Bridging the Gap: Sustainable Pathways for Transportation and Logistics

When considering the businesses that keep the global economy humming, we think transportation and logistics are particularly crucial.

Of course, other sectors are equally important. Manufacturing couldn’t happen without the utilities that generate power. Technology and communications facilitate modern commerce. Agriculture and mining provide the food we eat and the raw materials that factories need to make the things we buy. From an evolutionary perspective, every sector matters and plays a vital role. If a sector doesn’t contribute to the overall functioning of the economy, it won’t survive.

But without transportation and logistics, crops would remain on farms, factories would be idle, retail shelves would be empty and online shopping would be pointless. Transportation and logistics are like the circulatory system of the global economy. When its critical arteries and veins don’t work correctly, entire systems can shut down.

Given the central role transportation and logistics play in the global economy, it may be surprising that this sector is also one of the most significant contributors to carbon dioxide (CO2) emissions.¹ This presents both a significant challenge and a remarkable opportunity.

Transportation’s Impact on Global Emissions

The transportation industry moves products and people on the ground (via cars, trucks and railroads), oceans and other waterways, and by air. Logistics covers various related activities that keep products moving within supply chains. (Quick fact: Amazon is the world's largest logistics company in terms of revenue.²)

As shown in Figure 1, transportation is responsible for more greenhouse gas (GHG) emissions than any other sector in the U.S., even more than the power sector. Globally, the power sector is the largest contributor to GHG emissions, with transportation coming in second.

Figure 1 | U.S. GHG Emissions by Sector

^{Source: U.S. Environmental Protection Agency, “Fast Facts on Transportation Greenhouse Gas Emissions,” June 18, 2024.}

Given that transportation and logistics businesses generate such a large percentage of carbon emissions, the sector has the potential to drive innovations that meaningfully reduce emissions and enhance overall sustainability. This includes shoring up the integrity of physical assets for transporting and storing goods against extreme weather events, protecting oceans (which absorb large amounts of carbon and provide food globally) and reducing water use.

Companies in other sectors that develop profitable ways to reduce their carbon emissions, such as producing “green” cement or designing washing machines that use minimal water, will rely on the transportation and logistics sectors to provide the needed inputs to build these innovations and deliver more sustainable products.

Due to its size and diversity, the transportation and logistics sector will likely employ various approaches to reducing emissions. What might work for aviation won’t necessarily suit container ships or trucking. Figures 2 and 3 show that vehicles in the U.S. and globally are responsible for nearly three-quarters of all emissions in this sector. However, companies involved in every aspect of transporting people and goods stand to profit from the transition to a low-carbon economy.

Figure 2 | U.S. GHG Emissions by Transportation Sector

^{Source: U.S. Environmental Protection Agency, “Fast Facts on Transportation Greenhouse Gas Emissions,” June 18, 2024.}

Figure 3 | Global GHG Emissions by Transportation Sector

^{Source: Statista, “Distribution of Carbon Dioxide Emissions Produced by the Transportation Sector Worldwide in 2022, by Sub-Sector,” 2024.}

Reducing Emissions from Light-Duty Vehicles

Light-duty vehicles account for the largest share of transportation-related emissions. Americans love cars, SUVs, minivans and pick-up trucks — the U.S., Australia, New Zealand and Finland have the highest number of light-duty vehicles per capita.³ And the number of cars on the road worldwide is expected to increase significantly unless mass transit can find ways to meet personal transportation needs. In its “ITF Transport Outlook 2023,” the Organization for Economic Cooperation and Development (OECD) predicted that passenger demand (defined as transporting one passenger 1 kilometer) could rise by 79% by 2050.

Much of this increase is linked to projected economic growth in the Global South, which is expected to boost transportation demand more than in developed economies. Historically, a $100 increase in GDP per capita in high-income countries results in an increase of 44 passenger kilometers per capita in inland travel.⁴ However, economic prosperity in the Global South will likely increase this number due to greater urban sprawl in emerging regions. According to an OECD analysis, doubling a developing city’s population leads to a tripling of its surface area. Private vehicles often remain among the few transportation options available to residents in these areas.⁵

Since light vehicles are the largest source of GHG emissions in the transportation sector, innovations that cut vehicle emissions can meaningfully address the problem. It’s a misconception to believe that only zero-emission solutions are valuable. While achieving zero emissions is the ultimate goal, companies that develop incremental improvements also stand to benefit.

Global Push for EVs

Electric vehicles (EVs) are the obvious opportunity here. The global push to replace internal combustion engines with EVs is progressing at different rates. In China, most new car sales are EVs. However, in the U.S., high costs, range anxiety (the fear of running out of battery power before reaching a charging station) and politics have slowed EV sales. Despite these challenges, the environmental benefits of zero-emission vehicles make overcoming these obstacles worthwhile.

For companies with passenger car fleets, the savings are immediate, and the cost of fuel versus electricity isn’t the only source of savings. EVs don’t need oil changes and have fewer maintenance requirements overall. Many businesses could add EV charging stations as an incremental source of revenue.

This calls for a shift in thinking. Instead of building stand-alone charging stations that mimic traditional gas stations, businesses and municipalities could generate cash and increase foot traffic by installing high-speed EV chargers in parking lots where people leave their cars. Ideal locations include office buildings, shopping malls, fast food chains, sports venues and airports.

Some people question the net benefit of EVs due to the environmental impacts of mining lithium and other metals for batteries and the emissions from generating electricity to recharge them. However, many studies show that EVs significantly reduce emissions compared to gasoline-powered cars, even considering these factors. New technologies are being developed to make batteries with a smaller environmental footprint. One such innovation is "direct lithium extraction,” a mining method that reduces emissions and water use compared to traditional lithium mining.⁶

Despite the uncertainties of succeeding in the EV space, we expect companies to keep pursuing breakthroughs in this area by increasing range, improving charging speeds and reducing costs because the potential payoff is great. To the victor go the spoils.

Electrifying the Trucking Industry

Electrification in the trucking industry faces challenges but presents numerous opportunities. Trucking is a highly fragmented industry because barriers to entry are low. In the U.S., roughly 16% of trucks are owner-operated.⁷ Electric trucks have a significantly higher upfront cost than diesel trucks, discouraging small operators from buying them. Another challenge is that batteries are heavy and take up space. Electric trucks might have to reduce their payloads relative to diesel-powered trucks. And truck drivers who drive long distances can’t wait 10 hours to recharge their rigs.

The rebuttal: The cost of electric trucks is declining more rapidly than expected, and they are on track to be cheaper than diesel trucks far sooner than initially predicted. The all-in cost, including fuel and maintenance, makes the current difference between electric and diesel trucks less than one might expect — an important consideration for fleet operators planning future purchases. In addition to the impact of reducing emissions on climate change, shifting to electric trucks could improve human health because diesel exhaust contains more than 40 known carcinogens.⁸

In terms of range anxiety and the time needed to recharge, most trucks travel short distances, from shipyards or railyards to warehouses and from warehouses to retail locations. This means a typical short-haul truck driver’s trip can easily be completed on a single charge, and the range a single charge offers keeps increasing.

According to the International Energy Association, China leads the electric truck market with 70% of 2023 sales worldwide, a decrease from its 85% market share in 2022 as others enter the market.⁹ In the EU, sales of electric trucks tripled in just a year. Heavy-electric truck adoption in the U.S. is also slowly increasing. In 2022, Amazon started using small delivery trucks made by Rivian as part of its fleet, and Tesla launched the first electric Class 8 semi-truck.

Taken together, despite the high upfront costs, the economics of electric trucks work. Electricity costs less than fossil fuels, and electricity rates are stable, which is helpful for budgeting. Electric trucks designed with batteries and motors at the bottom have a lower center of gravity, enhancing stability and reducing rollover risk.¹⁰ This can help lower insurance premiums.

Exploring New Opportunities in Green Transport

Not surprisingly, innovators want to develop lighter-weight batteries. Researchers at the Chalmers University of Technology in Sweden recently achieved a breakthrough with a new structural battery that could cut the weight of a laptop in half and increase the driving range of an electric car by up to 70%.¹¹

As with the expected increase in demand for transportation among individuals, over the ~25 years from 2024 to 2050, freight demand (transporting 1 ton of goods over 1 kilometer) could double.¹² The electric truck charging infrastructure is growing too slowly, suggesting opportunities for new business models that could make super-fast charging for trucks more economically attractive. Even before such innovations come to market, the trucking industry could reduce emissions by shortening the distances traveled by optimizing routes and consolidating shipments. This points to opportunities for trucking industry-specific artificial intelligence (AI) tools to address these issues.¹³

Lowering Emissions in Rail Transport

Like the automobile and trucking industries, the rail industry wants to electrify. Switching from diesel fuel to electric trains powered by renewable energy would produce the greatest reduction in emissions from rail transport. In early 2022, Union Pacific announced plans to purchase North America’s largest carrier-owned fleet of battery-electric locomotives. The new fleet will be used for rail yard operations. Still, the company plans to work with locomotive manufacturers during this test phase to evaluate the possibility of using battery-electric locomotives for long-haul shipments.¹⁴

While the electrification of the rail industry unfolds, there are ways to reduce emissions from diesel trains in the near term. For example, Union Pacific now uses “cruise control” for trains to save fuel. The company reduced fuel consumption by more than 11 million gallons in 2021 versus 2020. It has expanded the system to roughly 75% of its active locomotive fleet, setting new records in fuel consumption efficiency and meaningful fuel cost reductions.¹⁵

Curtailing unnecessary engine idling during stops conserves fuel and reduces emissions. Route optimization can also help. Deploying advanced train control and signaling systems will eventually enable the rail sector to meet the EU’s goal of making freight transportation more sustainable.¹⁶

Sustainable Aviation and Maritime Transport

In the U.S., aviation and ships/boats are responsible for roughly 9% and 3% of total carbon emissions, respectively, as shown in Figure 2. Globally, these percentages rise to 11% and 10%. Reducing emissions in these sectors is proving to be quite challenging, so incremental improvements will likely be the focus in the near term. Even minor improvements can reduce costs and emissions and shouldn’t be discounted.

About 90% of the world's goods are transported by sea, and climate change is affecting shipping, increasing the cost of transporting goods worldwide.¹⁷ This raises the prices of intermediate and finished goods, contributing to inflation and hurting consumer spending. Ongoing drought conditions substantially reduce traffic through the Panama Canal, notably impacting shipping costs. Close to 40% of all U.S. container traffic goes through the Panama Canal each year, including 46% of containers from northeast Asia to the east coast of the U.S.

Surcharges offset the cost of delays that force rerouting around the southern tip of South America and for return trips around the Cape of Good Hope in South Africa.¹⁸ This affects government spending, with Mexico building rail capacity nationwide to compensate for Panama Canal delays.

In July 2023, member states of the International Maritime Organization adopted a strategy to reduce GHG emissions from ships, with a near-term focus on using more zero or near-zero GHG emission technologies, fuels and/or energy sources.¹⁹ While that may sound appealing, the reality is that such fuels don’t yet exist.

Using LNG instead of heavy fuel oil would reduce carbon emissions but could worsen total GHG emissions when considering methane leaks and upstream emissions.²⁰ Low- or zero-emission alternatives, such as methanol, ammonia and hydrogen fuel, are being explored, but they aren’t produced at scale and involve safety hazards that must be addressed.

Tremendous financial opportunities await innovators who develop breakthrough approaches. For example, one of the oldest eco-friendly methods for moving ships, using wind power with sails, is getting a modern upgrade. What looks like massive vertical tubes with movable flaps (which automatically adjust based on the wind speed and direction) have been erected on at least 30 ships, allowing them to sail using minimum power from their engines and saving a significant amount of fuel.

Sustainable Solutions for Aviation

As with automobiles, trucks and trains, the airline industry is looking at electrification to reduce carbon emissions. While electric airplanes can’t yet cover long distances, rechargeable lithium-ion batteries and electric motors can fly up to 1,000 miles on a single charge. The aviation industry is also pursuing solar, grid, wireless power transmission, and even hybrid engines (part-electric, part-combustion engine), but these technologies are still in the testing phase.²¹ Airlines should be motivated to support these innovations, with many consumers choosing flights partly based on their carbon footprints.

In the near term, sustainable aviation fuel (SAF) is more likely to reduce plane emissions. The first SAF-fueled commercial flight took place in 2011, and in November 2023, Virgin Atlantic was the first to complete a transatlantic flight using 100% SAF. Over 450,000 flights have been powered using a mix of SAF and traditional fuels, and over 50 airlines worldwide have tried SAF.²²

But headwinds have prevented SAFs from growing beyond a tiny fraction of jet fuel use because they are much more expensive than jet fuel. However, just as solar energy faced the same hurdle when it first came into use and is now one of the cheapest energy sources, the cost of SAF will likely decline. An advantage to pursuing SAFs is that most are designed to be mixed with traditional fuels, so airports don’t need to buy new equipment or build new infrastructure to use them.²³

Governments could consider promoting the idea of getting people to switch from planes to high-speed railways. Although it isn’t a viable solution in many situations, in heavily trafficked corridors such as New York-Boston and Los Angeles-San Francisco, the all-in time (and hassle) required to fly versus hopping on a high-speed train could be roughly equal. The reduction in carbon emissions would also be tremendous. Traveling by high-speed rail emits 0.0045 of CO2 equivalent (kgCO2e) per kilometer; for air travel, that jumps to 0.18277 kgCO2e per kilometer.²⁴

Sustainable Practices in Warehousing

The logistics side of the transportation and logistics sector relies on trucks, trains, ships and planes to carry goods to and from warehouses, but the warehouses also contribute to the sector’s emission challenge. Operating a warehouse requires electricity for heating and cooling spaces, and large warehouses are typically the size of 1.7 football fields or more. Since warehouse doors are constantly opening and closing, making them energy-efficient is hard. Refrigerated warehouses, in particular, use about four times more electricity than regular warehouses.

Solar- and wind-powered warehouses are becoming more common, with solar panels and wind turbines installed on the roofs of warehouses and distribution centers. A new bladeless wind energy unit, patented by privately held Aeromine Technologies, is a scalable, “motionless” wind energy unit that the company says can produce 50% more energy than rooftop solar at the same cost.²⁵

Replacing internal combustion forklifts with electric versions can reduce a warehouse’s carbon footprint. Electric forklifts can save approximately 24,000 pounds of CO2 per unit. They are also quieter and require less maintenance, which lowers operational costs. We think this presents a clear opportunity for forklift manufacturers.

Minimizing Waste in Logistics

Packaging waste is a sustainability sore spot in warehousing. Excessive use of non-recyclable packaging materials generates large amounts of waste in landfills, oceans or incinerators, harming ecosystems and air quality. Transporting packaging is also costly. Amazon once said the most expensive product it ships is air, referring to the plastic air pillows used for cushioning in packages. Now, Amazon has replaced 95% of these air pillows with a paper filler made from 100% recycled material, which customers can recycle.

According to a McKinsey survey of 250 global shippers and providers, the majority have started integrating green shipping into their logistics programs, and more than seven in 10 said they were willing to pay more for green shipping products.²⁶ Inefficient routes to, from and around warehouses waste fuel, which increases emissions and costs. Optimizing logistics networks, load optimization and reducing packaging waste are low-hanging fruits for the logistics industry that will cut costs and please customers.

Government Policies for Sustainable Transportation

Governments worldwide are pursuing and encouraging sustainability in transportation and logistics. The National Blueprint for Transportation Decarbonization, created in 2023 by the U.S. Departments of Energy, Transportation, Housing and Urban Development, and the Environmental Protection Agency, is a landmark strategy for eliminating greenhouse emissions by 2050. It envisions reshaping community design and land-use planning to promote bicycling and walking, improve the energy efficiency of public and private transportation, and deploy zero-emission fuels and modes of travel.²⁷

In 2021, the UK announced a 2050 transportation sector decarbonization plan that includes a zero-emission vehicle mandate and extends a Renewable Transport Fuel Obligation. It will transform the public transport infrastructure by adding 4,000 zero-emission buses, phasing out non-zero-emission buses by 2040, decarbonizing railways through electrification, deploying battery and hydrogen trains, and targeting cycling and walking as the modes of transportation for half of all trips by 2030.

The German government supports commercializing battery and fuel cell electric vehicles and alternative fuels, while the UAE’s Smart Mobility Strategy focuses on compatible infrastructure and integrated mobility systems.²⁸

In sum, the transportation and logistics sector is making efforts to improve sustainability because it makes economic sense. We see several emerging trends, including the electrification of all types of vehicles — cars, trucks, trains, and even planes. This, combined with decarbonizing the power sector, will be essential to reducing GHG emissions. Figure 4 summarizes these opportunities.

Developing cost-effective alternative fuels is another area of opportunity across the transportation industry. Optimizing routes and reducing idling are relatively easy ways to improve fuel efficiency. Governments worldwide will likely introduce stricter emissions standards, incentivize electric vehicle use, and impose regulations promoting sustainable logistics.²⁹

While the road ahead will include twists, turns, bumps and even dead ends, we believe supportive policies and innovations, including nascent technologies, will lead the way to creating shareholder value by reducing emissions in the transportation and logistics sector.