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Alan McKinnon – Professor of Logistics

THE 
LOGISTICS BLOG

Current issues in logistics and transport

Skilling-up for the Decarbonisation of Freight Transport

The decarbonisation of freight transport and logistics has been extensively researched, but relatively little thought given to its human resource requirement.  I had the opportunity of talking about this at a session in the European Parliament organised by its Transport and Tourism Committee on the 23 January 2024. I began by briefly reviewing of employment and skill trends in logistics before considering the labour implications of the EU target of cutting CO2 emissions from transport by 90% between 1990 and 2050. This will affect the total demand for labour, its diversification by gender and age, and the skills required across all occupational levels from operative to senior manager.

My university, KLU, undertook a global study of logistics labour and skills for the World Bank in 2017.  The research found that in many parts of the world, including the EU, logistics businesses were finding it difficult to recruit and retain staff, particularly truck drivers.  This was attributed mainly to salaries and career structures being uncompetitive, inferior working conditions and the sector having a negative image especially among younger people.  The skill levels across much of the existing workforce were deemed inadequate, mainly with respect to IT, partly reflecting under-provision of training at all levels of employment.  Many of these labour and skill deficiencies were exacerbated by the pandemic and are now proving harder to rectify. 

There is a need to professionalize logistics employment by providing greater training, accreditation, career progression and job enrichment.  It also needs to be rejuvenated by increasing its appeal to the younger generation.  This is the aim of an industry-government initiative in the UK called Generation Logistics whose mission is ‘to find and engage the next generation of logistics talent’.   Within this sector, however, there is a counteracting pressure to casualize employment, particularly in so-called last-mile logistics, where, within the ‘gig economy’, large numbers of low-skill, insecure and often poorly paid delivery jobs are being created.  Increasing digitalisation and automation are also exerting conflicting upskilling and deskilling pressures across the broad spectrum of logistical activities.

It is against this background of issues, trends and initiatives that the decarbonisation of logistics is imposing new labour and skill demands.  I reviewed these demands with respect to the five main ways in which freight transport can be decarbonised, the so-called five decarbonisation ‘levers’.

1. Manage total demand for freight transport:

In the European Commission’s 2020 Reference Scenario, freight tonne-kms grow 42% between 2020 and 2040, with 62% of this increase on the road network.   The European Academies Science Advisory Council has suggested that to meet decarbonisation targets it may be necessary ‘to contain the growth of total freight transport’, though this is not currently being considered as a policy option.  This growth may, however, be inhibited by labour shortages in the freight sector. The International Transport Union (IRU) has predicted that the percentage of ‘unfilled truck driver positions’ in Europe will rise from 7% in 2023 to 17% in 2028. A third of truck drivers are over 55 and the flow of new recruits into the haulage industry is falling short of the number needed to replace retirees.  If a shortage of labour restrains the growth of freight transport it may actually help the sector meet its carbon reduction targets.

2. Shift freight to lower carbon transport modes:

Rail and waterborne freight services have both lower carbon intensity and higher labour productivity per tonne-km.  Modal shift from trucking could therefore simultaneously cut emissions and ease the truck driver shortage. In the Commission’s 2020 Reference Scenario rail tonne-kms are expected to increase by 71% between 2020 and 2040, though this would still leave the rail network with only 19% of the EU freight market by 2040.  Achieving forecast growth of this magnitude will require, among other things, a major expansion of intermodal services, digitalisation of the railfreight market and improvements in service quality, all requiring reskilling of the workforce.  The size of this workforce is unlikely to grow in proportion to rail freight traffic levels, as many haulage, transhipment and handling operations will probably be automated over the next 10-15 years.

3. Improve the utilization of freight transport capacity

Under-loading is widespread across all freight transport modes. For example, 22% of truck-kms were run empty in the EU in 2022 while the average weight-based utilization of trucks estimated to be around 60%.  Raising these vehicle load factors would restrain the growth in truck-kms, save money, cut carbon emissions and ease labour requirements in the road freight sector. It could be done by promoting greater sharing of logistics assets across supply chains, expanding the use of digital load-matching platforms and modifying business practices, all requiring upskilling of the logistics profession.

4. Increase the energy efficiency of logistics operations

 This decarbonisation lever has an important labour dimension. Training truck drivers to operate their vehicles more energy-efficiently, monitoring their behaviour and providing ongoing guidance is one of the most cost-effective ways of decarbonising logistics, yielding fuel savings of 5-15%.  A KLU/SFC survey also revealed a need for greater managerial advice and training in energy efficiency across the EU’s highly fragmented road freight sector, comprising around half a million small carriers.

5. Transition to low-carbon energy in the logistics sector

BCG recently forecast that 77% of new trucks in the EU will be electrically-powered by 2035, with the main employment impacts felt in the manufacture of these vehicles (job losses) and the supporting infrastructure and utilities (job gains).  The operation of these vehicles may also affect the road freight labour market in several ways: accommodating battery-charging into delivery schedules will alter driver working-times, the new generation of smart, clean, low-maintenance vehicles may attract a more diverse workforce and encourage a shift in employment from garage services to driving.  Truck drivers will also need to be re-skilled to operate vehicles running on low-carbon fuels and electricity.

Within low-carbon logistics systems the greatest need for upskilling will be at a managerial level.  Of 90 logistics executives in Europe-based companies surveyed in 2020 only 10% felt that current skill levels in sustainable logistics were adequate. They identified 5 areas where training was required, including emission auditing, strategy development and promoting stakeholder ‘buy-in’.

From my work with freight and logistics businesses over many years, I have identified a set of ten competences that managers can acquire to help them manage the decarbonisation process effectively. These include having an appreciation of the climate science, an ability to measure and report emissions and to derive realistic carbon reduction targets, an awareness of government climate policies and relevant advances in technology, a knowledge of logistics decarbonisation initiatives and their relative carbon mitigation costs, skills in securing ‘green finance’ to fund these initiatives and, finally, the capability to manage change in the pursuit of ‘net zero’ logistics.

I concluded my talk to the Parliamentary Committee by making four general observations.  The labour challenges of decarbonising freight and logistics will be superimposed on longer term employment trends, exacerbating some and easing others.  The first three decarbonisation levers (managing demand, modal shift and improved utilisation) should ease labour pressures in the road freight sector while cutting CO2 emissions, offering a potential win-win.  Intelligent, low-carbon vehicles and equipment may help to make logistics a more attractive career option to a more diverse workforce.  Finally, logistics executives and managers responsible for the transition to low-carbon freight transport and logistics will require new and regularly updated skill-sets.

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Davos 2023 – some logistics take-aways

Media coverage of the World Economic Forum’s Annual Meeting in Davos is often confined to soundbites from world leaders and journalists’ efforts to capture the prevailing mood of the business world. This is the tip of a very big iceberg which this year comprised 480 sessions on a vast array of subjects.  Here’s a brief summary of some of the event’s logistics and supply chain content.

De-globalisation has become a perennial issue at Davos, with widely divergent views on whether it is actually happening, what is causing it and how far it might go. Some trade specialists see it as a long-term restructuring of supply chains that had over-reached themselves and become too vulnerable.  For others it is a short-term reaction to a series of shocks, collectively known as the ‘polycrisis’, that have happened to coincide.  Global logistics providers at Davos in search of advice on future market trends had to navigate a broad range of opinions and projections.

Cyber threats to supply chains were explored in a session I moderated. According to the latest BCI survey, cyber attacks and data breaches will pose the greatest risk to supply chains over the next 5 years.  The digitalisation of logistics processes is exposing them to greater risk at a time when ransomware attacks have been increasing exponentially. Couple this with legacy computing systems, failures to ‘patch’ against viruses and widespread cyber complacency and you get a sense of big trouble ahead.

A common theme of Davos 2023 was the need to accelerate industry-level initiatives to address a series of mega-challenges, particularly climate change.  One such initiative is the First Movers Coalition, an alliance of around 70 large businesses committed to use the ‘power of procurement’ to hasten the uptake of green technologies and renewable energy in ‘hard-to-abate’ sectors, including shipping, aviation and trucking.  At one session, in the company of US Climate Envoy John Kerry, we heard how FMC member Volvo Trucks is purchasing lower-carbon materials to cut the ‘embodied’ CO2 in its new generation of electric vehicles.   

Another hot topic was the measurement of Scope 3 emissions from upstream supply chains, particularly in sectors, such as electronics and automotive, where they average roughly 80% of companies’ total emissions.  Despite the development of online tools for the collection, sharing and reporting of this emission data, such as Siemen’s SiGREEN platform, creating the necessary carbon visibility across highly-fragmented, multi-tier supply chains remains a very daunting task.      

The port sector had quite a high profile at Davos.  DP World, for example, participated in several trade-related sessions and had an impressive off-site pavilion.  The port of Antwerp also outlined its ‘net-zero’ plans’ for bunkering and supplying the ‘green  molecules and electrons’ needed to power low-carbon shipping but also becoming a conduit for sequestered CO2 destined for off-shore geological storage under the North Sea.

Dealing effectively with all these logistics challenges will require the recruitment, retention and reskilling of much more supply chain ‘talent’, a view expressed in several Davos sessions and one that I enthusiastically endorsed in a panel discussion.

Logistics Manager   March 2023

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Net-Zero versus Resilience?

A recent McKinsey article, entitled ‘a devilish duality’, asked ‘how CEOs can square resilience with net-zero promises’.  This question is particularly relevant to the management of supply chains, where resilience and decarbonisation are now major priorities.  Are they in conflict or are there synergies to be exploited?

At a fundamental level, cutting carbon emissions today will help to reduce the future disruptive effects of climate change on supply chains, but this is a long-term, planetary-level relationship. Companies are more interested in the inter-connections between short-to-medium-term strategies to enhance resilience and reduce emissions.

Two initiatives will unquestionably yield both resilience and environmental benefits. Improvements to supply chain visibility, which ESG investors and government regulators are increasingly requiring, will involve greater sharing of risk and emission data.  Closer collaboration across supply networks, often initiated for commercial reasons, can also foster joint efforts to make logistical systems more robust and lower-carbon. 

The combined impact of other options is more nuanced. Take, for example, the shortening of supply chains by more localised sourcing. This may appear to tick both risk- and emission-reduction boxes, but it is debatable how much added resilience ‘reshoring’ actually brings, while minimising emissions on a life-cycle basis often means acquiring goods  from low-carbon producers even over long distances.

Relaxation of the just-in-time principle has been recently been advocated as a de-risking measure.  JIT has also been criticised on environmental grounds for the under-loading of freight vehicles and over-use of airfreight services.  So on this issue there may be an alignment of resilience and decarbonisation objectives, but possibly only with respect to freight transport.  JIT, after all, is not just a method of delivery scheduling; it is a whole business philosophy designed to minimise waste in manufacturing systems, including energy losses.  Easing JIT pressures can increase the carbon intensity of production and warehousing operations, offsetting transport emission savings.

A company can also spread risk and increase resilience by diversifying its supply base and carrier pool.  It is difficult to generalise about the environmental impact of this strategy, though two points are worth raising.

First, shifting freight to lower-carbon transport modes, one of the main ways of decarbonising logistics, can carry a supply chain risk if these modes have a poorer record of reliability.  There is much anecdotal evidence about service failures by particular modes but, to my knowledge, no systematic, cross-modal comparisons of the frequency and seriousness of disruptions. So the ‘jury is out’ on this one.

Second, transitioning to a new generation of low carbon freight vehicles will be fraught with risk.  As 56% of battery-grade cobalt currently comes from the Democratic Republic of Congo, 80% of it is processed in China and two Chinese firms make half of all electric vehicle batteries, the repowering of logistics with low carbon electricity looks fairly precarious, at least in geopolitical terms.  The heavy dependence of net-zero strategies on the switch to renewable energy will undoubtedly pose significant supply chain resilience challenges over the next few decades.

Logistics Manager   February 2023

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Logistics of Carbon Sequestration

Fifteen years ago large-scale removal of CO2 from the atmosphere was considered a form of geo-engineering that would only be used as a last resort if global climate policies failed.  Today it is critical to the net zero strategies of governments and businesses. Its watershed moment came in 2015 when negotiators at the COP21 climate conference conceded that emission reductions alone would not sufficiently constrain increases in average global temperature. Decarbonisation would have to be supplemented with carbon sequestration i.e. ‘negative emissions’.  The more we overshoot our carbon budgets, the more CO2 we will need to recapture. 

Climate modelling suggests that by 2050 around 6 billion tonnes of CO2 will have to be removed from the atmosphere annually, that’s roughly 14 times as much CO2 as the UK emitted in 2021 and 600,000 times more than sequestered annually by the 18 ‘direct air capture’ plants operating globally in 2022.  A ramp-up of this magnitude will be daunting.  The National Infrastructure Commission predicts that ‘engineered’ greenhouse gas removal will become ‘a major new infrastructure sector for the UK over the coming decades’. 

As CO2 constitutes only 0.04% of the atmosphere, you have to filter a lot of air, using complex chemistry and huge amounts of energy, to extract and purify it for use or storage.  It takes around 15 Royal Albert Halls’ of air to capture one tonne of CO2.  Where possible we should capture concentrated streams of CO2 from chimneys and exhaust pipes before they’re released. 

Bio-energy carbon capture (BECC) relies on vegetation to extract the CO2, but it would require vast tracks of land to operate at the necessary scale and confidence that future deforestation, forest fires and storm damage will not seriously impair this nature-based sequestration.  One study also found that end-to-end BECC supply chains from forest to underground storage emitted more CO2 than the amount sequestered! Fortunately software tools have been developed to configure these chains in ways that maximise net CO2 removals.

Value chains will also have to be optimised for sequestered CO2 used in the production of products such as building materials, polymers, proteins and e-fuels.  A new US study estimates there is a ‘global utilization potential’ for around 5% of total CO2 emissions, if only they could be economically captured and distributed at scale.

This highlights the pivotal role that logistics will play in the planetary-level sequestration that will be needed to rescue us from what the UN Secretary General recently called ‘climate hell’.  It would be simplified if the capture and processing of CO2 could be ‘co-located’ with plants using it as a feedstock or sites for permanent ‘geologic’ storage.  Research suggests, however, that much sequestered CO2 will have to be moved long distances.  It has been estimated that Europe will require an 11-17,000 km network of CO2 pipelines by 2050.  The US already has 5150 miles of CO2 pipeline but most of the gas it carries is used to squeeze more oil out of the ground – the last thing we should do with sequestered CO2!

Logistics Manager January 2023

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Electrifying the Highway

When I first heard, almost a decade ago, that trucks might be powered by overhead cables like electric trains and trolley buses, I considered it a fanciful idea.  Now, after seven years of successful trials, mainly in Sweden, Germany and California, both on test-tracks and public roads, I reckon that it offers an effective means of decarbonising road freight. Others are more sceptical.

Let’s first consider the advantages of electric road systems (ERS).  Top of the list is the efficiency with which it distributes low carbon electricity to vehicles – around 3.3 times higher than the use of green hydrogen as the energy carrier. The dynamic charging of vehicle batteries while on the road makes it possible to ‘downscale’ their size and weight, reducing the loss of carrying capacity, the demand for scarce battery materials and the capital cost of the truck, around half of which can be battery-related.  The creation of e-highway corridors on busy routes would also relieve pressure on ‘static’ charging facilities where vehicles relying solely on batteries will require fast-charging during driver rest-breaks.

Critics of ERS mainly question its capital cost and safety. At €2-3million per km, the installation of catenaries on one motorway lane in each direction is expensive, but several UK, German and international studies have shown that this would still prove the most cost-effective way of decarbonising HGVs.  The main safety concern is that overhead cabling might fall onto the road, harming road users. Automatic power cut-offs would minimise the risk of electrocution, but the cables themselves could pose a hazard.  

This assumes, of course, that electrification will be by overhead catenary.  Power can be transferred from below using induction loops or contact rails embedded in the road surface.  French and Italian motorway operators favour these technologies, considering them to be safer, cheaper to install and maintain, and able to power cars, vans and coaches as well as trucks, thereby spreading the capital costs across a larger vehicle population. These surface-based ERS technologies, though, are at an early stage in their development and have had very limited piloting.

One of the biggest obstacles for ERS is its rejection by several European truck manufacturers. They are wedded to using batteries and hydrogen fuel cells as decarbonising technologies, dismissing ERS on various technical, operational and commercial grounds. They doubt the commitment of governments to electrify sufficiently dense road networks to justify carriers’ investment in ERS-enabled lorries.  Some are uncomfortable with the degree of infrastructural dependence this would entail, but the need for dense networks of recharging, and possibly hydrogen-fuelling, stations makes such dependence inevitable on all paths to net-zero road freight.

Scania, on the other hand, belongs to a consortium funded by the UK government to study ERS, which recently concluded that it ‘will present the lowest carbon and most energy-efficient option to decarbonise freight.’  ‘A national ERS rollout’ for HGVs ‘would remove approximately 5% of the UK’s total greenhouse gas emissions’.  Hence, my support for what once seemed a far-fetched idea.

Logistics Manager December 2022

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How Much for My CO2?

A major talking point at this month’s COP27 conference in Egypt will undoubtedly be carbon pricing.  At a global level, the World Bank estimates that a quarter of all CO2 emissions will soon be subject to carbon pricing or taxation.  The time is fast approaching when policy-makers will be using the price mechanism to reinforce the decarbonisation of freight transport. The European Parliament has already approved the phase-in of emissions trading for shipping and commercial road vehicles from 2024.

Some logistics businesses are now preparing for a new era of monetised CO2 by ‘shadow pricing’ carbon into their financial accounting. They often ask what monetary value to attach to their CO2 emissions. A survey by CDP found that over 2000 businesses voluntarily pricing CO2 into their business plans used an average rate of $25 a tonne.  Depending on the purpose of the exercise, the market and the time-scale, CO2 emissions could be worth anything from £2 to over £500 a tonne.

If the purpose is voluntary offsetting to make a freight delivery carbon neutral, you can buy a ‘tech based’ credit for £1.5-2.0 per tonne or a ‘nature-based’ one for an average £8. With the cost of carbon offsetting this low, it’s hardly surprising some companies see it as a cheap and easy alternative to geniunely decarbonising their logistics operations.

Through time the purchase of carbon credits will become mandatory and their cost inevitably rise.  In the world’s largest ‘compliance market’, the European Emissions Trading Scheme (ETS), a tonne of CO2 is currently valued at €66, up from €4 in 2017 but below its peak of €100 in September this year.  Currently the only transport sector subject to the EU carbon ‘cap and trade’ system is aviation, soon to be joined by shipping and road haulage, despite significant opposition.

In May, the Japanese government proposed a global tax on CO2 emissions from shipping of $56 per tonne in 2025 rising to $135 in 2030 and a staggering $637 in 2040.  As a tax, this ‘market-based measure’ would avoid the volatility of carbon emission trading and generate around $50 billion annually to support the maritime transition to low-carbon energy.

Trucking is already a heavily-taxed sector, particularly in the UK.  If the 53p per litre diesel fuel duty paid by UK hauliers were converted to a carbon price it would value CO2 at £211 per tonne, though it is also intended to cover other environmental and infrastructural costs.  This, nevertheless, raises the thorny issue of how future carbon prices will relate to existing taxes and charges in the logistics sector.

The crucial question is how high the carbon price would have to be to meet our climate change targets.  A 2017 study suggested $50-100 a tonne.  Today, with stricter targets, high inflation and less time to avert climate breakdown, this figure would be much higher, though perhaps not reaching the $1000 a tonne that’s been used in the stress-testing of 2050 climate risk in the financial sector

Logistics Manager  November 2022

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Renewed Interest in Longer and Heavier Vehicles

The UK Department for Transport recently published a report on the feasibility of trialling longer and heavier vehicles (LHVs) in the UK. These would be double-trailer lorries up to 25.25 metres long with gross weights reaching 50 or 60 tonnes.  The present government seems fairly sanguine about this relaxation of truck size and weight limits, unlike its predecessor in 2008.

Back then I was involved in a government-sponsored study, led by TRL, of whether LHVs should be allowed on British roads. Several months before our report was published, the Secretary of State for Transport declared that she would not be approving them – a rather premature remark from a department priding itself on ‘evidence-based decision-making’. I also got lampooned for my contribution to this research in an article in Private Eye entitled ‘Trucking Hell’.  One needed a thick skin to get involved in the LHV debate.

Over the past 15 years several developments have increased support for LHVs.  For example, two influential reports by the International Transport Forum in 2010 and 2019 concluded that, in countries with adequate road infrastructure, LHVs can offer significant economic, environmental and safety benefits.

Other European countries, including the Netherlands, Denmark and Spain, have successfully legalised them, while Finland, with a long history of operating LHVs, recently extended its length and weight limits to 34.5 metres and 75 tonnes.  As discussed in my February 2022 column, double-decking has enabled UK lorry operators to gain extra carrying capacity vertically, an opportunity denied their counterparts elsewhere in Europe.  While this may constrain British demand for LHVs, it is still likely to be sizable. 

There has, after all, been a strong uptake of licenses to participate in the UK trial of longer semi-trailers since 2012.  Over the past decade, a pilot fleet of 2800 trailers up to 2 metres longer than standard have saved one in 12 journeys and 60,000 tonnes of CO2.  A further extension of vehicle length, coupled with a weight increase, would yield proportionally greater savings.

Pressure to decarbonise road freight operations is more intense today than in 2008 and the consolidation of loads in ‘high capacity vehicles’ increasingly seen as a cost-effective carbon-reducing measure.  It has been estimated that 25% of ‘demand-side’ CO2 reductions from UK road haulage could come from the use of LHVs by 2035. 

Rail companies and lobbyists have long opposed the approval of LHVs, arguing that it would conflict with governments’ modal shift commitments.  A UK commodity-level study, however, has concluded that LHV cost and CO2 savings would be ‘likely to outweigh possible effects of modal shift from rail to road’.

To allay fears that LHVs will stray onto inappropriate roads, network restrictions can be imposed and GPS-based monitoring used to ensure compliance.  With the help of such an Intelligent Access Program Australian road authorities have been managing LHV traffic since 2008.

Convincing the public that bigger lorries are better may, nevertheless, prove challenging.  A name change may help.  We should call LHVs ‘high productivity vehicles’ or even adopt the European term ‘Eco-combi’.

Logistics Manager October 2022

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Logistics in a Hotter World

This summer’s heatwaves, droughts and wild fires are just a foretaste of what is to come. For example, in its high emission scenario, the UK Met Office forecasts a 20-fold increase in ‘hot spells’ requiring public health warnings by 2070. What lessons should logistics managers be drawing from yet another year of extreme weather events?

There should be greater recognition that logistics is a victim as well as a cause of climate change, requiring more rapid adaptation to weather-related threats that cannot be averted in the short to medium term.  Weather systems are changing more quickly than many climate models predicted, demanding urgent action that cannot be left to future generations of logistics managers.

Extreme weather shouldn’t be seen in isolation.  It often interacts with other causes of supply chain disruption to amplify their combined impact.  A current example is the exceptionally low water level on the Rhine.  This is impeding barge movements of the coal that Germany needs to replace the gas imports being blocked by Russia’s ‘weaponising’ of energy supply chains.  

The vulnerability of inland waterways to drought and of railways to extreme heat also carries implications for the use of modal shift as a means of decarbonising logistics.  Companies have to consider the climate risk profiles of these low-carbon transport modes when deciding where to transfer freight from road.  In the case of rail, the risk of heat causing track to buckle and overhead cabling to sag can be reduced by ‘re-optimising’ the network for a higher temperatures, though the seasonal variability of UK weather makes this difficult.

Preparing logistical systems for a hotter future extends well beyond transport infrastructure. The welfare of the workforce in warehouses and vehicles and the quality of many of the products they store, handle and move will require much greater temperature control, with all that entails for carbon emissions.  At a more fundamental level, the supply chains of products whose supply and demand is particularly sensitive to heat and drought will have to be reconfigured at national, continental and global levels.  This will alter the pattern of demand for logistics services.

While water consumption within logistics is relatively low by comparison with other sectors, the redistribution of water from wet to dry regions is likely to become a more important logistical activity. Earlier this year, the Pali district in India became almost totally dependent on the supply of water by rail in 2-million litre tanker trains. In recent weeks, over 100 French municipalities have had to receive deliveries of drinking water by road.  The UK Environment Agency points out that long distance water transfers ‘have the greatest potential for increasing drought resilience’ but acknowledges that creating a new national pipeline grid would present major physical, financial, regulatory and legal challenges.

Finally, countries will need to ramp-up logistical support for fire and rescue services for which demand can grow exponentially during hot, dry periods.  They, after all, are at the front-line of the climate emergency.

Logistics Manager Sept 2022

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A Logistical Perspective on Scottish Independence

A Logistical Perspective on Scottish Independence

The Scottish Government is planning to hold a second independence referendum on October 19 2023.  This depends on the UK government granting approval and/or the Supreme Court judging it legal. In the meantime, we can reflect on the logistical challenges that an independent Scotland would face.

A recent Scottish Parliamentary report acknowledged that ‘Scotland’s supply chains are closely integrated with those of the rest of the UK and globally’. Many companies have optimised their logistics systems across the UK as a whole, exploiting scale economies and the benefits of inventory centralisation. Capacity in warehousing, parcel and pallet hubs, ro-ro terminals and container ports has concentrated south of the Border, making Scotland dependent on England’s logistical infrastructure. 

Many UK businesses, however, distribute their products nationally on a uniform delivered price basis, not charging Scottish customers for the higher freight costs associated with peripherality. The main exceptions are parcel companies and online retailers that often charge higher rates for delivery to more remote Scottish post-codes.

In terms of freight movement Scotland is relatively self-contained.  In 2020, 89% of the country’s road freight was ‘intra-regional’ compared with an average of 63% in the English regions.  It might need to become even more logistically self-sufficient if, post-independence, a trade barrier were erected between Scotland and the rest of the UK (RoUK).

Such a barrier would have been created with the EU Single Market had Scotland become independent after the 2014 referendum and been forced to leave the EU, at least temporarily.  In 2016, Scotland voted overwhelmingly to stay in the EU and resentment over being ‘dragged out’ by Brexit-supporting English voters now fuels much of the support for independence. The ability to rejoin the EU is central to the case for separation.

On regaining EU membership, an independent Scotland would be re-integrated into the Single Market and Customs Union.  The formation of a ‘hard border’ with the RoUK could then require extensive customs and regulatory checks as 67% of Scotland’s ‘imports’ come from the RoUK and 62% of its ‘exports’ travel there.   In trading terms, Scotland is much more tightly coupled to the UK than Northern Ireland and has no equivalent of the ‘Good Friday Agreement’ to block the creation of a hard border.

In June 2022, Scotland’s First Minister, Nicola Sturgeon conceded that ‘there will be customs and regulatory issues on trade if we are in the Single Market’, but insisted that ‘the benefits of Scotland being independent far outweigh any of these challenges’.  This is reminiscent of the assurances made during the Brexit campaign that ways would be found to resolve border issues on the island of Ireland that have since proved vacuous. 

Logistics and trade issues did not feature prominently in Scottish independence debates back in 2014. Brexit has now shown how critical they are to changes in a country’s sovereignty and how intractable they can be.  If IndyRef2 gets the go-head, those campaigning for independence will need to spell out much more clearly how it will impact on supply chains and freight flows.

Logistics Manager  August 2022

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Logistics at Davos

The World Economic Forum’s Annual Meeting 2022 in Davos in May this year was smaller than normal with many ‘A-listers’ absent. It still brought together around 2200 executives, public policy-makers and experts to debate an unprecendented set of global issues.  During my two previous visits to Davos in 2011 and 2012 there was little in the main programme about logistics and supply chains. This time, supply / value chain resilience was one of the dominant themes, with its own sessions and frequent mention in general debates on trade, energy, war and globalisation. Here are some of the ‘take-aways’.

There was wide recognition that disruptions to global supply chains over the past two years have been so severe and prolonged that we will not now return to some pre-2020 normality.  This does not mean that globalisation will go into reverse to shorten supply chains.  The concept of ‘de-globalisation’ is rather simplistic and one-dimensional.  It under-estimates the true complexity of global value chains.  A process of ‘re-globalisation’ is more likely, with value chains being reconfigured to broaden the supply base in both geographical and corporate terms.  To the vocabulary of off-shoring, re-shoring and near-shoring is now added ‘friend-shoring’, i.e. sourcing more from liberal democracies that can be trusted not to go to war with us or get sanctioned.

This reflects the new role that geopolitics is playing in reshaping supply chains.  Davos discussions suggest that, given the recent impact of supply disruptions on macro-economics, social welfare and international relations, business efforts to strengthen resilience need to be bolstered by government action, as currently underway in countries such as the USA and Australia. There was broad consensus that this should involve close public-private collaboration and avoid becoming an excuse for trade-reducing protectionism.

Logistics also featured in discussions on another major Davos 2022 theme – climate change.  There were sessions specifically on the decarbonisation of road freight and shipping at which uncertainties about the future low-carbon energy mix persisted.  Whatever the final mix, huge investment will be required in the infrastructure to produce, distribute and store the renewable energy and to manufacture and retrofit the trucks, vessels and planes to use it.  To accelerate this investment the WEF launched its First Movers Coalition at COP26 to harness ‘the purchasing power of companies to decarbonise seven hard-to-abate sectors’ including trucking, shipping and aviation. It was announced at Davos that the coalition has grown from 35 to 55 companies with a combined market value of $8.5 trillion and including four logistics businesses, DHL, Maersk, Fedex and Agility

Another sector was added to the Coalition – carbon dioxide removal (CDR).  At a session on this topic it was predicted that by 2050 we may need an industry the size of today’s oil and gas sector to remove enough CO2 already in the atmosphere to keep the global temperature rise within the critical 1.5oC by 2100.  This could involve transporting twice as much liquidised CO2 in 2050 as the amount of fossil fuel moved today – hopefully over short distances, but still a massive logistical challenge.

Logistics Manager July 2022

Posted in - blogs on logistics themes | Comments Off on Logistics at Davos

© Professor Alan McKinnon 2024

Kuehne Logistics University
Hamburg
Germany

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© Professor Alan McKinnon 2024

 

Kuehne Logistics University
Hamburg
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