Climate Change and Logistics with Professor Alan McKinnon

Patrick Daly:

Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about connections, international business and globalization, and the effects these developments have had on our life and work and travel over recent times. Today on the show, we will be talking to Alan McKinnon, professor of logistics at [Kuhne] Logistics University in Hamburg, Germany, and professor emeritus at Hariot-Watt University in Edinburgh, Scotland. Alan has been researching and teaching in freight transport and logistics for over or 40 years and has published extensively in journals and books on many different aspects of the subject. And much of his recent research is actually focused on the links between logistics and climate change.

Patrick Daly:

So this is, I think, very apposite right now, given that trade transport in all its guises and warehousing and logistics, terminals, and warehouses, and so on, are among the major contributors to global emissions. And given that the COP26 UN conference on climate change gets underway in Ireland’s native Scotland this very week. So I’m looking, forward, very much, to discussing how the freight transport industry will change in the coming years as it transforms itself to the reality of a low carbon future while continuing to support the modern economies and standards of living that we have all become accustomed to. So welcome, Alan, and thank you very much for being here with us today.

Alan McKinnon:

Thank you for inviting me to take part, Patrick.

Patrick Daly:

You’re very welcome. Maybe to kick off, Alan, would you tell us a little bit about your current academic work and the areas of research interest that you’re currently involved in?

Alan McKinnon:

Yes. Well, most of my research really is on the links between logistics and climate change. Mainly on the mitigation side, how we cut emissions from logistical activity. I’ve also done some work; however, on how we adapt logistic systems and supply chains to all the climate change that is in the pipeline, because I think there’s a general recognition that freight transport is going to be very vulnerable to extreme weather events, for example. So, yes, I’ve just recently finished some work for the World Bank, which has been looking at how we can try to decarbonize logistics in less developed countries, because so much of the research has been done in this field really has focused on the developed world. But there’s going to be an extra challenge, it seems to me, in cutting carbon emissions from these [inaudible] in the developing world.

Patrick Daly:

And in terms of that research that’s ongoing, are you actively looking for PhD candidates who are interested in looking into this space?

Alan McKinnon:

No, I’m not. As you said, I think I’ve been 42 years in academic now. So, I’m nearing the end, really, of my academic career. So I think I have one more PhD to examine and then I will probably complete the process. I’ve not been taking on any new PhDs [inaudible].

Patrick Daly:

Very good. So, in your work on greening logistics, some of the work that I have read, you talk of five strategies. And one, which is perhaps the definitive long-term one, is to change power sources to lower zero-carbon sources. And then you have these other four, which are mitigation strategies that you referred to such as improved efficiency, increase utilization, model shift, and reducing demand. So just coming back to the first one first, which is the definitive long-term solution, what do you think are the most promising technologies for changing power sources for transport and logistics currently on the horizon or in development?

Alan McKinnon:

Yes, that partly depends on the transport mode that we’re talking about. Let’s suppose we’re looking at road freight. So for short distance, road freight movements like great deliveries in urban areas, I think it’s going to be battery/electric power that’s going to be used. We’ve already seen a reduction in the cost of batteries, quite a dramatic reduction. The total cost of ownership now for small vans that are battery powered are broadly comparable with diesel and petrol powered vans. So I think that process is underway.

Alan McKinnon:

We’re also seeing an increase in the charging facilities for these vehicles. But that’s in a sense, the easier part of the logistics system to electrify. Long-haul freight, I think, presents more of a problem for us. For many years, people felt that we would not be able to power long-distance, heavy trucks with batteries because the batteries would simply be too heavy. So the battery might be weighing, say 12 tons in a truck that would have a payload of only maybe 20 or 25 tons, and therefore that would be too heavy a weight penalty.

Alan McKinnon:

However, there have been quite remarkable advances in truck technology and battery technology in recent years. And I think that now in smaller countries like Ireland and Scotland, where the length of haul is probably less than say 300, 400 kilometers, I think ultimately batteries will be able to perform that task, supplemented in some countries, it seems to me, with an electrification of the highway. As you may be aware, Patrick, I mean, currently in Sweden, there are two trials underway. There are three in Germany where the highway is electrified and where we run trolley trucks. [crosstalk]

Patrick Daly:

Okay. So yeah, so this would [crosstalk] look like when we see the trolley buses in some European cities, something similar, but on the highway.

Alan McKinnon:

Exactly, or in railway, I mean, we’ve had many, many decades of electrified railways. So, this is a fairly mature technology that we’re just transferring really from rail or from urban trolley bus systems to road. I mean, to justify the capital cost of doing that you have to have a fairly heavy traffic in trucks. So, it’s going to be in, I think, particular corridors. So I think that’s another option.

Alan McKinnon:

And then, of course, the final option I haven’t mentioned yet is hydrogen. A lot of people are very enthusiastic about using hydrogen to decarbonize long-haul trucking. And there are problems with that. I mean, one is almost all the hydrogen we currently have is essentially a fossil fuel. I mean, it’s made from natural gas with a process called steam-methane reforming. This will only become a decarbonization option once we can produce enough green hydrogen from the use of low-carbon electricity to electrolyze water.

Alan McKinnon:

There are ambitious invest plans to set up what they call [gigastacks], this new generation of plants that will electrolyze large amounts of hydrogen. But the other problem with using hydrogen is the amount of energy you use in the process. If you do the life cycle analysis, going from the low-carbon electricity to the wheel of the vehicle, you can lose as much 70% of the low-carbon electricity. And studies done in Germany and elsewhere have compared the capital costs and the long-term costs of decarbonizing long-haul trucking. And so long as the traffic volumes are sufficient, actually electrifying the highway comes out as one of the most cost-effective ways and hydrogen comes out as the least cost-competitive option.

Alan McKinnon:

But I don’t think there’s any one of these technologies will necessarily dominate. I think they’ll coexist, and there will be some operator, some countries that will tend to adopt one more than the other.

Patrick Daly:

It’s interesting that those technologies, whether it’s batteries in HGVs or whether it’s electrifying the highway or whether it’s using hydrogen, which I assume is with a fuel cell, it means a fleet change, right? Is there any scope for drop-in fuels that would be carbon-neutral, maybe advanced biofuels or e-fuels? Is there any scope there?

Alan McKinnon:

Yes, there is, because I mean the technologies I’ve just described are in such a longer term. We’re not going to have, it seems, to be mass production, mass adoption of hydrogen fuel cell or battery long-haul trucks, probably until the late 2020s, maybe well into the 2030s. And, of course, we have to meet quite ambitious carbon-reduction targets between now in 2030. So there are things we have to do in the short to medium term, and that’s when we have to think about these alternative fuels. So people are portraying some biofuels, particularly things like biomethane or hydro-treated vegetable oil as a way of getting some deep carbon reductions. In the meantime, of course, in Europe and other parts of the world, we have been mixing biodiesel with conventional diesel for many years,

Patrick Daly:

There is a certain percentage, right, in the-

Alan McKinnon:

It’s about 7 to 10%, typically it’s 7% in Europe. The only problem with that is where you source the feedstock for the biodiesel, because if it’s coming from waste material, that’s fine. If we’re getting it from the tropical lands, either from palm oil, we’re in the process. We’re deforesting tropical rainforest. Then when you do the life cycle analysis that biodiesel can have a greenhouse gas footprint three times that of conventional diesel. So, it seems to me there’s a limited amount of what we would define as sustainable biodiesel. But when you do the life cycle analysis, I mean, the two biofuels that really come out strongly, as I said, are, are Biomethane [inaudible] with aerobic digestion of waste material and also hydro-treated vegetable oil, again, which is being essentially recycled. So both of those can give you quite a deep reduction in greenhouse gas emissions from road freight, but again, there’s a limited amount of that available.

Alan McKinnon:

So I think people are seeing these as helping with the transition to lower carbon trucking and helping us until we move to this new generation of low-power train vehicles or battery-powered or powered by hydrogen.

Patrick Daly:

So, if you are, say the fleet manager of a business that’s looking to do its bit here, and you’re looking at fleet renovation over the next five years, what should they be considering?

Alan McKinnon:

Well, you mentioned the five decarbonization levers. So we’ve only focused on one at the moment. The other one is just to improve the energy efficiency of those vehicles, right? So we reduce the amount of energy they’re consuming before we get to the stage when we’ve got to convert that to renewable sources. So, I mean, one thing that’s encouraging in Europe is that we have fuel economy standards now for new trucks. So, new trucks sold after 2025 will have to be 15% more carbon-efficient than the current ones. By 2030, it’s going to be a 30% improvement in carbon efficiency. So, for the new vehicles, things are going to be improving. But for existing vehicles, you can retrofit devices. You can make sure that they’re properly, aerodynamically profiled. You can put in anti-idling devices onto the vehicles. You can move to low-rolling resistance tires.

Alan McKinnon:

There are a combination of things that you can do. And each of them may reduce emissions by a few percent, but collectively, I mean, that can add up. And then leaving the technology aside. I mean, there are operational improvements. I always say the most cost-effective thing you can do to cut carbon emissions in road freight is train the truck drivers to drive more fuel efficiently and then monitor their behavior. And if necessary, give them further guidance on how to improve their fuel efficiency.

Alan McKinnon:

So, yeah, my worry is there’s currently a lot of discussion about switching to renewable energy. And as you said, in the longer-term, that is how we will completely decarbonize road haulage, but that’s a longer-term option. And we’d really have to do a lot of things in the interim really to get the, [crosstalk].

Patrick Daly:

I’m a fleet manager, there’s an awful lot of stuff I could be getting on with, in that regard, both on the efficiency side, the utilization side, and the operational changes to the way we run the business. And even if I am looking at fleet renewal, there are more efficient vehicles coming down the track, and we may have some biofuels and e-fuels and so on. We can use in the period, say up to 2030, and then we might be into a different scenario thereafter.

Alan McKinnon:

We’re going to see these decarbonization initiatives being time-phased. The beauty is there are many of them. Most of the things you can do to cut carbon emissions, certainly road freight, are mutually reinforcing. The last thing we want to do is simply sit back and wait until a new generation of low-power train trucks becomes available. So we don’t have that luxury, unfortunately.

Patrick Daly:

So getting on with a lot of those mitigation efforts, the challenges might be more managerial than technical actually, because the technical solutions are there, right?

Alan McKinnon:

That’s true, yep, yep. So, but are what I call the MOB` initiatives, managerial, operational, and behavioral. These are things which very often don’t involve much capital investment. They often have a fairly low or even negative carbon mitigation cost, and it can be implemented in the short and medium term. And I think that’s where we should be focusing our attention currently. And one thing that’s going to assist that is the current digitalization of road freight. And I use that term as a collective term for whole suites of computing, IT, artificial intelligence developments. I mean, we’re seeing quite remarkable advances, in fact, online load matching, for example. And things that have been around for a while like online freight exchanges, computerized vehicle routing systems. But with advances in computing, we’re now getting an upgrade in the potential of these things to improve routing of the vehicles, the level of loading and so forth.

Alan McKinnon:

And I think all of that is going to translate into lower carbon emissions. My university with the European Freight and Logistic Leaders Forum last year did a survey of about 90 senior executives in logistics in Europe. And one question we asked them was about the likely effects of digitalization on the decarbonization of logistics, and they were very positive. The vast majority of them said that digitalization would be transformational in this respect. So I think that’s a really good-news story.

Speaker 3:

93.9 Dublin South FM.

Patrick Daly:

Som we’ve looked at changing energy sources. We’ve looked at efficiency and utilization improvement. The other two strategies you speak about are model shift in just reducing demands. So, we’ve seen this supply chain redesign that’s already been underway as a result of COVID and other disruptions like Brexit and natural disasters, accidents, and geopolitical tensions and so on. So do you think that shift in supply chain structure that’s already underway will accelerate this reduction in demand and model shift, or will it make it more challenging? What’s your take on it?

Alan McKinnon:

Well on model shift and, and I think we’re probably talking here predominantly about shifting for road to rail, is that right?

Patrick Daly:

Yeah, road to rail and maybe to water, short-sea shipping and so on.

Alan McKinnon:

That’s right. There is a feeling that rail freight operations, certainly in Europe, actually benefited from COVID because the lockdowns in various countries reduced rail passenger movements to greater extent than rail freight movements, right?

Patrick Daly:

Mm-hmm (affirmative).

Alan McKinnon:

So, therefore, there was a lot more available capacity in real infrastructure in Europe to move freight. And so the transit times improved, their liability improved, the overall service improved, and that also demonstrated to companies just what the potential was for using rail. Of course, we rebounded from there and traffic has returned, not to the level it was before, but the feeling is people get talking about building back greener. And I think that does apply to logistics as much as it does to other sectors of the economy. And I think it will probably help to tilt the balance away from road towards rail, but that’s got to be put into context. Because there are major policy initiatives now, certainly in Europe, to get much more freight onto rail. Some of the European Commissions Smart and Sustainable Rail Mobility Strategy that was published in December last year, said they want to increase the amount of freight moved by rail in Europe by 50% by 2030, and doubling it by 2050.

Alan McKinnon:

And now that’s going to be really difficult to do. I mean, but at least there’s the policy dynamic in place there to try to get as much freight off road and onto rail. And the reasons for that, I think, are quite obvious because if you compare the carbon intensity of roads, typically in Ireland or the UK or elsewhere, you’re looking at an average, I think of 90 grams of CO2 per [inaudible] road, as opposed to maybe 20 to 30 for rail. And again, with rail it depends if it’s diesel-powered or if it’s an electrified service. And if it’s an electrified service in France or Sweden with electricity, it’s got very low carbon, then you get an even bigger differential between [inaudible].

Patrick Daly:

So, I’ve been reading a lot about this space and in recent times. Bill Gates and Mark Carney and some of your own work and so on, and I get the distinct impression that the challenge here right now is not so much technological. Though there are still technological challenges, but the bigger challenges are actually economic and political. So have we been moving politically in the right direction over the last 20 years, do you think? And what would you consider as a good outcome from COP26 in this regard?

Alan McKinnon:

Yes, that’s a very good question. So if you asked yourself the question, to what extent have policy initiatives over the past 10 or 20 years helped us decarbonize freight transport, some things have certainly helped. One thing we haven’t mentioned at all is the relaxation of truck size and weight, moving to what we call high capacity transport which has been well established for decades now in Scandinavia, since 2013 in Europe. We’ve seen more countries relaxing the restriction and truck size and weight. And the analysis that’s been done suggests that does create greater consolidation of loads, reduces vehicle kilometers, cuts fuel, and therefore, reduces CO2 emissions. So, that’s been one policy initiative where it seemed to.

Alan McKinnon:

And there has been a lot of policy effort, as I said, to try to get more freight onto rail. That’s not been so successful. The EU in its 2011 white paper on transport came up with this target that by 2030 they wanted 30% of all freight moving more than 300 kilometers to either be on rail or on inland waterways. And if you look at what has happened since then, there has been hardly any movement in that direction. The freight model split in Europe has been pretty static over the past decade. So, it looks very unlikely that target will actually be achieved.

Alan McKinnon:

So there are other policies. I mentioned the fuel economy standards, which are now imposed on trucking, which won’t happen overnight but through time, aa companies replace their truck plates with this new generation of lower-carbon vehicles within these fuel economy regulations, I think that will help as well. So it’s a mixed mixture.

Alan McKinnon:

There is one policy initiative which, I think, was introduced prematurely and that has not delivered the greenhouse gas savings that were expected. And it’s something we spoke about a moment ago, mixing biodiesel with conventional diesel. The renewable fuel directives that were introduced, what about 12, 14 years ago. Because that was done, I think, before we did the fuel life cycle analysis, before we looked at the amounts of biodiesel we would require, and where the feedstocks would have sourced, but now we realize there are a lot of the biodiesel were mixing with this actually has a pretty high carbon footprint. So, that was a policy initiative that misfired, it seems to me.

Patrick Daly:

Coming out of COP26, if you said, “Okay, that’s a result.” What would that be?

Alan McKinnon:

I just wonder in the core COP26 negotiation, if they’ll be drilling down to look at transport initiatives. I think the main inter-country negotiation there will be focusing on more general issues, which then will have an impact on all sectors, right? So, and it would then be for individual governments, it seems to me, to translate these wider policy commitments into things that will impact on the transport sector. In July this year, for example, in anticipation of COP, the UK government published its transport decarbonization strategy. And, in fact, uses an illustration of what other countries might do. It involves phasing out diesel-powered cars, for example, diesel-powered trucks. Or they want to stop the sale of diesel-powered trucks by 2040, for example, in the UK. Again, they want to get as much freight off the road network onto rail and onto waterways as well, if that is possible.

Alan McKinnon:

But there’s some things that I would like to see emerging from COP. I mean, I believe that we need to monetize CO2 emissions, right? We need to get that into the balance sheets of companies, because it seems to me, that would be a game-changer. And therefore we need a lot more work and commitment to introduce carbon pricing and emissions trading and so forth. And that will affect all sectors. I mean, at the moment, logistics is not covered by many carbon-pricing schemes worldwide, but through time I think it will. And I think then the price mechanism will be the thing that will drive logistics decarbonization.

Patrick Daly:

Either the economics or the politics of the topic shifts rapidly at some point where we get a paradigm shift to get us out of this. We’ve been going through this tortuous, slow process. And you can see maybe at some point either the politics or the economics, or both are going to shift at some point quite rapidly. Would you concur with that?

Alan McKinnon:

Yeah, it might be wishful thinking that will happen. I mean, it needs to happen because we’re getting so close to exhausting our carbon budget. I mean, we do need radical shifts of that sort. If you take a global perspective on this, the problem is that the fossil fuels are still heavily subsidized around the world.

Patrick Daly:

Yes, it’s quite ironic, yes.

Alan McKinnon:

Exactly, so it’s not that we have an increase in carbon pricing. In fact, we’re doing the opposite. We actually-

Patrick Daly:

Carbon discounting, right?

Alan McKinnon:

We’re promoting demand for fossil fuel, but by offering subsidies. So, I think the first step is to get those countries which are still subsidizing fossil fuel to phase that out ASAP. And then really moving to internalization of the environmental costs of freight transport. And the key part of that then would be the price that you then attach to carbon-related externalities.

Patrick Daly:

One financial aspect of this or economic aspect that we don’t hear a lot about is the issue of stranded assets, which could destabilize the financial system. So, if you’ve got companies that have oil reserves or countries with oil reserves under balance sheet, and suddenly these reserves are worth nothing because the paradigm shift, that could cause disruptions in the finance system, right?

Alan McKinnon:

Yes, [inaudible] and I mean this has been researched and in big banks, for example, in their stress testing, they’re seeing the effect this could have on their balance sheets and their survival. One rather worrying scenario, which hopefully we’ll never materialize, is one where the owners of those fossil fuel assets realize that the future demand is going to collapse, right? There are going to be radical climate change policies put into place which will phase out fossil fuel probably faster than people are expecting.

Alan McKinnon:

Because what will happen then is the owners of those assets will want to offload them as quickly as possible while they still have value. And we might then have a fossil fuel binge. That will drive down cost of the fossil fuel, right? And it’ll make it harder for companies to justify investing in renewables because the cost of the fossil fuel alternative is so low.

Alan McKinnon:

So one would hope that there’ll be policy initiatives put in place really to minimize the risk of that for happening. Because, as you know, there’s still a lot of coal, oil, and gas in the ground, and there’s no way we can burn all of that. And we really have to stop consuming it as quickly as we can.

Patrick Daly:

So, I have lots of clients who are SME logistics operators, owners of transportation fleets and warehouses are concerned about the economics of this transformation. They’re fearful of both, maybe being victimized in the media on the one hand, or hung out to dry economically. And they’re also getting pressure then from their own clients who, a lot of them, are multinational corporations who are quite sensitive and keen to be seen to be green as well. So, what would you advise the owners and managers of these types of businesses to consider now for their future strategies in terms of, well, we spoke about fleet renewal, but say energy sources, people skills, collaboration with supply chain partners and so on? How should they be thinking about that 5 years, 10 years in the future?

Alan McKinnon:

One thing they can do, and an increasing number of companies are doing that, is shadow pricing. Their businesses aren’t necessarily subject to that at the moment, but almost certainly in the short term, but in the medium to long term, they will really have to factor that into their calculations. And, so if they’re having to make an investment decision, then factor into your investment appraisal, some future estimate of what the carbon price might be. And I mean, I understand financial institutions these days and the stress testing they have to do to satisfy the needs of national banks. They’re being asked to say, “What would happen if the carbon price was £300 a ton or €1,000 just to see how vulnerable their operations would be, not just to the impact in a physical sense, but in a financial sense, if we move into a world where carbon is priced at a relatively high level?”

Patrick Daly:

Yeah. I think that’s the reality. And it’s worthwhile looking into. Inevitably, I think, there are going to be casualties, but if you have the wherewithal, you start looking at that. Because I guess if you don’t, some of the choice business you’re not going to get, because these multinational corporations are not going to contract your services, right?

Alan McKinnon:

Yeah. I think the good news on this is that there’s still a lot of low-hanging fruit around.

Patrick Daly:

That’s true.

Alan McKinnon:

Because we looked at the five decarbonization levers. The one where you make better use of the assets, fuel the vehicles better, and also improve the energy efficiency, a lot of the things you do there give you a fairly rapid payback and are self-financing in the short to medium term. So a lot of this is simply good business practice that the gratis, the harvesting of all the low-hanging fruit, isn’t going to deliver the really deep production innovations that we will require, but at least it gets us started in the process. Right?

Patrick Daly:

Yeah.

Alan McKinnon:

And then there’s a diagram I often use in my presentation. So the first part of it is where we’re sliding down this low-hanging fruit curve, if you like, where we’re cutting costs, as well as cutting carbon. Eventually, we will exhaust all of that low-hanging fruit, and there’ll be a rebound when the carbon mitigation costs start to rise again. And it may be to get to net-zero by 2040, 2050, we really have to then start to do some fairly draconian things. And that’s when it’s going to get tough and where companies may have to sacrifice mobility. And their investment returns may decline and so forth. But that could be 10, 15, 20 years away. In the meantime, there are things that we can do that, as I say, will be self-financing.

Patrick Daly:

So, we have our work cut out for us. So, as we come into the last couple of minutes, we might just change gears. And maybe I’ll just ask you a question or two about yourself. So, when you’re not thinking about decarbonizing the logistics industry, what kind of things do you like to do in your spare time?

Alan McKinnon:

My main recreation is playing the piano.

Patrick Daly:

Really? Interesting.

Alan McKinnon:

I’ve been playing the piano since I was eight.

Patrick Daly:

Okay, excellent.

Alan McKinnon:

And I find that so relaxing and creative. So that’s-

Patrick Daly:

I often think that about people who are musicians, that it must be a great kind of solace for them, a great kind of comfort. Because you see when they’re doing it, they’re almost in trance, right?

Alan McKinnon:

[inaudible] And when I’m working, because my home is in Edinburgh here, when I go to KLU, I’ve actually got an electronic keyboard in my office there, sitting right beside my desk. So, when I get to relax, I put the headphones on and just play away and that’s a wonderful distraction.

Patrick Daly:

Excellent. So to finish then, how can listeners find out more about you, more about your work and your research online or bookshops or so on?

Alan McKinnon:

So I have my own personal website, which is www.alanmckinnon.co.uk. So, all my life’s work is on that website, including some of my piano playing as well.

Patrick Daly:

Excellent.

Alan McKinnon:

But also my university, KLU, klu.org. Again, I’ve got a personal page here, which is has got my publication listed, and I always plug my book, Decarbonizing Logistics.

Patrick Daly:

Decarbonizing Logistics by Alan McKinnon.

Alan McKinnon:

That’s right.

Patrick Daly:

And then you’ve got klu.org, which is the university website.

Alan McKinnon:

That’s correct.

Patrick Daly:

And then’s, alanmckinnon.co.uk which is your personal websites.

Alan McKinnon:

That’s right. [crosstalk].

Patrick Daly:

That’s about-

Alan McKinnon:

The university is, I think, the-klu.org. So it’s www.the-klu.org.

Patrick Daly:

Yeah. www.the-klu.org. And that’s the university in Hamburg, which is a private university, dedicated to logistics.

Alan McKinnon:

It is, exactly, which I’ve spoken about. So it was founded in 2010. It’s in its 11th year, and it’s a university. We think it’s the only one in the world, really, which focuses very much on logistics operations.

Patrick Daly:

Well, thank you, Alan. It’s been an absolute pleasure talking to you, and I wish you every success both personally and professionally.

Alan McKinnon:

Well, thank you, Patrick. That’s great.

Patrick Daly:

And thanks also to our listeners for tuning in. Any comments or questions, just drop me a line on pdaly@albalogistics.com. So keep well, and stay safe until next time.