On March 20, 2019, Bündnis 90 Die Grünen, the German green party, invited to a platform discussion in Berlin. While acknowledging that international trade is a key enabler of economic development, discussions revolved around the downside of international trade: its contribution to climate change.
I was granted the honour to serve as panellist and share my experience in the management of global value chains. Here is a summary of the discussion questions and my responses for a non-German speaking audience. Hopefully, you will find this helpful for your own work!
History of Global Developments
After the end of the cold war, companies benefitted from lower trade barriers and decreasing costs for imports and exports. The result was a vague of outsourcing: Companies sought to concentrate on core competencies and subcontracted non-core activities to suppliers all around the world. Some estimate that up to 80% of a manufactured product’s value is outsourced to upstream supply chain partners.[1] These developments caused substantial growth in international trade. According to data provided by the World Bank Group,[2] the global average export ratio has been 18.85% in 1980 and almost doubled to 36.95% in 2017. Evidently, not all countries faced the same progression and international trade grew sometimes more, sometimes less. But growth has been particularly pronounced in Germany with an increase from 18.02% in 1980 to 47.24% in 2017. The logistics and transportation industry developed accordingly. Here, strongest growth occurred along the routes between Central Europe and Asia, Central Europe and the Middle East, Central Europe and Eastern Europe, North America and Asia, and North American and South America.[3]
Global Transport’s Impact on Climate
The impact of transportation on climate is substantial. According to the Intergovernmental Panel on Climate Change (IPCC), logistics and transportation account for approximately 15% of global GHG (GHG) emissions. IPCC also finds that global GHG emissions rose to 10 GtCO2-eq between 2000 and 2010. 11% of this growth is attributable to logistics and transportation. Thus, the sector is the third largest emitter of GHGs after energy and manufacturing.[4] The following GHGs and associated global warming potential (GWP)[5] emitted from the movement of goods and services are: carbon dioxide (CO2, GWP 1), methane (CH4, GWP 28), and nitrogen oxide (N2O, GWP 265).
Impact by Mode of Transport
The logistics and transportation sector distinguishes the modes road, rail, air, and sea. On top of this and related to the climate change, it is also important to include logistics real estate and facilities such as hubs, airports and ports into the debate. The impact of these modes on total GHG emissions is as follows:[6]
These data suggest that rail (5%) and air (9%) contribute the least to GHG emissions. However, while this assumption may hold when looking total emissions, it is more advisable to compare the emissions per mode by a comparable functional unit. In logistics, this is ton-km: The total GHGs that are emitted when moving goods weighing one ton over a distance of one kilometer.
The results of doing so and using data of the UK Government[7] are summarized in Table 2.
In this set-up, sea freight has the lowest GHG emissions per ton-km (0.01605) followed by rail (0.03394). Air freight has the highest emissions per ton-km (0.77001).
Thus, if one can choose between various modes of transportation, air should be avoided and preference should be given to sea transportation.
[1] United Nations Conference on Trade and Development (UNCTAD). "World Investments Report 2013: Global Value Chains - Investment and Trade for Development." edited by United Nations. New York and Geneva, 2013.
[2] The World Bank Group, https://data.worldbank.org/indicator/bx.gsr.gnfs.cd, accessed 25. February 2019
[3] Manyika, J., J. Bughin, S. Lund, O. Nottebohm, D. Poulter, S. Jauch, and S. Ramaswamy. "Global Flows in a Digital Age: How Trade, Finance, People, and Data Connect the World Economy." edited by Mc Kinsey Global Institute. New York, NY: McKinsey, 2014.
[4] IPCC Intergovernmental Panel on Climate Change. Climate Change 2007. Synthesis Report. Edited by IPCC Intergovernmental Panel on Climate Change. Geneva: IPCC, 2007.
[5] Global Warming Potential (GWP) denotes the unified measure of how much heat a GHG in the atmosphere generates relative to the baseline carbon dioxide. Values reported herein are collected from http://unfccc.int/ghg_data/items/3825.php
[6] World Economic Forum. "Supply Chain Decarbonization - the Role of Logistics and Transport in Reducing Supply Chain Carbon Emissions." World Economic Forum.
[7] Gov.UK. "Government Emission Conversion Factors for GHG Company Reporting." London, UK: UK Government, Department for Business, Energy & Industrial Strategy, 2019