The energy sector in general -and the oil and gas business in particular- has created tempting markets for third party logistics providers. These markets are vast in size, with supply chains that span the world and require extraordinarily complex logistics that often operate under conditions of intense time sensitivity, therefore energy businesses look an attractive group of potential customers.
Seemingly motivated by the possibilities of this huge opportunity, DHL Solutions & Innovation has published a paper titled “Your Supply Chain Simple and Controlled” addressing the need, in their opinion, for energy companies to restructure and out-source their logistics to big integrated logistics providers. Focussing on MRO (maintenance, repair and overhaul) operations in particular, DHL is arguing that the combination of new locations, complex supply chains and the higher cost base that is the result of greater complexity demands a different approach towards the procurement of logistics services.
As the report states “energy professionals need to partner with integrated suppliers who can offer them global coverage but also in-depth local understanding…they seek better visibility of end-to-end supply management while also addressing the downward pressure on costs… while simultaneously investing in more external expertise.” DHL argue that the consequence of these trends is the need to buy-in more external resources. Yet, this very process of out-sourcing itself becomes an issue that demands management as the logistics supplier base becomes increasingly large and complicated. The best way to manage this, say DHL is to rationalise smaller suppliers through a large integrated supplier either physically or presumably though some sort of 4PL or Lead Logistics Provider arrangement.
The problem is that the energy sector is so vast that it is more or less impossible for any logistics service provider to possess either the physical resources or the management expertise to service the whole of it. An obvious example is that of oil and gas. As the report indicates, the growth of shale-gas production is one of the most significant developments in the energy sector. However, the types of MRO or E&P logistics services required by most shale-gas operations are radically different from that other area of growth, off-shore gas (and oil) production.
And the present reality of logistics in the sector is more prosaic. For example, in an interview with the publication ‘The Loadstar’, the regional logistics manager for Eurasia and Middle East for oil field service company Halliburton has said that his company in-sourced much of its supply chain management after becoming frustrated at the inability of forwarders to offer the service it needed “six years ago we had forwarders – but there was no visibility. There were ineffective processes and we were dependent on forwarders with mediocre services. They wasted time and money with outdated methods.”
To anyone familiar with the evolution of logistics in the automotive sector, these complaints are reminiscent of a sector struggling with the reality of outsourcing. If the lessons of that industry are to be applied to the energy business, there will be a lot of work to be done before even a portion of its potential is realised.