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Interview

with Steve Harley, President DHL Energy Sector, DHL Energy

22.03.2012 / Energyboardroom

Mr. Harley, you have extensive experience in logistics support to the global energy sector. How have you seen this service sector evolving over the years, at a global level?
Globally, the industry has shifted its focus from what would be regarded today as the more accessible areas -such as the Gulf of Mexico, the North Sea and shallow water operations in other parts of the world – to more and more difficult and remote locations and therefore more difficult logistics. The industry faces increasingly complicated extraction procedures and generally longer supply chains. From our point of view, it has become a case of developing more sophisticated solutions to address this trend.
We have also seen a change in the processes used in exploration and production (E&P). In Canada, we work in the oil sands for example which is very different and more similar to a mining process. We have also worked in Alaska, which has its own challenges with seasonality being a critical factor for transport. Looking ahead, there are an increasing number of more remote locations, such as Papua New Guinea, the Arctic, and so on.
Coming to Africa, the industry is now looking at destinations which in the past have never been considered as areas where oil and gas was going to be an activity. A particular example as such is East Africa, where we see a new frontier coming up.

Today, what are the key success factors (KSFs) for a logistics provider in the sector?
There are probably 3 or 4 KSFs. First of all, having a coherent, manageable and monitorable health and safety policy is absolutely critical to what we do. We have to be aligned to our customers -which could be service companies, operators, etc.- in providing health and safety to standards that they would expect to meet themselves and ensure that our reporting also meets their expectations.
Compliance is a second factor that is very important in this region – as it is around the world. We must make sure that all of our staff, contractors and suppliers are aware of the standards of compliance that our organization expects us to abide by.
A third KSF is the visibility in supply chains. We must be able to provide an end-to-end supply chain which provides visibility to our customers so that they know where their materials are, when they are moving, when they can be expected, and so on. They need to be provided with access to documentation for customs clearance, as well as the planning that we have for the customers in the region.
Finally, we need to be able to address the need for local content in our operations. DHL has done well at this and continues to improve.

In an article in “Hydrocarbons Technology” last year, you indeed already identified the visibility of assets as the key challenge in the sector today. Can you elaborate how DHL can help to address this challenge?
If you look back 10 to 15 years, the variety of suppliers that were used by operators and service companies was considerable. At a minimum, they had a variety of companies preparing shipments at origins around the world, another company doing the freight forwarding, another overseeing the customs clearance and a last one doing the final delivery to the end destination. As a result, there was no visibility over the entire supply chain.
We are able to provide visibility by having a single end-to-end solution. We have a number of IT Tools that we are able to use, depending on the requirements. Besides the tried and tested tracker system used by our Express Division, we try to stick to 1 or 2 key IT Management Systems to provide web-based visibility from start to finish for our customers. We use these systems in coordination with our clients to ensure that they see the different milestones in the supply chain process according to their requirements. We can tailor our systems to meet their needs, which is a critical factor we have invested heavily in worldwide. At the end of the day, we can provide the same level of service whether the supplier is in Vietnam or Aberdeen.

The Energy unit covers different divisions within DHL. Is there work to be done in aligning these different divisions to improve the end-to-end solutions DHL offers?
DHL is a very big organization with 3 main divisions operating in Africa (as anywhere else in the world). The first, DHL Express, is more traditionally known for its ability to deliver small packages, parcels and freight shipments. They also run mail rooms for companies in our industry and are very much attached to our aviation unit. We now have 17 aircraft operating in Africa and over 200 commercial flights. We need to tie the Express service and aviation capacity to our freight division, which is known as the Global Freight Forwarding Division. This entity includes our Industrial Projects division and is very active with service companies, drilling companies, etc. in providing logistical support. Where we see a definite requirement for air freight, we can certainly work harder on tying together the services of our Express Division with our Freight Forwarding Division. Thirdly, we have the Supply Chain Division which –on a larger scale- is able to look at major projects and operations where we can manage the entire supply chain. We can then think of examples such as refineries, LNG plants, and so on. In such cases, we can manage all the flows, the inventories, purchase order management, etc. as a Lead Logistics Partner (LLP). Tying all of the above divisions together, we have the capacity to do a lot more in Africa. Our Express Division is already present in over 50 countries in Africa, so we already have the basic infrastructure to bring in the other divisions as well.

DHL Energy has forged a significant partnership with Weatherford globally, which has been further extended in 2010. Can you tell us more about the nature of this partnership and what it meant for DHL at a global level?
Weatherford is one of several service companies which we have global agreements with. These companies require us to have a global footprint. We need to deliver on an end-to-end basis and sometimes operate hubs for them. Such relationships generally start with a global framework agreement and are then supported by country or regional level agreements, where we would provide in-country services for clearance delivery, warehousing, etc. Many of the service companies have these types of agreements with us and our global engagement with them is increasing very rapidly year on year.

To what extent can you leverage such partnerships to increase your market share and get those providers on board that are still with the competition?
Historically, DHL has particularly been known for its Express Division which has been extremely successful in Africa and beyond. Perhaps we are not quite as well known for the services we provide to the oil and gas industry in heavier freight operations and capital projects. We could certainly leverage our relationships there to get more involved with more service companies, and to work more directly with the operators and EPC’s (Engineering, Procurement & Construction companies). We do work with some of the operators in Africa, but once they understand our capabilities better, we can certainly do more. Having said that, we already have over EUR 1 billion in global revenues in the energy sector, which gives us a very strong base to work from.

How does this compare to the resources that the Group commits to the Energy unit?
One of the ways we look at the upstream industry in particular is that we will go where our customers go. We follow the oil and gas industry and allocate our resources according to the requirements of the customers. This normally starts at an exploration or Front End Engineering and Design (FEED) stage, where we may get involved in modeling solutions for logistics. We will allocate the resources accordingly and work in partnership with the operators to evaluate logistical flows into a new area, for example where they may be setting up operations. Resources therefore tend to ebb and flow according to what the requirements of the industry are. Once the industry moves more into an operational stage, the business becomes more stable and we allocate resources and put solutions in place for the longer term.

Offshore projects are good examples of how challenging logistics may become, facing extreme weather conditions, remote locations, etc. Is it really worth the trouble to invest in such areas?
Where there is a major oil or gas find, there is going to be an operation in place in that remote location for 25 years or more. In Angola for example, we set up substantial operations across the country more than 15 years ago. We are still there and are still investing. At that time, people may have considered it crazy to invest money in such locations, yet it is clear today that we have taken the right decision. You have to invest your time and resources for the long term, even though it may be very difficult to do so at the start.

Africa is a unique continent where a lot of work still needs to be done when it comes to infrastructure. Do you require a different business model to operate in Africa compared to Southeast Asia or new production hubs such as Brazil for example?
In some respects, I would not say so. The solutions we offer are solutions that apply anywhere. They start with the capital projects and go all the way through to downstream distribution. What is different in Africa is that a lot more work needs to be done in preparation for establishing logistics to support the supply chain. We try to make sure that in remote locations -such as in Africa- we work more closely with our customers than we normally would. It is easy to look at North American or European customs regulations and understand them quickly. It will be relatively easy to understand how long it will take to move materials from one point to the other.
If you look at supply lines into Africa, our customers are often surprised by the total cycle time in procuring materials or the length of time it takes to move something. This is perhaps because they had not yet worked closely enough with us from the outset. That is why we always ask them to get us involved at the earliest possible stage, so that we can inform them about the customs regulations in all of these countries, and so that we can provide our input. We do that increasingly for all our major customers.

You publicly stated that DHL Energy should be the Top 3 provider to the sector. How do you see Africa’s contribution to obtaining this status as you move forward?
Africa is really important for us because it is one of our emerging markets. More than 50% of our growth in Energy is coming from developing and emerging markets. Africa is very important overall, just from the point of view of the value of investments coming into the region alone.
We have long relationships with most service companies in the region. We have global relationships with most of the operators that are either already present here or looking at entering this region and increasing their investments here. We feel that we are very well positioned to support their future developments. Being present in 50 countries, our existing infrastructure in Africa is unique and can be further leveraged. Our vision is to be one of the top 3 providers of end-to-end and integrated logistics services to the industry. This is fundamental to being successful in Africa.

Little over a year ago, the announcement was made to set up 4 oil and gas centers across Africa within DHL. How far on track are you with this plan and how does it benefit the customers?
There are 2 ways of looking at centers of excellence or so-called competence centers. From an energy sector point of view, we are opening our first center of excellence – or showroom – in Houston at the moment. This will open later this year and serves to explain DHL’s capabilities as a whole, whether it is Express, Freight Forwarding, Supply Chain Solutions or our Innovation Center. We want to inform our customers about the solutions that we are able to offer and give them hands-on visibility of what we do. The Houston initiative will include tours of facilities, for example. We aim to have 2 or 3 such centers around the world.
Within the business units, the competence centers you refer to are active real-time control tower operations that demonstrate real ongoing activity. While the DHL Express Division may call them Quality Control Centers (QCCs), our Global Forwarding Division may define such facilities as competence centers. These are already in place in many parts of the world, while further ones are planned to be set up in Africa.

Do you see opportunities to leverage these other centers around the world?
The center we are setting up in Houston will demonstrate the capabilities and have live feeds from those other divisions. We will certainly include this in our sector centers.

South Africa, despite not having many resources in oil and gas, plays a special role. It is a service hub to the continent as a whole. How do you see the role of South Africa within the DHL Energy strategy to further conquer the continent?
South Africa plays an important role for us in a number of ways, both in terms of being a center where management sits as well as a financial and training center. We also bring in people for coordination meetings and the country is also a hub for the Express operations in the Southern African region.
From an oil and gas point of view, South Africa is also the largest downstream market from a logistics potential. This offers opportunities for products such as our Maintenance, Repair and Operations (MRO) solutions developed by our Supply Chain division. We also have very big DHL Express operations here and are very successful in this area too. To us, South Africa is thus important in terms of its domestic market as well as a regional coordination center. Many of our customers also have their regional headquarters in either Cape Town or Johannesburg.
Moreover, there is a lot of interest in creating locations such as Saldanha Bay to become a logistics hub for both East and West Africa. This again emphasizes the importance of South Africa within the developing of logistics solutions for the whole of Africa. We are very interested in participating in such developments as a company.

If we focus on the role as a regional coordination center, we can expect other centers to develop across the continent as Africa evolves. Places such as Kenya and even Ghana are growing rapidly. Going forward, do you think South Africa can keep this status?
As Africa and the size of its economies develop, there is a compelling argument to look at the continent geographically and realize there is perhaps a Southern, Western and Eastern region. Some of our divisions already work on that basis. This will naturally evolve as the market grows for various industries.
South Africa is a center and source of expertise in a number of areas, and will still continue to play a critical role across the whole of Africa. There certainly are signs that locations such as Nairobi, Lagos and Accra are becoming important regional centers as well. Our Express division has hubs in Lagos, Abidjan, Libreville and Nairobi, as well as Johannesburg.

For a potential customer looking into entering the African market or changing provider in Africa, what message can you tell them about DHL Energy in this continent?
We provide the widest set of solutions for a customer coming into this region. Whether it starts with getting small mail packages delivered to setting up a capital project and needing our industrial products division to support them. Whether it is maintaining their operation in the longer term through our ability to support and improve operational capacity, or even delivering materials to a downstream market, we have an unrivalled range of solutions and infrastructure in Africa to offer. Others have particular strengths in parts of this market, but in an overall integrated solution we are rather unique. This is supported by legal entities and operations in all countries in Africa which, again, is unique.

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