Future of Freight: Circular Economy Logistics

The trend towards circularity in economy, or circular economy for short, is a key approach to sustainable business. The aim is to avoid waste and pollution by considering the entire life cycle of a product in advance and designing products for longevity and recyclability. Logistics is a key sector for a successful circular economy.

Circular Economy vs. Linear Economy

A linear process for a product typically includes these elements: production, purchase, use, disposal, and replacement with a new product. The linear economy is particularly dominant in the fashion and consumer electronics industries.

On the contrary, re-use in a closed loop results in less raw material consumption, fewer pollutant emissions, and less waste.

From a sustainability perspective, the linear economy is an outdated model, while circularity offers enormous potential for the environment. Up to 80% of the emissions from an average fashion or consumer electronics item are generated during production. This makes it all the more important to extend the product lifecycle as much as possible, both through more durable products and an effective circular economy.

Circular Economy = Value Preservation Economy

Circularity is all about preserving value. The 5 Rs provide the key dimensions to achieve circularity by

• reducing the use of virgin materials in production
• repairing products to extend their total service life
• reselling products to new owners
• refurbishing older products to bring them back onto the market
• recycling products at the end of their useful life into materials for new production

Giving products a second life can reduce emissions per product by 55-75% (compared to manufacturing a new product from virgin materials). The transition from linear to circular can only be successful with:

• innovations in materials, products, and packaging
• intelligent production and utilization concepts
• optimized take-back systems and product recycling

The Circular Economy Requires Change

By optimizing production, developing new utilization models, and finding new recycling solutions for old products, the holistic approach of the circular economy can transform one-way linear supply chains into supply cycles.

To achieve this, the circular economy must rethink product design and transform the goods produced, sold, and used today into the raw materials of tomorrow. Such circularity is still an ideal and some industries are closer to it than others. Especially resource-intensive industries with complex supply chains, such as fashion and consumer electronics, need to make further progress in the circular economy to realize their immense untapped sustainability potential.

How Economic Actors Contribute to Circularity

Producers

Extending the useful life of products (especially clothing and consumer electronics) and increasing their recyclability after use are the main levers for manufacturers to save resources and greenhouse gas emissions in the circular economy. The less often a product needs to be replaced and the better it can be recycled, the fewer new production resources are needed. For producers, this also means that value creation through service or repair must play a more important role than hitherto.

Consumers

This cannot happen without demand. For this reason, circular consumer behavior is just as important as a production process focused on reusability. But even though surveys suggest a growing trend toward sustainable products, there is a gap between the theoretical willingness to buy and the actual consumer behavior. Bridging this gap requires attractive consumer incentives and a regulatory environment that encourages long life cycles through repair and recycling.

Logistics

There will be no circular economy without innovative logistics solutions. The first prerequisite for a successful circular economy is the development of an intelligent supply chain that integrates the circular flows of the 5 Rs. This demands closer cooperation between suppliers of new goods and market players from the waste and recycling management sector. Current reverse logistics operations must be expanded and new ones developed. The logistics industry must anticipate and prepare for the global and local supply chain changes that circularity will bring. In doing so, the industry will be able to capitalize on additional value creation opportunities.

Chances and Challenges of Circular Economy

Extending the useful life of a product and efficiently reusing raw materials and products saves emissions that would have been generated in the production of a new equivalent product. As such, the sustainability potential of the circular economy is enormous: no other approach to decarbonizing the value chain can reduce pollution as effectively and cost-efficiently as circular products and processes. In addition, the circular economy fosters innovation and sustainable growth in many different sectors of the economy.

However, some problems still need to be solved:

1. Most products are currently not designed to be reused and recycled. This limits their suitability for the circular economy. Products must be designed for circularity from the outset.
2. The willingness of end consumers to change their consumption habits and actively participate in the circular economy must be increased.
3. Transparency of products and their components is crucial for the reuse of waste as raw materials. The data itself and the data exchange between actors must be improved to close loops across supply chains.
4. Technologies for waste collection and mechanical recycling need further development.
5. Smart, affordable, and convenient take-back solutions must be available everywhere to make recycling cheaper than using primary raw materials.

Circular Economy and Reverse Logistics: What the Future Holds

The circular economy increases the importance of reverse logistics, i.e. the organization of goods and information flows in the opposite direction of the primary supply chain. By strengthening reverse activities, the linear supply chain becomes a supply cycle whose main purpose is value retention and recycling.

What is lost in revenue from linear chains between new production and the end consumer is compensated by the reverse, refurbishment, or resale market. Simple returns logistics and returns management must be enhanced by integrating elements such as repair, recycling, and resale into the circular supply chain.

Logistics service providers can take on many new roles in the circular economy and present themselves to their partners as solution providers for repair, refurbishment, or recycling processes. The circular economy calls for an expanded network of partnerships that logistics players must adapt to.

Everyone Is Challenged – But Logistics Remains the Backbone

The successful transition to a circular economy is a shared responsibility and a joint effort of all stakeholders: producers, service providers, consumers, and policy makers alike. However, logistics is the natural backbone of the circular economy.

The circular economy changes the way materials and products are moved – from a straight line to a regenerative cycle. Efficiently managing the flow of goods is what logistics is all about. At DHL Freight, we look forward to partnering with circular economy stakeholders by paving the way for the new physical and data flows within the supply cycle.