Since the start of the US-Iran conflict and the closure of key shipping routes in the Strait of Hormuz, companies have been hit by supply chain issues and rising fuel prices.
Kerosene became a particularly expensive commodity, with the price more than doubling from $800 a ton before the conflict to a peak of $1,903 in April. The current price of jet fuel is $918 a tonne, according to the latest figures from Argus Media, and airlines have had to scramble to secure fuel supplies.
The German delivery company is among the companies that are coming under pressure DHLwhich is particularly vulnerable to disruptions in air fuel supplies due to its extensive air cargo activities. DHL Express Europe, its international shipping division, operates one of the largest aircraft fleets in Europe. Its 295 aircraft, including third-party and charter planes, ship packages to 220 countries and delivered 248 million shipments worldwide last year.
Mike Parra, CEO for Europe, says DHL’s diversified approach has helped the company navigate the fuel crisis and secure its jet fuel supplies through the summer months.
There were three key elements of the strategy. First, DHL has diversified the markets from which it buys fuel, with the United States, South Korea and Nigeria increasing their air fuel production.
Tanker transport – where aircraft are intentionally loaded with extra fuel to avoid refueling at a higher priced destination – allows DHL Express to make its operations more cost efficient.
And finally, it built its sustainable fuel supply. DHL Express is one of the largest buyers of sustainable aviation fuel, which is produced from waste and residual oils and fats. One tenth of air fuel is sustainable and the company has set a goal of being 30% sustainable by 2030.
“We can’t predict volatility, but we can manage the complexity that comes with it.”
Mike Parra, CEO of DHL EUropean
DHL Express’s network planning team, which Parra describes as the “central nervous system of the company,” was critical to executing this strategy. “Our experts analyze fuel prices and decide where we can best refuel our aircraft,” says Parra. “Flying fully fueled aircraft also affects payload, so a lot of calculations have to be done.”
The internal shipping tool VISTA also helps employees check the weight and balance of DHL Express aircraft to determine the most cost-effective and efficient routes. “We are attuned to everything and watching everything,” Parra adds. “This is our responsibility as a global company.”
While DHL Express has tried to keep prices competitive, the company has had to increase its air transport fuel surcharge to maintain margins. The surcharge – which is used to compensate for fuel cost peaks and is calculated on the average daily price for kerosene –Peak at 48.75% and is currently at 40.75%. “It’s not a mechanism to make money, it’s a mechanism to protect costs,” explains Parra.
The surcharge is now updated weekly and calculated monthly to reflect the frequent rises and falls in fuel costs. In the past, this was based on prices over an eight-week period and updated monthly.
Stay the course in the Middle East
Fluctuating fuel costs are not the only challenge for the logistics company. The conflict in the Middle East also had a direct impact on business.
A security risk surcharge was introduced for deliveries to war zones such as Israel and Lebanon to offset increased aircraft insurance prices. “We have to land fuel, turn around and get out because you don’t want an asset sitting there unused,” Parra says.
DHL Express has also introduced “linehaul” road routes in the Middle East, where trucks and vans distribute packages to areas where it is not safe for a plane to land. “This may require using a little more fuel or increasing the complexity a little,” adds Parra. “But it meant we got back on our feet quickly as a company.”
Despite the current conflict in the Middle East and the increasing challenges it poses, DHL Express remains committed to the region. Last year the company announced plans to invest more than €500 million in the Middle East, with a focus on the Gulf markets of Saudi Arabia and the United Arab Emirates.
“We are well positioned, committed and have made major investments in the Middle East,” says Parra. “Israel is a strong market for us and I am sure we will continue to see growth there.”
Lessons from the pandemic
Parra says adapting to complexity has become a “used skill” for the company after its operations were tested during the pandemic.
“COVID has been far more challenging due to the health and safety risks to employees and the overnight boom in e-commerce,” he says. “We were also the largest transporters of vaccines and had to work with governments and arrange escorts after our planes landed.”
Between December 2020 and May 2021, DHL helped distribute 440 million Pfizer Vaccines to 92 countries. “COVID has taught us a lot,” he adds. “We’ve gotten really good at managing complexity.”
The additional investments in facilities and road transport made by DHL Express during the pandemic have helped the company navigate the current geopolitical uncertainty.
Protect employees from uncertainty
The increased uncertainty is also affecting the DHL Express workforce. Parra has noticed that more employees are mentioning personal challenges in one-on-one or coaching sessions.
“People said they were facing challenges at home or were affected by the current crises or rising prices. As you know, the UK is not a cheap place and people are worried,” he says.
In response, DHL Express has increased the number of employees trained in mental health first aid – now there are 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, it’s about building a supportive employee culture, encouraging physical activity, offering volunteer initiatives and encouraging people to look out for others and prioritize safety.
“Well-being is an issue that is becoming increasingly important, not just internally, which is why we are investing in this issue,” says Parra.
While supply chain shocks, geopolitical impacts and conflicts are difficult to predict, companies can control how well they prepare, build resilience and adapt. As Parra says, “We can’t predict volatility, but we can manage the complexity that comes with it.”