The battle against rising fuel prices

It began as a slow flirtation with industry watchers, but at time of press oil prices have finally made the much anticipated cross above the US$100 per barrel mark. Coupled with a US economy on the verge of a recession, businesses everywhere are on the hunt to make up for a shrinking bottom line, hurt by rising commodity prices.

Being perhaps one of the most directly hit of the situation, it is little wonder third party logistics (3PL) majors already have in place numerous plans to counter the averse double effects of rising oil prices and a dipping US dollar.

Fleet management

Mary Yeo, MD of UPS admits that one of the two business units to feel the biggest pinch when it comes to rising fuel costs is its ground fleet of vans and trucks.

“Fuel will affect two very large components of the business: one is the fleet that we have on the ground which are the vans and the lorries. The other group with the biggest impact is the aircraft that we fly,” says Yeo

To mitigate these costs, UPS has in place a specialised team to focus on attaining the maximum fuel efficiency through better fleet management and planning.

The company says it currently employs a team of seven industrial engineers tasked to study the process and work motions of the UPS ground fleet. These industrial engineers will study the geography of a country and match that against the volume of shipments each area typically generates (based on historical data) and then decide on the number of trucks and personnel to deploy to maximise efficiency.

Yeo said with this system, UPS has far exceeded its productivity measurements.

For example, UPS, armed with better knowledge of its customer’s demands, now deploys only a handful of UPS vans in the central business district (CBD), despite the high volume of shipments that typically take place in the area.

“UPS does not employ many vehicles in the CBD because parking is inconvenient and very expensive. Also because it is the central business and financial district, we are most likely not going to be shipping very large boxes or cartons but lightweight envelopes

“In this case, what we have done is to put ‘walkers’, or UPS staff to walk the offices with bags in which to keep the envelopes. Once the bags are full the UPS trucks, stationed at various points in the CBD, will pick up the bags from them.”

Christened “the moving box”, the UPS trucks now make fewer stops and drive shorter distances, resulting in much less fuel consumption.

“Clearly, proper planning that comes from the dispatch helps to mitigate operating costs of fuel for the ground fleet that we have,” Yeo says.

Airfreight

While UPS’s walkers and moving boxes are innovative fuel cost minimising measures, Yeo understands that the part of the operations that is a larger gas guzzler and slightly harder to manage is its fleet of aircraft.

In this aspect, UPS says they have trained their pilots in the “single taxiing initiative”. 3PLs handling cargo planes typically warm up its engines by leaving them running them for an hour before takeoff, a procedure that consumed a significant amount of fuel.

With the single taxiing initiatives, however, UPS pilots are instructed to switch only one engine on while the plane is in taxi, not all three that UPS’s MD11 has.

“This has no implications on the plane’s performance, but it has saved us quite a lot of money,” she says.

A second initiative to keep fuel consumption at a minimum is to find alternative sources of energy to power the engines, especially during loading and unloading. “Previously, when loading cargo, the company used to run the engines. But now we avoid using what we call the oscillary power of the engine and use the power from the ground instead.”

“So instead of turning on all the engines for an hour to burn fuel, we use an alternate mode to do that.”

Shipping

Despite being the more energy efficient method of transporting large volumes of goods around the world when compared to rail and air, shippers are hardly spared the pressure to cut oil consumption in the face of skyrocketing oil prices.

“While we acknowledge that our energy consumption as a container shipping line is significant, we aim to make containerised transportation even more environmentally friendly and cost efficient,” says shipping mammoths Maersk line.

Maersk, who firmly believes in saving the environment, has found its energy conserving strategies often result in reduced oil consumption – a double win for the company.

One fuel guzzling aspect of the company’s business is the transportation of refrigerated containers or reefers.

Traditionally, the shipping line has to maintain a constant supply of air temperature in the reefer container, a process that uses high amounts of energy. However, 2008 will see Maersk implementing Quest (Quality and Energy efficient in Storage and Transport) - a software solution that promises to cut energy consumption used for cooling by up to 50% without repercussions on the quality of refrigeration.

“With Quest our customers and their commodities will benefit from all the usual features provided by our refrigeration solutions and in the same time we all benefit from lower energy consumption and reduced emissions,” says Thomas Eskesen, senior director of Maersk, responsible for reefer management in Maersk Line.

The solution is the result of a joint development project sponsored by the Dutch government, with support from the Wageningen University and Research Centre in the Netherlands and Maersk, among others.

In December last year, Maersk also announced schedule changes to its Asia-Europe network, a move that while added four vessels to the route, helped save on bunker fuel.

 

“In the last 12 months, our bunker costs have more than doubled,” Maersk said. “The additional vessels and schedule changes complements our other efforts to mitigate fuel costs and reduce the environmental impact of our services.”

Complementing that, Maersk Line launched the Edith Maersk, a 25^th large container vessel built with a waste heat recovery system.

Waste heat recovery is a process where the energy contained in the main engine’s exhaust gas is recovered to provide useful power for propulsion as well as electricity consumption.

“The waste heat recovery system reduces the environmental impact by decreasing the required main engine power while maintaining the power available to the propeller,” the company said. “This consumes less fuel and generates fewer exhaust emissions for the same shaft power.”

Other means of saving costs (DHL)

While these measures help to reduce fuel consumption and save 3PLs millions in the face of rising oil costs, some 3PLs believe the entire workforce has to be engaged to help the company conserve fuel.

DHL for example, has embarked on training programmes for their drivers to ensure drivers drive in the most fuel-efficient manner as possible.

“[Drivers] are encouraged to take steps such as switching off engines when not in use, applying the correct tyre pressure for the vehicles, and reducing the pressure on the accelerator,” says Dan McHugh, CEO of DHL Express Asia Pacific.

According to McHugh, these measures, coupled with optimising its route planning has helped significantly reduce fuel consumption without decreasing driving time.

“At the same time, we reduce vehicular emission and also minimise vehicle wear,” he says.

Yeo on the other hand, is of a different mind. She believes that when it comes to fuel consumption, the onus should be on the company leaders to think of better fuel optimising strategies.

“Organisations have to remember that these drivers have a hard job working 8-9 hours in a car lugging all kinds of weight into and out of offices. It would not be fair for them to continually think about cutting down wastage of fuel on top of that,” Yeo says.

“Instead of bothering them, we felt that the better way to manage the situation is to plan their routes better, so they will continue to enjoy the work.”

She cites an example of how UPS and several other 3PLs used to fly shipments to neighbouring Johore via Kuala Lumpur (KL) airport and then deliver the package to Johore by road, thinking it better than having UPS trucks get stuck at customs on the Singapore-Johore causeway.

“Everybody goes to the main capital in KL and from there come down to Johore because of fears of safety and getting stuck at customs at the causeway. However, this costs companies a lot more!”

More than a couple of years ago, UPS did away with this way of routing shipments. Now shipments that need to be sent from Johore to Singapore are put on trucks that go through customs twice daily saving the company a significant amount on fuel.

Of course going this route means companies need to know the exact road conditions to best utilise travelling time. Notorious for its massive jams, Yeo says UPS has figured out a system of which times work best to transport their shipments to avoid the jams, as well as at which times the most number of counters at the customs are open, which will minimise waiting times in queues.

Passing the buck

Rising fuel costs seem to be here to stay, and as much as 3PLs try ways and means to lower costs in other ways such that the added costs do not get passed on to their customers, the reality is that operating costs of all businesses, including those of their customers, are set to rise.

“At the end of the day if the market does shift and we are all affected by rising oil and commodity prices then yes we may have to pass on the added costs to our customers. However, our customers will understand that there is a general increase in cost of fuel – businesses will be well prepared for it.”

The verdict however is still yet to be set in stone. 3PL providers may still be reluctant to pass the added costs back to the customer, treasuring instead a precious relationship with their customer.

“In particular our loyal customers, we will always try to help them to grow their business – because that also means that the more they grow, the more they will ship with us and get added discounts,” Yeo says.