Circular Economy: challenges and solutions for the future of sustainable logistics

Climate change is already one of the severe issues for European countries, as the latest report from IPCC shows that temperatures around Europe will increase faster than changes in the global mean temperature. Another insight from Airly reveals how air pollution levels are rising across European cities.

Before things get out of hand, we must emphasize the circular economy to tackle pollution, climate, and biodiversity crises. There’s no doubt that a circular economy is the future, and sustainable logistics practices with efficient transport systems will become the center of future business models.

Although the linear economy has been the most straightforward system to practice, it has left us in a lurch, and nature won’t have mercy for the next generation if we don’t do something about it right now.

Let’s learn the basics of circular vs. linear economy and the role of logistics in overcoming such an important global issue.

Circular VS Linear Economy [With Examples]

What is a Linear economy?

Linear economy refers to the business model of taking, making, using, and disposing of. Natural resources and raw materials are collected from the earth and manufactured as different goods, then used and disposed of by the consumer. The end product (waste) goes to a landfill or pollutes the ocean. Only a small portion gets recycled, and the rest are incinerated or left as it is.

Plastic waste is an excellent example of how scary a linear economy can be. If the linear economy continues, there’ll be more plastic than fish in the oceans by 2050.

We’re extracting resources at 1.7 times higher than the earth’s original capacity by adopting the linear economy model. This will soon deplete the natural resources, create an unimaginable amount of waste, worsen the global warming, and slowly push us towards immense suffering and extinction.

Source: ResearchGate

What is a Circular economy?

Circular economy refers to the business model of taking, making, using, and reutilizing. Unlike the linear economy, after the consumer uses a product, it’s put in the process of reutilizing instead of disposing of it. This is a sustainable approach to reducing waste and maximizing the usability of a product. A circular economy creates business models that are mindful of environmental issues.

For example – according to Nike, 71% of the materials used in their footwear production process are recycled from their own manufacturing plant.

To make a circular economy more prominent, multiple systems should come together. Some of them are listed and briefly explained below.

  • Reverse logistics: refers to a system that returns the used product to the manufacturer (to recycle, refurbish, service, or reuse) once it has been used. This is a more complex system than just getting the product to the customer in a forward logistics system. For example, many different companies would provide discounts on new products for returning an old or broken product.

  • New product design by manufacturers: to allow maintenance, repair, increase durability, and disassembly. For example, the Framework laptop brand is a great example. They have created a laptop that can be upgraded easily by the consumer without buying a new laptop.

  • Performance economy: also known as product as a service, refers to manufacturers or sellers owning the product. For example, Michelin now charges per kilometer for tires instead of selling tires as the end product.

  • Sharing economy: this creates new business opportunities for idle or less-used goods. Examples include Uber and Airbnb. By sharing, existing resources are being utilized more, reducing the economy's cost in the long run.

Circular vs. linear economy: differences

Comparasion table for circular vs. linear economy

Role of sustainable logistics in the circular economy

As I have mentioned in the beginning, logistics has to play an essential role for the circular economy to persist as reverse logistics is directly linked with it.  

The logistics procedure becomes more complex when returning a product to the manufacturer. The complex transportation system can add to the carbon footprint if not appropriately managed, making the original objective of the circular economy futile.  

Hence, a proper logistics system that uses the right technology and utilizes road, rail, and barge systems in sync, is what’s needed in Europe and worldwide; and that’s where companies like rouvia come in.

The role of logistics and supply chain management gives the framework to facilitate the flow of materials in a circular economy most efficiently. Now, logistics isn’t just a service provider but also a value-adding member of the supply chain.

“For a circular strategy to succeed, all ecosystem partners, including suppliers and manufacturers, must commit themselves to this process and act as a common unit.”, says Martin Neuhold from EY. The challenge is for everyone to make a circular economy viable. Manufacturers have to make radical changes and make designs for the maintainability, repairability, and disassembly of their products. Also, servitization (product as service) must be considered by not only big companies but also small and medium ones.

The logistics sector has to play a crucial role in connecting the different ecosystem partners while reducing the carbon footprint through effective and efficient processes. This births many challenges and opportunities at the same time. Let’s understand them:

The challenges include

1 – Creating technology and AI-driven software system to manage complex calculations and transport schedules.

2 – Collaborating on logistics with rivals at the risk of losing market share.

3 – Creating awareness among other ecosystem partners to collaborate towards the same goal.

4 – Utilizing multiple transportation systems to work in sync without adding to the cost or waste.

5 – Evolving into a value-adding supply chain member from a service provider.

6 – Logistics' market size and value will skyrocket as more goods must be delivered through sustainable channels.

How does it sum up?

As all the ecosystem partners (supplier, manufacturer, government, logistics, and other stakeholders) come together as a standard unit, moving toward the circular economy faster is possible.

Now we have the technology to perform complex technical procedures and maintain green operations in all businesses.

To understand the entire European logistics landscape and sustainability’s role in it, read about the future of freight forwarding.

Clara Barroso
Marketing Manager at rouvia
October 12, 2022

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