Current issues in logistics and transport

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 26^th 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. 

Logistics Manager June 2022

Back in 2004 I wrote a report entitled ‘life without lorries’ to show how dependent we are on road haulage in the UK.  It examined how long it would take for supplies of most products to run out in the event of an abrupt cessation of road freight operations. Without panic buying, it would have taken around 4 to 5 days. This, of course, was a most unlikely scenario. Even during the first Covid lockdown, UK lorry traffic dropped by ‘only’ 40%.

The pandemic and its aftermath have, nevertheless, severely stress-tested supply chains showing just how fragile they are. Thirty years of globalisation, centralisation, inventory reduction, time-compression and single-sourcing – all promoted as good business practice – have left supply chains highly vulnerable in a world of extreme weather, medical emergencies, cyber threats and geopolitical crises. In pursuit of cost reductions, companies increased the exposure of their supply chains to risk and reduced their ability to recover quickly from disruptions.

According to recent surveys, many companies are now redressing this balance.  They are prioritising supply chain resilience over other business goals, finally heeding the advice of twenty years of literature on business continuity.  Its standard prescription has been to improve supply chain visibility, source more locally, relax just-in-time regimes, diversify the supply base and build more redundancy into systems.  But will all this be enough to deal with the series of mega-shocks that have hit global supply chains in quick succession in recent years? 

Supply chain disruptions have traditionally been seen as having a U-shaped profile, suggesting a return to some previous state. The pandemic, the Ukrainian war and climate change, all major supply chain disruptors, are collectively pushing us into new world order. This will require a shift from what the Economist Intelligence Unit calls ‘real time’ to ‘strategic’ supply chain resilience, the latter being ‘an ability to bounce forward and adapt to a new normal’. 

One could get into a semantic argument about where resilience ends and adaptation begins. Suffice to say that the longer term process of adaptation to climatic and geopolitical realities will impose new stresses on supply chains to which companies will have to become more resilient.

The latest IPCC report on adaptation to climate change emphasises the need for greater protection of supply chains against changing weather patterns and rising sea levels.  The huge reductions in greenhouse gases required to meet net zero targets will also require the reconfiguring of upstream supply chains because typically it is from there that 80% or more of company’s carbon emissions emanate.

Another pressing concern is the break-down of the liberal economic order that has underpinned 30 years of globalisation and the related ‘weaponising’ of supply chains as a surrogate for military action.  As Mark Leonard observes in his recent book the Age of Unpeace, ‘hitting one small link in the chain …can be enough to bring a company or country to its knees’.   The Ukrainian crisis is bringing this new geopolitical threat to supply chains into sharp relief.

I wonder how many readers are familiar with the Physical Internet concept, or PI for short.  As the name suggests, it would be a physical manifestation of the digital internet applying similar organisational principles to the movement of freight as to the flow of emails.  According to a 2014 book on the subject by Ballot et al, it would create a ‘global logistics system based on the interconnection of logistics networks by a standardized set of collaboration protocols, modular containers and smart interfaces for increased efficiency and sustainability’. 

The original term appeared in an Economist article back in 2006, but the early development of the concept is mainly attributed to a French Canadian professor called Benoit Montreuil. His initial papers and a much-viewed TEDx talk on the subject spawned a literature of around 190 publications between 2008 and 2019, a third of them academic.  What seemed at first a rather far-fetched idea, gained credibility and traction when the PI was adopted by the European Technology Platform for Logistics (ALICE) as its 2050 vision of European logistics.

The PI has been variously described as a ‘new supply chain paradigm’, ‘probably the most ambitious concept towards efficiency and sustainability in transport and logistics’ and even ‘the logistics innovation of the century’.  So why is it not featuring more prominently in logistics discussions and business plans?  I would suggest for four inter-related reasons.

First, although ALICE and others have been busily raising the profile of the PI through reports, videos, webinars and conferences, it takes time to spread the word.  It is also difficult to draw the attention of managers to a concept that many may perceive as being rather academic and still more theoretical than practical.  Third, the concept itself is so radically different from current logistics practice that most businesses probably regard it as well beyond their planning horizon. Finally, there is the question of how existing logistics systems will migrate to a PI world of open, re-modularised systems, shared assets and devolved control.  

In response to this question, ALICE has plotted a series of roadmaps showing how nodes, networks, access and governance can be transformed to realise the PI vision.  The case for this transition has been greatly strengthened by EU and UK climate change targets. By offering the prospect of much higher utilisation of vehicle and warehouse capacity, the PI could be critical to the decarbonisation of logistics, possibly cutting its energy consumption and emissions by 30% by 2030.

The need for deep and rapid decarbonisation coupled with faster-than-expected digitalisation of logistics has compressed PI time-scales.  ‘Advanced pilot implementations’ are now expected by 2030  with ‘full Physical Internet implementation’ by 2040.  Even if the PI is to be the logistical holy grail, this 10-20 year time-frame probably seems an eternity to managers who in 2-3 years have had to wrestle with Brexit, the pandemic, the worst global trade disruptions in a generation, acute labour shortages and now the supply chain impacts of the war in Ukraine.

Logistics Manager  April 2022

Taxes on transport fuel generate around £28 billion of UK government income annually, but not for much longer. As we transition to an era of low-carbon electro-mobility, they will need to be replaced by a new system of distance-based charging.  So argued a recent Transport Select Committee report on road pricing – but with barely a mention of freight traffic. The fact that UK-registered heavy goods vehicles (HGVs) run around 17 billion miles annually on Britain’s roads and contribute over £5 billion in fuel tax appears to have been overlooked.

There may be some hesitation in taxing trucks by the kilometre following the Lorry Road User Charging (LRUC) fiasco of 2003-2005.  As a staunch critic of this scheme, I felt it involved taking a ‘sledgehammer to crack a nut’.  The ‘nut’ back then was a policy objective to ‘level the playing field’ between British hauliers and foreign competitors filling their tanks with cheaper diesel fuel before entering the country. This was a worthy goal but one that could have been achieved more cheaply and easily. The government abandoned its LRUC scheme in 2005, but not before £50 million had been squandered on planning and consultancy.

I was never opposed in principle to the application of road pricing to freight vehicles and, like the Transport Committee, now see it as the best option for post-fossil-fuel taxation.  Dividing the annual fuel tax lorries currently pay by the total distance they travel suggests an average charge of around 30p per mile.  It is unlikely, however, that this would be imposed uniformly.  Governments, and possibly local authorities, are likely to use the flexibility offered by GPS-based road pricing to vary charges by time of day and congestion level, thereby using the price mechanism to manage road capacity. 

The technology for road pricing is much more sophisticated and widely-applied today than in 2005.  A 2021 survey found that 79% of UK freight fleets were using telematics.  Six other European countries have had more than 10 years experience with the ‘electronic network-wide tolling’ of trucks and accumulated extensive experience that can be shared internationally. 

The switch to distance-based taxation will still raise a host of economic and administrative issues.  For example, should it run in parallel to the current system of diesel fuel duty while the truck fleet ‘defossilises’? How can the present zero-tax status of electric vehicles be phased out without discouraging the shift from diesel?  And how can we ensure that a UK system of electronic truck tolling is inter-operable with that of our EU neighbours post-Brexit?

The Transport Committee’s plea for urgent government action on this applies as much to lorries as cars.  Hauliers will soon need to know how the total cost of ownership (TCO) of the new generation of electric vehicles compares with diesel equivalents. As diesel fuel tax represents almost a quarter of the cost of running a 44 tonne artic, the relative economics of electric and diesel traction will be strongly influenced by the choice of charging regime.

Logistics Manager  March 2022

The double-deck trailer is the unsung hero of UK logistics.  Few road freight innovations have brought such economic and environmental benefit and yet been largely confined to this country. The double-deck is a form of ‘high-capacity transport’ made possible by relatively generous height clearances across the UK road network.  Surprisingly, unlike most other European countries, Britain has no legal limit on trailer height.  Its 5 metre ‘custom and practice’ limit is around a metre higher than that in most other countries, allowing operators to carry two layers of pallets. This expands load space vertically rather than horizontally as has happened elsewhere.

I co-authored the first study of double-deck trailers exactly 25 years ago. It forecast that they would have a bright future, particularly as an increasing share of road freight was of low density and requiring greater cubic capacity. I returned to the subject in 2010 when a European Commission plan to standardise maximum trailer height at 4 metres would have resulted in the UK double-deck fleet being phased out.  I estimated that, on an annual basis, this would have increased UK road haulage costs by £300 million and CO₂ emissions by 320,000 tonnes.  Thankfully, the plan was dropped. Since then the number of double-deck trailers in the UK has risen sharply.

Nobody knows exactly how many currently operate on UK roads because there’s no trailer registration scheme.  Data from the government’s annual road freight survey suggested that their share of the trailer fleet rose from 3% to 7% between 2004 and 2013.  Unfortunately, 2013 was the last year this survey separately categorised them.  Don Bur, a major producer of double-decks, estimates they now represent 10% of all trailers, numbering around 25,000, with 2500-3000 more manufactured each year.  Many of the new ones are longer-semi trailers (LSTs), allowing operators to carry up to 60 pallets. That’s an impressive 130% more carrying capacity that the standard 26 pallet single-deck articulated lorry.

A government report in 2007 extolled the virtues of double-decking, suggesting that 48% reductions in fuel use and CO₂ emissions per pallet were possible. Since then the development of new double-deck configurations, improved aerodynamic profiling, lightweighting and the installation of roof-mounted solar panels have further enhanced their contribution to road freight decarbonisation. It is surprising, therefore, that no reference was made to them in the government’s Decarbonising Transport plan published last year.  Perhaps the government considers the double-decking trend to have enough market momentum without the need for public policy support. 

Double-decks do have their downsides.  Their greater height and higher centre of gravity increases the incidence of bridge strikes and roll-overs, though adherence to advice given by the HSE on how to operate them safely helps to minimise these additional risks.  As climate change increases the frequency and intensity of storms they will become more vulnerable to cross-winds.  Their greater height would also make the catenary electrification of UK motorways for trucks more challenging, but still possible. So, on balance, we should be grateful that so much of our freight now moves in these giants of the motorway.

Imagine that it’s January 2030 and last month you had to adjust your Christmas shopping to a new constraint. As the year-end approached, your annual personal carbon allowance,  or PCA, was running out and so you had to find low-carbon presents for family and friends.  Now that all goods and services have a carbon label, every purchase triggers an online deduction from your PCA.  For 2029 the government had given you, like everyone else, a mere 3 tonnes of CO₂ to emit, in line with its ‘net zero’ strategy. 

Is this science fiction or a realistic portrayal of life in a future low carbon world?  The PCA is not actually a new concept.  It was the subject of several UK government reports back in 2008 and promoted by the then Environment Secretary, David Miliband as a ‘thought experiment’. It would have been confined to household heating, electricity use and travel, but was still considered too difficult to implement for a mix of social, economic and technical reasons. 

The idea has recently resurfaced in the press and academic literature, with the suggestion that it be extended to all personal consumption. That would include embedded emissions in all the products we buy, which represent around half of the average person’s carbon footprint. It would require the carbon auditing of all products on an end-to-end supply chain basis.

I’ve been sceptical for many years about the feasibility and desirability of carbon measurement and labelling at a product level.   Attempts by companies, such as Tesco, Boots and Pepsico, 10-15 years ago revealed how difficult and costly this was, particularly for multi-ingredient/component products with complex global supply chains.  After all, many companies report that over 90% of their carbon emissions come from their supply chains rather than their internal operations.

Although great progress has been made in the calculation and reporting of logistics-related emissions at a company, service, trip and even consignment level, drilling down to a product level still presents a formidable challenge.  Even if companies developed the capability to do this in an accurate and affordable way, there would still be a need for independent verification of the CO₂ value quoted on the packaging. Otherwise companies might under-report emissions to gain market share.

Merely carbon labelling products would be unlikely to induce much of a shift to lower carbon consumption. Hence the need for PCA to keep consumers within an annual carbon budget and to charge them for extra carbon credits should they overshoot. Such credits probably funded much of the fictional Christmas spending in 2029.

So why not simply use carbon pricing to monetise the whole process, thereby avoiding the need for elaborate systems of emission auditing and personal carbon accounting.  As Tim Harford explained recently, imposing carbon taxes on energy use at a company level ‘sends a signal along all those supply chains, nudging every decision towards the lower-carbon alternative’.  The carbon intensity of products can then be reflected in their selling prices, giving future consumers one less thing to worry about when agonising over who gets what for Christmas.

I was one of 14,124 observers at COP26 and there was plenty to observe.  COP conferences have three layers: an inner sanctum where government negotiators wrangle over the climate agreement, a ‘blue zone’ full of country and organisational pavilions where many thousands busily network and, beyond the perimeter fence, a wealth of climate-related activity in exhibitions, seminars, cultural events and, of course, protests. 

This makes it virtually impossible to capture the true essence of a COP.  Its outcome is judged by the wording of the final document which, for COP26, was the Glasgow Climate Pact, ten pages of commitments to which 197 countries have agreed, often reluctantly. But this overlooks all the initiatives launched at COP26 by groups of countries, trade bodies, NGOs etc, which collectively should yield significant carbon reductions.

It is at this level, below the high-level climate diplomacy and out of the media spotlight, that you find references to the decarbonisation of transport and logistics.  As in most climate forums, personal travel, particularly by car, received much more attention at COP26 than the movement of freight.  Freight certainly merited much more consideration given its 40% share of global transport emissions.  To date, it has been largely neglected in the COP process, with very few countries explicitly mentioning freight transport in their Nationally Determined Contribution submissions to the UN. 

Several concrete actions did emerged from COP26 which should help to decarbonise freight operations. For example, 22 countries, including the UK, signed up to the Clydebank Declaration for Green Shipping Corridors that will create at least six zero-emission maritime routes between two or more ports by the middle of this decade.

Fifteen countries also signed a global MOU to ban the sale of new diesel-powered trucks by 2035 (gross weight < 26 tonnes) and 2040 (> 26 tonnes).  These governments were undecided on the renewable energy technologies that will replace diesel engines, leaving it to the proponents of batteries, hydrogen-fuel cells and biofuels to lobby COP audiences on their respective merits.  The case for highway electrification was relegated to an off-site meeting, but there plans were discussed for a British ‘trolley truck’ trial in Teesside, supplementing those already underway in Germany and Sweden.

Although the UN’s Climate Action Pathway envisages 40% of new truck sales in ‘leading countries’ being low-carbon by 2030, this will make little contribution to the halving of global CO₂ emissions required by 2030.  Over the next nine years, much of the reduction in logistics emissions will have to come from changes to business practice.  One managerial initiative launched at COP26, should, for example, encourage companies to attach more importance to carbon intensity when procuring freight services.  The Sustainable Freight Buyers Alliance (SFBA), established by the Smart Freight Centre and supported by companies such as Nestle, P&G, HP, Tata Steel and Maersk, aims to save 100 million tonnes of CO₂ by 2030.

A common theme in most logistics-related initiatives at COP26 was multi-stakeholder collaboration, involving shippers, logistics businesses, IT companies, energy suppliers, infrastructure providers, financial institutions, NGOs and governments.  In the words of President Biden at COP26, ‘solidarity, partnership, cooperation, and global collaboration are key.’

Targeting Rail Freight

The UK government published its long-awaited ‘Decarbonising Transport’ plan in July.  It contains a commitment to ‘work closely with industry partners to develop’ ‘a rail freight growth target’.  It would actually be better to set a freight modal split target because, in carbon terms, the division of freight between transport modes matters more than the amount moved by a single mode.  

Before Brexit, the UK was covered by a freight modal split target, the one the EU declared in its 2011 Transport White Paper. It aimed to get 30% of freight travelling further than 300km onto the rail or waterway networks by 2030.  This would have seen rail’s share of the European freight market more than double from 18.6% in 2011 to 39% in 2030.  In fact it dropped to 17.6% by 2019. 

With this rail percentage heading in the wrong direction, the EU has now replaced its modal split target a rail freight growth target. As part of its ‘sustainable and smart mobility strategy’ it wants rail tonne-kms to increase by 50% between 2015 and 2030.  This would be 12 times faster than it grew between 2011 and 2019, casting doubt on the feasibility of the new target.

Recent history suggests that the UK target-setters should be more realistic.  Between 2013 and 2019, rail freight tonne-kms in the UK fell by 27%, bringing rail’s share of Britain’s freight market down from 12% to 8% – i.e. back to its 1996 pre-privatisation level.  The main reason for this reversal of rail’s fortunes has been the dramatic loss of coal traffic. It is ironic that the decarbonisation of our electricity supply is depriving our most carbon-friendly freight transport mode of what, for decades, was its core traffic.

Rebuilding rail’s freight market share will be difficult, particularly if we continue to measure it in tonne-kms.  As a dense product, latterly moving relatively long distances from ports to power stations, coal generated billions of rail tonne-kms annually.   Many of the lower-density, higher-value commodities, often packaged and palletised, which the railways hope will drive future growth would be better measured by volume than by weight.  Research by Dr. Allan Woodburn back in 2007 showed how sole reliance on tonne-kms did ‘not provide a true indication of the nature and extent of change’ in rail freight markets.

So the choice of metric for the new rail freight target will be critical.  Since modal shift is now largely justified on decarbonisation grounds, the best KPI would be CO₂ reductions.  After all, measures of the amount of freight moved by rail in absolute or relative terms are merely surrogates.  What matters is the contribution of freight modal shift to Britain’s over-riding goal of being a ‘net zero’ economy by 2050. 

Using CO₂ savings as the main targeting parameter would also have the advantage of tracking changes in the average carbon intensity of road and rail freight operations through time.  Rail currently has a 3 to 4-fold carbon advantage over road, but this gap will narrow as the next generation of lorries joins freight trains in being powered by low carbon electricity. The environmental case for promoting rail will then need to be regularly recalibrated.

A UK government report in 1975 suggested that lorry traffic would grow ‘in perpetuity’ – in other words, forever¹.  One of its main critics, Dr. John Adams, then felt at liberty to extrapolate its forecast well into the future, to 2205 in fact, when half the population would have to be lorry drivers to move the projected amount of road freight².

What the government forecasters failed to anticipate was that within a few decades there would be a chronic lack of people willing to drive lorries.  This shortage is now particularly acute in the UK because of the combined impact of Brexit, the pandemic delaying HGV tests and the IR35 tax reforms that took effect in April³. Underlying the current crisis, however, are structural employment problems in road haulage that date back many years and afflict many countries. 

A global study we did for the World Bank⁴ on logistics skills shortages found 20 years of literature on truck driver shortages and several parliamentary inquiries.  Other countries such as the US, Germany, Brazil, South Africa, India and Japan have been wrestling with this problem for many years, often poaching drivers from neighbouring states. There has been a westerly migration of truck drivers within Europe and from central Asia to fill vacancies in Poland and Romania. The post-Brexit return of around 15,000 EU drivers from the UK5 is now reversing this flow and contributing to what the RHA is warning could become ‘catastrophic’ for UK supply chains⁶.

Following a recent survey of 777 road transport companies in 23 countries, the International Road Transport Union (IRU)⁷ concluded that the ‘driver shortage threatens the functioning of road transport, supply chains, trade, the economy, and ultimately employment and citizens’ welfare’.   Its wide-ranging assessment of the problem suggests there are fundamental issues to be addressed and few quick fixes.

Much of the problem is demographic.  Very few young drivers have been entering the haulage industry to replace the many who will be retiring over the next decade. Worldwide the average age of a truck driver is 50 (in the UK it is 47).  Only 2% of truck drivers worldwide are female⁸. So what is making lorry driving such an unattractive career option for the young and for women?  And why are so many people with HGV licenses (estimated to be 600,000 in the UK alone⁹) not actually driving trucks. In most countries the answer lies in four words: image, status, pay and conditions.

The International Labour Organisation¹⁰ may have lauded truck drivers as ‘heroes of the road’ during the pandemic, but the UK government still doesn’t regard lorry driving as a skilled enough occupation to qualify foreign drivers for ‘skilled worker visas’ ¹¹. Given the critical role they play in the economy, the demands and stresses of the job and the increasingly complex world of regulation and IT within which they operate, lorry drivers deserve much more respect and higher rewards. It will after all be many years, though much sooner than 2205, before mass use of autonomous vehicles consigns lorry driving to history.

References:

1. Department of the Environment (1975) ‘Standard Forecasts of Vehicles and Traffic’  Technical Memorandum H3/75.

2. Adams, John (1981) ‘Transport Planning Vision and Practice’ Routledge Kegan Paul, London (p.205) (Professor John Adams was my PhD supervisor at University College London.)

3. Exodus of EU truckers leaves UK hauliers facing acute driver shortages  Financial Times,  9 May 2021

4. McKinnon, Alan, Flöthmann, Christoph; Hoberg, Kai; Busch, Christina (2017) ‘Logistics Skills, Competences and Training: a Global Overview’  World Bank, Washington DC.

5. ‘UK confronted with worsening truck driver shortage’ Lloyds Loading List, 4 June 2021

6. ‘RHA launches 12-point plan to avert “catastrophic” HGV driver shortage’ Motor Transport, 7 June 2021.

7. ‘New IRU survey shows driver shortages to soar in 2021’ IRU, Geneva. 3 March 2021

8. ibid

9. Smith, Kieran (2021) ‘A perfect storm of elevated demand and reduced supply in the UK haulage sector 2021: investigating HGV driver demand & supply’  Driver Require.  19 May 2021

10. ‘Help needed for the “heroes” of the road’ International Labour Organisation (ILO), Geneva 19 March 2021

11. Financial Times, op.cit.