The Iran conflict saw fuel prices skyrocket—when you use 1.88 million tons a year, how you respond really matters (just ask DHL)

Jet fuel has been the most expensive commodity, more than doubling in price from $800 per ton before the conflict to $1,903 in April. The current price of kerosene stands at $918 per tonne, according to the latest figures from Argus Media and airlines have had to scramble to secure fuel.

Among the companies under pressure is German freight forwarder DHL, whose many air freight operations make it vulnerable to disruptions in air fuel supplies. DHL Express Europe, its global shipping division, operates one of Europe’s largest airlines. Its 295 airlines, including third-party airlines and charters, send packages to 220 countries and delivered 248 million goods worldwide last year.

Its European CEO, Mike Parra, says DHL’s diversified approach has helped the company weather the fuel crisis and protect its kerosene supplies during the summer months.

There were three key elements of the strategy. First, DHL has diversified its fuel markets, with the US, South Korea and Nigeria increasing their aviation fuel production.

Transshipment—where planes are deliberately loaded with extra fuel to avoid the need to refuel in an area where prices are high—allowed DHL Express to make significant savings in its operations.

Finally, it creates its own sustainable fuel. DHL Express is one of the largest buyers of sustainable jet fuel, derived from waste and fossil fuels and oils. One-tenth of its fossil fuels are sustainable and it has set a target of 30% being sustainable by 2030.

DHL Express’ network planning team, which Parra describes as the “central nervous system of the business”, was instrumental in implementing the strategy. “Our experts analyze the fuel prices and decide what is the best way to fuel our planes,” said Parra. “Fueled flights also affect your load, so there are a lot of calculations to manage.”

Its internal logistics tool VISTA also helps employees review the weight and balance of DHL Express aircraft, allowing them to use the most cost-effective and efficient routes. “We’re looking at everything and we’re looking at everything,” added Parra. “That is our responsibility as a global business.”

Although DHL Express wants to keep prices competitive, it has had to increase fuel surcharges for air shipments to maintain margins. The surcharge—which is used to offset rising fuel costs and is calculated based on the average daily price of kerosene—has increased to 48.75% and currently stands at 40.75%. “It’s not a money-making machine, it’s a way to protect costs,” explained Parra.

The surcharge is now reviewed weekly and calculated in monthly arrears to account for rising and falling fuel costs. Historically, this was based on prices over an eight-week period and was updated monthly.

Staying courses in the Middle East

The drop in fuel costs is not the only challenge facing the transport company. Conflicts in the Middle East have also had a direct impact on business.

A higher security risk premium was introduced to be delivered to war-torn areas, such as Israel and Lebanon, to reduce aviation insurance prices. “We have to fuel up, turn around, and get out, because you don’t want to sit around doing nothing,” Parra said.

DHL Express has also operated “line” routes in the Middle East, where trucks and vans deliver packages to areas where it is not safe to land an aircraft. “That may require using more fuel or adding more complexity,” Parra added. “But it meant that we quickly went back as a company.”

Despite the current conflict in the Middle East and the additional challenge this brings, DHL Express remains committed to the region. Last year, it announced plans to invest more than 500 million euros in the Middle East, focusing on the Gulf markets of Saudi Arabia and the UAE.

“We are well-positioned, committed, and invested heavily in the Middle East,” said Parra. “Israel is a strong market for us, and one that I am sure we will continue to grow in.”

Lessons from this pandemic

Parra says that adapting to adversity has become a “secondary skill” for business after its performance was tested during the violence.

“Covid has been a huge challenge because of the health and safety risks for workers and the growth of e-commerce at night,” he said. “We were also a major transporter of vaccines and we had to work with the government and organize people to accompany us after our planes arrived.”

Between December 2020 and May 2021, DHL helped distribute 440 million Pfizer vaccines in 92 countries. He adds: “Covid has taught us a lot. We’ve been very successful in managing complexity.”

The additional investment in facilities and road transport DHL Express has made during this pandemic has helped position the business to navigate the current uncertainty of the world.

To protect workers from uncertainty

The growing uncertainty is also affecting DHL Express employees. Parra has seen many employees talk about personal challenges during one-on-one meetings or training sessions.

“People say they are facing challenges at home or are affected by ongoing problems or rising prices. The UK is not a cheap place, as you know, and people are worried,” he said.

In response, DHL Express increased the number of staff trained in mental health first aid – it now has 202 mental health first responders – and implemented a five-step health strategy.

Key elements of this strategy are communication, staying active, learning, giving and being present. Essentially, this involves creating a supportive employee culture, encouraging physical activity, offering volunteer programs and encouraging people to look out for others and put safety first.

“Well-being is a topic that is growing in importance—not just internally—so we’re investing in it,” Parra said.

While supply chain shocks, geopolitical fallout, and conflict are difficult to predict, businesses can control how they prepare, build resilience, and adapt. As Parra says: “We can’t predict volatility, but we can control the dynamics.”