Electrifying the last mile

Transporting goods from factories to local shops or consumers’ doorsteps accounts for an estimated 8% of global greenhouse gas emissions.¹ Even though the journey often spans continents, around half of all emissions are generated in the latter part of the value chain, the relatively short journey from a warehouse to the point of purchase.² The largest cargo ships, because of the efficiencies of their scale, can produce less than 1% of the emissions generated to carry the same volume of freight over the same distance by road.³ Transitioning road delivery fleets to electric trucks and vans, or using low-carbon fuels to run traditional vehicles, can therefore have an outsized impact on overall emissions.

Companies are taking action. In a recent survey commissioned as part of HSBC’s Transition Pathways programme, eight in 10 logistics companies cited the transition to net zero emissions as one of their top three business priorities.

The world's largest last-mile delivery operators, including UPS, FedEx and Amazon Logistics, have made bold commitments to electrify their fleets. For example, Amazon has announced a goal of rolling out 100,000 electric vans across the US by 2030.⁴

Electric two-wheelers are also growing in popularity for hyperlocal deliveries, such as food orders.

Switching to electric delivery vehicles can involve a relatively large up-front investment given the increased cost compared to their internal combustion engine counterparts. But because the cost of servicing and running electric vehicles is considerably lower, research has shown they become the cheaper overall option over an eight-year operating timeframe, not to mention their emissions reduction benefits.⁵

Technology is also enabling cold chain specialists such as ThermoKing to electrify refrigerated trailers, known as reefers, rather than run a separate, diesel-powered motor to control the temperature. For smaller trucks, running cooling units from batteries also reduces the need to keep engines idling when they are stationary, again improving efficiency and reducing emissions.

Indeed, HSBC’s Transition Pathways survey found that nearly half (47%) of logistics companies said technology developments were accelerating their push towards net zero, ranking it as by far the top accelerator.

Switching to electric vehicles and improving energy efficiency ranked as the most common initiatives taken by logistics businesses to curb scope 1 and 2 emissions.

Electric vehicles are becoming more accessible as major manufacturers roll out new models. HSBC is helping drive change on this front by supporting automakers like China's Geely, which is ramping up production of electric vehicles.⁶ Geely's commercial vehicle arm, Farizon, plans to roll out an electric truck in 2024.

The US Inflation Reduction Act (IRA), signed into law last year, will also boost the EV market with its inclusion of tax credits for clean vehicles – up to US$7,500 for light- and medium-duty vehicles and US$40,000 for heavy-duty trucks. The European Commission in February proposed stricter emissions limits for heavy-duty vehicles, including a 90% emissions reduction by 2040, relative to 2019 levels.

But there are hurdles. While improvements in battery technology are allowing the electrification of bigger vehicles across longer distances, the lack of charging infrastructure is hindering the mass adoption of electric fleets. Charging electric vehicles also takes more time than filling a tank with diesel, which can lead to lower margins for delivery companies by forcing delivery vehicles off the road for longer periods.

The good news is that investment in electric charging infrastructure is growing rapidly. HSBC is supporting companies like ChargePoint and Blink Charging on their expansion of global EV charging networks, while major logistics businesses are installing their own chargers at their distribution centres.

Easier access to charging points would not only make operating electric vehicles more practical, but can also allow for the use of smaller batteries, which would make them considerably cheaper.

While the switch to zero-emission vehicles is key to the logistics sector’s transition, there are a range of steps companies can take to reduce their carbon footprint.

As an interim solution to becoming carbon positive, even replacing old, polluting vans and lorries with more efficient new models can have a big impact, especially in developing countries where infrastructure for EV charging is not currently available and vehicles tend to stay in service well past their recommended lifespans.

Another powerful method of cleaning up the last mile is to use parcel locker stations or omnichannel fulfilment at physical stores to place inventory closer to customers and avoid costly and fuel-intensive door-to-door deliveries – as well as the impact of repeated trips following failed deliveries. This can be especially effective if consumers are willing to travel to the lockers, and if they do so without creating additional emissions themselves.⁸

Even just convincing consumers to wait a bit longer for deliveries can benefit the climate. An MIT study found that express shipping – which adds to the number of journeys and decreases load factors – can increase carbon emissions by up to 15% and costs by up to 68%.⁹

Transport and logistics companies are aware of the impact of consumer behaviour on their emissions profile. In HSBC’s Transition Pathways survey, carbon-based surcharges ranked among the top actions being undertaken to reduce emissions in the road and rail segment.

Partnerships are another important trend. Logistics companies may opt to work together and provide each other access to their networks to eliminate costly redundancies and reduce emissions. The United States Postal Services (USPS), for example, offers ground delivery services to help other logistics companies get packages to their final destinations.¹⁰ In addition, companies may share delivery infrastructure, such as interoperable fulfilment and parcel locker networks where customers can pick up or drop off packages.

Data and technology are also playing an increasingly important role in tackling emissions in the last mile. DHL, for instance, funded a start-up that has developed an algorithm to account for factors such as carbon emissions by vehicle type and range limits of electric vehicles to plan greener routes.¹¹

HSBC is helping scale up technology solutions for the transport sector through venture growth funding for companies like Via, which is using data to improve the efficiency of urban transport.¹²

Looking further into the future, technology may well deliver new, climate-friendly solutions for last-mile logistics. Logistics companies including UAE-based Aramex and DoorDash in Australia are testing electric delivery drones. And advances in autonomous driving are paving the way for fleets of battery-powered delivery robots, such as those developed by Starship, which has received funding from the European Investment Bank.¹³

HSBC’s Transition Pathways survey showed that logistics companies are increasing their spending on net zero initiatives: 43% expect to allocate at least a tenth of their capital expenditure towards decarbonisation in 2-3 years, up from 29% that do so today.

As these companies work to electrify fleets, incentivise customers to choose lower-carbon delivery options and use technology to manage vehicles and routes as efficiently as possible, the efficiency gains will have a positive impact – both on the climate and their own bottom lines.

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. Find out more: https://www.hsbc.com/who-we-are/our-climate-strategy