Is the circular economy primarily a transport-based economy?

In order to create a sustainable, circular economy, the first priority is to transform the way we think about and manage transportation, explains Raghav Sibal, Managing Director, ANZ, Manhattan Associates. 

More informed and demanding than ever, Australian consumers are now imposing new expectations on brands in the form of environmental and sustainability credentials. With the boom of e-commerce and subsequent product returns challenges, the transition to a circular economy – one that is systematically designed to benefit both the economy and the environment – is becoming even more important. The final delivery of this sustainable model, however, is largely based on the efficiency and innovation of transport networks.

Raghav Sibal, Managing Director, ANZ, Manhattan Associates.

Responsible consumption versus traditional models

It is widely recognised that the consumer-centric society we inherited following the industrial revolution has been largely responsible for the climate challenges we are facing today. This system must now give way to a more sustainable model, organised around the concept of transition from a linear to a circular economy. 

This transition is governed by one key word: responsibility. Over the last century, but particularly since the turn of the millennium and the advent of the World Wide Web, consumer appetite has become a meaningful and somewhat aggressive force, thanks to the unprecedented power conferred by the digitalisation of commerce and the capacity for consumers to interact directly with brands. 

Brands can no longer be satisfied with just selling a product. They must also provide information that goes beyond simply the price of the item, as it is on the basis of this information that modern consumers make their choices. Today, consumers are thinking less about whether they can afford an item and more about evaluating whether or not the brand aligns with their own individual values.

Responsible consumption, therefore, begins with an informed and reasoned decision that is not only guided by the desire to acquire the product, but also a synergy of shared brand-consumer values. In order for brands to better align their values with consumers’, environmental and sustainability credentials are a must.

The consumer-centric society has driven negative externalities like climate change.

Creating new experiences beyond just the product

This transformation is reflected in a greater sensitivity to the various aspects of a product’s life – and increasingly in the potential for a second life, too. This can be seen in the dynamism of the second-hand market, with the success of sites such as Amazon and Alibaba and a renewed interest in the repairability and reuse of products. 

Furthermore, it is estimated that 30 per cent of items purchased online are returned. With the uninterrupted growth of e-commerce, returns weigh heavily on brands (and consequently consumers) when it comes to the question of carbon footprints and environmentalism. 

So, what does this mean for brands? There is now a pressing need to inform consumers about the environmental impact of a product and its delivery. Increasingly, however, there is also an important need to innovate and create new scenarios that guarantee a brand’s eco-responsibility without eroding already over-squeezed margins. 

With this major impact of returns on the environment, it is up to Australian e-commerce platforms now to innovatively reduce the economic and ecological impact of returns. Retailers can start by taking inspiration from overseas companies. French e-commerce platform Veepee, for example, has created a new customer-to-customer return service – called Re-turn. Instead of sending the product back to the platform to be put back on sale, the customer offers it directly to other customers. Meanwhile, Amazon is considering offering customers the ability to return products to drivers at the same time their new product is delivered, as a step-change in its reverse logistics process.

To create a circular economy, the entire distribution process must be transformed.

Transportation is the common denominator

Whether we are talking about repairing a product, putting it back into circulation in the second-hand market, or returning it after an online purchase, in essence we are talking about transport and transportation networks. Managing the entire lifecycle of products means managing their physical reinjection into a circular, rather than linear, economic model.

In order to further these new strategies that underpin the circular economy it is therefore necessary to put in place innovative logistics solutions.

These solutions must not only reduce the carbon footprint on the upstream part of transport – the part that customers don’t see, between suppliers and the warehouse – and the downstream part – delivery – but also offer more solutions to customers that fundamentally promote more sustainable, environmentally-aware action on the parts of transporters and consumers.  

However, innovative solutions themselves can often create new challenges, as they lead to a much more dispersed transport network than that which shippers are used to dealing with in B2C deliveries – not to mention the multiplication of collection points, the unpredictability of delivery orders, and the increase in unit order flows.

These factors make it more difficult to manage transport in an environmentally responsible way while controlling costs. There is, therefore, a risk that the circular economy might produce the opposite effect to that which it was created to solve. To avoid this, we need to be able to rely on a more dynamic delivery network that is capable of maximising consolidation opportunities – using smarter, environmentally friendly means of transportation, promoting collaborating with delivery start-ups and industry disruptors, and offering optimisation tools capable of taking all these factors into account. To offer consumers a truly circular economy, first and foremost we need to transform the way transportation is thought about and managed. 

For more information on Manhattan Associates, click here. 

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