Last month, during the first Smart Freight Week in Rotterdam, the Sustainable Freight Buyers Alliance (SFBA) was officially launched. This joint initiative by the Smart Freight Centre, the World Economic Forum and BSR will promote procurement as a means of accelerating the decarbonisation of logistics.
In my presentation at the launch event I quoted some big numbers to outline the potential scale of this initiative. Estimates of total global spend on logistics in 2020 range from $9.1 to $10.6 trillion, by coincidence representing around the same 11-12% share of global GDP as logistics’ share of worldwide energy-related CO2 emissions. Roughly 60% of logistics expenditure is outsourced, giving the buyers of logistics services about $6 trillion of leverage on the behaviour of logistics providers.
Until recently little of this leverage was exerted on environmental performance. Numerous surveys over the past 20 years have shown freight buying decisions dominated by price and service quality criteria, with carriers’ environmental credentials largely ignored. This was partly justified in the past by cargo-owners lacking the necessary data to compare carriers’ emissions on a consistent basis. Thanks to the efforts of, among others, the Clean Cargo Working Group, the Global Logistics Emissions Council and the developers of a range of online emission calculators, this is no longer an acceptable excuse.
A more fundamental constraint has been the traditional view that freight transport is a basic service to be purchased as cheaply as possible. The commoditisation of third-party logistics, what has been called the ‘intensification of cost-based competition’, is widespread, particularly in fragmented, standardised sectors of the market. It is not conducive to decarbonisation. Carriers need to be motivated to cut their emissions and given the resources to do so. Survey evidence suggests this is not currently the case. For example, 51% of 800 small and medium-sized European road hauliers surveyed in 2020 perceived little or no ‘business opportunity in environmental efforts’.
A co-ordinated effort will be required to make freight procurement more carbon-sensitive and give carriers the support they need at an industry level. For this reason, a ‘collaboration catalyser’ is one of the main pillars of the SFBA. Hopefully this won’t alarm those logistics providers that in the past have seen collaboration negatively as shippers trying to ‘gang-up’ on them. SFBA members must ensure that what is essentially an environmental initiative does not spill-over into an abuse of commercial buying power.
Membership of SFBA is only open to cargo-owners, with major players such as Nestle, Unilever, P&G, Pepsico and HP in its ‘founding circle’. Logistics providers can become partners of the initiative and several are already interested in assuming this role. This is hardly surprising as many are themselves major buyers of freight services either on a brokerage basis or through the sub-contracting of transport to smaller operators. It is worth noting too that in the 26th annual survey of third-party logistics providers published recently ‘sourcing / procurement’ was rated the ‘supply chain area’ with the greatest environmental, social and governance (ESG) potential.