities by incorporating green practices in their supply chain.

As trade is projected to increase in the region, service providers need to focus and prioritise concrete actions to overcome the current sustainability challenges. To ensure supply remains consistent, service providers in the GCC need to work towards redesigning logistics solutions and assess longer-term implications by quantifying the effect on corporate ESG goals in short and medium terms.

In addition, service providers can use sustainable supply chain solutions as a tool to build capabilities and improve competitiveness by aligning their service offerings to meet international standards and customer expectations. Through these initiatives, the GCC would establish good trade relations with developed countries and lead the pathway to sustainability for developing countries.

Gopal R is the global leader – Supply Chain and Logistics Advisory at Frost & Sullivan

Read: How logistics companies are increasingly adopting sustainability practices