Circular economy’s potential for the logistics industry

The logistics sector is critical for realizing the circular economy, the economy of extended use and life cycles through repair, reuse, remanufacturing, repurposing, and recycling of physical goods. The economy that preserves nature and climate.

Services need to become circular too. Logistics is crucial for the economy and certainly the circular economy. Logistics is a central part of circular programs or business models. Getting products out can be difficult, getting them back is definitely more complex. This is valid for merchandise, parts, and materials. Processes like maintenance, repair, and any kind of re-purposing need circular logistics. But circular logistics, also called reverse or return logistics still accounts for a tiny share of the entire logistics market. This indicates a major opportunity that is about to arrive with increasing concerns about environment and climate.

Continuous processing towards the greatest possible use of resources

Circular, reverse, or return logistics refers to all processes in which goods continue to run from the point of use in supply chains to their next point of re-purposing, or simply the next point of use. Circular logistics includes returns management and processes for swapping goods (exchange logistics), repairs, remanufacturing etc., as well as the exchange of pallets, boxes, containers, and reusable packaging. Circular logistics complements the feeding production and distribution logistics solutions that have been optimized over decades. Circular logistics transforms linear supply chains into closed-loop value chains.

Today’s economy can be perceived as linear as less than 10 % of the value that we create is preserved. The rest is incinerated, polluting the air we breathe, or goes to landfills, into nature, rivers, or oceans. We need to expand today’s strong value creation economy that brought us our standard of living by a value preservation economy. It is easy to imagine that such a colossal ramp-upand the required circular transport and logistics services represent a major opportunity for business. Of course, some transports will no longer be needed, e.g., large parts of today’s raw material transports as materials will be recuperated during the life of the goods once produced.

Business opportunity for logistics service providers

The development of a value preservation economy as complement to the value creation economy is a major transformation. Economy needs logistics and circular economy needs logistics even more. New revenue and profit streams will emerge. Logistics service providers that offer circular solutions will see tremendous growth in the not so far future. Those that have not yet engaged in the new part of the extended economy should now contemplate the entry into this new market. All goods that are not completely consumed will need to be recovered after a use cycle. At a certain point many goods don’t correspond any longer to the needs or taste of a user. Or products are simply outdated or not usable any longer.

Smart phones are a good example for continuous use. Many by continuously new models, passing through older models to partners, children, other family members and friends, or sell it on the secondary market.  As smart phones contain precious metals which has let to the emergence of a circular smart phone supply chain already some time ago. There are many ways to expand the use and life cycle of a product, one is upgrades, another remanufacturing. Logistics is essential for any kind of repurposing, including the harmless disposal of materials as the last resort.

Repositioning logistics: enabler of circularity

Logistics service providers can (re-)position themselves in the value preservation economy. They can become key enablers of a more sustainable world. Logistics service providers can help in areas like repairing, reusing, and recycling. Some logistics service providers have already been offering such services. But there is certainly much room for growth as many value chains networks in a range of goods producing industries have not even started to follow circular principles. On the other hand, companies that wish to take back their products struggle to find logistics service providers that can sort their returns. As actor in the space, we know that supply of circular logistics services is scarce. When launching a request for quotation for distribution logistics, on brand told us, they receive 100 responses, when doing the same for return logistics, they receive one.

A call for circular logistics innovation

Logistics service providers should seek the dialog with circular pioneers, to earn, innovate, co-develop, fast. Those innovative shippers can help to to catch the circular train. But more is needed to realize a circular world. We need to digitize. Without digital economy there will also be no circular economy. This is needed to track the merchandise, facilitate the forward and circular processes. A digital product passport is a critical element of the transformation. A circular economy internet would be a quantum leap.

While creating the value preservation circular economy is a major undertaking, we can use the tools of the value creation economy to get the job done. The opportunity is huge as extended circular economy regulations have put in place and more is at the horizon, certainly in the United States, Europe, and Japan. The logistics industry will face a wave of demand and is well advised to get ready for the challenge and opportunity.

Circular economy is a blue ocean. A promising island in the read ocean of commoditized transports, handling, and storage. The circular economy cannot work without logistics. This fact will benefit the sector, and particularly those that innovate themselves into this new field.