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ETS2 and its Impact on European Supply Chains and Industry

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Ets2 And Its Impact On European Supply Chains And Industry

In 2027, the European Union will expand its Emissions Trading System through a new phase known as ETS2. For the first time, emissions from road transport and building heat will be covered by a carbon price. This change turns carbon from an environmental issue into a direct operating cost that affects every part of the European economy.

Under ETS2, fuel distributors will buy carbon allowances and pass those costs through the supply chain. Analysts expect prices near €45 to €50 per ton of CO₂, which would add 10 to 15 eurocents per liter to fuel costs and raise heating expenses by about 20 to 25 percent. The EU’s Social Climate Fund, worth around €86 billion, will help offset the burden for lower-income households, but energy and transportation costs will still rise for most businesses and consumers.

The policy’s effect will extend across freight, warehousing, and manufacturing. ETS2 integrates carbon pricing into the cost base of logistics and supply chains, linking emissions directly to financial performance.

Carbon impact on consumers

Consumers will see immediate cost increases as fuel and heating expenses rise. Higher household energy costs will translate into higher prices for goods and services, since transportation and building operations are now subject to allowance pricing.

Energy markets are expected to experience greater volatility as carbon prices fluctuate, introducing a new variable for logistics and industrial planning. While the Social Climate Fund will provide temporary relief, the overall trajectory is toward higher and less predictable operating costs.

Effects on transport and logistics

ETS2 will directly influence the cost and structure of European transport networks. Road freight operators, which depend heavily on diesel fuel, will face the largest impact.

Industry estimates suggest total freight costs could rise by 3 to 8 percent, depending on fleet efficiency, route structure, and regional energy mixes. Carriers will likely pass these increases to shippers through new fuel surcharges or contract adjustments.

Companies are already planning mitigation measures. These include electrifying or hybridizing fleets, shifting more freight to rail and inland waterways, and using data analytics and telematics to optimize routing and reduce idle time. Because carbon allowances are traded in open markets, transport pricing will include a carbon volatility premium.

CFOs and logistics planners will need to integrate carbon-cost modeling into financial systems alongside traditional fuel forecasts. Compliance obligations will expand as companies are required to report verified emissions data and provide Scope 3 information to customers and regulators.

Effects on industrial operations

ETS2 will also raise production costs for energy-intensive sectors such as steel, cement, chemicals, and automotive manufacturing. These industries already face higher energy prices compared with global competitors, and the addition of a carbon price on fuel and heating compounds that disadvantage.

Without improvements in efficiency or cleaner energy inputs, some plants may reduce output or relocate production to lower-cost regions. Others may use the regulation as justification to invest in hydrogen systems, electrified heat, and renewable power, improving long-term competitiveness.

Industrial activity is expected to consolidate around areas with abundant and affordable renewable energy. Central Europe may continue to specialize in automotive and advanced components, Iberia could benefit from low-cost solar energy, and the Nordic countries are well-positioned to expand production of low-carbon metals and materials.

Industry relocation and global competition

ETS2 may encourage relocation toward India, China, and Southeast Asia, where energy remains less expensive and environmental regulation is lighter. Low-margin producers and basic material industries are most likely to shift operations in search of cost advantages.

However, several factors will limit this movement. The Carbon Border Adjustment Mechanism (CBAM) will impose tariffs on carbon-intensive imports, reducing the economic benefit of offshoring. In addition, supply chain strategies developed after the pandemic now emphasize resilience and proximity, making distant production less attractive. Automation and renewable energy investments are also reducing the importance of cheap labor and fossil fuel costs in total production expense.

The likely result is a mixed pattern: basic manufacturing migrating abroad, while advanced, low-emission manufacturing consolidates inside Europe. The region’s competitiveness will depend increasingly on data integration, energy efficiency, and digital control of emissions.

Role of digital product passports

The upcoming Digital Product Passport (DPP) initiative will play a key role alongside ETS2. DPPs will store verified information about a product’s materials, origin, energy use, repairability, and carbon footprint.

This data will enable precise tracking of embedded emissions across production and transport networks. Integrated into ERP, procurement, and logistics systems, DPPs will improve accuracy in Scope 3 reporting, support compliance with CBAM, and enhance supplier evaluation.

Over time, DPPs will also help companies identify circular-economy opportunities, such as parts reuse and recycling. By linking emissions and material data, they make it possible to measure environmental performance at the level of individual products and shipments.

Benefits

ETS2 introduces measurable carbon accountability across supply chains. It will accelerate investment in low-emission technologies, improve the quality and traceability of sustainability data, and encourage the development of regional logistics networks supported by renewable energy.

For logistics and supply chain executives, ETS2 provides a consistent framework for comparing emissions performance and cost across carriers, facilities, and sourcing regions.

Costs and risks

ETS2 will raise operating costs for transport, warehousing, and manufacturing. Companies that rely heavily on fossil fuels will experience margin compression until alternative energy sources become more available. Smaller operators may face financial and administrative strain from the added reporting and compliance requirements.

Volatility in carbon allowance markets will make budgeting more complex, while infrastructure for electric fleets and renewable power generation may take several years to scale. The adjustment period is likely to be uneven across sectors and regions.

Strategic outlook

ETS2 embeds carbon pricing into the financial structure of supply chains. Carbon will now function as a standard input cost, alongside energy, labor, and raw materials.

To adapt, organizations will need to integrate emissions data into procurement systems, transport management tools, and corporate finance processes. Advanced analytics, AI-based control towers, and DPP-linked data streams will support real-time modeling of carbon exposure and efficiency performance.

The key operational metric will shift toward output per kilogram of CO₂ emitted, reflecting both cost control and environmental compliance.

Conclusion

ETS2 will increase short-term costs across Europe’s logistics and manufacturing sectors, but it will also standardize how emissions are measured, priced, and managed.

For supply chain leaders, the central challenge is operational—integrating carbon data into day-to-day planning, optimizing transport efficiency, and investing in low-emission infrastructure.

The result will likely be a more transparent and efficient logistics network, built around renewable energy and digital monitoring. ETS2 marks a transition to an economy where carbon cost management becomes a core element of supply chain strategy and competitiveness.

The post ETS2 and its Impact on European Supply Chains and Industry appeared first on Logistics Viewpoints.

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Global Energy Regulation Round Up Q1 2026

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Global Energy Regulation Round Up Q1 2026

The Global Energy Regulation Round Up is a quarterly report covering energy regulations worldwide. It is organized into three regions: North America, the European Union, and Asia. The report highlights policies and regulations related to energy, decarbonization, utilities, trade, and sustainability. It serves as a resource for information on current or upcoming energy regulations that could affect businesses. Governments use energy regulations to pursue a range of objectives, which can have both positive and negative effects on businesses. This installment of the report is for the first quarter of the year, from January 1st to March 31st, 2026.

Key Takeaways

Environmental deregulation on the federal level was the biggest trend that emerged from the United States in Q1 of 2026.
At the start of the year, two significant reporting policies from the European Union took effect, and businesses recently received some relief thanks to an omnibus simplification package that was approved.
China has approved a landmark environmental code that brings together more than 10 existing laws, targets pollution, and formalizes its carbon market.

Access the full Energy Regulation Round Up below:

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Q1 2026 Supply Chain Trends: Costs Rise, AI Moves Into Execution

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Q1 2026 Supply Chain Trends: Costs Rise, Ai Moves Into Execution

Costs are rising again, but the more important shift is where decisions are being made. AI is moving out of planning and into execution, changing how supply chains respond in real time.

The Cost Floor Is Rising Again

The expectation heading into 2026 was stabilization. That is not what Q1 delivered. Transportation costs are firming, energy markets are volatile, labor remains tight, and financing costs are higher than in recent years. Across most networks, the cost floor has reset at a higher level, and early signals suggest this is not a short-term spike but a more durable shift in the operating environment.

Supply chains are now carrying more inventory in selected nodes, building redundancy into sourcing strategies, and managing greater execution complexity across transportation and fulfillment. Each of these decisions reflects a rational response to recent disruption, but each also adds structural cost. At the same time, service expectations have not relaxed. If anything, they continue to tighten, creating sustained pressure between cost control and service performance that is unlikely to ease in the near term.

Volatility Is Now Continuous

Disruption is no longer episodic. It is persistent and often overlapping. Trade flows remain sensitive to geopolitical developments, energy pricing continues to react to regional instability, and weather variability is still affecting transportation reliability across modes. What has changed is not simply the presence of disruption, but the frequency with which multiple disruptions occur at the same time.

This environment requires faster response cycles and closer coordination across functions. The traditional model of planning in defined cycles and reacting during execution is increasingly misaligned with operating reality. Organizations are being forced to compress decision timelines and reduce reliance on manual coordination, particularly in areas where delays translate directly into cost or service degradation.

AI Is Moving Out of Planning

Over the past several years, most AI investment has been concentrated in planning functions such as forecasting, demand sensing, and network design. These use cases remain important, but the center of gravity is beginning to shift. AI is now being applied more directly within execution environments, including transportation routing, inventory rebalancing, exception management, and aspects of supplier selection.

This represents a meaningful transition from advisory systems to execution support. A forecasting model can improve the quality of a plan, but it does not directly change outcomes once conditions begin to shift. Execution-oriented systems, by contrast, operate within the flow of events, influencing decisions as conditions evolve. That distinction is becoming more relevant as volatility increases and planning assumptions degrade more quickly.

Execution Is Becoming the Constraint

Execution environments are operating at higher speed and with less tolerance for delay. Decisions made in transportation affect inventory positions, inventory decisions affect customer service outcomes, and supplier decisions propagate through the network in ways that are often not immediately visible. While most organizations have improved visibility into these dynamics, visibility alone is no longer sufficient.

The constraint is increasingly decision latency. The time required to recognize a disruption, align stakeholders across functions, and execute a coordinated response is now a primary driver of both cost and service performance. In many cases, delays are not caused by a lack of information, but by the time required to interpret that information and act on it across disconnected systems and teams.

For a structured view of how AI is being applied to execution-level decisions, the ARC analysis provides additional detail.

Download: AI in the Supply Chain — Architecting the Future of Logistics

Fragmented Systems Are the Limiting Factor

Most supply chain technology environments remain fragmented, with ERP, TMS, WMS, and planning systems operating on different data models, update cycles, and integration patterns. Even when each system performs as intended, the combined environment often responds slowly because coordination across systems is limited.

The issue is not the absence of data or visibility, but the ability to translate that visibility into coordinated action. When systems are not aligned, decisions are delayed, duplicated, or suboptimal. This fragmentation becomes more problematic as execution speed increases and the cost of delay becomes more pronounced.

What Leading Organizations Are Doing

Leading organizations are focusing less on expanding reporting capabilities and more on reducing execution latency. This includes increasing the level of automation in exception handling, enabling systems to trigger actions rather than simply generate alerts, and tightening the integration between planning and execution layers.

In practice, this can take several forms. Retail organizations are reallocating inventory between distribution centers based on current demand signals rather than static plans. Transportation teams are adjusting routes dynamically in response to congestion, cost changes, and service constraints. Procurement teams are modifying supplier allocations as new risk indicators emerge. These approaches are not fully autonomous, but they materially reduce response time and improve operational consistency.

The Role of AI in This Shift

AI is not replacing core enterprise systems. Instead, it is being applied across them, acting as a layer that interprets signals, prioritizes actions, and supports or initiates responses. In more advanced environments, AI is beginning to coordinate decisions across functional domains, helping to reduce the disconnect between planning and execution.

This is where architectures that support shared context and access to domain-specific knowledge begin to matter. As AI systems move closer to execution, their ability to incorporate prior events, current conditions, and relevant operational constraints becomes increasingly important.

What to Watch

Several developments are likely to define the next phase. Execution-level decision support will continue to expand, placing pressure on integration architectures to support faster and more consistent data movement. Exception management will become more central to operational performance, as the ability to resolve issues quickly becomes more valuable than the ability to predict them in isolation. At the same time, governance and auditability will become more important as AI systems take on a more active role in decision-making.

Where This Leaves Supply Chain Leaders

The operating model is shifting. Planning remains important, but competitive advantage is increasingly tied to execution speed, coordination across functions, and the ability to respond effectively under uncertainty. Organizations that continue to rely on manual coordination and disconnected systems are likely to face increasing cost and service pressure.

Those that reduce decision latency and improve coordination across functions will be better positioned to manage both cost and service performance in a more volatile environment.

A Practical Next Step

The ARC white paper provides a structured view of how these architectures are being implemented in practice.

Download: AI in the Supply Chain — Architecting the Future of Logistics with A2A, MCP, and Graph-Enhanced Reasoning

Final Thought

Supply chains are not becoming more predictable. They are being required to respond more quickly and with greater coordination. That shift is now visible in how decisions are being made.

The post Q1 2026 Supply Chain Trends: Costs Rise, AI Moves Into Execution appeared first on Logistics Viewpoints.

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Still no ocean rate spike though more increases set for April – March 31, 2026 Update

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Still no ocean rate spike though more increases set for April – March 31, 2026 Update

Published: March 31, 2026

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Weekly highlights

Ocean rates – Freightos Baltic Index

Asia-US West Coast prices (FBX01 Weekly) increased 4%.

Asia-US East Coast prices (FBX03 Weekly) increased 3%.

Asia-N. Europe prices (FBX11 Weekly) stayed level.

Asia-Mediterranean prices(FBX13 Weekly) decreased 8%.

Air rates – Freightos Air Index

China – N. America weekly prices increased 3%.

China – N. Europe weekly prices decreased 6%.

N. Europe – N. America weekly prices increased 1%.

Analysis

Iran has continued to allow some vessels to transit the otherwise closed Strait of Hormuz for countries coordinating with and possibly paying a toll to Iran. This development includes two 19,000 TEU COSCO container vessels which had been stuck in the Persian Gulf since the end of February. COSCO – possibly not coincidentally – also just restarted accepting bookings to Gulf ports.

The Houthis fired missiles at Israel over the weekend, marking their first attacks since the start of the war in Iran, but so far have not targeted vessels in the Red Sea. The Strait of Hormuz transits take place alongside continuing attacks even on anchored ships in nearby waters, and on ports in the region – including some being used as alternatives to inaccessible container hubs in the Gulf. Maersk reports that a drone strike on the Omani port of Salalah on Saturday has meant suspended operations there, with service set to resume partially today.

Gulf-bound containers using these alternative ports also continue to face long delays from vessel bunching and from endemic challenges to the new landbridges in the form of trucking capacity shortages, insufficient road infrastructure, and border-crossing complications. And while these new routes are enabling critical goods to move to and from the Gulf states, their limitations make them more an emergency stopgap than a viable full alternative.

Beyond Gulf volumes, the broader container market continues to be unaffected operationally from the Strait of Hormuz closure. But the rising price of oil and the challenges to fuel availability mean higher costs for carriers – which Hapag-Lloyd estimates at $40 – $50 million a week – and have triggered a wave of emergency fuel surcharge, PSS and GRI announcements.

Many of these aren’t set to take effect until April, but some fuel surcharges ranging from $300 – $500/FEU from several carriers were scheduled to start from mid-month and through last week, as were some GRIs.

Transpacific container rates have increased only $200/FEU since the start of the war, with Asia – Europe prices up $500/FEU to $2,900/FEU to N. Europe. To the Mediterranean, the current rate of $3,800/FEU is just $100 higher than before the war, though prices had climbed to about $4,300/FEU earlier in the month. These Asia-Europe levels are both about $2k – $3k/FEU lower than GRIs set for last week by some carriers.

Taken together, container rates have not spiked yet on the Strait of Hormuz disruption, and mostly have not climbed fully in line with announced increases so far. The container market is now in its slow season, and all things being equal, rates would typically ease this time of year. That these price increase attempts are being made during a low demand period, and with capacity levels still high across the market, may mean that the upward pressure on prices is more keeping spot rates from falling than pushing them up very much. The coming weeks will reveal whether carriers choose to introduce – or whether the market accepts – the additional planned price hikes.

In trade war news, ahead of the May US-China summit China has initiated probes into US trade practices – possibly repeating its October playbook of creating leverage by mirroring US moves, as the US administration recently announced Section 301 investigations on countries including China. Meanwhile, there were more signs of progress – combined with confusion and frustration – around IEEPA tariff refunds.

In air cargo, the Gulf carriers continue to restore flights and freighter capacity to the market, with Emirates SkyCargo now describing its operations as stabilizing, and Qatar Airways Cargo gradually continuing its rebound, which had a much later start.

Even so, global capacity remains constrained and a good share of Asian export volumes are still rerouting via the Far East instead of through the Gulf-carrier hubs. Taken together, even though demand is lower than last year, rates are higher because of constrained capacity, volume shifts and fuel surcharges as high as $2.00/kg on some lanes.

The Freightos Air Index global benchmark is 22% higher than a year ago, and rates on key lanes remain elevated compared to before the start of the war in Iran. But as European and Far East carriers add direct Asia – Europe flights, and as Gulf carriers recover schedules, prices are stabilizing, or even easing on some lanes:

Freightos Air Index S. Asia – Europe rates are 65% higher than at the end of February, but have dipped 1% since last week, with SEA-Europe prices 26% higher than before the war, but 6% lower than a week ago.

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Judah Levine

Head of Research, Freightos Group

Judah is an experienced market research manager, using data-driven analytics to deliver market-based insights. Judah produces the Freightos Group’s FBX Weekly Freight Update and other research on what’s happening in the industry from shipper behaviors to the latest in logistics technology and digitization.

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