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Circular Economy

What is the role of the logistics sector?

At the core of circular economics lies the idea that processes of production should be linked together to create a system without waste. The logistics sector plays a pivotal role in connecting those chains of production. The transition to a circular economy poses the question: How do you set up a sustainable yet efficient system for the traffic between the producer of a product and the user? When you take a look at the value-hill in a circular economy below, all the arrows represent material and product flows. To make these flows possible, the logistical infrastructure must be strong and well thought out. This illustrates how important the logistics sector is in the circular economy.

Afbeelding 3: The Value Hill (Achterberg, Hinfelaar, & Bocken. 2016)

Opportunities

The concept of circular economy is becoming an interesting avenue for an increasing number of companies. Four main businessmodels can be distinguished in circular economics (Achterberg, Hinfelaar, & Bocken. 2016):

  1. circular design
  2. extending the life of products
  3. reuse and recycling
  4. managing and supporting the value chain

The transition to a circular economy offers opportunities for the logistics sector, both in number of jobs and CO2 reduction (Nasir et al., 2017), as in an addition to the GDP. A large opportunity for the logistics sector lies in the role of managing the value chain. Sustainable supply chain management aims to “integrate environmental concerns into organisations by reducing unintended negative consequences on the environment of production and consumption processes” (Genovese et al., 2017). A logistics service provider knows what residual streams occur with what companies. This knowledge makes a role as chain director logical. The logistics sector might even be the perfect party to oversee all these interactions between companies and safeguard its sustainability.

In order to fulfill this important role, the logistics sector will need to undergo some large changes. If the circular economy concept were to be adopted across Europe or even globally, it could mean a reduction in commodities traded internationally. This would mean less freight being transported through the Netherlands and therefore the logistics sector would need to adjust their existing business models to maintain jobs and profits. The logistics sector is very important to the Dutch economy, accounting for approximately 10% of the Gross Domestic Product and provides approximately 813,000 jobs in the Netherlands (Dutch Ministry of Economic Affairs, 2013). If the logistics sector wants to be succesful in a circular economy, it needs to seize the opportunities that the transition offers.

The circular economy offers many chances for logistics companies to change their roles, innovate and seize opportunities. We outline a few opportunities below.

Collaborative logistics

Collaboration between logistical parties in a circular economy would make a lot of sense from both an efficiency and sustainability perspective. For instance, if one logistics company has space left in their truck, they can share it with another (smaller) company who would be able to hire a small volume of space on the truck to transport their goods. That way, the trip would be more cost-effective. Similarly, instead of bringing products into the city and driving back with an empty van, they could bring back other things, like garbage. This would ask for some solutions to possible hygiene issues, for instance.

There are two types of collaborative logistics: vertical collaboration, where different stages of the supply chain are taken over by different companies. In this type of collaboration, company A is responsible for transport from the warehouse to the city, but company B distributes the products within the city. Second, with horizontal collaboration you could alternate between days, so that company A delivers on Mondays and company B on Thursdays, etc.

These solutions make for less congestion in the cities, less CO2 emissions and higher efficiency.

Synchromodality

Synchromodality is about combining different modes of transportation and switching between them efficiently. In a circular economy, you would always prefer a sustainable mode of transport. Even if you need trucks to transport your goods from your warehouse, this doesn’t mean that the truck needs to deliver the goods to the front door of your customer. An example would be the delivery of packages through the method of a mobile distribution station. If the packages would arrive in a neighbourhood by truck, the delivery person could park the truck in a central location and take a bike to get to your front door. In this case, you create the most sustainable supply chain possible.

Using synchromodality means you have to think about connecting routes of trucks, trains, boats, bicycles, etc. If you manage to switch efficiently between modes of transportation, you have achieved a multimodal, synchronised logistical chain. For this process to work, standardisation of transportation becomes necessary. If everyone has the same trucks, containers or works with the same sizes of packages, you can interchange modalities and make the logistical process as efficient as possible.

Data infrastructure & physical internet

To make synchromodality and collaborative logistics possible, you need a sophisticated data infrastructure to provide real-time tracking and overview. In this central digital ‘hub’ all supply chains would be connected. New methods like blockchain may provide the tools to set up such a network. By ensuring a real-time overview, a package can move through the system on the path of least resistance.

Sharing economy, or ‘Products as a Service’

In a sharing economy, people would share certain more expensive products. This way, not every person would need to buy a drill or a lawn mower. This would require moving things between people. In a neighbourhood or apartment building, this is easy, because people can move the products themselves. The challenge lies with cases where companies would share their products or machinery. Because businesses need to be able to have their products finished in time to deliver to their customers, this poses a challenge for the logistical infrastructure.

Futher reading

  • The LogiCE platform facilitates cooperation and knowledge sharing about circural economy between players in the logistics sector. Market parties with logistical challenges can find experts researchers and students to work on solutions together;
  • The Dutch topsector Logistics is a good place to find more information about national developments in the logistics sector;
  • In cooperation with TNO and CE Delft (among others), the Dutch topsector Logistics published a report on the future of the logistics sector in 2017. Reducing GHG emissions and moving towards s a circular economy is mentioned as important goals for the sector;
  • A CE Delft report on CO2 emissions in cities, with recommendations for reductions;