The Green Fleets of Tomorrow

Jonas Winkelmann / Professor Stefan Spinler - June 28, 2024 

Tips for practitioners

Most consumer goods—be they clothing items, groceries, or technical equipment—have a long journey ahead of them before they make it to store shelves. And research conducted by the European Environment Agency has revealed the ecological impact that today’s logistics networks are having on the planet: In 2020, the transport sector alone accounted for 22% (or 729 Mt) of all carbon dioxide emissions in the European Union. However, given the reduction in the amount of goods transported during the COVID-19 pandemic, this figure does not paint the full picture. The year before, in fact, the transport sector accounted for 835 Mt CO₂e.

Policy in Germany, and indeed across Europe, has recently been colored by the Union’s goals of achieving climate neutrality. And shipping service providers and logistics companies have also set their own ambitious targets. DB Schenker is working to lower its carbon emissions to zero by 2040, and the Deutsche PostDHL Group, the world’s second largest logistics firm, has given itself until 2050.

It goes without saying, however, that these goals to protect the environment are costly—both in terms of time and money. The majority of large fleet vehicles are still reliant on diesel engines, and making the switch to lower-emission technology would be a considerably expensive endeavor. And it is for that reason that those in charge of fleet management must ask themselves two key questions: In which alternative technologies should the company invest to realize its own environmental goals? And when is it time to purchase new equipment and phase out the old? The company will need a carefully considered transition plan if it wants to keep operational costs at a minimum.

What should one be aware of when modernizing a fleet?

Fleet managers have a lot to consider when embarking on such a major transition: the cost of purchasing new vehicles; having a pricing structure for selling the vehicles already in their possession (accounting for their depreciation); and the price of fuel, batteries, and having their companies’ current footprint certified. And given how unpredictable these variables are by nature, one cannot precisely determine the best time to begin the transition. But a unique optimization model recently developed in part at WHU – Otto Beisheim School of Management can help draft plans for the future, as far out as the year 2050. It considers a logistics company’s individual needs, including its route plan, its environmental goals, the number of vehicles it would need to replace, and the adoption of any new technologies that could be used in place of combustion engines.

Where should fleet managers turn their attention?

Fleet management has three effective options when transitioning away from diesel-based motors: liquified natural gas (LNG), battery power, or fuel cells. Use of LNG also results in carbon emissions, albeit a lower amount than the use of diesel. Vehicles powered by LNG are cost-effective and can often act as a bridge between the old world and the new, helping logistics firms on their way toward climate neutrality (in particular, whenever the price of diesel increases). However, in the long term, use of LNG-powered vehicles will not see the firm reach its ambitious goals. For that, it is advised to look toward electric vehicles or vehicles equipped with fuel cells, both of which are fully carbon neutral when in use. That being said, both options are quite pricey. And that leads one to wonder: When is it the right time to make this transition? And how does one do so without causing operational costs to rise in the interim.

Is this mobility transition a sprint… or a marathon?

WHU researchers have already put their optimization model to the test. In this case study, a logistics company based in Germany set itself the goal of reducing its carbon emissions (as they stood in 2019) by 35% by the year 2030 and eventually becoming fully carbon neutral by 2045. Complex calculations using this novel model suggest taking the following steps to achieve these goals as cost-effectively as possible: The company will continue to use its current diesel-powered fleet until 2029, but their share also gradually reduces to 77% of the fleet over time. During this period, it should slowly adopt more climate-friendly, LNG-powered and electric vehicles. The company should start phasing out the majority of its diesel vehicles and replacing them shortly before 2030 to reach its interim goal. Because vehicles outfitted with fuel cells are not competitively priced, they do not play a major role at that time. They will, however, become more important by 2039 and, much like LNG-powered vehicles, eventually account for roughly 10% of the overall fleet.

In 2042, the company will have reached a significant milestone: its fleet will have more vehicles powered by fuel cell than it will traditional alternatives. By then, fuel-cell-powered vehicles are projected to be more competitive, and diesel-powered vehicles will continue to lose relevance in the pursuit of these climate goals.

The next big moment will occur in 2045, the year when the company wants to become fully climate neutral. To reach this goal, it will have to sell off (or, at the very least, fully retire) any remaining vehicles in its fleet powered by LNG or combustion and replace them with electric or fuel cell vehicles. Its fleet will then comprise 54% electric vehicles and 45% fuel cell vehicles, a ratio slated to invert by 2050. By then, vehicles powered by fuel cells will have fully established themselves as the preferred choice.

The case study reveals that there will be significant progress made within only a few decades, meaning fleet managers will have to keep tabs on several variables. They need to play the long game and consider the time factor in their calculations.

The study also shows that prematurely adopting alternative technology would be a waste, at least from a costing perspective. Instead, business owners should continue using the vehicles in their fleet for as long as they are viable (on average, roughly ten years) to minimize any loss in value and ensure that the purchase has paid for itself. Fleet management is therefore advised not to make a rash decision based on operational costs, even if it would theoretically lead the company to achieving its goals more quickly. These findings are beneficial to all logistics companies, and this new model can help managers make more informed decisions regarding long-term developments in the future.

Literature reference

- Winkelmann, J./Spinler, S./Neukirchen, T. (2024): Green transport fleet renewal using approximate dynamic programming: A case study in German heavy-duty road transportation, in: Transportation Research Part E: Logistics and Transportation Review, Volume 186, 2024, 103547. DOI: https://doi.org/10.1016/j.tre.2024.103547