Decarbonizing logistics and building a more sustainable supply chain

Read about the logistics sector's role in global emissions and its push towards decarbonization, including drivers, challenges, and actionable strategies for sustainable transformation.

Rebekah Mays

June 25, 2024

# min read

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The logistics sector is responsible for a significant percentage of global CO2 emissions, with road freight and shipping accounting for approximately 10% of emissions annually. Emissions from the sector continue to grow, even though we should be rapidly cutting them to reach interim and long-term climate targets.

The good news is that decarbonization, the process of reducing CO2 and other greenhouse gas emissions, is starting to become an obvious path for many logistics companies.

After all, business partners, investors, and consumers are increasingly demanding climate action. Regulations like the Corporate Sustainability Reporting Directive in the EU are calling for climate transition plans on top of existing reporting standards and requirements.

For many companies, decarbonization also fits into a broader goal of building a more sustainable supply chain. While sustainability encompasses many goals including human rights and responsible resource use, a sustainable supply chain means no longer contributing to historic emissions while creating, processing, and delivering goods.

Making progress on decarbonization and sustainability requires logistics companies to invest in new ideas and solutions. What’s exciting is that this investment brings opportunities for more efficiency, collaboration, and resilience for the future.

To accelerate your own decarbonization journey, let’s explore some of the challenges and opportunities logistics companies can expect. We’ll also discuss important action steps to consider when developing and implementing your decarbonization strategy and share resources to support you.

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Top decarbonization challenges in logistics

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While there is a path forward to decarbonization, the logistics industry faces some unique challenges when implementing strategy. Regine Castilla, sustainability success manager at Cozero, emphasizes that logistics companies can become so busy with compliance that they have trouble going beyond just reporting.

“What I see from companies is that they are actually very busy being sure to be compliant, doing the right calculations, collecting the right data, and so on that they don't have so much time to think about decarbonization,” she says. “That drains so much energy just to be compliant, and to share all that information in the right format with the right people at the right moment.”

Another key challenge is the high complexity of the logistics industry. Because logistics companies rely closely on one another for fulfillment, decarbonization in this sector is not simply about understanding and reducing your own emissions. It’s also a collaborative process of working closely with suppliers, partners, and peers in the industry.

“A sustainable supply chain starts with knowing the supply chain and being able to understand the different people or stakeholders involved,” Regine says. Because of this, companies with limited visibility in their supply chain will find decarbonization challenging.

Other industry challenges include the diversity of data sources in multi-modal transport supply chains, low-quality and patchy data, a lack of stakeholder buy-in, and the time intensity of both compliance and decarbonization action.

Some of these challenges may seem hard to tackle, but many companies across the industry are proving it’s possible to overcome them. As we’ll see, the outcomes make all the efforts worth it.

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The opportunities of decarbonization

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Each year, the business case for decarbonization is becoming stronger. The data show that becoming less reliant on fossil fuels provides many benefits across the organization. To highlight a few of these opportunities:

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Overall competitive advantage: Increasingly, B2B buyers are prioritizing sustainability. A Merkle survey of more than 3,000 B2B buyers found that commitment to environmental impact was one of five key decision factors that grew significantly from 2022 to 2023. A 2023 McKinsey analysis also concluded that high ESG performance helps a company increase its competitive advantage when combined with strong revenue and profits. In other words, integrating climate action into strong operations will help boost your competitive advantage and attract more business.

Better operational efficiency: Large companies worldwide have shown that decarbonization and efficiency go hand in hand. Since launching its Fuel Sense program in 2006 to identify opportunities to reduce fuel use in deliveries, FedEx has saved over 3.64 billion liters of jet fuel.

Driving innovation: For many companies, finding ways to finance decarbonization reveals opportunities for product innovation. Cozero customer Maersk, for instance, helps their partners reduce Scope 3 emissions with their comprehensive Emissions Dashboard, which in turn is driving new retail e-commerce partnerships to help finance the company’s decarbonization efforts.

Attracting and keeping talent: Several studies show the impacts of strong ESG performance on attracting and keeping talent within the company. A 2020 Marsh McLennan study found that ESG performance is “a key lever in a time of unpredictable turnover and tough competition for talent.” As another data point, 60% of respondents in a 2024 PwC survey felt that environmental impact was an important factor when staying with an employer.

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Decarbonization does require an upfront investment, but the benefits and opportunities are far-reaching. It will make the business more competitive, efficient, and adaptable to future changes.

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Developing your decarbonization strategy

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Realizing these benefits and opportunities depends on an actionable and data-backed decarbonization strategy. How do you know if you are ready to start building your strategy, and what information do you need? Let’s discuss.

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When to get started

When it comes to your timeline, our advice is to get started as soon as possible and iterate as you go. Time pressure is only growing, with many companies coming into the scope of EU policies like the CSRD and CSDDD in the coming years. As part of this legislation, in-scope companies must prepare a climate transition plan in line with the EU’s climate goals.

Since time is a key factor in reaching decarbonization goals, Cozero expert Regine reminds us that it’s important to balance comprehensive emission data collection and planning with taking action.

“Many companies spend a lot of time with the calculations because that's where they feel more secure,” she says. “But then they lose the opportunity to think about decarbonization.” While collecting reliable data is key, she advises companies to move past data collection and into action.

Carbon accounting is a critical step, but it’s best not to focus all your efforts there. Make sure you’re allocating resources to managing your emissions as well.

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How to get started

As part of your decarbonization strategy, you will need to gather information and set initial goals. Establishing your emissions baseline requires some level of emissions data across Scopes 1, 2, and 3, but it’s common for companies to have more visibility in some areas of the company than others at first.

When setting goals, you can consult the Science-Based Targets Initiative’s (SBTi) sector-specific resources such as their land transport and maritime pages for emissions targets relevant to your industry. For example, SBTi’s guidance for the maritime sector is an emissions reduction of 45% by 2030 and net-zero emissions by 2040.

Other resources can support you as you prepare your strategy, such as:

The GLEC framework from the Smart Freight Centre for calculating and reporting emissions
The Environmental Defense Fund’s Net Zero Action Accelerator and CDP for developing a climate transition plan

When you’ve developed your goals and have buy-in from your stakeholders, it’s time to analyze reduction opportunities to build your action plan.

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Building your plan: the biggest action levers

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As part of developing a decarbonization strategy and action plan, logistics companies need to consider their biggest action levers, the areas that will provide the largest impact.

Let’s explore a few of the most impactful action levers, based on industry examples that often significantly impact a company’s footprint. Of course, when building your own plan, you will need to identify the best action steps based on your emissions hotspots.

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Collaboration

Cozero expert Regine points out that collaboration, and specifically the mutualization of resources, is perhaps the biggest lever of all for logistics companies.

“For a lot of my customers, they want to switch to electric trucks, for example, or to sustainable aviation fuels in order to fulfill their transports. But then they rely on the infrastructure, right? They can’t just build a million charging stations all over Europe.”

Collaboration and partnerships allow companies to use their collective resources and develop solutions that work for everyone. “Companies could actually just have their own charging station at their facility where they have warehouses,” Regine explains, “and then collaborate with other transport companies that also have their warehouses somewhere else in the country. So with shared charging stations, companies could actually build up their own infrastructure.”

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Renewable energy

Renewable energy is one of the most important levers to pull when decarbonizing, and it doesn’t have to start with electrifying a whole fleet. Regine points out that a company can enjoy some quick wins by switching to renewable energy to power warehouses and other on-site facilities, which tends to be fairly straightforward and inexpensive. Using HVO fuel (renewable diesel) in an existing fleet and installing solar panels are also smart investments that can make sense in the mid-and long-term.

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AI and Machine Learning

AI and Machine Learning for optimization are other areas companies can consider for decarbonization. UPS, for instance, developed a famous route optimization program ORION, which saves more than 100 million miles and 10 million gallons of fuel per year.

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Supplier selection

When selecting suppliers, you can also consider sustainability as a decision factor. By choosing suppliers based on climate maturity and the emissions data they have available, logistics companies will get a head start in stronger sustainability performance and have a partner that’s also committed to decarbonization.

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Areas with the best data availability

All in all, Regine advises companies to start taking action based on what they already know.

“Where you have the best data availability is typically where you should start because where you already have good data, that usually also means you have control.”

She also cautions against over-complicating it. “Many times it's the most obvious activity. Sometimes companies think it needs to be very complicated, and they analyze too much and overthink. But usually the most obvious activity is also what you should focus on and where you can have the highest impact.”

Dedicated tools like Cozero’s Climate Action Platform can help you get out of “analysis paralysis” and into climate action. Let’s take a closer look at this unique platform for the logistics industry and how it supports decarbonization.

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Cozero’s Climate Action Platform: the carbon management tool for logistics companies

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Building emission forecast models and calculating the costs and emission impact of climate actions can be complex tasks, but they are both necessary for a data-based decarbonization strategy. Cozero’s Climate Action Platform simplifies these tasks, allowing sustainability managers to focus on strategy tracking and development.

Act, the platform’s decarbonization module, supports companies in identifying, prioritizing, and tracking the impact of climate actions. It offers a set of decarbonization functionalities, from target setting in line with global recommendations, to impact calculation and emissions forecasts.

Companies like MOSOLF and Nippon Express are using Act to decarbonize their logistics activities, making huge strides in reducing emissions. This year, Cozero customer Maersk became the first shipping company recognized by the SBTi for its decarbonization goals.

Since the software is tailor-made for logistics companies, Act uniquely equips sustainability managers with the tools they need to move forward confidently on their decarbonization journey. Companies that work with Cozero will also have support from their team of sustainability experts, who benefit from deep industry knowledge after working with many other companies across logistics and transport.

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Advance your decarbonization strategy

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Whether you’re beginning your decarbonization journey or deep in the trenches, you’re not alone. As we’ve seen, there are clear action levers you can pull to make real progress over both the short and long term. Despite the challenges, logistics companies have more reasons to take action daily and more resources to support them in the journey.

Of course, it all starts with building a decarbonization strategy that makes sense for your logistics company. By working with partners like Cozero who have industry-specific expertise in decarbonizing logistics, you can ease the challenges and benefit from the many opportunities that come with decarbonization.

Interested in learning more from our experts? Join Cozero on July 3rd for a webinar on decarbonization milestones and strategic planning. In the webinar, you’ll learn how to create a decarbonization roadmap, pinpoint key reduction opportunities, and ensure you’re staying compliant when setting up your Climate Action Plan.

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