DHL whitepaper highlights unprecedented market conditions, forcing industry to adjust supply chains

New research from DHL, the world’s leading logistics provider, shows that a lot of companies operating in the energy industry yet have to adapt their supply chains to the exceptional harsh market conditions the sector faced in 2015 – and will continue to do so in 2016. The new whitepaper looks at both the conventional and renewable energy industry and suggests improving supply chain visibility and efficiency as well as adopting a new mindset to share logistics assets and resources across departments and companies.

“2016 is a make-or-break year for the energy sector when it comes to supply chains. Given the market development for oil and gas companies, there is little to no leeway for operational inefficiencies, which could be tolerated before. Invisibility of inventories and utilization as well as decentralized control systems need to be eradicated – especially in the upstream sector where margins are very tight or non-existent now”, says Steve Harley, President Energy Sector, DHL Customer Solutions & Innovation.

The last two years brought unprecedented challenges upon the energy industry, particularly for oil and gas companies. Prices for both crude oil and liquefied natural gas (LNG) dropped more than 60 percent since July 2014 and reached around US$30 per barrel crude oil today (as of January 27).

Renewables, on the other hand, continue to increase their share in the global energy mix. Last year, they contributed to more than half of the additionally installed power generating capacity. Despite the pleasant outlook, however, renewables projects are often still reliant on subsidies harboring the risk of political changes.

“Although the industry faces challenges, there are a lot of opportunities for both conventional and renewables businesses. The survey responses show that there is room for improvement when it comes to efficient, well-organized supply chains,” Harley continues. “Renewables and energy supply chains are converging in terms of average project size, locations and the rise of integrated players. Each has unique strengths, which presents opportunities to learn from one another and to pursue synergies.”

Statements from logistics managers in the oil and gas industry confirm that more than 40 percent believe that their organization lacks supply chain visibility. Only one in twenty managers thinks that their company has full visibility. The whitepaper suggests a more central approach to logistics coordination supported by global supply chain visibility. This will enable energy companies to reduce overheads and improve materials management by centralizing stock, pooling resources and lowering obsolescence.

Finally, the authors consider facility- and knowledge-sharing with competitors for the sector to become more efficient. Examples such as US shale oil extraction show that standardization offers huge efficiency gains across a sub-industry. Since 2007, productivity increased by 30 percent annually thanks to standardized processes. Historically though, the energy industry struggled to adopt measures such as standardized equipment or shared industry structures. Interestingly enough, the majority (73 percent) of decision makers think that they should be more open, while only 13 percent are already open to share facilities and knowledge to drive down costs. Energy companies should also consider learning from businesses in other sectors, with the automotive industry being a specific example for adapting the supply chain to increase operational maturity.

---

The white paper ‘A new frontier: Prospering in the changing energy environment’ is available for free download at www.dhl.com/energywhitepaper2016