Increasing diesel prices are forcing transport companies in the Middle East to re-examine their cost-saving options – including the adoption of hybrid technology for vehicles, say industry sources.

Firms are becoming increasingly interested in hybrid vehicles following their success in reducing operational costs for haulage companies in other parts of the world. The price of diesel has not risen as much in the Middle East as in the US and Europe but firms here are nevertheless feeling the pinch as recent increases eat into profit margins.

In Dubai the price of the fuel has gone up from Dh8.35 per gallon in January 2007 to Dh19.25 in June 2008, forcing transport companies to revise their budgets.

"This is a big challenge for the whole transportation industry," said Fadi Gandour, CEO and Founder of regional transport and logistics group Aramex. "We're doing relatively OK but it is definitely affecting our costs. So we are trying to be innovative and flexible in finding alternatives."

Last week Aramex became the first transport company in the Middle East to introduce the new technology when it added four hybrid vehicles to its fleet. The move will reduce fuel costs by about 50 per cent per vehicle. "The hybrid vehicles do two things for us," said Gandour. "From a cost perspective they are important. But much more important is reducing our carbon emissions and trying to become a carbon-neutral company."

Hybrid vehicles use a combination of a conventional engine and an electric motor to significantly reduce the amount of fuel used. The technology is expensive to acquire – hybrid vehicles cost 10 per cent more than conventional ones – but transport firms believe the benefits will be seen in the long term. And technology analysts say the cost will go down as demand increases and new manufacturing innovations are made.

Martin Palmer, Transport Manager at Al Futtaim Logistics, said: "Although the increase in diesel costs has had a significant impact on our operations, particularly in Dubai, we are undertaking various activities to mitigate the effect."

The company admits it has had to pass part – though not all – of the diesel price increase on to customers.

"We have been able to absorb some of these costs by increasing the utilisation of our vehicles through consolidation," said Palmer. "Al Futtaim Logistics is committed to protecting profitability by enforcing efficient strategies to save costs. But at the same time we want to ease the burden on clients and this forced us to consider other cost-saving alternatives, including the use of hybrid vehicles.

"We are seriously studying hybrid technology as an option to consider amid increasing fuel prices. It is necessary for us to mitigate the effects of increasing operational costs."

Transport firms are worried that increasing fuel prices will generate inflationary pressure as the additional costs of transporting goods are passed on to the end consumer.

Early this year DHL announced it was testing two Daimler hybrid vehicles at its express and logistics operations in the UK. Two Mitsubishi Fuso Canter Eco Hybrid vehicles were put through their paces as part of the company's wider commitment to reducing its impact on the environment and addressing rising fuel costs.

The company has since introduced the technology to its fleets in Japan and China and plans to use it in the Middle East. David Christmas, Managing Director, Middle East, DHL Exel Supply Chain, said: "DHL is committed to reducing the environmental impact of its business operations through new technology and innovations.

"We are at the same time looking at the best ways of reducing our operating costs and easing any extra cost burdens on our clients."

FedEx is among the first transport companies to make a long-term commitment to introducing hybrid electric delivery trucks.

The company is working with vehicle manufacturers to develop hybrid technology suitable for commercial use. It has introduced 10 new hybrid vehicles into its European operations in the past month and is in the process of spreading the initiative throughout its global fleet as fuel costs continue to soar.

Terry Johnsson, President of General Motors' Middle East operations, said: "Although fuel costs in the region are still low compared to other parts of the world there is growing need among government and private transport operators for hybrid technology due to its sustainability." General Motors recently delivered the first hybrid vehicles in the Middle East to Dubai's Roads and Transport Authority.