Internal combustion engine has a limited life.
Managing transport in an effective and efficient manner is a core requirement of an enterprise selling goods. While the physical part of transport operations will be undertaken by either a 3PL organisation or the in-house transport department, developing and implementing the strategy is a role for your supply chain group.
Among the reasons to keep your strategy in-house is that implementation of new technologies in supply chains will be influenced more by the policies of governments than acceptance by the business market. So, understanding how decisions by governments across the globe may affect your business is vital. An example is the announcements from some governments concerning the mandatory implementation of electric powered vehicles.
To assist in meeting their Paris Climate Agreement undertakings, Britain and France have stated that only electric vehicles will be sold in their countries after 2040. China’s industry ministry has recently stated that it is developing a timetable to end the production and sale of traditional fuel vehicles and will further promote the development of electric vehicle technologies.
To assist this aim, the State Grid Corporation will, by 2020, install about 100,000 electric charging stations along more than 35,000 kms of highways. The government is also introducing a quota system for vehicle assemblers and importers. Under the scheme, electric and hybrid petrol-electric vehicles must be at least eight percent of each company’s China sales in 2018, ten percent in 2019 and twelve percent in 2020. Companies that do not meet their target must buy credits from competitors with a surplus of sales.
India is the latest government to make an announcement. As part of the country’s energy policy, from 2030 only electric vehicles will be sold. Similar to China, the economic objective of the policy is to cut total payments for imported oil by about 70 percent. The economic/social objective is to reduce pollution in the cities – hopefully by about 40 percent.
Objectives will be achieved
In both China and India, the objectives can be combined with a substantial state owned enterprise (SOE) sector. This allows the necessary infrastructure and critical components i.e. battery production, to be built. In addition, there is sufficient government leverage to influence private company investment in the technologies. It is therefore unlikely that the policies will be reversed. But, you may say, the government policies are for those particular countries, so how could they affect my operations based in other countries?
Well, the four countries mentioned have substantial vehicle assembly and component manufacturing industries. For China and India, there is also a cost advantage in manufacturing and an aim for leadership in electric vehicles and batteries. For countries without an integrated vehicle industry, the likely limited availability of traditionally powered vehicles and the price/value proposition of imported electric vehicles, will mean an inevitable change to electric powertrains.
While electric vehicles in commerce are not new, the implementation across an economy requires some segmentation between delivery vehicles and inter-city long haul vehicles. It is likely that inter-city vehicles will be hybrid powered for a longer time period than city based vehicles. The introduction of many electric vehicles (‘smart’ but not driver autonomous) in cities over a relatively short time period, is likely to be part of a wider ranging policy approach to reduce vehicle pollution and disruptions. One of the causes is city based commercial vehicles that are underutilised, especially as eCommerce and delivery in units of one become a more established form of serving consumers.
‘Last Mile’ delivery
The core challenges of eCommerce delivery are:
- The cost is high to transport individual orders through variable routes to distinct locations that are unreliable for accepting delivery; ‘free’ deliveries are not free – the cost of delivery and returns must be built into the unit price
- Delivery density – variable routes to distinct locations means that vehicles are not fully utilised.
- Complexity of delivery time guarantees increase with traffic congestion and unreliability of order receipt at the delivery location
However, due to competition regulations, these challenges cannot be addressed by competitive organisations working together. Instead, it must be governments that set the rules. A September 2017 report by McKinsey consultants identified that, in addition to the introduction of electric vehicles, three additional approaches are required to modify congestion and reduce direct delivery costs:
- Promote urban warehouses (similar to postal sorting centres) that consolidate packages from different sources into loads destined for small geographic areas
- Implement load sharing that matches total cargo with spare capacity in commercial vehicles. This requires a software application that operates independently of logistics service providers (LSPs), to lessen the possibility of collusion
- Install drop boxes for parcels at businesses, pick-up locations and in residential buildings
To support this type of approach, additional policies are likely to be considered by governments:
- Impose access restrictions for delivery vehicles to retail establishments in city streets. Only permit holding vehicles can enter a geographic area of a city within defined hours. This helps to ensure delivery trucks are full, therefore less of them
- To encourage full truckloads, apply ‘user pay’ road charges:
- An annual road usage charge, based on the vehicle’s weight and power to weight ratio, plus
- Travel distance charge (per km) based on:
- time of day and day of the week by traffic zone
- road type (freeway/motorway, urban road, rural road) and location
Although the earliest date for the electric vehicle requirements is 2030, that is only 12 years away and the cumulative effects of climate change may shorten the date. Your organisation could be only one re-supply decision before new rules are imposed, so there is a need to review and understand the possible effect on supply chains from actual and potential decisions by country and state/province governments. Also by transport companies/3PLs, which, if foreign owned, are likely to be aligned with their head office corporate strategy, not that of an individual country.