Logistics firms scout for alternative fuels

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: May 10 2011, 01:51am hrs
Rising prices of aviation turbine fuel (ATF) are making logistics companies with prominent air express divisions and cargo aircraft look at cost effective fuel alternatives, as well as to pass on the rise partly to customers. Fuel is the largest cost for the logistics companies, comprising as much as 60% of their operational expenses. Some companies are also betting on new fleet to ensure lower fuel consumption. Currently, ATF costs around R61,429 per kilolitre in Mumbai, which is over 30% higher than what it was in May 2010. In Delhi, ATF costs around R60,560 for a kilolitre.

FedEx, for instance, is looking to reduce fuel consumption in order to make its operations more cost efficient. We have a target to get 30% of our jet fuel from alternative fuels by the year 2030. By upgrading our air fleet and introducing the Boeing 777F aircraft, which use 18% less fuel on a capacity basis than the MD-11 aircraft and provide greater payload capacity, we aim to significantly reduce fuel consumption, said Kenneth Koval, VP, India operations, FedEx Express.

UPS, on the other hand, claims its quarterly fuel cost as a percentage of total revenues is below that of others in the industry. For this, it credits its youngest aircraft fleet. Our investments in operational technology have reduced the kilometers driven. We have improved transport and sort costs, load factors, and increased productivity. This translates to less kilometers and superior asset utilisation, said Chris Grubb,VP, marketing, UPS Asia Pacific Region. Most express companies opt to lease aircrafts to keep the business asset-light. For instance, Blue Dart has seven aircraft, all of which are leased. DHL Express internationally owns 20 dedicated freighter aircraft. In India, the air express business has smaller volumes compared to road, rail and water. In value terms, it is almost 7-8% of the total logistics spent in India. Air volumes are under pressure and is a place where bigger players have a larger business viability, said Manish Saigal, head of transport and logistics, KPMG India. The express business contributes the lions share to logistics players' revenues, globally. Express business contributed $40.9 billion of UPS overall revenues of $49.6 billion in 2010, while for Fedex Corporation, it constituted almost 60% of the total $9.66 billion in third quarter of FY2011. Fuel price hikes have necessitated an additional surcharge that players levy on their clients. Changes in fuel prices have resulted in increased overall costs for the logistics industry, necessitating a variable fuel surcharge which may rise, fall or be removed, in line with movements in fuel prices, said logistics company DHL in an email response. In the past few years, focus on efficient and cost-effective logistics has increased. The major challenge confronting these air borne logistics companies is to cut down their own cost as well as to pass the minimum of the total increased amount to their customers, said Udgirkar, senior director, Deloitte India.