Whilst the environmental impact of COVID-19 has yet to fully pan out, the tendency towards implementing green initiatives has grown in earnest over the last few years, with an increasing number of businesses across multiple industries getting in on the trend.
This is particularly evident in the logistics and transportation industry, in a bid to adopt more environmental-friendly practices. Land, air and sea transportations have also seen a rise in the use of compressed natural gas and liquefied petroleum gas (“LPG”) instead of conventional petroleum.
As countries all over the world are in varying degrees of lockdown, this resulted in significant reductions in both carbon emission and crude oil prices. However, this is unlikely to lead to a reversal in the trend towards green initiatives as major economies are now cautiously evaluating the re-opening of the economies amidst the spread of the coronavirus.
More electric, fewer emissions
Concerns over the climate change have led to a proliferation in the discussion, development and deployment of electric vehicles (“EVs”) in Asia; manufacturers, suppliers and even the Government pitch in to create a conducive infrastructure and ensure sufficient funding for new EV innovations.
The National Climate Change Secretariat and Nanyang Technological University’s Energy Research Institute has highlighted the environmental benefits of EVs: in Singapore, EVs could help reduce emissions by 30 per cent. This figure would rise to 64 per cent if clean sources such as solar energy were used to produce electricity for EVs.
A report by the International Renewable Energy Association (“IRENA”) states that Asia could have as many as 67.9 million EVs on the road by year 2025, accounting for approximately 20 per cent of passenger automobiles in Asia.
While factors such as high purchase and ownership costs and insufficient charging infrastructure have led to a slow uptake of EVs in Asia, the governments of Asian countries like Singapore, Malaysia, Indonesia and the Philippines still emphasise the importance of EV adoption in both the public and the private transport sectors.
Singapore’s Land Transport Authority (“LTA”), for instance, started trials of 60 eBuses in 2019, and the HDT Singapore taxi fleet now has over 100 EVs by Chinese firm BYD — a number expected to reach 800 in two years from now.
In Indonesia, President Joko Widodo has approved the use of fiscal incentives to encourage EV sales and boost the domestic EV industry in order to reduce the country’s dependence on fossil fuel imports and tap into its nickel reserves, which are needed to make lithium-ion batteries for EVs.
In Indonesia and Vietnam, electric two-wheelers are gaining popularity. ASEAN is the world’s biggest motorcycle market, and with experts predicting that it will continue to grow, government incentives for two-wheeled EVs can become a reality, making scaling back fuel subsidies and local manufacturing much easier.
Leading the pack in Asia’s land transportation industry appears to be China— China is the region’s largest EV battery manufacturing hub, as well as a key supplier for the Southeast Asian market.
While it might be challenging for private vehicle owners to switch to EVs, commercial fleet owners have been progressing steadily with EV adoption. Their ability to develop their own charging infrastructure, and high-intensity operations (using vehicles like trucks) that make their ownership costs more economically viable have made them largely responsible for the rise in EVs on the road in Singapore.
For instance, Grab’s joint venture with Hyundai and SP Group—Hyundai supplies vehicles and SP Group builds charging infrastructure—resulted in the leasing and management of 200 EVs until end 2019.
On the average, a participating driver can reportedly make about 10 to 20 per cent more than a driver leasing an internal combustion engine vehicle daily even with the higher rental rates and longer waiting time for charging the vehicles.
MNCs have also begun eschewing traditional delivery methods by tapping into automation, allowing them to reduce their carbon footprint. Google has made progress on the use of self-driving lockers, while Amazon has invested in warehouse automation as part of its robotics business unit, and is piloting a Prime Air 30-minute delivery service that uses drones.
In Asia, Alibaba has established Cainiao—a joint venture with different logistics companies, an investment firm, a company with port logistics operations, and a departmental store—in the hopes to improve its sellers’ delivery services.
Cainiao allows network members to access to a logistics data platform that helps them achieve order fulfilment efficiencies by scaling up their capacities and capabilities. Along with this platform, Alibaba has also developed an app that allows customers to contact delivery personnel within their vicinity to request for pick-ups or returns.
Constantly evolving technologies—such as drones, advanced robotics, and self-driving repositories—can make for more sophisticated warehousing solutions, but it might be difficult for logistics companies to equip their staff with the necessary skills to handle these technologies. In such cases, it may be wise to engage technology suppliers who provide logistics services in relevant areas of expertise.
As above, so below
Air transportation has taken advantage of major technological advances to increase energy efficiency in recent years, though more frequent air travels and air freights have somewhat dampened these improvements. Therefore, air transport remains a key source of CO2 emissions for major logistics services providers who have been trying to combat the issue with better capacity utilisation, optimised network structures, and increased use of modern aircrafts.
One of the main obstacles, however, is the long lifecycle of aircrafts, which often exceeds 30 years and can be even longer in freight, making fleet turnover a very lengthy process. While open rotor technology might provide a solution for upcoming aircraft generations, open rotors remain a contentious topic due to their higher noise level, longer travel time, compatibility issues with current aviation infrastructure, and higher maintenance cost.
Other initiatives include developing cost-effective, low-carbon solutions by optimising activities along its transport modes, and deploying technologies that include modernised air fleets.
When it comes to commercial airlines, low-cost carriers tend to use newer, more fuel-efficient aircrafts that are typically fully booked, resulting in lower CO2 emissions per passenger per kilometre when compared to non-budget airlines.
Still, their total emissions remain high, especially in Asia, which happens to be the travel industry’s fastest-growing market. China has plans for another 216 airports by 2035, while India intends to build 100 new airports in the next five years. In Singapore and South Korea, airports are constantly being upgraded and expanded to accommodate the ever-growing number of travellers.
While electric aircrafts may be a viable alternative for short-haul flights, they require heavy batteries that make them ill-suited for long-haul flights, making overall reduction in CO2 emissions for commercial flights a greater challenge.
The sea transportation sector is also under pressure to go green, with the IMO (“International Maritime Organisation”) 2020 initiative being implemented since the beginning of 2020. Under this initiative, the IMO ruled that the marine sector emissions in international waters be reduced— this new regulation aims to achieve the greatest reduction in the sulphur content of transportation fuel at one go, calling for sulphur emissions to be lowered by over 80 per cent.
Considering the marine sector’s daily consumption of 3.8 million barrels of fuel oil in 2017, it accounts for 50 per cent of international fuel oil demand, exposing the sector to significant disruption of compliant fuel pricing and availability in the face of the new IMO regulations.
To lower the emissions of sulphur oxides and nitrogen oxides, scrubbers or exhaust gas cleaning systems (“EGCS”) are used to treat exhaust from ship engines and boilers, ensuring no chemical damage to human life or the environment.
Furthermore, technological innovation in the form of AI, robotics and IoT have made it easier to facilitate autonomy in shipping, making driverless vessels a reality. The IMO defines driverless vessels or autonomous or unmanned ships as MASS (“Maritime Autonomous Surface Ships”), and has strict standards for their development, focusing on cost-effectiveness, eco-friendliness, logistical optimisation, improved productivity, and enhanced safety and security.
To this end, several autonomous ship projects launched over the last decade, with the electrification of propulsion systems, made it possible to shrink crew sizes.
Embracing the new economy
With the growing pressure to meet ecological standards while maintaining cost-effectiveness may be daunting, especially to SMEs, it is not all doom and gloom for the future of your business. Taking advantage of the ability to embrace new technologies that can enable your business to fulfil the aforementioned criteria will give you the edge you need to thrive in this new economy.
RSM's vertical industry knowledge puts it in good stead to empathise with business owners’ challenges and work with business owners to brainstorm and evaluate possible solutions that can put your mind at ease.
If you would like to tap into our professional consultancy services for your logistics or transportation business, please contact:
Lee Mong Sheong
Partner & Industry Lead, Logistics & Transportation Practice
T+65 6594 7865
Tan Sock Huan
T+65 6594 7947