Augmented reveals the stories behind the new era of industrial operations, where technology will restore the agility of frontline workers.
In this conversation, we talk about the huge tasks of mitigating and adapting to climate change throughout industrial supply chains.
Decarbonizing logistics without slowing economic growth is a formidable challenge which requires paradigm shifts across many industries, as well as adopting openness principles from the virtual internet onto the physical nature of the supply chain, as well as facilitating new business models, sharing, and standardization, and eventually dematerialization.
TROND: Welcome to another episode of the Augmented Podcast. Augmented brings industrial conversations that matter, serving up the most relevant conversations on industrial tech. Our vision is a world where technology will restore the agility of frontline workers.
In this episode of the podcast, the topic is Decarbonizing Logistics. Our guest is Alan McKinnon, Professor of Logistics at the Kühne Logistics University of Hamburg. In this conversation, we talk about the huge tasks of mitigating and adapting to climate change throughout industrial supply chains.
Augmented is a podcast for industrial leaders, process engineers, and shop floor operators, hosted by futurist Trond Arne Undheim and presented by Tulip. Alan, welcome. How are you?
ALAN: I'm very well, thank you.
TROND: I'm super excited to have you, Alan, you know, an academic that has transformed and seen the transformation of a field that barely existed when you started. Some 40 years in academia and logistics and now being part of this exciting experiment with creating a whole new university focused on logistics. It's been quite a journey, hasn't it?
ALAN: It certainly has. I think this is my 43rd year as an academic. My colleagues often think maybe it is time to retire, but the subjects in which I specialize, which we'll be talking about in a few moments, like decarbonization, are sort of hot topics at the moment. So I'm very reluctant to phase myself out. So it's been an enjoyable 40-year career, I must confess.
TROND: How did you get to pick this area? It's obviously not; I mean, now, because of the pandemic and other things, logistics or at least supply chains is kind of on everybody's mind because we're not getting whatever product we want or maybe some sort of interest in green practices. And we're starting to realize that transportation is becoming more of an issue. People are worried about that. How did you get into this area?
ALAN: My interests initially were in transport and particularly freight transport. In fact, right at the beginning, it was actually a crime, believe it or not, which got me into this area.
ALAN: Because I'd done my masters at UBC in Vancouver. I returned to London to do my Ph.D. at the University of London. This was in 1976, a long time ago. And I had spent three or four months reading up on the subject of freight modal split, you know, why so much freight goes by road and so little by rail. And I'd compiled all my notes, and my briefcase was stolen.
So the day before that, I'd been to visit a professor at the London Business School who said to me, "The freight modal split topic has been very much researched." He said, "You're a young man. Why don't you go out and find something new to bring a new perspective to this subject?" And around then, the subject of...it wasn't called logistics back then; it was called physical distribution, right?
ALAN: Where you saw freight transport in a broader context linking it to inventory management, to production planning, to warehousing, and so forth. And so I began reading up on that subject. And that then became the main theme of my Ph.D., which I think was one of the first PhDs done in the UK on that subject. So you could say that it was the person that stole my briefcase way back in 1996 [laughs] that played a part in me discovering logistics as a field, and that's occupied me for 40 years in my academic career.
TROND: And on that journey, you have entered in and out of different fields. I noticed that you were a lecturer in economic geography in the beginning. So there's a very interesting, I find, physical component to logistics, obviously. How does geography enter into it for you?
ALAN: Well, I see transport and logistics as essentially a spatial subject. My Ph.D. focused on the geographical aspects of logistics, you know, where you locate the warehouses, how you route the vehicles, you know, so much logistics planning has a geographical component.
But the thing about logistics as an academic discipline is that it's drawn together academics from many different disciplines. Many have come from a mathematical background, from engineering, from economics, in my case, as I said, from geography. And that, I think, is one of the strengths of the subject area, that it has got this interesting interdisciplinary mix. And that allows us, in a sense, to deal with a whole range of policy issues, of industrial issues, I mean, from land use planning to environmental issues, which we'll be talking about in a moment. I've really enjoyed engaging with academics really from different disciplines over my career as an academic.
TROND: Well, and we'll talk about these things in a second. But, I mean, it's not just academics, right? Because the subject is so non-academic in a sense, right? [laughs] It's actually very alive, and it affects all of us. So people may not have been super aware of it. But, like you point out, it's very multidisciplinary.
Now, how did this startup University concept come about? You've moved to Hamburg or spent a lot of time in Hamburg with this KLU university for logistics, essentially, which sounds to me like a daunting prospect to create a new university based on a new discipline in Germany of all places.
ALAN: So I'd been 25 years in my previous university here in Edinburgh where I'd set up a master's program in the subject and a research center. And then, in my late 50s, I got the opportunity to go to Hamburg and to join what was a startup University. I mean, when I joined, I think we only had nine academic employees. We only had about 40 or 50 students in total. So it was a challenge.
And a bit of background on the university; it is a legacy project of a very wealthy man, Klaus-Michael Kühne, who is the majority owner of Kuehne+Nagel, which is the world's biggest freight forwarding company. And he also owns about a quarter of Hapag-Lloyd, one of the world's biggest shipping companies. And he, in a sense, wanted to give something back to the industry, and so he founded the university in 2010. So it's now 12 years old, and I think it's been a very successful enterprise.
We're still niche, obviously. We've got, I think, about 27 or 28 professors, about 500 students. But we have this focus on logistics and supply chain management. And there are also quite ambitious plans to globalize the university, to open up satellite KLUs around the world. So I was just very lucky really to get involved in this in the early stages and do my bit to help to shape this institution.
TROND: Well, you're lucky but obviously enormously accomplished. I wanted to talk a little bit about your 2018 book: Decarbonizing Logistics here. So this came out on Kogan Page. I also published on Kogan Page. It's a great UK-based publisher. Tell me a little bit about decarbonization overall and what you see as the main opportunities but also the challenges.
It seems to me there's a lot of talk of decarbonization, but the subject that you are attacking it from is one that points out a lot of the limitations of these visions of changing the world into a decarbonized world. They're very physical limits and very real practices out there in various industries. How can we kick off this discussion on decarbonization? What is the best way to understand the biggest challenge here?
ALAN: If we confine that to logistics, to put that into perspective, I think in my book, I reckoned...I pulled together as many numbers as I could, and I reckoned that logistics worldwide accounted for about between 10% and 11% of energy-related CO2 emissions. I've now revised that upwards, so I think it's probably now closer to 11% to 12%, most of that coming from freight transport but some of it from the buildings, from the warehouses, and the freight terminals. To my knowledge, nobody has yet carbon footprinted the IT and administrative aspects of logistics, but that could maybe be up half a percent or thereabouts.
And there's a general recognition that Logistics is going to be a very hard sector to decarbonize for three reasons: one, because of the forecast growth in the amount of freight movement worldwide over the next few decades. Second thing is because almost all the energy currently used in logistics is fossil fuel, right? So we're going to have to convert from fossil fuel to renewables.
And the third thing is the length of the asset life because ships would typically have an asset life of 25, 30, 35 years; planes, likewise, trucks are a bit shorter, maybe 10 to 15 years. But it's going to take us time to change that asset base away from fossil energy to renewables.
TROND: Well, I believe in the middle of your book, somewhere in chapter three, I read this quote that you had that the only way a restraining future increases in freight movement is basically to slow economic growth. That's not really very exciting of a prospect.
ALAN: Well, that's one of my five decarbonization levers to just reduce the amount of stuff that we have to move.
TROND: You must be a popular guy if you say that to industry leaders.
ALAN: Well, I think the challenge of dealing with a climate problem is so enormous that we really have to think out of the box and think of these radical suggestions. But in this case, a number of things can help us there; I mean, the development for circular economy, increasingly manufacturing and recycling will help to reduce the amount of stuff. A lot of the research suggests that people are prepared now to move to a sharing economy where they're less obsessive about owning things and more willing to share. In some sectors...look at electronics how we have managed to miniaturize products.
There's also 3D printing, which some people think will help us to reduce the amount of stuff that we need to move. It will help us to streamline our supply chains, reduce the amount of wastage in the production process. So it's not all about just people buying less. I mean, there are a number of trends I think we should --
TROND: I get that, but, Alan, I mean, 3D printing, I was just, again, reading from your book. You're not all that bullish on 3D printing, either. It's certainly not on the individual level this vision people might have in their heads that everyone's going to have a 3D printer, or the neighborhood will have a vast 3D printer network, and you can print everything locally. This whole decentralized idea of the world of material goods, essentially, where everything is printed on demand, you don't really see that as a very easy transition, do you?
ALAN: No, I don't. I think it's also a longer-term transition. I mean, there's a debate as to whether this will be truly a game changer. And maybe in the longer term, we will see a lot of consumer products printed in the home, and then we can greatly streamline supply chains. That is a long way off if it ever happens. Where I think it's more likely to reduce, freight demand is further back along the supply chain instead of business applications of 3D printing.
But there's an academic debate on this subject. Some people are quite upbeat about this, thinking 3D printing is going to be an effective decarbonizer. Others are a bit more skeptical. I mean, there are some forecasts being made about the net effect of 3D printing on the amount of air cargo in the future. But there's not necessarily a wide agreement on that. So I think the jury's out on this one, [laughs] on the net contribution 3D printing will make to decarbonization.
TROND: Alan, can you give me some tangible examples of what we're talking about here with logistics? Because, in essence, it's an unfair business to be in to decarbonize logistics in the sense that the subject as a whole is almost a victim of climate change. You're dealing with extractive or heavy industries that are moving about a lot of damaging [laughs] materials that they have extracted.
To turn this into a positive discussion is challenging, but there are a lot of attempts to do so. Maybe we can take trucking perhaps as an example. So transportation, obviously, of goods via air is challenging, and road and by ocean, I guess, is somewhat less climate impactful. But what is the prospect?
If we just take trucks, it's a modal transportation element. People understand truckers, and we see trucks on the road. It's a very visceral kind of element. What has happened there, and what would you see is the prospect there? People talk about electrification of trucks. What are the real prospects for change in trucking, transportation?
ALAN: I think one of the positive things here is that there are many things that can be done, and they're additive. Their net effects will be cumulative. They're going to be implemented over different timescales. So the sort of things that we can do today which yield a significant carbon saving would be to improve the aerodynamics of the vehicles, streamline them.
We can train the truck drivers to drive more fuel efficiently. I mean, I think that's recognized to be one of the most cost-effective ways of cutting carbon emissions and also, of course, reducing fuel costs as well. A lot of this would be self-financing for the trucking businesses.
Then looking to the longer-term, there are technologies that we'll be able to deploy. Here in Europe, there's been a lot of interest in platooning, where it's not just the fuel efficiency of the individual vehicle that you improve but convoys of vehicles that would then be closely coupled, if you like, on the motorway.
But many people see ultimately, the way we decarbonize road freight to get it down to zero emissions is through switching from diesel fuel to low carbon fuels, mainly batteries. I would have thought, certainly for smaller countries where the trucks travel shorter distances, maybe some use of hydrogen though I have to confess that I'm doubtful about the use of hydrogen in the road freight sector. I see we will need the hydrogen to decarbonize other sectors of the freight market, the ones you mentioned, aviation and shipping, because they don't have the same opportunity to electrify the operations that we will have in the road freight sector.
But I mentioned the importance of timescale here because if you look at Europe, I think there are 6.2 million trucks in Europe. We are replacing those trucks at about 200,000 or 300,000 a year. At that replacement rate, it's going to take us probably a couple of decades to entirely replace a diesel fleet with a fleet running on batteries or fuel cells, and therefore there are things we have to do in the interim.
So, in addition to the things I've mentioned, the shorter-term ones, we can fill the vehicles better. Typically in Europe, about 20% of truck kilometers are run empty. In some parts of the world, it's 30% or 40% of truck kilometers run empty. We need better load matching, you know, to get return loads because that would then help us to cut truck kilometers and thereby save energy and CO2.
TROND: You know, it strikes me that a lot of what you're talking about, I guess, resonates with the topic of this podcast because it's not just automating and making things enormously advanced in terms of technology per se. It is optimizing within this idea that you're using your assets differently, perhaps through digital means and organizing people and assets in a system in a better way. How would you say the progress is there?
Because there's, you know, we'll move to this in a second, there are these very high-profile projects, sequestration and such which we'll talk about that require technological leaps. But the kinds of things you're talking about here they are more tweaks, I guess, with better control of where your asset is, what's empty at given moments, and, like you said, platooning and other things, organizing people differently.
ALAN: I think the use of the word tweak may underestimate their contribution. It can be incremental, but it can still be quite significant, I think. So one thing is load matching; you know, if you're a trucking company or a truck driver and your truck is going to be returning empty, how can you find a return load? Or, if your vehicle is only partially loaded, how can you maybe pick up another load that will fill it to a greater extent?
Now, we have heard what we call freight exchanges, online freight exchanges now, for over 20 years where a trucker could go online, and it would be an online market, and they would be finding an available load. But that technology has been greatly upgraded recently with the application...well, moving to cloud computing, for example. But the application of artificial intelligence, machine learning, we can now take that level of transport solution to a new level.
TROND: You know, that's fascinating, Alan. My question, though, is, is the business model of the way that drivers are organized also needing to be optimized for that purpose? For example, if a driver works for a given company, what is the incentive for that company to have that driver take more load? I mean, is there a way that you can take someone else's cargo and then get evenly distributed? I don't know, the driver gets something for the inconvenience of going somewhere, and the company that owns the asset obviously gets part of it. There are business model changes needed too.
ALAN: Yes, again, a very good point. One important feature of the trucking industry, I think virtually everywhere in the world, is it's highly fragmented. Here in Europe, we've got over half a million small and medium-size carriers. I think about 80% of carriers only have one vehicle. So how do you engage that vast community of small operators in this process? Mobile computing has helped the mobile phone.
Now these owner-drivers, of course, have an obvious incentive to keep their vehicle as full as much of the time. For the bigger operators, many of them now operate control towers. So it's no longer the driver's decision to do this. I mean, the driver will be told where to go to pick up a load. But for these bigger companies as well, by deploying this technology, they can improve the efficiency of their operation. And as a cool benefit from all of that, you get the carbon reductions and the energy savings.
And we shouldn't just look at this in terms of Europe and in North America. If we look at this at a global level, these technologies that we've just mentioned are beginning to have a revolutionary effect in countries like India, in Indonesia, in African countries, where small operators with a mobile phone can now tap into these networks to find their next backload.
So it's not so much changing the business model; it's refining the business model and creating new commercial opportunities for these companies. So they're not doing this to decarbonize their operations. They're doing this to fill the vehicles, improve efficiency, and save money, but there will be carbon savings as a consequence.
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TROND: You know, your field is so fascinating for the myriad of different tactics that can be deployed here. Let's move for a second just to the bigger issues around energy, infrastructure, and ideas to change the way that that operates. Sequestration, for example, this idea of removing greenhouse gases, requires an enormous infrastructure. And I know you have written extensively on infrastructure overall. What is really at stake here with this type of process? We're talking about a futuristic, enormous industry that would be, I guess, on top of the existing logistics structure.
ALAN: Yes. It certainly will. I mean, I often flag this up to logistics businesses as the next huge business opportunity for so many of these companies. Because sequestration or carbon dioxide removal, I mean, drawing down the greenhouse gases already in the atmosphere is essentially a logistical process. We're going to be creating new supply chains, moving liquidized CO2 to places where it will either be buried in the ground or maybe used for some other purpose, like to make e-fuels.
But to put this into context, why is this happening? It's because we're almost certainly going to overshoot our carbon budgets. And so, if we want to commit to net zero, it is not simply a matter anymore of reducing emissions. We're also going to have to think about removing greenhouse gases already in the atmosphere. And to put that into perspective, I think last year; there were only about 18 or 19 plants in the world that were engaged in sequestration. And they only withdrew, I think, about 10,000 tons of CO2 from the atmosphere.
They're now projecting that by 2050 we'll, on an annual basis, be removing between 10 and 15 billion tons of CO2 from the atmosphere. And that is going to entail an enormous logistical exercise. But at the moment, thinking as at an early stage, we really haven't worked out where the best place will be to do the sequestration and where we will have to take the stuff to bury it in the ground.
TROND: In one of your presentations. You quoted an article from 2021 that says that the concept itself of net zero is basically a trap that it becomes kind of an excuse to do certain things as an extension of existing industries. These researchers have started to get second thoughts about something that they might even themselves have proposed. Is that the alternative view that you'd like to flag out there, or is this really a serious concern that we're putting too many eggs in one basket here?
ALAN: You're right. I mean, a lot of climate scientists are now seriously worried about the concept of net zero. I read the other day I think if you look at all the countries in the world that have committed to being net zero by 2050 or earlier and all the companies, I think 91% of the global economy is now covered by a net zero commitment. But I suspect a lot of people don't truly understand what net zero entails, I mean, realizing there's a big sequestration side to it, and it's not purely mitigation.
But I sympathize with the views of those who say that if we now get fixated with sequestration, if we realize we don't have to cut our emissions very quickly or dramatically because we can just leave it to future generations to pull down all the CO2 that we have put there. That is highly risky because the technologies we have for doing this are still fairly immature. And we're just not sure how we're going to be able to scale this up to the level I've just mentioned.
But there's an equity and ethical issue here that we should be leaving it to future generations to reverse the climate change processes that we have started. The last thing we want, of course, is for interest in sequestration to deflect attention from cutting emissions now. That's what we really need to do. Because the economic modeling on this suggests, it's an awful lot cheaper to stop emitting today than it will be in the future to remove those greenhouse gases from the atmosphere.
TROND: So let's talk a little bit about the future outlook then because there obviously are technologies on the table, on the books but also in development that do have certainly more renewable potential. There are improvements in renewables. There's the whole switching argument that eventually, once you switch, that is going to take effect.
But are you, I guess, pessimistic or optimistic that this switch or this future, as in 2050, which is kind of the climate future that most people are looking at, what is the prospect that we're anywhere close here? And where are the things where you think we should be putting our energies?
ALAN: One has to be optimistic in this area. I mean, if you're pessimistic, what do you gain? We have to look at the positives. And I think we will ultimately be able to decarbonize logistics. What concerns me is the speed at which we're doing it. Now, as I said, ultimately, we will do this by switching from fossil fuel to zero-carbon energy sources. In most cases, we're going to have to change the vehicles, the locomotives, the ships, the planes to do that, and that's going to be a long-term process.
Another thing which concerns me at the moment is there's a lot of disagreement as to what the dominant low-carbon fuel will be for the various future transport modes. So in the road freight sector, there's a debate as to whether we should be using batteries to do this or hydrogen. In the shipping sector, the main choice is between e-methanol or green ammonia. And some people think we should be using nuclear even. So a disagreement there. And then, on aviation, sustainable aviation fuel will be required in vast quantities to decarbonize aviation.
TROND: How are we going to do that? How are we going to do that, right? Isn't that the question? The vast amounts of forests or whatever agriculture is going to go to these biofuels.
ALAN: Well, I think biofuel will make a contribution. Personally, I think the main fuel we will use for aircrafts in the future is e-kerosene, which is a synthetic fuel which will use green electricity. Once we've decarbonized electricity, we can then use that to make green hydrogen, which we can then combine with other chemicals to make e-kerosene. Now at the moment, that's currently...we can do this currently, but it's two or three times more expensive than fossil kerosene.
But also, until we get the capability to do that, we will rely on biofuels. That's certainly true, not just for aviation but in the road freight sector and possibly to some extent in the shipping sector. But we got to make sure the biofuels are environmentally sustainable. Because, I mean, I was a real enthusiast for biofuels when I began to get involved in the climate change work. I thought it's biofuels that will allow us to decarbonize logistics until we did the lifecycle analysis.
And we discovered that if you make your biofuel with palm oil sourced from, I don't know, Indonesia or Malaysia, on a lifecycle basis, the emissions are three times those of the diesel that we are replacing. It just doesn't make sense at all. So we have to ensure that we're using feedstocks for the biofuels, which are genuinely sustainable. There's a limited quantity of those. So we have to see these as being of limited value short term, as transitional, until we move to the other fuels I've just mentioned.
TROND: But, Alan, it seems to me that as much as you're an enthusiast of various futuristic technologies, you're also saying that in the next ten years, there are a lot of operational things we can do. One idea that has been put forward that you've talked to me about is this idea, which needs to be explained, of the physical internet as a conceptual change in the logistics industry. Can you elucidate that concept? Because at face value, I don't quite understand it, but on the other hand, it's the principle here. It's not recreating the internet.
ALAN: No, yeah. I always have to say that the physical internet is not the Internet of Things because people, I think, often wrongly confuse the two things. The physical internet would be a physical manifestation, if you like, of the digital internet, applying the same principles, the same organizational principles that we have for moving emails to the movement of physical consignments.
So if you think what are the key features of the digital internet, open systems, standardized modules for moving information through the internet, we would be creating an open system. There'd be little proprietary asset-based logistics so that the warehouses, the freight terminals, the vehicles would be available for general access. And we would have to put in place, therefore, IT systems and market mechanisms to make that possible because that would then allow us to use that asset base an awful lot more efficiently.
The other thing which would, if I'd just add something else, is modularization. Because at the moment, we have got some degree of modularization obviously in pallets and containers and so forth, but we may have then to remodularize with a different type of handling equipment that would be nested and compatible to allow us to fill the vehicles better and to manage processes in the warehouses, for example.
TROND: It's surprising, I guess, a little bit to hear this, and maybe you can explain this to me. But at surface value, this whole international container standard and the way that that really changed shipping because there's, after all, one container. It looks the same pretty much everywhere. It was this big battle. And then there is this container, it doesn't quite work for air travel, but it works for freight, ocean-based shipping, and for land transport.
So one would have thought that that perspective is so ingrained in logistics because it was such a success story. But you're telling me that...did one rest too much on the laurels of that one success and then never extended this to other aspects of standardization? Or how do you explain that one element is so standardized and many, many, many other elements remain stuck in kind of that proprietary logic?
ALAN: It's a great point. So containerization was a game changer. I mean, it transformed international trade. And we've always been looking for a similar game changer, [laughs] you know, to be equally transformational. But there were still problems with containerization, you know, so that standardized the boxes and made it easier to transfer them between transport modes and so forth.
But if you look at the internal dimensions of a container, they're not all that compatible with the dimensions of the pallets inside, so you always waste some space. We call this the unit load hierarchy. So at the top end, we got the container, and then we come down to the next level, which would be the pallet load, and then the level below that would be the carton. And then you get down to the individual product. And it's at these lower levels in that hierarchy we don't have sufficient standardization. So there are many different sizes and shapes of pallets and stillages, and so forth. And it would be nice if we could converge on similar standardization at that level.
TROND: Fascinating. Let's move to the policy area in a second. I know that you did some work for Unilever a while back and developed a framework for decarbonization policy essentially or to understand the different factors that that will impact, and you called it the Timber Decarbonization Framework. And I'm just going to quickly recite these factors, and you'll explain why they all are here.
So technology, we've talked about technology, infrastructure, you know, obviously, the physical aspect of all these assets. And then market trends behavior which is interesting because behavior is not the first thing I would think of in logistics, [laughs] and then energy system and regulation. So there are many, many things here in this framework. But what does that mean for a policymaker? Because up until now, we've been talking about private sector optimizing their own portfolios, but there's also a wider concern here for policymakers or indeed for individuals.
ALAN: That's right. So a bit of background then on the project that we did for Unilever. The company had set itself this target to reduce the carbon intensity of its global logistics by 40% between 2010 and 2020, and it obviously had some ideas to how it could do that internally. But I thought over that time period, almost certainly, there'll be development outside Unilever's control, many of them at a national level, a macro level, which will help to decarbonize logistics, which would reinforce anything that the company was doing itself internally.
So they asked us to look at 13 of their main markets in the world and make an assessment as to what extent transport logistics were decarbonizing generally. And it was --
TROND: Only 13 markets. [laughs]
ALAN: Only 13 markets, that's right, I know. [laughter] I can tell you it was hard enough just doing it for 13 markets because that includes big markets like China and Brazil, and so forth. So we came up with the timber framework to say that these macro-level trends would fall basically into those six categories. And what we tried to do then was...this was a desk-based study. We tried to pull together as much data as we could for each of those six subject areas.
TROND: What was the most surprising of them for you, Alan? Technology is perhaps pretty obvious. And then infrastructure, I guess, for you in your field is very obvious. But some of the others, at least for me...and regulation, obviously, this was a regulatory concern as well. But what were some of the surprises, the biggest surprise when you were putting together this and realizing which factors were influential?
ALAN: I think it was the diversity which surprised us. Well, maybe I should qualify that because some of those countries were European countries where there's a lot of similarity. Many of them belong to the EU and therefore were governed by continental-wide regulatory policies.
But when you went into other countries, even countries you might think were similar in their level of development and in the maturity of their logistics industry, there were actually quite different approaches to the way in which they were decarbonizing. Just take one thing, for example, the freight modal split, you know, the division of freight traffic between transport modes can vary a lot between countries, and that can be quite a big determinant of the average carbon intensity of freight movement within that country.
But also, there's a feeling that it's the developed world that are doing the most innovative things in decarbonizing logistics. But we did find examples in less developed countries of quite clever initiatives. One often imagines that the lessons from decarbonizing logistics will transfer from the wealthier countries to the poorer ones. But there could be a scope, I think, for the movement of ideas and practices in the opposite direction as well.
TROND: Alan, let me ask you this. I mean, many times, when you know a lot about an area, you come to the conclusion that if I only ruled this system, things would be better.
TROND: And thereby, in French, they say this dirigiste approach where you say government or me, the expert, or whoever it is, we are just going to set this straight. Is that the big wish for you or the experts in this domain that some master planner comes in and just kind of lays down the law? Or is the clue to these very necessary decarbonization strategies a more flexible framework?
ALAN: If I was that global dictator with special powers over logistics, I think the one thing I would prioritize would be pricing using the price mechanism. And things are progressing well in that direction. If you go to the World Bank website, there's a dashboard, and they show the extent to which carbon pricing schemes are developing around the world. And I think currently, almost a quarter of greenhouse gases emitted are in countries that have got some form of emissions trading or carbon taxation. So I think that needs to be extended.
What we're also seeing, of course, is the cost of carbon increasing. So the world's biggest emissions trading market is here in Europe. And I think over the past two years, or so, the price of carbon has rocketed; it's currently, I think, about €100 per ton of CO2. So extending these carbon pricing, carbon taxation schemes, and at the same time raising the cost of carbon will then incorporate carbon pricing into companies' balance sheets and their investment appraisal. And that, I think, will drive a lot of the changes we've been discussing. That includes the managerial, operational things right through to the technological things like switching to lower carbon fuels.
TROND: So at the end of the day then, Alan, you say there's a benefit to being optimistic, and I liked that message. But I do sense that there are some bumps in the road here. It's not going to necessarily be an easy technology fix or even an easy policy fix here. It seems the overall logistics framework it's not one industry; it seems to me. There are the logistics practices, and they are spread around every industry.
ALAN: Yes, you're right. I mean, I don't want to give the impression that any of this is going to be easy. It's going to be tough, but it will have to be done. And just to flag up some of the complexities, I've mentioned how in the trucking industry, we're going to have to shift from diesel trucks to probably battery ones predominantly. And again, almost all the discussion of that relates to Europe and in North America. But we got to do this at a global level.
At the moment, a lot of developing countries buy second-hand trucks from Europe or North America. And one thing that concerns me is that as Europe and North America accelerate the transition to low-carbon vehicles, they will want to dump a lot of their existing diesel vehicles. And the danger is they'll be dumped in less developed countries, where that will then slow their transition to the next generation of battery-powered vehicles.
So this is an area where we really have to take a truly global perspective on how we transform road freight because what's the point of us massively reducing our CO2 emissions in Europe if all we do is inflate emissions from other parts of the world? I mean, climate change is a global problem. We've got one atmosphere, and therefore we have to look at that bigger picture.
TROND: That's fascinating. It would seem to me that the solution would have to be something where you add incentive for everyone regardless of where you are in the pyramid of industrial transition to leapfrog essentially, right?
ALAN: Yes, yes, exactly. I think the key will be transferring technologies best practice from a lot of the more developed countries to the less developed world. I've just written a paper for the World Bank looking at how we tailor logistics, decarbonization to the needs of less developed countries, and that will be coming out in a few months' time. And I think that's going to be really one of our bigger challenges in this field.
TROND: Alan, it's fascinating to hear such an overview of a field and an expanding landscape that is so crucial to something that clearly is one of the bigger challenges of our time. Thank you so much for your time today.
ALAN: You're welcome. Thank you.
TROND: You have just listened to another episode of the Augmented Podcast with host Trond Arne Undheim. The topic was Decarbonizing Logistics. Our guest was Alan McKinnon, Professor of Logistics at the Kühne Logistics University of Hamburg. In this conversation, we talked about mitigating and adapting to climate change throughout industrial supply chains.
My takeaway is that decarbonizing logistics without slowing economic growth is a formidable challenge which requires paradigm shifts across many industries, as well as adopting openness principles from the virtual internet onto the physical nature of the supply chain, as well as facilitating new business models, sharing, and standardization, and eventually dematerialization. Thanks for listening.
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