The circular economy – an approach to designing and manufacturing products for reuse, remanufacturing, and recycling – opens new opportunities for logistics and transport companies to accelerate innovation and attract new clients who are concerned about sustainability. The wasteless circular economy is predicted to unlock value worth 3.66 trillion euros by 2030 with logistics as a key success factor in the newly developing business models. How can the logistics industry successfully adapt to the circular economy?
Circular economy logistics providers and their supply chain partners should develop stronger information exchange capabilities and introduce new transportation services that align infrastructure with the needs of the circular economy. In the circular economy, materials continuously circulate through a number of different supply chains and never end up as waste. The biggest logistics challenges in the circular economy are the poor predictability of material flows, the low financial value of materials, and widely differing goods qualities.
Viacheslav Tureiko, Chief Business Development Officer at international logistics and transport provider AsstrA-Associated Traffic AG, says that in circular economy business processes, the price of logistics is the most important factor when it comes to setting a competitive product price. That is why manufacturing companies working with low-cost materials pay significant attention to transportation costs and usually develop their own logistics schemes.
“Third Party Logistics (3PL) providers are not as eager to ship low-cost recycled raw materials. There are higher profit margins in forwarding more expensive freight. 3PL providers might be able to turn a decent profit on cheap cargo through higher volumes from a manufacturer who outsources all of its logistics, for example. You need to focus on volume consolidation and develop an effective logistics chain on a particular trade lane,” says Mr. Tureiko.
New circular economy logistics opportunities will also arise as companies and consumers opt for services as opposed to ownership. Cost-efficient and sustainable supply chain management will be a core capability of successful companies in the circular economy. Fully digitalized supply chains covering everything from concept through manufacturing to logistics will overcome many of the upcoming challenges in this space. Accurate monitoring, traceability, and up-to-date logistics solutions are required.
According to a recent survey from UPS, 56% of respondents said that including rebate in the form of cash back would help ensure the return and reuse of consumer products, their components, and associated materials at the end of their primary use period. 47% identified the convenience of returning a product at a brick-and-mortar location as a similar factor, and 42% pointed to the ability to return a product using pre-paid shipping.
Clearest business cases seen in the electronics industry
According to the same survey, most logistics operators do not see compelling business cases in the circular economy. However, circular economy principles are making their way into daily shipping industry practices. One “green logistics” example is roundtrips with loads in both directions, also known as backhauls, which AsstrA has strongly emphasized over the last few years when adding new routes and planning for future expansion. Vitaly Verbilovich, Head of AsstrA's Research & Development Division, adds that during 2018 AsstrA executed roundtrips mostly on the Belarus-Germany-Belarus, France-Russia-France, Ukraine-Czech Republic–Ukraine, Poland-Belarus-Poland, Russia-Romania-Russia, and Russia-Poland-Russia routes.
“During 2018, most of our roundtrips involved shipping construction materials, chemicals, wood and paper, and food industry cargo,” says Mr. Verbilovich. Also, he forecasts a rise in demand for backhauling hi-tech and FMCG goods.
Regarding the transportation of recycled materials, the clearest business cases in circular economy supply chains involve cargo consisting of previously used finished products rather than raw material. Handling recycled materials requires agility from storage and transportation service providers, who rely an increasing range of IT solutions. The logistics of the circular economy involve modern technology that collects data from sensors throughout the entire transportation cycle and shares it in real time with partners and suppliers.
Also, the most adoption of the circular economy model is expected in the technology sector, with the reuse of electronics being easily integrated into take-back models. Logistics solutions such as pre-paid shipping labels, smart packaging, and take-back schemes should help satisfy market demand.
Brightest circular economy examples inspire others
At the beginning of 2018, the findings of a study from GreenBiz Growth on the circular economy indicated that 47% of sustainability executives consider the circular economy important to their business. 50% of them claimed they are doing “something” related to the circular economy. And 97% of business leaders said that logistics are important in a successful transition to the circular economy model.
One of the brightest examples of the circular economy in action is Nespresso, a global company using a take-back program in which consumers can leave their used coffee capsules in prepaid recycling bags at any UPS drop-off location. The aluminum capsules are separated from the coffee grounds before being melted down for metal to be used in new products. The spent coffee grounds are sold as high-quality fertilizers to landscapers, garden centers, municipalities, and homeowners.
The Carlsberg Group has initiated a partnership with Danish company ecoXpac, Innovation Fund Denmark, and The Technical University of Denmark to develop a fully biodegradable beer bottle made from wood fiber. The final goal is to eliminate waste altogether by creating sustainable products and a more circular economy.
Also, Danish potato processing cooperative KMC began transforming residual potato fibers into a valuable protein-rich food additive for the food industry. It is possible to extract and process starch and fiber from potatoes, thereby maximizing the output of each potato for the economic benefit of the potato growers. The food industry uses the fibers as an efficient nutritional additive.
Another example is a Finnish fertilizer manufacturer Ecolan, a subisidiary of Honkajoki Oy. It produces the Agra organic fertilizer using meat and bone meal. The raw materials are processed into a powder which is then mixed with other ingredients to make the fertilizer.
Examples like these will become increasingly common, and logistics will continue to play a significant role enabling take-backs and other ways to boost consumer participation and reduce costs on all sides by optimizing loads and backhauling routes.