News
26/11/11
Iran war shows jet supply chain resilience is key: AEF
Singapore, 11 November (Argus) — Ongoing disruptions from the US-Iran war have
demonstrated the importance of better communication among supply chain
stakeholders and investing in more resilient aviation fuel supply chains, said
panellists at the International Air Transport Association (IATA)'s Aviation
Energy Forum (AEF) in Guangzhou on 10 November. The conflict created many supply
chain challenges, including preventing go-to fuel suppliers from providing usual
volumes, shipping challenges, and demand volatility that created financial
exposure for the company, head of Shell Aviation Asia and Middle East Doris Tan
said. "Some of the supply solutions we need moving forward will be different
from what has worked in the past," added Reuben Reina, managing director of fuel
management at US airline United Airlines. The Chicago, Illinois-based airline
lifts jet fuel at 425 airports, totalling about 30mn gallons/d (714,000 b/d).
This is a tremendous amount of volume exposure, and the firm is exposed to
nearly two dozen different benchmarks globally, he said. To improve fuel supply
chain resilience during this period, fuel storage company Vopak "identified hub
locations where there are aggregations of fuel supplies from various traders and
suppliers", commercial manager Stephen Hoh said. And the firm built newer
terminals there with easily-modifiable or upgradeable tankage infrastructure
between the different fuel types in storage, he added. Vopak quickly adapted by
converting certain tanks to store jet fuel, which could then be redistributed to
a network, Hoh said. Vopak plans to put similar adaptations in place for the
storage of renewable fuels including sustainable aviation fuel (SAF), he said.
In future, artificial intelligence (AI) could help examine SAF and jet fuel
flows to identify the most well-connected trading hubs to invest in, Hoh added.
This will help the firm connect as quickly as possible to end markets. Vopak is
also looking at improving efficiency by having more streamlined, open systems
where fuels can be used by multiple users, thus lowering costs. Asked whether
multiple supply pathways to the airport build resilience, or if one very
reliable supply chain is enough, United's Reina said it depends on the marginal
utility of having an additional path versus its cost. "Historically, there's
been a lot of focus on making the supply chain more lean and efficient over time
— but that leads to a little bit of myopia," Reina said. Diversification is
important, especially considering where United Airlines operates, he added.
Diversification adds complexity, but creates increased access to airports.
"Supply resilience has a rightful place, but done in a sensible way [considering
costs]," he said. The industry needs to invest in supply contingencies and jet
fuel infrastructure to remain resilient. Shell's Tan said. "If you want
resilience, you must have options and contingencies," she said. There has been
discussion on SAF at previous IATA conferences, but it needs to be established
that conventional jet is the main fuel needed in aviation for many decades to
come, she added. "Having a refinery in your backyard makes you feel like you
have supply security — which is true to some extent. But you need to couple that
with trading capabilities, in the event perhaps that the refinery switches from
jet fuel to diesel production. You then have the trading capability to divest or
source from different sources," Tan said. This may lead to longer voyage times
which would then need more midstream infrastructure like tanks, she added.
Steffan Munday, group head of fuel operations at Anglo-Spanish airline IAG,
noted the importance of understanding the full supply chain and implementing the
right solutions for resilience, not just easy ones. It might be easy to put
another tank at the airport, but harder to build a pipeline, for example. "But
it's cheaper to have resilience, than not to be flying," he said. Communication
is key A short-term solution to improve resilience is more timely communication
among supply chain players about factors like supply and demand, Tan said, a
view echoed by other panellists. "This is so we're not second-guessing each
other and can invest precious capital in the right avenues where customers have
growth or demand. Communication doesn't add a lot of cost to the industry, but
helps us work better," she said. Building in more buffer time for fuel
management and planning will help, but in the longer term, industry players need
to come together to invest more in infrastructure, she added. The Middle East
crisis has revealed weaknesses in the network, and strengthening these areas
should be the focus, she said. Many infrastructure investment opportunities only
come in small windows of time, often after a crisis, Reina said. Getting
approval will take time and involve lengthy processes, but airlines should take
a longer-term view instead of only focusing on what costs in the next quarter or
year look like, he added. Continuous dialogue between airports and fuel teams is
vital so that stakeholders are well-prepared when opportunities for
infrastructure development appear. "You're not scrambling as you've already done
the legwork, and you can act well," he said. By Sarah Giam Send comments and
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