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Diesel crisis hits logistics industry

Logistics companies have started charging their customers higher rates following a series of diesel price increases.

Logistics companies in the Middle East have started charging their customers higher rates following a series of diesel price increases. Several of the industry’s major players initially shielded customers by subsidising the inflated cost of transportation. However, the latest diesel price hike in April has resulted in many logistics companies passing a percentage of the extra costs to customers.

“Diesel prices have increased dramatically and the logistics industry is suffering as a result,” says Duncan Watson, head of commercial, DHL Middle East. “Whenever logistics companies are faced with price increases, we try to absorb the extra costs by finding ways to improve efficiencies. However, the price of diesel has reached a point where customers will inevitably be passed some of the extra costs.”

The price of diesel took the industry by surprise after increasing twice in the space of a month and recently stood at US$2.28 per gallon — compared to $1.68 at the same time last year — a rise of nearly 36%.

Although the situation is affecting the Middle East logistics industry as a whole, it seems the price increases have struck a larger blow to the region’s smaller operators. “The market is already very competitive and smaller logistics companies are working hard to compete with the bigger players,” says Jamil Janjua, group chief executive, TCS Express Worldwide. “However, the price increases are placing extra pressure on smaller companies such as ourselves. Whilst we’re trying to subsidise some of the rising costs, it has become unavoidable to raise transportation charges. Of course, some customers are unhappy about the situation and we hope things will stabilise soon.”

With smaller logistics companies facing future hardship if the price increases continue, the situation has also affected the motivation of employees. “Whenever an industry faces such adversities, employees do start worrying about their future job security,” added Janjua.

Whilst logistics industries in other parts of the world are combating the price increases by switching some cargo to other modes of transport, such as railway, this option is currently unavailable in the Middle East because the region lacks an efficient rail network. “The logistics industry is reliant on road transportation in the Middle East, which makes the impact of increasing diesel prices even bigger,” said John Brinkhurst, general manager, Dnata-PWC Airport Logistics. “In the longer term, having a more efficient rail network and water solutions such as ferries would provide suitable alternatives. Until these modes of transport are available, the logistics industry needs mechanisms for fairly recouping extra costs, preferably without passing them onto customers.”

The rising diesel prices, which have been triggered by record oil prices, are also adding additional costs for logistics companies using diesel forklift trucks, although the impact is relatively lower compared to transportation. Diesel forklift trucks are very popular amongst companies in the Middle
East and a large number of logistics companies are using them for the bulk movement of goods from containers directly to the warehouse door.

“The increase in diesel prices has created a situation where the cost of moving material outside the warehouse has increased for companies using diesel forklift trucks,” says Vediyera Chandroth Vinod, general manager, Yale Middle East. “This situation will impact the bigger logistics companies on a higher level. These companies own a larger number of diesel forklift trucks and therefore their costs will increase more, especially in the short term. However, at the end of the day, even smaller companies will feel the pinch and the higher fuel bills may eventually affect the end consumer in terms of higher charges.”

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