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Commentary: What’s ahead for climate change and industrial supply chains

The news we pay attention to daily is a harbinger of how events may unfold in the near future. As we enter 2020 and the beginning of a new decade, here are three news items that may be indicators of phenomena worth watching in climate change, public attitudes towards climate change, and how those will have an impact on global supply chains between now and 2023.

Citizen Action – legal challenges to governments and businesses become more commonplace

On December 20, the Supreme Court of The Netherlands passed judgement in The State of The Netherlands (Ministry Of Economic Affairs And Climate) against Stitching Urgenda. Hint – use Google Translate to convert the text from Dutch to English. This could be a groundbreaking case. Here’s some background.

The Urgenda Foundation is committed to facilitating a transition to a circular economy that is based only on renewable energy. It was founded in 2007. On November 12, 2012, Urgenda sent a letter to the Prime Minister of the Netherlands demanding, “It is for all of these reasons that Urgenda now asks you to provide an assurance in the form of a written agreement with Urgenda that the Dutch State will take all measures necessary to ensure that by 2020, the Dutch emission of greenhouse gases will genuinely be reduced by 40% relative to Dutch emissions in 1990.”

The ruling on December 20 is the culmination of legal proceedings initiated with the November 2012 letter. In its ruling, the Supreme Court of The Netherlands ratified a ruling in favor of Urgenda by a lower court in the Hague on June 24, 2015.

Urgenda has served as inspiration for citizen groups in Belgium, Canada, Colombia, the European Union, France, Germany, India, Ireland, New Zealand, Pakistan, Switzerland, the United Kingdom and the United States to initiate legal action against governments in those countries.

On March 30, 2015, an international group of legal experts announced the Oslo Principles, an outline of how existing law places legal obligations on national governments to combat climate change more aggressively. More details about the Oslo Principles and the obligations national governments face are available here. Corresponding details about the Oslo Principles and the obligations businesses and enterprises face is available here.

Decarbonizing supply chains – private initiatives increase, investors start diverting capital

On January 1, 2020 the International Maritime Organization’s (IMO) rules to reduce the amount of sulfur oxides in marine sector emissions in international waters go into effect. My article about this ran on FreightWaves on April 30 – Big changes looming in the maritime industry – its only just begun! Check out PKVerleger LLC’s collection of news articles on this topic between April 2018 and December 31, 2019: IMO 2020 WatchTM.

In a related development, on December 18, a coalition of eight shipping organizations submitted a Proposal to establish an International Maritime Research and Development Board (IMRB) that would oversee a $5 billion fund to seek technical solutions to the challenge of decarbonizing the world’s maritime merchant fleet through a mandatory contribution for each ton of bunker fuel consumed by shipping companies.

(Photo credit: NASA)

Similar initiatives will proliferate as: first, severe weather events become increasingly disruptive to industrial supply chains, pushing up the cost of insuring corporate supply chains; and second, the outcry about climate change increases and consumers start voting with their wallets as well as their votes.

In a Stanford Global Project Center Working Paper, Is ‘Being Green’ Rewarded in the Market?: An Empirical Investigation of Decarbonization and Stock Returns, Soh Young In of Stanford University, Ki Young Park of Yonsei University, and Ashby H. B. Monk of Stanford University state: “We find that an investment strategy of “long carbon-efficient firms and short carbon-inefficient firms” would earn abnormal returns of 3.5 to 5.4% per year, and indicates that investing in carbon-efficient firms can be profitable even without government incentives.”

The study is based on 74,486 observations from 736 U.S. firms between January 2005 and December 2015. The authors state, “Our findings are not driven by a small set of industries, variations in oil price, or changing preferences of bond investors caused by the low-interest-rate regime, starting with the 2008 financial crisis.”

If this finding is replicated by other researchers, one can expect that a third reason why the decarbonization of supply chains will gain momentum is that institutional investors will come under increasing pressure to favor companies taking steps to decarbonize their supply chains.

Exponential technologies – maturity, and increasing deployment in industrial supply chains

There are two ways to think of exponential technologies: first, they are technologies that benefit from Moore’s Law; and second, their positive performance characteristics increase exponentially, while the related costs of producing and adopting them in industrial and consumer applications decrease exponentially. Our World in Data does a great job explaining the forces at play here: Exponential progress – Moore’s Law.

In 2020, we will start seeing such technologies applied much more rapidly to industrial processes and industrial supply chains than we have in the past. We have already touched on the factors that will lead to this. Additionally, in some industries, market forces will induce companies to act much sooner than they would have otherwise.

Here’s an example. On December 21, the Wall Street Journal reported in Walmart’s Secret Weapon to Fight Off Amazon: The Supercenter that Walmart is modifying its corporate and business strategy to compete more directly with Amazon. This follows an article published on May 13, 2018 by the Financial Times, Walmart shifts global strategy to battle Amazon. That in turn followed another article published by Digital Commerce 360 on January 25, 2017, Wal‑Mart’s strategy shift comes with 200 e‑commerce job cuts.

This has been happening as Amazon has built a supply chain logistics business that is threatening FedEx and UPS as well. This trend is going to unfold in several industries as digital native challengers compete with digital immigrant incumbents. The nature of this competition will involve digital native challengers attempting to seize the more profitable and difficult to imitate aspects of traditional businesses through the application of exponential technologies, leaving digital immigrant incumbents with the less profitable and commodified aspects of the business. In another example, the container shipping giant Maersk is attempting to forestall such a future by transforming itself into a digitally enabled, end-to-end supply chain logistics platform.

What questions do these observations raise?

Broadly speaking, here are some questions these observations raise.

First, will there be a difference in the way people in democratically and non-democratically governed countries approach the issue of getting politicians and governments to take meaningful action towards tackling the problem of climate change?

Second, how will companies self-organize to collaborate with one another to accomplish a systemic decarbonization of supply chains in various industries, across national boundaries? I do not know any good examples from history of companies having tackled a challenge of this scale and magnitude in the past. Do you? I hope it happens, and that progress comes quickly. However, the optimistic realist within me feels rather pessimistic about the prospects.

Third, will the process of deploying exponential technologies within industrial supply chains happen quickly enough without a bit of nudging, and perhaps outright coercion, by regulatory bodies and governments? My knowledge of history suggests to me that the transformation will require government action AND market forces.

Do you think the next two or three years will be business as usual in supply chain, or do you think we may be witnessing significant changes taking place in the industry? What other questions do you think the year 2020 raises? Let us know by leaving a comment below.

If you are a team working on innovations that will refashion global supply chains, we’d love to tell your story in FreightWaves. I am easy to reach on LinkedIn and Twitter. Alternatively, you can reach out to any member of the editorial team at FreightWaves at media@freightwaves.com. 

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Brian Aoaeh

Brian Laung Aoaeh writes about the reinvention of global supply chains, from the perspective of an early-stage technology venture capitalist. He is the co-founder of REFASHIOND Ventures, an early stage venture capital fund that is being built to invest in startups creating innovations to refashion global supply chain networks. He is also the co-founder of The Worldwide Supply Chain Federation (The New York Supply Chain Meetup). His background covers the gamut from scientific research, data and statistical analysis, corporate development and investing for a single-family office, and then building an early stage venture fund from scratch - immediately prior to REFASHIOND. Brian holds an MBA in General Management, with a specialization in Financial Instruments and Markets, from NYU’s Stern School of Business. He also holds a Bachelor’s Degree in Mathematics & Physics from Connecticut College. Brian is a charter holding member of the CFA Institute. He is also an adjunct professor of operations management in the Department of Technology Management and Innovation at the New York University School of Engineering.

One Comment

  1. All I see here is a disruption in how we do business along with the usual money grab to support the Green’s lifestyles. Follow the money. The Green Party is the new communist party. They simply changed colors, as the end game is the same. The insanity continues unabated.

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