The more circular the economy, the greater the opportunity for logistics providers

Logistics is poised to become the engine driving the Circular Economy, where products move not only from fabrication to the end customer, but also back into production for repair, re-use, refurbishment, and recycling.

It will mark a big change. Today’s logistics service providers mainly support our ‘linear’ economy, making deliveries and, on occasion, managing recycling and returns. By contrast, Circular Economy operating models will require well-structured and predictable expansion of services for products, spare parts, and materials.

Logistic service providers are uniquely positioned to offer these new services. In the Circular Economy, logistics providers will have the opportunity to greatly expand their role. Instead of simply providing linear transport and storage, they can move circular activities upstream, helping to minimize the required transportation of products by offering services that ensure resources get used, but not used up.

They’ll need to do all this in ways that are both efficient and economical. Logistics providers that get this right will enjoy margins that are higher than those for their traditional business.

5 new services for a Circular Economy

What might these new opportunities for logistics service providers look like? To get an idea, here are five intermediate logistics services that will be needed to support the Circular Economy, all of which could be provided by logistics companies:

• Retrieve: Facilitate resale and secondhand redistribution, and also efficiently combine different types of return flow, such as unwanted products, repair, reuse, recycling, redistribution in a product as a service business models, and end-of-life products for recycling and parts harvesting.
  
• Transport: Use advanced route planning to optimize the pickup of used goods, bring them to repair and redistribution centers, and then deliver them to new end users.
  
• Receive: Optimize the operational setup of returns for maximum efficiency. Today, most organisations lose control of products and raw materials at their respective point of sale. Organisations must engage with customers in new ways to gain access to end-of-life materials. This means they must regain access from the consumer at the end of a product’s life through circular business models such as Product as a Service. Logistics players must be an integral part of bringing these new use models to life and ensuring trust in the timeliness and reliability of deliveries. For example, administrating a deposit scheme.
  
• Inspect: Verify the quality of resold and secondhand items, and also authenticate their source.
  
• Sort: Determine a used product’s state and decide whether it can be repaired, redistributed, refurbished or recycled. (Each of these four options can represent a new and different business model.) Then sort products into their respective flows, reducing the need for transport legs. This requires new skills and digitized collaboration with the product’s owner, providing an additional opportunity to work closely with customers in enabling value-adding services.
  

Taking on new ‘circular’ tasks

Each of the four circular business models— repair, redistribute, refurbish,  and recycle—will involve numerous new tasks that brings new business opportunities to logistics service providers. For example, these companies can play a key middleman role by ensuring trust in the timeliness and reliability of deliveries in redistribution models. They can also support these models with efficient inventory management.

Today’s logistics service providers are also likely to take on many other tasks in the Circular Economy. One key challenge is how to collect and centralize end-of-current-usage products for processing in an economical fashion. This enables opportunities for supporting ‘urban mining,’ by steering and aggregating volumes of appropriate waste flows for recycling and repair into meaningful quantities. Logistics providers could also connect businesses looking to sell or exchange surplus items by offering markets and auctions. They are already a central trusted middleman, so why not benefit more from this?

Due to their extensive knowledge of material distribution, logistic service providers can also support product refurbishing and component recycling. They’ll do this by offering advanced analytics to identify where used components can next be repurposed.

Why logistics will drive circularity

A logistics organisation is efficient to the extent that all its assets are fully utilized. Whether these assets are transport vehicles, warehouses or labour, the more optimized they are, the lower the unit cost for each transaction, and the greater the profitability. The new business this attracts will therefore provide incremental improvements in the logistics organisation’s financial performance.

Logistics today is fundamentally a commodity, meaning there is little real differentiation between services offered by the main providers. Therefore, by adding a new value-adding service, a provider can stand out in the market and create new opportunity.

Customers will be attracted by a range of new services that remove many of the challenges they now face when circularizing their products. Customers will also look for partners to deliver these essential services. As the handling, sorting, storage and redistribution of products are in the logistics provider’s ‘sweet spot’, taking a proactive approach to the circular economy is in everyone’s best interests.

For example, a logistics provider could make minor repairs at a distribution centre by operating dedicated multiuser repair warehouses. In this way, several transport legs can be saved. What’s more, the time when a product goes unused will be reduced.

New ways of working

To deliver on the exciting opportunities provided by the circular economy, logistics providers will need to think in new ways. That should include creating new business models where risk and reward are shared with a product’s owners. It could also include developing an ecosystem of partners of specialist companies who can use their expertise to add value to the circular process. Logistics providers can also build new processes so that all work carried out is as efficiently as possible, with additional handling and product processing reduced to a minimum.

Because many logistics providers run operations internationally, they can offer this as a global service. This should lower the barriers customers face when implementing circular business models in global markets.  

All this will lead to logistics companies offering Circular Economy as a Service (CEaaS). This will be a standardized service offering with business models, an ecosystem and operating processes that can be leveraged for the next customer’s benefit. Only by streamlining these elements will the opportunities for the Circular Economy be fully realized.

The circular economy will offer new opportunities for providers of logistics. That will be the focus of the next blog post in this series…