The Imperative for Logistics Decarbonization
As global organizations chart a path to net zero, many are looking to the next frontier of emissions reduction: “Scope 3” emissions. These emissions are not directly produced by a company’s operations, but embedded in its supply chain. They account for the vast majority of companies’ emissions, and a significant portion are generated from supply chain and logistics activities—in particular, from the combination of road and ocean freight.
In total, logistics emissions from freight and warehousing account for at least 7 percent of global greenhouse gas (GHG) emissions. Any successful path to net zero will thus need to address them as part of a company’s holistic environmental, social, and governance (ESG) strategy.
Stakeholders are increasingly holding companies to their GHG commitments. In June 2023, 46 percent of surveyed global institutional investors listed navigating the low-carbon transition as their most important investment priority in the next three years. Consumers are also increasingly favoring sustainable products, with more than 65 percent of US-based survey recipients saying they actively seek out sustainable products, and around 80 percent willing to pay a premium for them.
Companies across sectors are beginning to think about lower-carbon shipping in response to these dynamics. McKinsey surveyed 250 global shippers and providers and found that the majority of companies have started integrating green shipping into their logistics programs. Importantly, more than seven in ten said they would be willing to pay more for green shipping products. This demand may translate into real dollars in the coming years, with McKinsey analysis indicating that demand for green logistics could reach an estimated $350 billion in 2030, comprising around 15 percent of total global logistics spend.
Challenges in Decarbonizing Logistics
While the future of green logistics is promising, progress to date has been limited. Nearly half of companies surveyed by McKinsey have no decarbonization goals in place. Only a quarter have both set goals and believe they have the means to achieve them; a similar number admit they don’t believe they can reach their carbon-reduction targets.
There are several structural and perceived obstacles to decarbonizing logistics:
First-mover hesitancy: While shippers have set logistics decarbonization targets and are, in principle, willing to pay for low-carbon shipping, there is limited high-quality, widely available supply of low-carbon shipping today. From a carrier perspective, building low-carbon shipping supply requires capital-intensive investment and new knowledge and capabilities. Shippers, for their part, are hesitant to commit financial resources to underwrite electric fleets, with near-term uncertainty around operational viability or where assets are not immediately available.
Uncertain new technologies: New decarbonization technologies present a range of challenges beyond cost, such as disposal of residual assets, strains on OEM capacity, production-capacity limits on biofuels, and uncertainty around the total cost of ownership (TCO). Many incumbent companies are testing low-carbon technologies but are reluctant to scale until there is greater technological certainty.
Sector and company-specific considerations: Individual logistics use cases can complicate planning and follow-through on net-zero goals. For example, the US utility industry faces broad, state-level decarbonization policy targets in addition to company-level net-zero goals. At the same time, utility company fleets face unique constraints such as hurricane preparedness, where company vehicles must idle for up to 24 hours in storm locations—which current charging infrastructure and fleets cannot yet support. For ocean shipping with its higher energy needs, battery power is not a realistic solution, and the supply of sustainable fuels in major global ports is also not yet available.
Despite the challenges, viable routes to logistics decarbonization are opening up as technology solutions become more widespread and affordable. McKinsey analysis indicates that a 40 to 50 percent reduction in logistics emissions by 2030 is achievable using technology that is available today.
Near-Term Actions to Reduce Emissions
In the short term, there are proven, cost-effective decarbonization levers that can be pulled today. Actioning these opportunities starts by taking a holistic and analytical view of the supply chain to minimize distances traveled and improve emissions efficiency per mile.
Reducing distances traveled: This begins with network redesign, requiring a detailed, data-driven understanding of current warehouse or asset locations and associated relocation costs, demand forecasting and scenario planning, and operating costs. A decision model can evaluate both costs and emissions to inform structural and operational decisions—for example, relocating or expanding facilities to optimize the manufacturing and warehouse footprint, balancing make-versus-buy decisions, and reallocating customers to best-fit warehouse locations.
Decarbonizing warehouses: Warehouses can be decarbonized by reducing overall energy demands and working toward emissions-neutral, self-sufficient operations with closed-loop systems. This includes investing in high-volume low-speed fans and lighting and temperature sensors; enhancing the building envelope to retain energy; deploying on-site renewables; and using electric equipment.
Improving efficiency and load optimization: To reduce miles traveled, companies can combine load and routing improvements with optimized network locations. This entails making improved data-driven decisions to keep vehicles full while reducing unnecessary miles, such as creating routes that utilize back-haul matching and multiday routing to reduce “empty miles.”
In combination, these levers can lower emissions and reduce operating expenditure by 40 percent in the near term.
Investing in New-but-Proven Technologies
For longer-term levers using new-but-proven technology, large private fleets and carriers are already investing in low-carbon shipping and related infrastructure. On land, the most significant new-but-proven technology is electrification, with electric medium- and heavy-duty trucks projected to achieve TCO parity by mid-decade and near 2030, respectively. Alternative fuels like hydrogen are estimated to reach TCO parity for all vehicles, including heavy-duty trucks, by 2030.
In the ocean shipping sector, Maersk is transitioning its fleet to green fuels, with 26 vessels commissioned to run on green methanol. CMA CGM has integrated transitional fuels such as bioliquefied natural gas (LNG). ABB recently announced an order for Samskip Group’s hydrogen-powered 135-meter vessels, and Berge Bulk has ordered two dual-fuel dry bulk carriers capable of running on ammonia.
Carriers are also seeking collaborative partnerships, with Maersk and CMA CGM announcing they will join forces to accelerate shipping decarbonization. On land, major organizations like Sysco, PepsiCo, and Walmart Canada are investing in electric trucks and related charging infrastructure.
These initiatives from industry leaders signal to other carriers the current opportunities to invest in low-carbon shipping, as well as the risk of falling behind. Shippers that invest in green solutions now can position themselves to meet changing regulations and increased stakeholder pressure while unlocking “early-mover advantage” to capture growing customer willingness to pay for green shipping.
Key Actions to Kickstart Logistics Decarbonization
There are five key actions firms can take right now to begin their logistics decarbonization journeys:
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Robust emissions baselining, target-setting, and tracking: This foundational activity enables companies to measure progress against concrete goals, achieve evidence-based verification, design tailored solutions, and tell a compelling story to investors, customers, and other stakeholders.
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Establishing a structured governance approach: A dedicated decarbonization office or transformation team can drive a consistent focus on initiatives and the agility to overcome challenges, including plans for effective communication, education, decision principles, budgets, and granular KPIs.
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Developing a detailed set of actionable, short- and medium-term decarbonization initiatives: This requires a holistic diagnostic to understand a company’s supply chain operations, cost drivers, and sources of emissions across managed fleets/facilities and third-party suppliers, enabling end-to-end network optimization.
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Monitoring emerging technologies and regulations: Urgent action is needed in planning and implementing EV charging rollout at scale to reach regulatory requirements. In hard-to-abate sectors like air, monitoring incentives and regulations is even more critical to capture opportunities like sustainable aviation fuel credits.
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Identifying adjacent or new green business opportunities: Developing a green business can be both a defensive move and a lucrative opportunity, leveraging the actions of industry leaders to shape business strategy and investment.
With looming regulations and rising stakeholder pressure, now is the time to turn net-zero logistics aspirations into action. Companies can think more broadly about their own decarbonization journeys and leverage a broad range of interventions to get to net zero, with a mix of mature and new-but-proven technologies and robust emissions tracking. Leaders in their industries are seizing the initiative, putting them in the driver’s seat for quicker decarbonization and potential early-mover advantage.
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