Can you increase profitability and reduce emissions simultaneously?

Magnus Gustafsson, Partner & Head of R&D

Reducing greenhouse gas emissions is often presented as a costly enterprise with the only payoff in the form of avoiding a cataclysmic disaster few of us can even imagine. What if I told you that reducing greenhouse gas emissions can be highly profitable in purely economic terms, and that, as by-product, it may change the massive ineffectiveness in how many industries operate?

PBI Research Institute and Åbo Akademi University, together with industry, analyzed the sea-freight business to see if anything could be done for this purpose/end. More specifically, we analyzed the dry bulk short-sea shipping; the kind of coastal shipping sailing in the Baltic and North Seas between Finland, Germany and the English Channel. In other words, a very typical kind of shipping with very typical problems – nothing out of the ordinary.

Yet, on closer inspection, we did find something extraordinary: This industry, sea-freight business, was suffering from almost total systemic information failure, and by addressing this failure (which is quite typical for other industries as well), the following benefits materialized.

Improvements on multiple fronts

Reduction in systemic waste meant the overall utilization of ships doubled from 30% to 60%. This lowered transport costs by 25%-35% enabling companies to shift from more expensive and polluting road-transport to sea-freight. It also increased the profitability of the ships.Shifting from transactional product-focus (buying equipment like an engine) to sourcing functions (buying performance, for example propulsion of the ship) enabled system providers to leverage their capabilities and increase their profitability. At the same time this reduced the risk of the ship owners.Emissions per ton sank 25%-35% resulting from increased utilization of the cargo space, from operating smarter (e.g. only driving as fast as necessary).

Future blogs will open up the whole story of this ongoing project. We will tell how established industries can be green and profitable by re-thinking their whole business logic, the very foundation of “how things are and always will be”, of which many industries suffer.

Wolf Virkki