Freight transportation is a major target in green logistics as it contributes to different types of pollution as well as congestion and accidents. In traditional logistics, the focus is to minimize costs through strategies like Just- In- Time, better technologies, smart layouts etcetera, but the modern logistic research also considers ethical and environmental questions. Even though the environment is an important factor today, it will not be considered if it increases the costs too much. There are many actions that are both better for the environment and reduces costs, but they sometime call for large investments that make companies hesitate. As the market is driven by economy, it will itself not adapt to a more sustainable society unless the governments and authorities introduce incentives to the companies to act in a greener manner. It is also of gravest importance that the customers and consumers choose the more sustainable product or service. When a customer buys an environmentally friendly product, it often refers to the way it has been made and the raw materials used. Something that is not quite as obvious is whether the product has been transported in the most sustainable way possible. There is a lack of sufficient information for the customer to consider this in a purchase and information about external costs has not quite reached the public. To enlighten the public about this issue, this dissertation describes the different negative effects from different modes of transport and how incentives can be given to shift mode from the road to water and rail. It also contains general recommendations for how to lower the environmental impact from the transport sector. The dissertation applies on the vast country of Australia that heavily relies on their transport sector. It is concluded that to achieve a sustainable society where efforts are put in to reduce pollution, accidents and congestion, there need to be an ambition from the companies to act in this manner. Thus, this dissertation explains that fiscal incentives need to be given to the companies to persuade them to use more sustainable alternatives. Focus is on including external costs in the company’s calculations of transport costs. It is shown mathematically in optimizing your fleet size, but there are mainly discussions around the subject of fiscal incentives and how these could be implemented. Except that this will optimize costs from an environmental perspective, the final price will increase to cover the costs. The increased prices means that the social costs can be pay for (i.e. are internalized) and the social costs will also decrease as the desire to use highly polluting transport modes such as trucks will decrease as it will be an expensive alternative. If the costs become internalized, someone has to pay for it, and the conclusion in this dissertation is that since the companies end up with higher costs, the customer will end up paying for it. It is also concluded that the stakeholders to an industry need to take more responsibility as well and make sustainable choices. If this could be implemented equally across the continent, the companies should not lose any customers to the competition. It will then become a competitive edge to minimize pollution from freight as this will also lower the costs. It is a great advantage for Australia that the whole continent is one country, reducing the risk of competing foreign businesses. Books concerning sustainable logistics systems have been the main underlying theory to be able to draw conclusions in this dissertation. Extensive research on Australian governmental webpages has also provided a background for the problems for the particular country’s transport sector and which actions that are currently being conducted.