Multimodal transport is the answer to rising freight costs

As increasing global fuel costs continue to send freight rates through the roof, shippers and transport and logistics companies in the Middle East are now either adopting or consolidating multimodal transport as the answer to the new challenge. Industry players are hoping to optimise operations by linking the various modes of transport, a move likely to bring about enhanced efficiency throughout the entire global supply chain. Freight rates for all forms of transport from the region to some destinations have increased by an average of 40 per cent since the beginning of the year owing to the increasing cost of fuel.

"Whenever there is an increase in fuel prices we have to pass it on to the shipper in the form of increased fuel surcharges," Hussein Hachem, CEO of transport and logistics provider Aramex for the GCC told Emirates Business. "But we are now exploring better ways of containing fuel price surges. While several years ago multimodal transport was inconsistent, today it is a highly fluid and effective mode of transport, ideally suited for the current times when shippers ponder on how to move their goods at lower costs."

Aramex is involved in a full-service operation that offers door-to-door intermodal transportation, long haul trucking, air freight and logistics services with a network across the world.

Hachem said Aramex had increased its fuel surcharge on airfreight by more than 18 per cent on the Rotterdam index since the beginning of the year, and the trend was likely to continue throughout the year as fuel prices indicate no signs of falling.

Martin Palmer, Operations Director at Dubai-based Al Futtaim Logistics, said airfreight rates had increased by almost 15 per cent since the beginning of the year.

"The airline companies we use for freight have been increasing fuel surcharges almost every month and this continues to be reflected on our increasing freight rates," said Palmer.

He said road freight had increased by more than 19 per cent since the beginning of the year due to local diesel price increases and high costs of spare parts.

Emirates SkyCargo recently increased its fuel surcharge for all shipments originating in the UK and Ireland to £0.75 (Dh5.3) per kilo owing to the continual worldwide increase in the cost of fuel.

In January the cost of shipping a 40ft container from some ports in Eastern Europe to Dubai was $2,800 compared to the current $4,900, indicating an increase of 75 per cent.

"This trend will continue and unfortunately will lead to inflation," said B Rajagopalan, General Manager of Swift Group, a UAE-based transport company. "Shippers and carriers now have to become more innovative because of cost pressures. The world has changed, so companies ought to have interests where they haven't had a physical presence."

Rajagopalan said there was no risk that airfreight would lose business to ocean freight, but predicted that shippers would now see the necessity of linking the two modes of transport as a cost-saving mechanism.

"Sea-airfreight is a concept that is once again gaining popularity as a cost-saving method. As the costs of shipping by air continue to increase, shippers are opting to cover part of the journey by sea and the rest by air," said Rajagopalan.

However, if fuel prices continue to rise, industry analysts believe there will be a greater shift in the movement of non-perishable commodities within the region from air to either land or sea-land as these allow extra capacity at lower rates.

"Fuel efficiency is becoming more important in transport, because the price of crude oil has increased 30 per cent during the first quarter of 2008. While the industry is working to make its self more efficient, cost saving will continue to drive shippers to think about other available options," said Phil Lambart, a Transport Consultant in Dubai.

Transport companies are now venturing into fuel-saving initiatives to stay competitive in the market.

DHL recently completed a trial of its hybrid vehicles to be used in its express and logistics operations. It also plans to use hybrid vehicles to reduce fuel costs while effectively reducing carbon emissions from its vehicles.

The number

£0.75: Emirates SkyCargo increased its fuel surcharge for all shipments originating in the UK and Ireland to £0.75 per kilo due to continued increase in cost of fuel.

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