Net Zero Readiness Report: Transport

The movement of goods may be less visible than moving people but it has nearly as great an impact on climate change. In 2018 road freight vehicles emitted 2.4GtCO2 globally compared with passenger road vehicles that produced 3.6GtCO2 according to the International Energy Agency. The organization expected that annual road  reight emissions would decline by just 0.1GtCO2 by 2030, compared with 0.5GtCO2 less from passenger road vehicles as the latter shift to electricity.¹⁴ The weight of batteries and longer average journey distances make trucks harder to electrify than cars although some vehicle makers have developed electric models.¹⁵

Logistics is a low-margin sector where decisions are usually based on price, making it difficult for operators to invest in decarbonization unless governments require this. Some such legislation is coming in Europe, requiring companies to collect and publish data on their emissions under the Corporate Sustainability Reporting Directive that came into force in January, as well as a proposed directive on corporate sustainability due diligence. The latter would initially oblige companies turning over more than 300 million euros (EUR) (US$318 million) to ensure their business models and strategies are compatible with the Paris Agreement on climate change and would be phased in over three years.¹⁶ International logistics providers need to comply with EU directives to operate within Europe while other jurisdictions including the US are introducing their own standards for corporate reporting.¹⁷

Collecting emissions data will not be easy for many logistics providers given high levels of subcontracting in what is a highly fragmented industry. Dr Steffen Wagner, Global Head, Transport & Leisure, KPMG International, says that accurate information can help companies to reduce their emissions and costs, such as by making use of empty trucks. Around one-fifth of the EU’s road freight kilometers in 2020 were used by empty vehicles with further unused capacity in partially empty ones.¹⁸ “If trucking companies collaborate, they can better use their existing resources and reduce the carbon footprint of individual goods,” says Wagner, adding that there is a trend towards using online platforms to match companies that have spare capacity with those requiring it. Logistics  providers can also cut emissions by installing rooftop solar panels on warehouses and using electrically powered robots within them, as well as making greater use of road-to-rail facilities that transfer freight to railways for parts of journeys.

Like aviation shipping is a sector that changes slowly, partly due to difficulties regulating an inherently international business and partly as vessels remain in service for several decades. There are regulatory changes taking place, including the EU phasing in the use of its emissions trading system in maritime transport between 2024 and 2027 for all large ships that use the bloc’s ports regardless of flag of registration. This will likely require vessel operators to buy EU ETS allowances covering all of the greenhouse gas emissions generated while in EU ports and on voyages between them, as well as half of the emissions from journeys that either start or end in the EU.¹⁹

Monique Giese, Global Head of Shipping, KPMG International, says that while EU ETS offers a regional solution, the International Maritime Organization (IMO) is likely to hold the key to a global one. The IMO 2020 rule to cut coastal air pollution from sulfur in fuel oil could provide a model for reducing the sector’s greenhouse gas emissions. It was introduced through an amendment to the International Convention for the Prevention of Pollution from Ships and has led to vessels adopting very low sulfur fuels or installing exhaust gas cleaning systems.²⁰

A July meeting of the IMO’s member states in London adopted a net zero strategy that includes development of a pricing mechanism for maritime emissions over the next few years.²¹ Giese adds that the IMO 2020 sulfur rule shows a challenge to this in that countries may introduce different levels of penalties, with Singapore threatening two-year prison sentences and fines of up to 10,000 Singapore dollars (SGD) (US$7,340) for using non-compliant fuel while other countries have much smaller fines.²²

Batteries can power vessels for short journeys making them suitable for some ferries, but long-distance shipping will require low carbon fuels. The world’s largest international shipping companies, known as liners, are making different choices over which fuels to introduce. Denmark-based Maersk has ordered 19 vessels that run on green methanol.²³ Swiss-headquartered MSC already uses biofuels as part of blended fuels and is interested in developing use of hydrogen.²⁴ In February 2023 Germany-based Hapag-Lloyd announced it will work with UK-headquartered energy group Shell on developing use of biomethane and liquified e-methane.²⁵ Countries in Asia  are ahead of the rest of the world in building infrastructure to supply ships with liquid natural gas (LNG), a lower emission fossil fuel. Giese says that liners are choosing different types of low carbon fuel as supplies of each are constrained, but this fragmentation could make it difficult for energy companies to supply all of them at large scales. “It is getting better, but there is still a disconnect between energy companies and the liners,” she says, adding that many in the shipping industry would welcome further regulation in this area.

It will take several decades for shipping to move to low carbon fuels as vessels are typically in service for 20 to 30 years and

often cannot be refitted to use alternative fuels. Increasing efficiency through better collaboration and greater transparency offers quicker benefits. These were the aims of TradeLens, a digital platform designed to support data sharing between organizations involved in supply chains, but in November 2022 its founders Maersk and US-headquartered technology provider IBM announced its closure.²⁶ Giese says TradeLens suffered from a lack of trust between organizations and regulatory concerns over sharing data. “But the idea was brilliant and I would guess that we will see something similar in the near future,” she says.