Since the start of the U.S.-Iran conflict and the closure of key shipping lanes in the Strait of Hormuz, businesses have been affected by supply chain issues and rising fuel prices.
Jet fuel became a particularly expensive commodity, more than doubling in price from $800 per tonne prior to the conflict to a peak of $1,903 in April. The current price of kerosene stands at $918 per tonne, according to latest figures from Argus Media and airlines have had to scramble to secure fuel supplies.
Among the companies feeling the pressure is German delivery company DHL, whose extensive air freight operations make it particularly exposed to disruptions in air fuel supplies. DHL Express Europe, its international shipment division, operates one of Europe’s largest aircraft fleets. Its 295 planes, which include third-party aircraft and charters, ship packages to 220 countries and delivered 248 million shipments worldwide last year.
Its European CEO, Mike Parra, says that DHL’s diversified approach has helped the company navigate the fuel crisis and secure its kerosene supplies through the summer months.
There have been three key elements of the strategy. Firstly, DHL has diversified the markets where it purchases fuel, with the U.S., South Korea and Nigeria increasing their air fuel production.
Tankering—where aircraft are intentionally loaded with extra fuel to avoid the need to refuel at a destination where prices are higher—has also allowed DHL Express to be more cost-effective in its operations.
And lastly, it’s built up its sustainable fuel supply. DHL Express is one of the largest purchasers of sustainable aviation fuel, which is derived from waste and residue oils and fats. One-tenth of its air fuel is sustainable and it has set a target for 30% to be sustainable by 2030.
“We can’t predict the volatility, but we can manage the complexity that goes around it”
Mike Parra, DHL EUropean ceo
DHL Express’s network planning team, which Parra describes as the “central nervous system of the business”, has been essential for implementing this strategy. “Our experts analyze fuel prices and decide where’s best to fuel our planes,” Parra says. “Flying planes full of fuel also takes a hit on your payload, so there are a lot of calculations to manage.”
Its internal shipment tool VISTA also helps employees review the weight and balance of DHL Express’s aircraft, allowing them to work out the most cost-effective and efficient routes. “We’re tuned into everything and we’re watching everything,” Parra adds. “That’s our responsibility as a global business.”
While DHL Express has sought to keep prices competitive, it has had to increase its fuel surcharge for air shipments in order to maintain margins. The surcharge—which is used to offset spikes in fuel costs and is calculated on the average daily price of kerosene—peaked at 48.75% and currently stands at 40.75%. “It’s not a mechanism to make money, it’s a mechanism to protect costs,” Parra explains.
The surcharge is now updated on a weekly basis and is calculated on a monthly lag to account for the frequent rise and fall in fuel costs. Historically, this was based on prices over an eight-week period and was updated monthly.
Staying the course in the Middle East
Fluctuating fuel costs are not the only challenge facing the logistics company. Conflict in the Middle East has also had a direct impact on the business.
A security risk surcharge has been introduced for deliveries into war-impacted areas, such as Israel and Lebanon, to offset the increased aircraft insurance prices. “We are having to land fuel, turn around, and get out, because you don’t want to have an asset sitting idle there,” Parra says.
DHL Express has also implemented road “linehaul” routes in the Middle East, where trucks and vans distribute packages to territories where it is not safe to land a plane. “That may require using a little bit more fuel or adding a little more complexity,” Parra adds. “But it meant we were quick to bounce back as a company.”
Despite the current conflict in the Middle East and the increased challenge this brings, DHL Express remains committed to the region. Last year, it announced plans to invest more than €500 million in the Middle East, with a focus on the Gulf markets of Saudi Arabia and the UAE.
“We’re well-positioned, we’re committed, and we’ve made big investments in the Middle East,” Parra says. “Israel is a strong market for us, and one that I’m sure we will continue to see growth in.”
Lessons from the pandemic
Parra says that adapting to complexity has become a “second-hand skill” for the business after its operations were tested during the pandemic.
“COVID was by far a bigger challenge because of the health and safety risks to employees and the overnight boom in e-commerce,” he says. “We were also the biggest transporters of vaccines and had to work with governments and organize escorts after our planes landed.”
Between December 2020 and May 2021, DHL helped distribute 440 million Pfizer vaccines to 92 countries. “COVID taught us a lot,” he adds. “We got really good at managing the complexity.”
The additional investment in facilities and road transportation DHL Express made during the pandemic has helped put the business in good stead for navigating the current geopolitical uncertainty.
Protecting workers from uncertainty
The heightened uncertainty is also affecting DHL Express’s workforce. Parra has noticed more staff mentioning personal challenges during one-to-one meetings or in coaching sessions.
“People said they were going through challenges at home or were being impacted by the crises going on or prices increasing. The U.K. is not a cheap place, as you know, and people are worried,” he says.
In response, DHL Express has increased the number of staff trained in mental health first-aid —it now has 202 mental health first-aiders—and implemented a five-step wellbeing strategy.
The key elements of this strategy are connection, staying active, learning, giving and being present. In practice, this involves building a supportive employee culture, promoting physical activity, offering volunteering initiatives and encouraging people to look out for others and prioritize safety.
“Wellbeing is a topic that is growing in importance—and not just internally—so we’re investing in it,” Parra says.
While supply chain shocks, geopolitical fallouts, and conflict are hard to predict, businesses can control how well they prepare, build resilience and adapt. As Parra says: “We can’t predict the volatility, but we can manage the complexity that goes around it.”
Credit: Source link
