Ronald Paul and Tjark Tjin-A-Tsoi: ‘Do Not Nip Innovation in the Bud’

What are the biggest challenges the transportation & logistics sector experience?
Paul: ‘First of all, geopolitical developments are creating uncertainty. Admittedly, our logistics sector is robust. For example, consumers hardly noticed the Suez Canal blockade in 2021 when the Evergreen got stuck. Even the current tensions in the Red Sea are still barely noticeable. The Dutch logistics sector may, however, still be affected by this instability. Secondly, the energy transition not only brings opportunities, but also several challenges. Logistics plays a crucial role in that transition, as well as with transport in the circular economy. We will not have it all sorted out by tomorrow.’
Tjin-A-Tsoi: ‘That our logistics sector has become vulnerable to geopolitical tensions is not surprising. Europe has moved the bulk of its production capacity elsewhere. We have become dependent on especially China not only for production, but also for critical materials essential for the energy transition. Additionally, the war in Ukraine casts a shadow over our country. This can have tough consequences for the Port of Rotterdam and our transport networks. We need, from a security perspective, to prepare for this.

I foresee more challenges. First, according to a recent report by TNO, we need billions of euros for infrastructure investments. Only by improving our roads, bridges, overpasses, and railways can the logistics sector meet the expected growth of 20 percent. Without these investments, congestion threatens, which will slow down growth. Second, there is a need for smarter logistics to make the use of roads more efficient. That technology exists – modern AI technologies like autonomous driving and improved planning and coordination allow us to do more with less vehicles. However, such innovative solutions are struggling to get off the ground due to regulatory and environmental barriers. Finally, a major challenge is our sustainability ambition. The sector must grow and become more sustainable at the same time. But pursuing these conflicting goals is complex; it easily leads to stagnation.’

How urgent is the situation?
Paul: ‘I would like to emphasize that it is not five minutes to but five minutes past twelve. The government currently focuses on maintaining our infrastructure, which serves to eliminate overdue maintenance. However, the Netherlands must also invest significantly in expansion and improvement to facilitate future growth and sustainability. This involves not only roads, rail and inland shipping, but also the electricity grid, which is already overloaded and hinders business activity and our investment climate. Without action, our roads will clog up. Various models indicate that without investment, our road network will soon be congested from morning to night. Top Sector Logistics is committed to improving the utilization of existing infrastructure and investment in innovation. This is what we urgently need as resources for actual new infrastructure are limited.’
Tjin-A-Tsoi: ‘I see many plans not getting off the ground due to excessive regulation, slow decision-making and limited room for experimentation. This is a significant issue. Nowadays, any stakeholder can use legal means to veto proposals through the courts. Take our ambition to become a hydrogen economy – the implementation of this network is simply too slow. Or consider the nitrogen issue. The law is structured in such a way that nitrogen interests override all other considerations.’

How is Top Sector Logistics organized and how can it contribute to the various challenges?
Paul: ‘Top Sector Logistics is part of the Ministry of Economic Affairs and the Ministry of Infrastructure and Water Management. We guide collaboration between government, business and knowledge institutions. And we co-invest in joint programs. It is crucial that innovations ultimately get adopted by industry, otherwise, the result remains an impressive report for the windowsill.
We are eager to find solutions to make the sector sustainable and competitive, within the framework of strict laws and regulations and the often limited financial resources. We, through the Joint Corridors Off-road program, for example, are ensuring that millions of containers are transported by rail or inland shipping instead of by road. TNO is also involved in this. We have developed a measurement program for the construction sector to fight the nitrogen issue. Thanks to real-time measurement programs on construction sites, we discovered that construction equipment is used far less than previously thought. While models assumed continuous usage, it in reality was only a few hours a day. These insights led to a 30 percent reduction in estimated nitrogen emissions. Municipalities are now using these calculations when evaluating building permits. This opens doors for projects that may previously have been stalled.’

Why Is TNO a partner of Top Sector Logistics?
Tjin-A-Tsoi: ‘The purpose of top sectors is to serve as a powerful tool to give a push to leading industries and sectors. This aligns with our mission to drive innovation to the next level. We collaborate with all ten top sectors. With Top Sector Logistics, we have about 25 ongoing programs. We support innovation, conduct research on issues that are of importance to the sector and help with ‘orchestration’ – bringing various parties together to run projects.’

What improvements can be made in public-private partnerships?
Tjin-A-Tsoi: ‘The execution capacity needs to increase substantially. In the Netherlands, we struggle to take decisive action. Sometimes, the limited room provided by policy prevents us from balancing different interests effectively. This needs to be possible. There are situations where we need to prioritize. Although we have a good strategic location and have the right knowledge and resources, a lot remains unaccomplished due to a lack of execution capacity and integrated policy. Countries capable of doing this, like South Korea, are achieving tremendous growth.’
Paul: ‘I experience a decline in our effectiveness too. This is partly due to diminishing knowledge levels in various ministries, leading to an overly cautious approach in decision-making. As a top sector, we can assist the civil service in overcoming these knowledge gaps. We also want to tackle the negative image of logistics. It is worrying that on television talk shows, uninformed individuals can express unfounded criticism. There is, for example, a public outcry regarding the construction of large distribution centers, mostly along highways. It in fact concerns only 0.14 percent of open space. It appears to be more due to these structures’ locations next to highways – locations that are more desirable than city locations. There is another important nuance: nearly 75 percent of the capacity of these centers is for the Dutch market. So, it is not only about international transit, as is often assumed.’

Is the current public-private partnership robust enough to sustain innovation?
Tjin-A-Tsoi: ‘It needs to get a lot better. Besides enhancing execution capacity, we are not spending enough on innovation in the Netherlands. Currently, we invest about 2.3 percent of GDP on innovation, while according to the Lisbon Agreement, this should be at least 3 percent. That amounts to around 7 billion euros, every year. Not only the Dutch government but also industry spend meagerly on innovation. We cannot really blame the companies. Over the past few years, the Dutch investment and business climate has not really improved. Many large companies with R&D departments left. The bulk of R&D spending is done by the three largest companies.’

What would your message to large companies be?
Tjin-A-Tsoi: ‘Make R&D a more prominent part of your business strategy, otherwise you will soon lag behind. A relatively small segment of the Dutch business community is innovating significantly, while the majority have been under-innovating for decades. This is reflected in the low productivity growth in certain sectors. In the long run, this threatens our prosperity. We must work across the full breadth of the Dutch economy, including SME’s, to increase our innovation capacity.'

What role can the government play in stimulating innovation?
Tjin-A-Tsoi: ‘The government can be a significant catalyst. The problem is that the procedures for government subsidies often take a very long time, and unnecessarily so. The lead time is too long for fast-moving innovations. By the time funding for innovation becomes available – which sometimes takes up to three years – the market and competition have already moved ahead significantly. European subsidy applications are also prohibitively challenging.’
Paul: ‘Indeed, the governance surrounding incentives does not align with the fast-paced nature of innovation. The complexity of subsidy applications does not work for smaller companies. A small or medium-sized enterprise (SME) simply cannot afford to spend a hundred thousand euros just to submit a proposal. These enterprises are busy meeting the next week’s cash flow.’
Tjin-A-Tsoi: ‘You would want financial resources to be made available more quickly and invested into more risky projects as well. However, this conflicts with the risk averse attitude of the government, which needs to be efficient and lawful with tax money. One might question whether the government should be the only player in this or if we should also explore opportunities with private parties.’ 

How can private capital stimulate innovation?
Tjin-A-Tsoi: ‘In the Netherlands, we traditionally invest substantially in academic and fundamental research, but that is only the beginning of the innovation chain. There is a significant gap between research and the creation of companies that shape the new economy. This gap is often referred to as the 'Valley of Death' - many promising technologies fail due to a lack of funding. Venture capital plays a role here. But the Netherlands, like much of Europe, is severely undercapitalized in venture capital compared to the United States. The largest proportion of capital in the Netherlands is locked in risk-averse pension funds. A part of that €1,600 billion should be made available for riskier investments. TNO’s new strategy is to collaborate more intensively with venture capital and pension funds to enable startups to develop. We are now also supporting startups outside of our organization. Our goal is to create a more favorable environment for both startups and scale-ups, which need both capital and expertise to thrive.’

What changes would you like to see to strengthen innovation capacity in the Netherlands?
Paul: ‘We need to show more courage. This is a message for both the government and the business community. I think, for example, of the growth fund proposal for Digital Infrastructure in Logistics. For a long time, it seemed impossible to get the SME off the ground, but there now finally seems to be more momentum.’
Tjin-A-Tsoi: ‘I advocate for legislation that provides sufficient 'room for maneuver' so that innovation is not nipped in the bud. A good example is the origin story of Silicon Valley. In the 1970s, there was no thriving ecosystem of startups and innovative hubs. This changed when the so-called 'prudent man rule' for pension funds was abolished. Under this rule, pension funds were not allowed to invest in high-risk ventures. Suddenly, a significant amount of money became available for what we now call venture capital, giving a tremendous boost to the development of Silicon Valley. Of course, there were other factors too. I recognize that pension funds have their own responsibilities. However, a discussion about removing barriers to stimulate innovation and growth seems worthwhile.’

Interview by Johan Kerver, member of the evofenedex management team. Published in Management Scope 09 2024.