MPVS: THE RELIABLE PERFORMER n BUILDING TOMORROWLAND n A BETTER WAY TO FIX CONTRACTS
ISSUE 2 / 2017
POWER SOURCE
Oil-powered Politics Won’t Deny Renewables
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contents
Cover Story
10
20 SHIPPING TRENDS
THE RELIABLE PERFORMER
Evolution, Not Revolution For MPVs
28 EXECUTIVE SUMMARY
FUNERAL MARCH Days Are Numbered For ‘Simple’ MPVs
32 CARRIER PROFILE
BETTER TOGETHER
G2 Ocean’s Marriage of Minds
10 POWER SOURCE
Oil-powered Politics Won’t Deny Renewables
20
32
36 INNOVATION
WELCOME TO TOMORROWLAND Test City to Generate Logistics Demand
42 TRADE NOTES
A BETTER WAY TO FIX Advantages of Choosing The Right Contract
42
50 REGIONAL REVIEW
OUT OF SERVICE Overcoming Barriers to Cross-Europe Moves
06 Editorial n 94 Turbine Molds Navigate Great Lakes n 102 Ro-ro Chases Greater Breakbulk Share n 103 Beyond Physical Operations 104 Breakbulk China 2017 Review n 109 Breakbulk Index n 113 Into The Wild Photo Contest n 114 The Last Word 4 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
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contents
74
58 REGIONAL REVIEW GOLD RUSH
Excavating East Africa’s Mining Potential
66 CARGO LENS
COOL CARGOES HEAT UP Reefer Shipping Survives With Speed, Service
80 LOGISTICS PERSPECTIVE
UNLOCKING INDIA’S COASTLINE Bold Initiative to Ease Cargo Movement
74 EMERGING MARKETS Borneo’s Demands Prop Up Project Cargoes
58
66
88 REGIONAL REVIEW
CRACKING GAS CONSTRUCTION
Benefits of Shell’s Monster Pennsylvania Project
98 PORT FOCUS
TWO HALVES OF A WHOLE
Tacoma and Seattle Alliance Pays Off
98 BONUS PUBLICATION INCLUDED WITH THIS ISSUE:
BBC Chartering
6 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
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editorial
COMING CLEAN
M
uch like the political environment of 2017, the state of the world’s energy depends on whom you ask. As Herman Trabish points out in this issue’s cover story (“Power Source,” page 10), major markets for hydrocarbon energy supplies, including the U.S., Russia and Organization of Petroleum Exporting Countries, or OPEC, are pushing conventional products, while nations aligned with the 2016 Paris Agreement on Climate Change are seeking to pair emissions cuts and economic growth, with renewables the vehicle to get them there. For years, alternative energies tottered along on government subsidies, a conscious effort to reduce greenhouse gases, Gary Burrows while conventional fuels dominated. As development grew and technologies improved among renewable energies, prices have fallen. Now renewables are expected to be nearly 60 percent of new power generation and most will be price-competitive with fossil fuels – and without subsidy. Liquid fuels, natural gas and coal will still comprise 78 percent of the world’s energy use by 2040, the U.S. Energy Information Administration says. And that is a much larger market, as population is expected to grow 25 percent to 9.1 billion people by 2040, with emerging consumer demand growing commensurately. While investment in renewables is expected to grow while fossil fuel projects are expected to slide, the need for more energy is going to continue to advance all energy sources – save for the “dirtiest,” including high-sulfur coal and ship fuel. Energy efficiency will get world markets part of the way towards energy goals, but 8 BREAKBULK MAGAZINE www.breakbulk.com
the need for investment in all sources grows as the willingness to invest suffers. As the cover story points out, subsidies for fossil fuels dropped 35 percent through 2015 while renewables subsidies fell to US$150 billion. In the U.S., while electricity production shifted from monopolies to largely privatized operations starting in the 1980s, investment flowed because projects offered decent return on investment. In its Feb. 26-March 3, 2017 issue, The Economist pointed out a “dirty secret” about the growth of renewable energy, and its impact on meeting growing energy needs. The “Leaders” piece said the more renewable energy is deployed, “the more it lowers the price of power from any source.” The more renewables advance in the energy mix, the weaker ROI for conventional investment becomes. Yet renewables, especially wind and photovoltaic cells, need to rely on conventional energies for those times when the sun don’t shine and the winds don’t blow. While subsidies for renewables are down, public subsidy still totaled about US$800 billion since 2008 and has “distorted the market,” The Economist said. And, as renewable energy has little to no running costs, they depress power prices and reduce revenue for all energy forms. Will renewables’ advancement spin the table and require conventional projects to draw subsidies to maintain and expand production to prop up renewables and growing energy needs? The Economist rightly points out that technologies will go a long way to gathering efficiencies and effective approaches to find an acceptable mix that meets energy needs while continuing to drive reductions of greenhouse gas emissions. Digitization, batteries, smart meters, modular power plants, high-voltage grids, pricing and policies that spreads high use to low-use hours, all have a role to play. ExxonMobil acknowledges that “the world will need to pursue all economic energy sources to keep up with this considerable demand growth.” That must include acknowledgement that, despite the complexities and financial issues of the energy mix, the world and its nations can’t throw away its environment advancements on greenhouse gases, because the problem can’t be bluffed away by flat-earth arguments. As an industry that benefits from the projects and logistics needs of all energy sources, shared roles is the best way to come clean.
EDITORIAL DIRECTOR Gary G. Burrows / +1 904 535 5460 gburrows@breakbulk.com NEWS EDITOR Carly Fields cfields@breakbulk.com HEAD DESIGNER Catherine Dorrough DESIGNERS Mark Clubb, Brittany Hawkins Davis REPORTERS Paul Scott Abbott Kerry Dimmer Jonathan di Rollo Alan M. Field Lori Musser Lara Shingles VL Srinivasan Thomas Timlen Herman K Trabish Mark Willis BREAKBULK EDITORIAL BOARD John Amos Amos Logistics
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cover story
POWER
10 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
SOURCE Oil-powered Politics Won’t Deny Renewables
T
he new administration in Washington, D.C., has the global energy sector rethinking oil and gas, while much of the rest of the world worries about greenhouse gas emissions. Out of the tension, a new energy paradigm is emerging. The U.S. Energy Information Administration, or EIA, in its International Energy Outlook 2016 found liquid fuels, natural gas and coal will make up 78 percent of the world’s energy use in 2040. That puts the then incoming administration’s fossil fuel emphasis on target. But between now and 2040, EIA added, renewables will add a 2.6 percent-per-year share and be the world’s fastest-growing choice. Nuclear energy will be second, at 2.3 percent per year. Natural gas will be third, with 1.9 percent per year. Coal will grow slowest. That could, to some extent, address concerns about climate changeinducing emissions. The U.S. White House, Russia, and the Organization of Petroleum Exporting Countries, or OPEC, want to market oil and natural gas, while the nations committed to 2016’s Paris Agreement on Climate
Change are following China’s lead by working to match emissions cuts and economic growth. Though they seem to be pulling in opposite directions, they are moving the global energy sector to a new supply mix in which oil and natural gas will have a powerful but diminished role, renewables and nuclear emerge, and the power of coal fades.
TOTAL ENERGY MIX
The EIA and the ExxonMobil 2017 Outlook for Energy forecasts line up fairly closely. In 2040, oil is 30 percent to 32 percent of the total energy mix and natural gas is 25 percent to 26 percent. The EIA sees renewables moving up to 16 percent to 17 percent and nuclear falling off to only 6 percent, but ExxonMobil sees nuclear capturing a 12 percent share and renewables remaining at only 7 percent. Both see coal falling to 20 percent to 22 percent. Today’s 7.3 billion world population will be 9.1 billion in 2040, according to the World Bank. Two billion people will rise into the middle class as the global gross domestic product doubles over the next two decades, the BP Energy Outlook 2017 Edition adds. Emerging consumers’ demand for energy will grow 25
ENERGY IN
2040
if nations abide by Paris Agreement:
37% of power from renewables
150 million electric vehicles on the road
50% growth in demand for natural gas, overtaking coal in the global energy mix
103.5 million b/d oil consumption
0.5% avg. growth per year in energy sector carbon emissions Source: International Energy Agency, World Energy Outlook 2016
BY HERMAN TRABISH
percent to 30 percent, both oil giants agree. “The world will need to pursue all economic energy sources to keep up with this considerable demand growth,” ExxonMobil reported. About 70 percent of energy project investment since 2000 went to fossil fuels. This will drop to 60 percent of the US$44 trillion expected to be invested through 2040, with natural gas taking a growing share. Subsidies to fossil fuels dropped from near US$500 billion to US$325 billion in 2015, the most recent year documented by the International Energy Agency, or IEA. Renewables received subsidies of only US$150 billion. The Paris Agreement pledges to keep the rise of greenhouse gas emissions to 0.5 percent per year in 2040, down from the current 2.4 percent. But emissions cuts budgets will be expended by 2040 and significantly greater investment in clean energy and energy efficiency will be necessary, the IEA reported. Carbon pricing has “an important role to play” in getting more emissions reductions, BP argued, because it gives both energy producers and energy consumers incentives to change their behaviors.
www.breakbulk.com BREAKBULK MAGAZINE 11
cover story
HUNGER FOR ELECTRICITY
Global electricity generation, the world’s fastest growing energy use, will jump 69 percent from 2012’s 21.6 trillion kilowatt-hours (kWh) to 25.8 trillion kWh in 2020 and 36.5 trillion kWh in 2040. It will be as much as 67 percent of global demand growth, but will be moderated by more deployment of energy efficiency. That will allow renewables and natural gas to meet more than 80 percent of the new demand through 2040. Natural gas will move ahead of coal in power generation because of the rapid growth in global access to liquefied natural gas, or LNG, according to BP. Renewables will be almost 60 percent of new power generation and most will be price-competitive without subsidies. Attention to grid integration that allows system operators the flexibility to manage renewables’ variability will increase their share. U.S. and developed European nations’ share of global electricity demand will fall from 2015’s 30 percent
to about 20 percent in 2040, ExxonMobil reported. As their populations and economies rise, China and India will account for 45 percent of the growth in global energy demand through 2040. Emerging middle classes will drive manufacturing and put more passenger and commercial vehicles on the world’s roadways. Transportation electrification will emerge, but oil will meet 95 percent of the sector’s needs in 2040, ExxonMobil added. But the pace of oil demand will slow, BP forecasted. Still, global passenger vehicles will grow 80 percent to 1.8 billion. Their share of energy consumption will grow 60 percent, but electric vehicles will take at least 10 percent of the market. Commercial transportation energy use will rise 50 percent. Though the market remains elastic, with pressure on leading providers coming from bargain hunters, BBC Chartering is confident that energy and power generation will remain “a demandproducing sector” going forward, said Raymond Fisch, senior vice president.
NUCLEAR RISK TOO HIGH? Many experts argue the world cannot meet its emissions reductions ambitions without expanding nuclear capacity. Others argue that what happened at Fukushima, Chernobyl and Three Mile Island demonstrate that nuclear power is too risky to expand. The significant cost contingencies and high absolute costs of new nuclear generation are among its many marketplace challenges.
Credit: Shutterstock
In November 2016, there were 447 nuclear reactors in the world with a combined generation capacity of 391,386 megawatts, which was 11 percent of global generation. There were 60 reactors representing 64,500 megawatts of capacity under construction and another 164 reactors with 170,844 megawatts of capacity in planning, according to the World Nuclear Association (WNA).
12 BREAKBULK MAGAZINE www.breakbulk.com
REFOCUS ON OIL
This year’s oil story, the increasing role of the U.S. to help meet international demand, comes straight from the headlines. “U.S. crude oil production averaged an estimated 8.9 million barrels per day, or b/d, in 2016, and monthly U.S. crude oil production increased by 232,000 b/d in October and by 105,000 b/d in November,” the EIA reported on Feb. 27, 2017. “The current boom in U.S. oil production is even stronger now than the run from July 2011 to April 2015,” Bloomberg reported on Feb. 26. This was ahead of any action by President Trump to meet his pledge to ease restrictions on the oil and gas industry, Bloomberg noted. “Output growth could accelerate if prices rise, or costs fall further.” The bulk of global oil demand will be from emerging economies, led by Asia. The supply of oil and other liquid fuels will grow 20 percent through 2040 to meet demand, drawing on the estimated 150 years of current global reserves, ExxonMobil said. Leading OPEC nation production will come from the Middle East, but nations in Africa and Latin America will contribute. Leading non-OPEC nation production will come from Russia, Brazil, Canada, Kazakhstan and China. Russia is the world’s biggest producer of crude oil, according to the EIA; hydrocarbons provide 40 percent of its federal budget reserves. Russia is also the second-biggest producer of natural gas, led by the U.S. and followed by Iran, Qatar and Canada. Russia holds the world’s biggest natural gas reserves, followed by Iran, Qatar, the U.S. and Saudi Arabia. In 2016, the Sabine Pass natural gas liquefaction facility in Louisiana became the first operating U.S. LNG export facility outside Alaska. It will allow U.S. LNG exports to surpass natural gas pipeline exports by 2020. By 2021, four more facilities under construction are expected to be online.
ABUNDANT GAS RESERVES
Global natural gas reserves, 85 percent of which are untapped, are adequate to meet current demand for 200 years. Unconventional sources, including shale gas, make up more than 40 percent of the reserves, according to ExxonMobil. ISSUE 2 / 2017
cover story
ALL CHANGE IN A DECADE
Reidl said. They are based on offtake agreements’ 20-year terms and facilities’ 40-year service lives. “The commitment from the oil majors like Shell, Exxon, Chevron and BP remains strong,” he added. “They are bullish and they are building their LNG portfolios and their long-term market strategies.” To meet demand the U.S. will need new LNG facilities, Reidl said. Though projects face a rigorous regulatory environment, many in the industry expect relief from Trump administration initiatives. Japan will be the biggest international market, and new demand will come from markets transitioning away from higherpriced generation sources like India, China and Indonesia, he added. EIA studies show that even with a demand increase of 20 billion cubic feet per day, today’s record low prices are unlikely to rise by more than US$0.02 per million British Thermal Units to US$0.03 per mmBTU through 2050, Reidl said. “We have 325 trillion cubic feet of proven natural gas reserves, so the supply being liquefied is surplus.”
REALITY CHECK NEEDED
Credit: Shutterstock
Ten years ago, the U.S. was preparing facilities to import natural gas, recalled Charlie Reidl, executive director of the Center for Liquefied Natural Gas, or CLNG. New horizontal drilling and hydraulic fracking technologies that allow development of its shale gas reserves mean that the U.S. industry is now converting those facilities to liquefication and export. “The LNG market is currently oversupplied and will remain that way through this year and into early 2018,” Reidl said. “There are shiploads sitting afloat, almost like storage vessels.” Reidl sees investor decisions beginning to rebalance the market in late 2018 or early 2019, and demand rising internationally between 2020 and 2022. “International demand for LNG will likely outpace supply by about 2025,” he said. Investor decisions are not made because of the market’s five-year period of oversupply,
Demand for electricity generation in emerging economies will be the basis for 76 percent of natural gas consumption through 2040. The biggest production increases will be in China, Iran, the U.S. and Russia. This will make for a global marketplace, driving LNG trade to grow 200 percent to 250 percent between 2015 and 2040. European and Asia-Pacific region demand will account for an estimated 90 percent of natural gas imports; twothirds of LNG demand growth will come from the Asia-Pacific region. In 2015, liquefaction facilities came online in Australia and Indonesia, supplemented by the U.S. Sabine facility in 2016. Despite flattening near-term demand, projects under construction are expected to remain on track. Further development is expected globally despite an oversupplied market. New deliveries will supply underserved markets, put downward price pressure in emerging markets and in markets that lack competition, and will add short-term supply flexibility where it is needed.
14 BREAKBULK MAGAZINE www.breakbulk.com
Some reports warn that oil company and agency projections are misguided. Business-as-usual projections in studies from BP, ExxonMobil, and others may be seriously underestimating the potential for price drops in solar photovoltaic, or PV, and electric vehicle batteries to take market share away from fossil fuels. Solar PV with battery storage could supply 23 percent of global power generation in 2040, phasing out coal and leaving natural gas with a 1 percent market share, concluded a report by Imperial College London. “ExxonMobil sees all renewables supplying just 11 percent of global power generation by 2040.” But electric vehicles could be 35 percent of the road transport market by 2035, displacing two million barrels of oil per day, it added. “BP put this figure at just 6 percent.” ExxonMobil predicted coal would be the big loser as wind and solar generation grow 360 percent to 15 percent of the 2040 global market. Three-fourths of the growth will be in developed countries and China. Nuclear generation will grow 75 percent through 2040, with more than half of the growth in China. ISSUE 2 / 2017
cover story
Coal use will grow in the Asia-Pacific region and India’s coal use will double, but most of the rest of the world is likely to turn to natural gas for power generation, ExxonMobil concluded. American shale gas is “rewriting the narrative of scarcity and limits that has prevailed since the 1970s,” ExxonMobil added, predicting a new “age of abundance” in energy supplies.
BLOWING UP WIND CAPACITY The global wind industry added more new capacity in 2015 than any other generation technology, according to the Global Wind Energy Council, or GWEC. A record 63 gigawatts of new wind power brought global cumulative capacity to 433 gigawatts, a year-on-year growth of 17 percent. China’s cumulative 145 gigawatts of wind capacity at the end of 2015 led the 80 countries across a broad global
SKIDDING
RIGGING
AMERICAN SHALE GAS IS “REWRITING THE NARRATIVE OF SCARCITY AND LIMITS THAT HAS PREVAILED SINCE THE 1970S,” EXXONMOBIL SAID, PREDICTING A NEW “AGE OF ABUNDANCE” IN ENERGY SUPPLIES.
marketplace that have built wind. There are 28 countries with more than 1 gigawatt of operational wind capacity, and new markets are emerging across Africa, Asia and Latin America, according to the GWEC. The global offshore wind industry added more than 3.4 gigawatts in 2015 across five markets, bringing its cumulative capacity to more than 12 gigawatts. Over 90 percent was off the coast of 11 European countries, but China, Japan, and South Korea were active. The U.S. brought its first offshore installation online in 2016. For BBC Chartering, wind power remains a major cargo volume-driving segment, and while oil and gas related activity remains comparably low, there are signs of “revitalization,” according to the carrier’s Fisch. Various GWEC scenarios project annual capacity growth fluctuating from 6 percent to 15 percent through the
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ISSUE 2 / 2017
2020s but ending at about 7 percent, or 43 gigawatts, in 2030. Cumulative 2030 capacity is forecast to be between 1,260 and 2,110 gigawatts. After providing a record-setting 19.2 percent of global final energy consumption in 2014, the world added an estimated 147 gigawatts of renewables capacity in 2015, the biggest single year growth to date, according to United Nations Environment Program partner REN21. “For the sixth consecutive year, renewables outpaced fossil fuels for net investment in power capacity additions,” REN21 reported. The world also added more renewables capacity than fossil fuel capacity in 2015. Wind and solar PV were about 77 percent of all new renewables and each set capacity growth records. By the end of 2015, renewable capacity was an estimated 23.7 percent of global electricity.
ESTIMATED RENEWABLE ENERGY SHARE, END-2015 Renewables account for 23.7% of energy production.
Non-renewables
76.3%
Wind
3.7% Hydro
16.6% Renewables
23.7%
Bio-power
2.0%
Solar PV
1.2%
Geothermal, CSP and ocean
0.4% Based on renewable generating capacity at year-end 2015. Percentages do not add up internally due to rounding. / Source: Renewables 2016: Global Status Report, REN21
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www.breakbulk.com BREAKBULK MAGAZINE 17
cover story
HYDRO AND GEO
GLOBAL RENEWABLES INVESTMENT, 2015 The heaviest investment is in solar power.
US$81B
Solar Power
US$80B US$42B
Wind Power Biomass and Waste-to-Energy Small Hydro Biofuels Geothermal Power Ocean
US$3.9B
US$2.1B US$0.1B
US$3.8B
US$2.1B US$1B US$0.7B US$1.3B US$0.2B US$0.03B
US$67B
+4%
-42% -29% -35% developed countries
-23% -42%
developing countries *change relative to 2014
Source: Renewables 2016: Global Status Report, REN21
+12%*
REN21 noted that hydropower, geothermal and some biomass generation has been price-competitive with fossil fuel generation. In 2015, onshore wind and solar PV began to be competitive in resource-rich locations supported by strong policy. Utility-scale wind and solar still dominate but distributed generation is growing. “Bangladesh is the world’s largest market for solar home systems, and other developing countries (for example, Kenya, Uganda, and Tanzania in Africa; China, India, and Nepal in Asia; Brazil and Guyana in Latin America) are seeing rapid expansion,” REN21 said. Renewables were an estimated 4 percent of global transportation fuels in 2015, with liquid biofuels leading. Bioenergy production grew 8 percent in 2015 but remains challenged by low oil
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ISSUE 2 / 2017
prices and policy uncertainty. Advanced biofuels are moving toward commercialization. Global geothermal capacity grew by about 315 megawatts in 2015 to a cumulative capacity of 13.2 gigawatts, but it remains challenged by high project development risks and costs. Led by China’s 16 gigawatts, the world hydropower industry added 28 gigawatts to reach an estimated cumulative capacity of 1,064 gigawatts, but droughts in the Americas and Southeast Asia limited output. Constrained by financing, the global ocean energy capacity of 530 megawatts did not increase in 2015; ocean energy remains largely in the project demonstration stage. Solar PV added a record 50 gigawatts in 2015, a 25 percent year-on-year growth rate that raised cumulative
global installed capacity to 227 gigawatts. China, Japan and the U.S. led, and 22 countries reached the 1 percent of total generation mark. Italy reached 7.8 percent, Greece got to 6.5 percent, Germany was at 6.4 percent and there were emerging markets on all continents. Concentrating solar thermal power installation moved to developing regions with limited grid access where thermal storage capability is of greater value. New projects went online in Morocco, South Africa, Israel, Chile, Saudi Arabia, China and India. Global investment in renewables grew 5 percent year over year, to reach a record US$285.9 billion in 2015, while investment in new renewables for electricity generation reached US$265.8 billion, more than twice the US$130 billion invested in new coal and natural gas generation capacity.
Investment in solar grew 12 percent year-on-year to US$161 billion, which was over 56 percent of total new renewables investment. Investment in wind grew 4 percent to US$109.6 billion, over 38 percent of the total. China, India, Brazil and other emerging economies invested US$156 billion in renewables. China’s US$102.9 billion was 17 percent of that 19 percent year-on-year growth and was 36 percent of the total global investment. India, South Africa, Mexico and Chile upped their investment in 2015 and Morocco, Uruguay, the Philippines, Pakistan and Honduras each invested more than US$500 million. BB Herman K. Trabish is a veteran reporter and regular contributor on energy generation, transmission and policy.
www.breakbulk.com BREAKBULK MAGAZINE 19
shipping trends
THE RELIABLE PERFORMER Evolution, Not Revolution For MPVs
BY CARLY FIELDS
A
s designers of other types of ships salivate over the imminent – so they would have you believe – arrival of automated ships, multipurpose ships are undergoing a more modest revolution in design. While crewless multipurpose ships, or MPVs, remain a world away, innocuous tweaks to turbocharge cargocarrying capacity, and little touches that make MPVs ready for whatever the future may hold, demonstrate that this understated workhorse of the ocean shipping industry still has more to offer. With marine fuel costs eating up the second-largest share of operating costs
after crewing outlay, this is unsurprisingly an area ripe for the reimagining of MPV designs. Liquefied natural gas, biofuels, hydrogen, wind, solar, even waste – all of these energy sources are looking to eat into the dominance of the bottomof-the-barrel fuel that ships currently burn for power. While conversations about alternative fuel sources are not new, there’s a fresh urgency to them to address the 2020 deadline for all trading ships to be burning fuel with a sulfur content no greater than 0.5 percent mass/mass. At the moment, the limit is 3.5 percent, apart from in specified emission control areas which already have stricter sulfur content rules. Jost Bergmann, business director MPV, Ship Segments, DNV GL, recognizes that
MPV owners and operators are increasingly discussing different options for ship propulsion. Liquefied natural gas, or LNG, as a power source has been a talking point for at least 10 years, but real progress has been slow. “There was a lot of hype around LNG fuel maybe two or three years ago, but we have since realized that LNG fuel is not coming as quickly as we expected,” Bergmann said. There is also a practical reason why LNG might Jost Bergmann not be the answer to lowering emisDNV GL sions and fuel optimization for MPVs. “With MPVs, trade patterns can restrict the bunkering options available, so while LNG might be available in the load port in the developed country, it may not be available in the discharge port in the developing country. Added to which, LNG fuel takes up space – almost double that of conventional fuels – space that is at a premium for ships carrying project cargoes,” Bergmann said.
A wide range of cargo types mean that MPV design needs to be flexible and adaptable. Credit: DNV GL
20 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
shipping trends
One solution that might be more applicable to MPVs is fitting battery packs to reduce the need for auxiliary engine-generated power. “Combining the auxiliary generators with a larger pack of batteries could be a clever idea for peak shaving, where the peaks in the power demand could be compensated by a battery pack,” he said.
SAFETY FIRST FOR EVERY FUEL With hydrogen fast becoming the only conversation of worth when it comes to discussing the next big thing in fuel choice for ships, thoughts have quickly turned to safety. How robust is this new school fuel in comparison with current fuel sources and future ones, such as liquefied natural gas? Kris Hyde, technology manager at hydrogen fuel cell specialist ITM Power, explained that beyond the hype, it must be remembered that all fuels are a store of energy, and as such have the potential to release that energy in an uncontrolled way. If a pipe carrying fuel on board an MPV is compromised, LNG will leak and then vaporize. When at the same temperature as air, it is about half the density, so is buoyant. However, LNG is cooled to about -256 degrees Fahrenheit, and the vaporization will cool it further, meaning that the escaped gas will be very cold, making it denser than air. That gas will then spread along the compartment or the deck looking for an ignition source. If a pipe containing hydrogen is damaged, the pressurised hydrogen will spring a long jet from the leak point. If it is unlucky enough to be pointing at an ignition source, it will ignite. Otherwise, it will rise very rapidly – it is 14 times less dense than air – and disperse rapidly. That said, hydrogen has a lower ignition energy than LNG, so it needs less of an ignition source to light it. “Thus, indoors they are probably broadly similar. Outdoors, hydrogen would probably be better,” Hyde said.
Credit: Shutterstock
TIME FOR HYDROGEN TO SHINE
While LNG was once the sole topic of propulsion-related conversations, hydrogen is fighting for greater exposure. Combining hydrogen and oxygen to produce electricity, hydrogen fuel cells offer eco-friendly ship propulsion without the need to burn anything. Late last year, cruise ship operator Royal Caribbean said it would test fuel cells as a supplemental energy source aboard an existing ship in preparation for use on its next, new class of ships, due for delivery in 2022 and 2024. On a smaller scale, Norway’s Fiskerstrand Holding AS is working on a hydrogen-powered ferry, which it anticipates will be ready by 2020. Hydrogen is certainly a viable alternative fuel for MPVs. Kris Hyde, technology manager at ITM Power – a company that specializes in hydrogen fuel cell products – explained: “If one makes the assumption that diesel oil will eventually be phased out due to CO2 and particulate emissions problems, then there are three alternatives: “1) LNG: It will significantly improve the particulate emissions, but will do little for the CO2 emissions. “2) Batteries: These will solve both of diesel’s problems, but the range is terrible with them. Plus, you have a long ‘refuel’ time. “3) Hydrogen. This will solve both of diesel’s problems, and provides a range far in excess of batteries, with a refuel time comparable to diesel.” In addition to the pressing 2020 sulfur cap deadline, there is also the threat of banning diesel use in cities,
which would impact ports and dictate what ships could burn nearer to land. “Inland ports will probably be the first (London, Paris etc.), but the large seaports will eventually follow,” Hyde said. “There is no doubt that any ban would need to be phased, so perhaps 10 to 20 years for diesel oil to be phased out. However, as part of the ban, one would assume new vessels would need to comply in a shorter time frame.” Once the impetus is there, hydrogen could become as popular as gasoil and distillates are now. “The only other zero carbon fuel with a decent range is nuclear, and experiments with civil nuclear powered ships haven’t been very successful. I’m not sure there are many other fuel options. Thus, it is certainly possible that it will become as popular,” Hyde said.
WASTE FOR FUEL
Stuart Bradley, offshore renewables – strategy manager at the Energies Technology Institute, or ETI, pointed to another technology that has merit for MPV use: waste heat recovery, or WHR, using the Organic Rankine Cycle. “It’s a wellknown method of increasing the efficiency Stuart Bradley of industrial processes by Energies Technology converting low- Institute grade heat into useable electrical power, and has been widely used in chemical plants and power generation onshore for years,” Bradley said. ETI is working on the introduction of WHR for large vehicles such as construction trucks and heavyduty vehicles, but to date it hasn’t made inroads to the marine industry. Bradley believed that was due to several reasons. “In my opinion, the cost benefit isn’t clear; there is a lack of financial information; a risk with ISSUE 2 / 2017
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shipping trends
technology; little market pull; complexity for retrofits; a lack of automation; limited training and a reluctance from ships’ staff to use it.” In response to those hurdles, ETI has launched a project that aims to develop and demonstrate a WHR system for ships that could deliver fuel efficiency savings of at least 8 percent. UK-based Avid Technology will lead the £3.6 million project to create a cost-effective WHR system for use across all types of ships, including multipurpose. The goal is to install the system on an offshore support vessel by end of 2018, followed by six months of testing. ETI has another project on the go, supporting Europe’s largest propeller and stern gear producer, Teignbridge Propellers International Ltd., in its design of a High Efficiency Propulsion System for ships, which aims to reduce fuel consumption by about 8 percent. This two-year project plans to develop a commercially viable system that can be retrofitted to a variety of vessel types.
FLETTNER ROTOR
ETI spokesman Nigel Richardson explained that ETI issues requests for proposals on individual projects and invites organizations or consortia to bid to take part, making targeted investments in technology projects. “However, we are unlikely to be launching any further projects in the immediate future,” he said.
MAKING USE OF WIND
Flettner rotors are enjoying a renaissance, having first appeared on ships in 1824. Anton Flettner’s concept used the Magnus effect in spinning bodies in vertical cylinders to produce lift and propulsion for ships. While his prototype produced good results, low fuel costs at the time meant that there was little interest in what was a comparatively expensive method of propulsion. Fast forward to today and while fuel costs are still not prohibitively high, pressure on reducing emissions has given Flettner’s rotors a new lease of life. Maersk Tankers, Norsepower, ETI and Shell are collaborating on a project to test the claimed fuel consumption savings from use of Flettner rotor sails on a 109,647-deadweight-tonne product tanker. Marking the first installation of wind-powered energy technology on a product tanker vessel, the rotor sails will be fitted during the first half of
2018, before undergoing testing and data analysis at sea until the end of 2019. The two 30-meter-tall by 5-meter-diameter Norsepower Rotor Sails are expected to reduce average fuel consumption on typical global shipping routes by 7 percent to 10 percent. The project is majority funded by ETI with contributions from Maersk Tankers and Norsepower. Andrew Scott, program manager HDV marine and offshore renewable energy at ETI, said that Flettner rotors have the potential to reduce ship fuel consumption “substantially, especially on tankers and dry bulk carriers.” MPVs are included in the dry bulk carrier sector in ETIs calculations. Scott pointed out that Flettner rotors were one of the few fuel-saving technologies that could offer doubledigit percentage improvements, but to date there has been insufficient full scale demonstrations on ships to prove the technology benefits and operational impact. A full-scale demonstration could soon be available for MPVs: Dutch shipping company Switijnk contracted architects to develop a Flettner rotor-equipped, 8,000 dwt MPV in September 2016. To be known as the Flettner Freighter, the MPV will employ two rotor sails of different dimensions to create propulsive thrust. However, the vessel is still at the concept
THRUST High windspeed = lower pressure
WIND
Slow windspeed = higher pressure
The rotor sail operates via the Magnus effect. When wind meets the spinning rotor sail, the air flow accelerates on one side of the sail and decelerates on the opposite side. The difference in the speed of the air flow results in a pressure difference, which creates a lift force that is perpendicular to the wind flow direction. Source: norsepower.com
24 BREAKBULK MAGAZINE www.breakbulk.com
Flettner rotors utilizing wind power are being trialed on a Maersk product tanker. The findings will be useful for the MPV sector. / Credit: Maersk Tanker ISSUE 2 / 2017
shipping trends
stage and there’s no official timescale for its construction. While the rotors might have potential, Nicolas Breiding, head of research at Toepfer Transport, downplayed the suitability of Flettner rotors for geared MPVs: “Flettner rotors are always rotating, so if you have vessels with gear this could interfere with this.”
OPTIMIZING CARRYING CAPACITY
With the increasing size, weight and awkwardness of project and breakbulk cargoes, carrying capacity is another design area that is often challenged by MPVs owners and operators. Here, the wind turbine industry is playing a significant role in shaping future ship designs to deal with increases in weight and length of blades and component parts. The largest blade is currently 88 meters
26 BREAKBULK MAGAZINE www.breakbulk.com
in length, but the expectation is 110 meters before long, and even up to 130 meters in the not-too-distant future. “The question is what do MPV vessels have to look like to carry these types of blades in hold?” asks DNV GL’s Bergmann. “Only a dozen or so MPVs today have cargo hold lengths of more than 100 meters; the majority have much less than this.” He added that moving the accommodation section forward is becoming more and more commonplace for project carriers, as that affords them a huge, nicely protected deck and cargo hold area behind. “From my point of view there’s a lot of very advanced designs out there already which in a way are flexible, efficient, and also take into consideration risk coming from advanced project cargoes. But there are also many standard vessels which look very similar to the designs we had maybe 20 years ago. The question is what
is it the owner wants to do with their vessels? You also have to consider that what is good for one owner, is unnecessary for another. Some liner operators use project cargo as a filler to their baseload lots. Therefore, that type of operator requires higher segregation in the cargo hold.” Increasing the flexibility of cargo carrying capacity is also sought after: more practical arrangements of ’tweendecks, fitting of ramps to handle extra-long cargoes, capability to submerged or semi-submerge for loading – all these bring benefits and the potential to raise income.
OUT OF REACH
But until the market makes a decisive turn for the better, many of these technologies will remain tantalizing out of reach for multipurpose ship operators. Toepfer Transport’s
ISSUE 2 / 2017
Breiding, said: “In the multipurpose market, we have virtually no activity at the moment, and I don’t think this will change for the foreseeable future because the market is so bad.” While some owners might have got as far as discussing designs for new ships, innovation rarely tops the wish list. “Usually MPV operators are very conservative and, unlike the container sector, newbuild series are small so price is the main concern. I don’t think MPV owners are really keen to make big investments in new designs; I don’t expect any big innovation,” Breiding said. Indeed, the latest innovation in MPV ship design was the F500, first ordered in 2015 and simply an optimization of the ubiquitous F-type. More of a gradual evolution of design than a revolution. “Ship owners might have ideas about new designs, but somebody has to pay for that. With so many modern vessels for sale at very low prices, owners will not place new orders unless they have a specific trade in mind,” Breiding said. The halfway house is DNV GL’s “ready concept,” where owners and operators can design a ship to be ready for a future technology without paying the hefty price tag for that technology at the design stage. Some examples of this applicable to MPVs include “dynamic positioning ready” and “crane ready.”
dardized cargo, but still MPVs will not blaze a trail. Instead, expect them to be begrudgingly dragged along an automation path, forged by the container ships of the future. BB
Carly Fields has reported on the shipping industry for the past 17 years, covering bunkers and broking and much in between.
SHIPPING as
EASY AS A
Southern Breeze.
NOT A CANDIDATE FOR AUTOMATION
While autonomous ships are on the horizon for ships carrying standardized cargo – such as containers, bulk and liquid – it’s a different story for MPVs. With cumbersome cargoes, specialized longshoremen are needed in port to handle the cargo, while the MPV crew will need to manually check and tighten or refasten lashings and fixings during the voyage. “You have many different kinds of cargoes on MPV ships: yachts, engines, generators and so on – you need a lot of expertise to handle this kind of cargo,” Breiding said. On the heavy-lift vessels, which carry demanding project cargoes, autonomy just isn’t an option, Bergmann added. “These vessels need higher attention and higher skills for their complicated operations.” However, he believed that automation might be more easily achievable for smaller MPVs carrying more stan-
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www.breakbulk.com BREAKBULK MAGAZINE 27
executive summary
BY SUSAN OATWAY
Credit: Shutterstock
FUNERAL MARCH Days Are Numbered For ‘Simple’ MPVs
A
year is a long time in this industry – and 2016 felt like one of the longest. The market started 2016 with some expectation of growth, but this was quickly eroded as rates fell over the summer months until some carriers could take no more. The impact of Hanjin filing for bankruptcy in August 2016 should not be underestimated. If one of the largest carriers in the fleet can be lost, what hope for the independent owner? For shippers, it meant that the necessity of carrier vetting became as real as ship vetting, as a number were left with cargo on vessels that had been arrested or refused entry to ports to discharge. It became apparent that chasing the lowest possible price was not the best option if the carrier could not guarantee delivery. All of that notwithstanding, at Drewry we do believe that the end to this particular recession is in sight. We can see some signs of recovery and we are optimistic about the medium term, albeit that optimism is still subdued. We have just finished Drewry’s Multipurpose and Heavylift Annual Report, and 28 BREAKBULK MAGAZINE www.breakbulk.com
in it detail the reasons for this subdued optimism. This year started on a slightly better note, rates and demand prospects have started to improve and fleet supply is stable, so what of the detail?
The competition from bulk carriers and container lines is exacerbated by roll-on, roll-off vessels and pure car and truck carriers. CARGO DEMAND GROWTH
Drewry estimates (through provisional World Trade Organization data) that global general cargo trade increased 1.5 percent compared with 2015, while dry bulk cargo increased about 1.2 percent and container cargo 1.3 percent over the same period. We expect to see general cargo
demand grow about 3 percent per year over the next two years, while dry bulk demand will grow at nearer 2.5 percent per year. But it is the market share that is more important to this sector. The competition from bulk carriers and container lines is exacerbated by roll-on, roll-off vessels and pure car and truck carriers. Drewry assesses how each of these sectors is performing and where their cargo base is. We assess the modal split of some 35 different dry cargo commodities to determine how market share is made up. The forecast for multipurpose, or MPV, ship market share is then derived from volumes attributed to these other sectors of the market. Drewry calculates that following the significant losses to MPV market share seen in 2014, there was some recovery over 2015, but this was eroded slightly in 2016 with a drop of 0.1 percent. Going forward, Drewry expects market share to improve over the medium term as volumes improve and the competing sectors start to see improved rates in their more traditional cargoes. On the other side of the equation is the supply of vessels. As of Jan. 1, 2017, this ISSUE 2 / 2017
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executive summary
fleet numbered 3,256 vessels, amounting to slightly more than 29.9 million deadweight tons compared with 3,249 vessels amounting to 29.7 million dwt in January 2016. The simple MPV fleet, those vessels with lift capability of less than 100 tonnes, declined 0.2 percent in deadweight ton terms over the year, while project carriers grew 1.8 percent.
SHIP SUPPLY BALANCE
Meanwhile, the order book had just 94 vessels on its schedule at the start of the year, amounting to 1.2 million dwt. This was a decrease of 28 percent in deadweight ton terms over the year, but came as no surprise when new orders had fallen to just 107,000 dwt. Demolition activity was equally as subdued, despite the continued weakness in the market. Just over a half-million dwt was sent to the beaches in 2016, a similar level to that seen in 2015. In both the new building orders and the demolition activity there is, however, a big difference between simple MPV and project carriers. Over the last five years the percentage of project carriers being delivered to the fleet has risen to an average 58 percent, however in 2016 a staggering 93 percent of all new buildings had heavy-lift capability, sounding a death knell for the simple MPV fleet. With about 63 percent of the order book declaring heavy-lift capability, the future decline of the MPV section of the fleet is almost assured. There is very little, if any, new investment in this sector with
HANJIN COLLAPSE MARKED BOTTOM OF MARKET Estimated time charter rates in USD/day in 2016 8,000
5,000-7,000 dwt
10,000-15,000 dwt
15,000-20,000 dwt
20,000+ dwt
7,000 6,000 5,000
Hanjin declared bankruptcy Aug. 31
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Drewry Maritime Research
those new orders without lift capacity seen as simple replacements for an aging fleet. In contrast, the new orders for project carriers are, in a lot of cases, additional vessels to a growing fleet. Owners are taking significant decisions to build higher specification vessels to give them an advantage in the appalling market. Drewry makes assumptions for new orders and demolition levels going forward, and produces a fleet development figure. Not surprisingly, we believe that the simple MPV fleet will decline as the project carrier fleet grows. With demand growing and supply falling, in one sector at least, the supplydemand balance should be leveling out. Money for new investment is scarce, even with an improved outlook, and this will help to restrain new ordering and start to correct the oversupply situation – not just in the MPV sector but also in the competing ones.
BETTER PARITY IN FLEET PROFILE
The bulk carrier and container sectors will benefit from their own supply slowdown, coupled with the improved prospects for dry cargo demand. Although we do not expect to see any let up in the competition from these sectors, we do expect to see MPV market share improving, if only on the back of improved volumes. For the most part, we expect to see only a slight improvement in the market over 2017 with freight rate rises gathering momentum after 2018. For the larger sectors, which have a bigger correlation to handysize bulk carrier freight rates, there could be a more significant uptick in 2017 before rates settle over 2018. BB Susan Oatway is an associate at Drewry Shipping Consultants. This article is based on data from Drewry’s Multipurpose and Heavylift Annual Report 2017.
By vessel type, Jan. 1, 2017 (‘000 deadweight tons)
2,500 multi-purpose (no gear)
2,000
multi-purpose heavy lift cargo vessel project carrier
1,500
premium project carrier
1,000 500 0
<1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Drewry Maritime Research 30 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
carrier profile
Grieg Star
Gearbulk
BETTER TOGETHER G2 Ocean’s Marriage of Minds
T
his is not a market for flying solo – the bankruptcies of the past year have proved that. Rather, this is the age of collaboration, an easier-to-swallow pill to “fix” the vagaries of a market oversupplied with ship tonnage and undersupplied with decent breakbulk and project cargoes. Joint ventures, strategic partnerships, combined fleets … all different nomenclatures for the same thing: collaboration to keep the wolves from the door, and to capitalize on the economies of scale that a super-sized fleet can offer. Gearbulk and Grieg Star – both veterans of the breakbulk and dry bulk world in their own rights – announced their intention to bring their 32 BREAKBULK MAGAZINE www.breakbulk.com
BY CARLY FIELDS
fleets under one commercial umbrella late last year. With the blessing of the U.S. Department of Justice given on Feb. 21, the joint venture crossed its final regulatory hurdle, having already received the necessary antitrust approval from Poland, Germany and Brazil. Full operations are expected by July this year. The joint venture will merge the companies’ global resources and expertise to operate a combined fleet of open-hatch, semi-open-hatch and conventional bulk vessels. It is jointly controlled by Gearbulk, with a 65-percent stake, and Grieg Star, with the remaining 35 percent. The combined fleet totals about 130 ships. Technical ship management responsibilities and ownership of ISSUE 2 / 2017
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carrier profile
the fleet will remain with the independent companies – the agreement just covers commercial management. Five directors will sit on G2 Ocean’s board, three appointed by Gearbulk and two appointed by Grieg Star. Gearbulk CEO and Chairman Kristian Jebsen chairs the board, with Grieg Star filling the vice chair seat. Any obligations under existing contracts will be honored and fulfilled by the joint venture. Rune Birkeland takes on the role of CEO, while Rune Birkeland Arthur English Arthur English will be G2 Ocean’s CCO. Birkeland was CEO of Grieg LogisG2 Ocean CEO G2 Ocean CCO tics, a position he held since 2005. Educated at the Royal Norwegian Naval “We have split the commercial manAcademy and with a degree in business agement group into three parts, with the administration from the Norwegian local offices reporting to these three,” School of Business Administration and Birkeland said to Breakbulk. While the Economics, Birkeland was appointed total number of local offices servicing G2 director of the board of Grieg Star in Ocean is still under discussion, BirkeDecember 2015. land estimated that there will be about English is also a veteran of his 15. Gearbulk currently counts 13 offices respective company, having worked for around the world, while Grieg Star holds Gearbulk for 22 years 14, potentially meanin locations including ing that some regions “Now we roll up the UK, Singapore, will be overserved South Africa and while others might be our sleeves and Dubai. A Fellow of the underserved without continue the hard a reshuffle under the Institute of Chartered Shipbrokers, English new brand. Birkeland work. Our goal sits on the boards of believes that on balis still to create several of Gearbulk’s ance there will be a a world-class companies. net effect to the head Birkeland said that shipping company and office count. they had anticipated “All in all, in some for the future.” that antitrust regulaoffices there will be tion approval would more people and in – Rune Birkeland, be granted, but it was other offices there G2 Ocean CEO still “received with will be less,” he said. joy. Now we roll up “Some offices will our sleeves and continue the hard work. close, while others expand. We would Our goal is still to create a world-class have had to do this exercise anyway in shipping company for the future.” response to the current markets, so it might have actually been worse in terms DIVIDING RESPONSIBILITIES of laying off employees.” Established as an independent NorG2 Ocean’s overarching vision and wegian company with headquarters in mission is to offer “pioneering sustainBergen, Norway, G2 Ocean has divided able shipping solutions. For shipping, the world into three: Europe and North sustainability goes hand in hand with America; South America; and Asia. Grieg being competitive,” Birkeland said. Star’s Annette Thuen Hansen takes the “When we say sustainable, we think role of vice president for the first, Gearabout doing the right things over the bulk’s Carla Pontes oversees the second, long term, and not only for the environand Gearbulk’s Simon Baker will cover ment.” Just 10 years ago, a client might Asia from the base in Singapore. Grieg have said that the environment was Star’s Petter Mowinckel will be vice important to them, but would not have president for conventional bulk. been happy to pay a little more to protect 34 BREAKBULK MAGAZINE www.breakbulk.com
it. “Today, I think some clients are now willing to take on that responsibility and pay for it,” he said.
KEEPING IT REAL
In the specialized open-hatch sector, G2 Ocean holds nearly half of market share, but admits to being “small fish” in the overall breakbulk industry. The pair are realistic about future market prospects, and not distracted by tentative encouraging signs with spot, period and vessel values all increasing. “Prospects are turning a little more positive now: it is better this year than it was the same time last year, and than the year before,” Birkeland said. But it’s still early days, added English. “We are expecting some volatility in 2017 and a better 2018-2019. “The market is tough and many carriers are fighting for cargo while experiencing low or negative returns,” he said. “In G2 Ocean there is an industrial customer focused mind-set. We value our customers, and through the enlarged pool of vessels and routes feel we are well placed in many cases to offer our customers greater geographical coverage with higher frequency, a greater choice of vessel type and reduced inefficiencies through, for example, cutting ballast legs and waiting time, proactive cost management and increased organizational efficiency.” The combined fleet also offers improved flexibility with more ships available if there’s a problem. G2 Ocean plans to capture more market share in the current conditions partly by tailoring its offering to customer requirements through the optimal allocation of the G2 Ocean fleet and partly by leveraging off the existing strong Gearbulk and Grieg Star platforms. “We see some clear opportunities through, for example, leveraging off Grieg Star’s project cargo platform and Gearbulk’s bulk parcel platform,” English said. With the evident synergies, could G2 Ocean be the first step to a full-scale merger of the two companies? Birkeland refuses to speculate, saying only that the decision is not his to make. “It’s not something we have to do,” he said. BB Carly Fields has reported on the shipping industry for the past 17 years, covering bunkers and broking and much in between.
ISSUE 2 / 2017
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WELCOME TO TOMORROWLAND Test City to Generate Logistics Demand BY PAUL SCOTT ABBOTT
A
different kind of ghost town is about to rise from the desert in the American West, to be inhabited not by restless spirits of defeated gunslingers, but rather by the likes of experimental robots. And, as plans advance for development of an expansive US$1 billion test city in the New Mexico desert, opportunities – and challenges – abound for movers of a broad spectrum of project cargoes.
“With something that’s this big, the success is really going to come down to logistics,” said Robert H. Brumley, senior managing director of Washingtonbased Marble Arch Partners LLC, the private technology Robert H. development firm Brumley creating the Center for Innovation, Marble Arch Partners Testing and Evaluation, or CITE. To cover 33 square miles on either side of Interstate 10 about 30 miles west of Las Cruces, New Mexico, the CITE
City Labs project will replicate an ultrahigh-tech American city with 35,000 residents. But plans call for the test city to be unpopulated aboveground, except for robots. “To fully appreciate the scale and scope of the project, thus its transportation needs, one must consider the challenges and opportunities of building sufficient infrastructure and underlying operating systems to support a typical American city of 35,000 – from scratch: Huge,” said Brumley, an attorney and retired U.S. Marine Corps lieutenant colonel who has been engaged with the project since it began being discussed in 2010. Brumley has extensive experience with leading-edge ventures. He served as chief legal officer and senior policy
ABOVE: Although unpopulated, the Center for Innovation, Testing and Evaluation’s City Labs project is to incorporate a full contingent of leading-edge infrastructure, all to be built from scratch on 33 desolate acres. / Credit: Marble Arch Partners 36 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 1 / 2017
innovation
adviser at the U.S. Department of Commerce in the Reagan administration, chairing the policy group that privatized commercial space transportation. In the first decade of the 21st century, he was president and CEO of TerreStar Corp., a pioneer in mobile satellite and ancillary terrestrial telecommunications systems that is now part of Dish Network.
IMMENSELY IMPRESSIVE
Yet even Brumley is impressed with the immensity of what is to be the world’s largest-scale testing and evaluation center, calling CITE “the Manhattan Project being built in the New Mexico desert.” “Nothing has been built in the U.S. of this scale and scope since the Manhattan Project during World War II,” Brumley said. Whereas the Manhattan Project, headquartered in Oak Ridge, Tennessee, with the New Mexico desert among test sites, produced the first nuclear weapons, the stated intent of CITE is to provide testing grounds for a vast array of innovative technologies from the world’s public laboratories, universities and the private sector. “We’re literally building an American city right out of the desert,” Brumley said. “That’s a lot of steel, a lot of houses,
Deming
CITE location Santa Teresa El Paso
a lot of plumbing. The size of the project is really the challenge.” Marble Arch Partners, known until September 2016 as Pegasus Global Holdings LLC, has already lined up more than 300 vendors registered to bid on provision of goods and services for CITE, according to Brumley. He said three prime contractors are in the fold – one each for architecture and engineering, design-build construction, and operations and maintenance – but he declined to name the companies for “proprietary” reasons.
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Las Cruces
An industry day, delineating opportunities related to CITE, is slated to be held some time late in the second quarter of 2017, with plans to award initial contracts for roadwork and ground clearing – and for cargo to begin moving into the CITE site – in the third quarter.
BILLION-DOLLAR ENDEAVOR
Core infrastructure construction activities, employing as many as 4,000 workers, are targeted to span four or more years, at a cost of about US$600 million, with about US$40 million per year for 10
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a remote area, driverless vehicles could be used for deliveries, which could save cost and time. Additionally, drones could make deliveries – and eventually larger drones capable of carrying more weight could be able to deliver supplies for construction projects like this, too. Bottom line: This area is going to be a test bed for futuristic technologies, so it’s well worth utilizing some of the existing, innovative tech we have now to maximize efficiency.”
BASICS REMAIN VITAL The Center for Innovation, Testing and Evaluation, a high-tech test city capable of sustaining 35,000 residents – but designed to have no human inhabitants – is to soon rise from the New Mexico desert. Credit: Marble Arch Partners
succeeding years anticipated to go into additional infrastructure, according to Brumley, hence the US$1 billion project figure quoted by New Mexico Gov. Susana Martinez. In addition to the test city itself, plus underground lab facilities, plans call for a 200,000-square-foot research center, built to platinum-level Leadership in Energy and Environmental Design standards of the U.S. Green Building Council, to serve as the focal point for public visitation and participation with the City Labs. “Since virtually everything must be located, transported, delivered, built, installed and interconnected, all raw and finished materials, including construction equipment, cranes, earth movers, technology, appliances and building materials, must be brought into the area,” Brumley said. While details such as whether to erect an on-site concrete batching plant or bring materials to CITE when and as needed have yet to be worked out, Brumley said a critical element of logistics will most certainly involve cost effectively getting cargoes to the site. Direct property access is to come via an improved service road connecting to a cloverleaf on-off ramp to be built along I-10, according to Brumley. He noted that a rail spur off the Union Pacific Railroad mainline comes within 3 miles of the location, which is about 45 miles via rail 40 BREAKBULK MAGAZINE www.breakbulk.com
or back roads or 75 miles via major highways northwest of the UP’s intermodal hub in Santa Teresa, New Mexico. Also, international airports at Las Cruces and El Paso, Texas, are, respectively, about 30 miles and 85 miles away from the CITE site. Foreign-Trade Zone No. 197 sites adjoin the UP intermodal hub and the Las Cruces airport.
FUTURISTIC TRANSPORT
Asked his thoughts by Breakbulk, Bob Collins, senior director of professional development at APICS, the Chicagobased global supply chain education organization founded in 1957 as the American Production and Inventory Control Society, said road and rail links will be crucial – and may be augmented by more futuristic transport means. Bob Collins “Since there is no current infrastrucAPICS ture, developing roads from the highway and the rail line spur will be among the first tasks,” said Collins, who has more than 25 years of experience as a supply chain practitioner and consultant. “However, although larger in scope and more remote, the logistics are not that different from building a new subdivision from scratch.” Collins suggested that leading-edge transportation technologies could also come into play. “What could make this project more interesting would be to use new technology out of the gate,” he said. “Since it’s in
Nonetheless, from a logistics perspective, it is important not to forget the fundamentals, cautioned Collins. “This project might be the height of innovation, but effective forecasting, planning and inventory management still need to be at the forefront,” he said. “Ensuring your supply chain team is prepared and educated so they can execute a modern, smart supply chain strategy is a key piece of preparation.” Collins said he sees benefits to starting with a proverbial blank canvas. “A big advantage is there is no burden of old infrastructure that may not fit today’s regulations or corporate social responsibility requirements,” he said. “A city built from scratch is an amazing opportunity to get things right – from sourcing of materials, to worker safety, to climate protection.” In fact, Brumley concurred that the CITE project is likely to furnish opportunities to deploy transportation innovations. Brumley said that, in addition to alternative power generation, smartgrid, telecommunications and security infrastructure, intelligent transportation systems are apt to be tested at the CITE site. He said inquiries already have been received from entities looking at automated and manned lighter-than-air ships for moving cargo, unmanned trucks and trash removal vehicles, and robotic freight-moving systems. “New methods and vehicles,” Brumley concluded, “will all be candidates for testing.” BB A veteran transportation writer for the past 40 years, U.S.-based Paul Scott Abbott specializes in maritime topics.
ISSUE 2 / 2017
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BY THOMAS TIMLEN
A BETTER WAY TO FIX Advantages of Choosing the Right Contract
W
ith a suite of legally sound bespoke contracts available from BIMCO, all wellknown and well-used among the heavy-lift and project cargo sector, one could assume that there is universal confidence towards utilizing them. The advantages are clear and numerous; sound language to reduce disputes, attention to the detail required for specific operations, regulations and liabilities to name a few. Yet in some regions there remains a degree of hesitation. Operators speaking with Breakbulk said that in Asia many local companies won’t use contracts such as HEAVYLIFTVOY, as they find it too long and complicated to understand without proper training. Murali Pany, managing partner at Joseph Tan Jude Benny LLP, Singapore, has witnessed the same. “In the course of commercial operations, parties often do not enter into a proper contract nor choose the simplest standard form contract available. A variety of reasons are usually advanced for this such as the need for speed or practicality,” Pany explained. “However, the importance of entering into an appropriate contract for a particular engagement cannot be overstated. This is an
essential step in risk management as the rights, obligations and remedies of a party will be determined by the contract. Taking shortcuts will likely lead to grief if a dispute occurs in terms of higher legal costs and possibly losing the case,” he said. Murali Pany Claims that there is a scarcity of Joseph Tan Jude Benny LLP appropriate contracts have little merit as many are available, including HEAVYCON 2007, HEAVYLIFTVOY, PROJECTCON, SUPPLYTIME, WINDTIME, and BARGEHIRE.
SIGN ON THE LINE
Beyond the question of availability, ensuring that the most appropriate contract is used can be a challenge. Simon Liu Zhuo, commercial manager at Hansa Heavy Lift (Asia) Pte. Ltd, confirmed that the carrier has experience of most of the BIMCO forms, but the challenge comes from the
SAL’s Svenja, fully loaded with six monopiles (two under deck, four on deck), prior to sailing out of Rostock to Belfast. Anneke van Diepen, SAL Heavy Lift general manager for contracts, says that standardized forms have practical advantages for shipping: “For our business, the main contracts in use are HEAVYLIFTVOY and HEAVYCON,” she says, “whereas we typically use SUPPLYTIME for longterm employment and specific project employments.” / Credit: SAL Heavy Lift
www.breakbulk.com BREAKBULK MAGAZINE 43
trade notes
Simon Liu Zhou Hansa Heavy Lift
Anneke van Diepen SAL Heavy Lift
mismatch of the working scope and the contractual forms. “For example, our client may elect to use a SUPPLYTIME contract for a scope of work, which is in essence a cargo transportation, something more suitable for HEAVYLIFTVOY,” he said. “Our client is doing this for his liability management as he may have a knock-for-knock clause in the head contract. When this happens, there is inevitably a contradiction between the international conventions such as the Hague rules, the Visby rules and the Hamburg rules, and the doctrine of knock for knock. The liability schemes are different in nature, governed by different substantive laws.” Anneke van Diepen, SAL Heavy Lift general manager for contracts, points out that standardized forms have practical advantages. “For our business, the main contracts in use are HEAVYLIFTVOY and
HEAVYCON, whereas we typically use SUPPLYTIME for long-term employment and specific project employments. “For HEAVYLIFTVOY and HEAVYCON, we consider both as strong and efficient industry standards by serving balanced negotiations, and at the same time serving the requirements of heavy-lift shipping. These standards are key for our semi-liner business. In certain areas, we have made our own amendments to reflect our specific line of work, but in general both contract formats are well appreciated among our clients and are relatively easy to work with,” van Diepen said. She also comments on the advantages of using bespoke contracts in favor of booking notes. “Approximately 90 percent of our semi-liner business is contracted on HEAVYLIFTVOY. Replacing the Conline Booking Note for this trade, the HEAVYLIFTVOY contract assisted us in making a tremendous step forward in view of market transparency and open negotiations between the carrier and merchant.”
LEGAL BENEFITS CONFIRMED
Indeed, legal experts are in agreement on the advantages of using BIMCO’s bespoke contracts. Pany describes the BIMCO forms as “good standard form contracts catering to specific types of engagements.” This is because the forms have been considered in detail and drafted for the specific engagement. “The key legal, commercial and risk issues have been addressed and balanced
between the parties. The forms give parties options, for example, for dispute resolution, and can also be adapted.” He states that there is little excuse for not making use of these resources as any time, and effort spent choosing and completing the appropriate form is well worth it. The complexity of the contracts is necessary to cover all eventualities, points out Grant Hunter, BIMCO’s chief officer of legal and contractual affairs. “These specialized contracts are certainly more complex than using booking notes, but that is out of necessity. The contracts simply reflect the complexities of the project and heavy-lift trade.” He explains that the continued use of booking notes can create problems that are not fully appreciated until something goes wrong. Booking notes were never designed to be used for this type of work. Hunter said: “When we sat Grant Hunter down to develop BIMCO HEAVYLIFTVOY the people on the subcommittee were all from companies that used booking notes. As we progressed through the draft they all began to realize just how much contractual risk they were putting themselves under by not using an appropriate contract for their business.”
COUNTERING LIABILITIES
The problem identified by HHL’s Zhou of mismatched liabilities served as a key driver in BIMCO’s decision to develop contracts covering the wider scope of a project cargo transport. “We developed the PROJECTCON charter specifically to address the problem of the industry having to rely on several
Simon Liu Zhuo, commercial manager at Hansa Heavy Lift (Asia) Pte. Ltd, confirmed that the carrier has experience of most of the BIMCO forms, but the challenge comes from the mismatch of the working scope and the selected form. Credit: Hansa Heavy Lift
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different contracts for the same project,” Hunter recalls. “A towing contract for the tug, a barge-hire contract for the barge and perhaps a supply time contract to cover the transportation. These three types of contracts generally have different liability regimes, so using a mixture of them can create real problems. PROJECTCON is a hybrid of these forms with a single liability regime that should make it a sensible choice for project cargoes.” Emilie Bokor-Ingram, senior associate at Holman Fenwick Willan LLP, or HFW, agrees that using the correct contract is vital. “When our clients get us involved at the outset of a project, we advise them that the most important consideration is the choice of contract form. The more extensive the amendments that need to Emilie Bokorbe made, the Ingram greater the risk Holman Fenwick Willan of inconsistency or unintended exposure to liability, not to mention the difficulties of getting amendments accepted once your counterparty has a standard wording in mind,” said Bokor-Ingram. Bokor-Ingram’s colleague at HFW, partner Paul Dean adds that the issues regarding liabilities and jurisdiction, identified by HHL’s Zhou, are real. “One of the most common source of disputes in our experience is where parties have tinkered with the knockfor-knock provisions and ended up with unintended consequences,” Dean said. “The effect of a particular wording can also depend on the governing law and jurisdiction: for example, some jurisdictions do not recognize knock for knock, and the term ‘gross negligence,’ which is often excluded from the knock-for-knock regime, does not have a defined meaning under English law, and so would need to be expressly defined in the contract.” 46 BREAKBULK MAGAZINE www.breakbulk.com
A FORM FOR EVERY MOVE Each BIMCO form was drafted with a specific type of cargo or service in mind. Emilie Bokor-Ingram, of Holman Fenwick Willan, explains the differences.
HEAVYCON is designed for the transportation – typically on deck – of heavy cargoes on semi-submersible float-on, float-off vessels. Liability is knock for knock.
PROJECTCON addresses the contractual requirements of a combined tug and barge service for the carriage of a project cargo, eliminating the need to use several contracts to cover a single transportation.
HEAVYLIFTVOY is aimed at heavy-lift operators in the mid-sized, lift-on, lift-off and roll-on, roll-off sectors carrying project cargo both on deck and under deck. The form allows multiple shipments and a range of loading and discharging options, and incorporates a Hague/Hague-Visby Rules liability regime.
SUPPLYTIME is designed for the charter of supply vessels and other vessels providing offshore services on a time charter basis. Liability is knock for knock.
BARGEHIRE is a versatile form, but best confined to its intended use of hiring barges.
WINDTIME is intended for the charter of crew transfer vessels in the offshore wind industry, and can be adapted successfully for other service vessels supporting offshore wind farms. Liability is knock for knock.
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trade notes
KEEPING RIDERS IN CHECK
Another common area of concern are the rider clauses. Here Zhou sees the pros and cons, as rider clauses can be helpful, if carefully drafted. But given the market condition, the rider clauses can be one-sided, or altered into ambiguous wording during the negotiation phase by commercial people that lack proper legal training. HFW’s Dean has seen such examples. “We see many cases where rider clauses have been used inappropriately. From a purely legal perspective, the standard forms are designed to work as they are, without amendments. We appreciate that, in reality, many projects will require bespoke provisions to address project-specific operational matters and to reflect the parties’ respective negotiating power. However, any
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amendments may have a knock-on effect on the parties’ obligations and/or the liability regime.” He advises that parties should therefore be careful of adding riders without obtaining legal advice, either externally or from their legal department. An update to the relevant contract may also negate the need for some riders, although the updating process takes time. A revised SUPPLYTIME – BIMCO’s No. 1 best-selling charter party – will be published in June to better reflect changes in the market and law requirements. SAL Heavy Lift’s van Diepen points out that references to the EU Entry Summary Declaration filing, Himalaya clause, and VoyWar clause, are absent in the current version. “Here, it would be beneficial to update ambiguities within the respective documents. Today, the
standard contract format is amended each time, adding in length to the specific contract,” she said. SAL is also hoping that there will be a possibility for add-on services, aside from supplying the vessel, and that balance of the knock-for-knock provision is re-strengthened in the revised contract. The market will have to wait until June to find out if those user comments have been adequately addressed in the next iteration of SUPPLYTIME. Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry. His career included 17 years with BIMCO, through 2007, including head of maritime security and international affairs.
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RELEVANCE CONTINUALLY CHALLENGED Keeping charter parties up to date is an ongoing challenge. Grant Hunter, BIMCO’s chief officer of legal and contractual affairs, outlines recent efforts and what is in store in 2017:
was spent looking at the knockfor-knock provisions and reducing the number of exceptions. Consequential loss has also been reworded to better reflect the nature of offshore business and the nature of losses excluded.
» BIMCO has made practical
improvements to SUPPLYTIME, and the revisions are due for adoption in June. In the revised form, the balance of responsibilities has been addressed so it should be more appealing to charterers.
» BIMCO has clarified much of what was slightly ambiguous wording in the SUPPLYTIME contract. Early termination provisions particularly have been rewritten. Much time
» Updates to the HEAVYCON bill were published last year to improve consistency with other bills of lading and waybills, without introducing any change of practice. » The recent WINDTIME contract has done very well in the market. Usage has mainly been in the European offshore wind sector and there has been positive feedback from users.
BIMCO expects its use to continue to grow. For BIMCO, this marks a very worthwhile venture into the offshore wind farm sector. » As there have been no industry requests to update or revise the BARGEHIRE 2008 or PROJECTCON contracts, no further work has been done here. » Work has commenced to update and revise the BARECON contract, on which BARGEHIRE is based. Once the new BARECON is approved and released later this year, requests from the barge sector for a parallel revision of BARGEHIRE may follow. BB
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OUT OF SERVICE Overcoming Barriers to Cross-Europe Moves BY MARK WILLIS
T
he European single market stands as the crowning achievement of European integration since the process of deepening economic and political ties between former historical adversaries began following World War II. This success also stands in marked contrast to the European single currency, which has created fissures and antagonism between its member states rather than prosperity over the last decade. As the world’s largest free trade area in which goods can move seamlessly across national borders, unimpaired by tariff and non-tariff regulatory barriers, the single market, regulated by the European Commission executive in Brussels, has led to a dramatic increase in regional 50 BREAKBULK MAGAZINE www.breakbulk.com
trade since its official establishment in 1993. Through enhanced competition generated by the about 21 million small and medium-sized businesses incorporated within the bloc, the reduction of trade barriers has also driven down costs and bolstered the purchasing power of the more than 500 million consumers residing within the single market’s 32 member states.
SERVICES NO BETTER OFF
Yet, notwithstanding its overall success, enhanced regional economic interdependency has removed barriers to trade in merchandise rather than services, with the latter sector still facing a much greater volume of non-tariff regulatory barriers restricting intra-EU trade, despite representing about 70 percent of regional GDP. While trade in goods is regulated by
the European Commission, with firms adhering to a single set of harmonized rules, national governments have managed to retain a large degree of control over the services sector. With regulations sometimes varying significantly between different regional economies, the capacity of firms to operate across national borders remains restricted. In this regard, the single market remains incomplete. “The remaining barriers to (intra-EU) trade are now in the services sectors, and are much more difficult to eliminate, since services are and should be regulated,” was a finding of a February 2017 report co-published by think tanks Bruegel and the French Conseil d’Analyse Economique. “It is estimated that remaining non-tariff obstacles, in particular in services sectors, limit intra-EU trade to a level about four times smaller than the intensity of trade between U.S. states,” the report continued. The incompleteness of the European single market for services, and restrictions that this can present on cross-border business, is no better highlighted than within elements of the project cargo transportation sector, with movement of abnormally large equipment and goods that surpass EU maximum size and weight limits still regulated by national authorities rather than the European Commission.
ABNORMAL DEFINITIONS
According to the European Commission, abnormal road cargo is defined as a vehicle, or vehicle combination, which can only be transported by exceeding at least one of the dimensions and/ or axle, bogie or total weights authorized by EU Directive 96/53. In practical terms, this refers to total vehicle, trailer and load combinations weighing more than 40 ISSUE 2 / 2017
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tons, or with dimensions larger than 16.5 meters by 2.55 meters by 4 meters. With a standard project cargo-carrying truck and trailer weighing about 16 tons, cargoes more than 24 tons therefore usually require a special permit. While firms are not prohibited from moving cargoes across national borders, bureaucracy is enhanced by the need to obtain separate permits for each individual national territory crossed. The European Commission states, however, that permits must be awarded on a strictly non-discriminatory basis. According to the same EU directive, abnormal cargoes may only operate “on the basis of special permits issued without discrimination by the competent authorities, or on the basis of similar non-discriminatory arrangements agreed on a case-by-case basis with those authorities.” In addition to requiring a permit for each sovereign territory through which cargo is transported, operators are also subject to a multitude of different rules, 52 BREAKBULK MAGAZINE www.breakbulk.com
In addition to requiring a permit for each sovereign territory through which cargo is transported, operators are also subject to a multitude of different rules, regulations and procedures.
regulations and procedures, rather than the single set of harmonized rules that have so effectively stimulated intra-EU merchandise trade over the last 25 years. In this regard, the challenges facing transporters of large project cargo goods are reminiscent of the complexities associated with intra-EU trade prior to the single market’s establishment.
ANGLING FOR COMPETITIVE ADVANTAGE?
Requirements for individual permits, and accompanying different national regulations largely reflect the need to ensure cargoes can move seamlessly and safely through each individual EU member state. National regulations are therefore designed to ensure the capacity of public roads and bridges to handle heavier axle and vehicle loads, as well as guaranteeing the safety of public vehicles using the same roads. However, while technically prohibited by EU law, leaving the power ISSUE 2 / 2017
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to award permits with national regulators increases the prospects that legislation may be framed – consciously or not – to enable domestic firms to gain a competitive advantage over overseas rivals. Industry participants also suggest that the volume of differing intra-EU regulations is unnecessarily complex. ESTA, a pan-European trade association whose core members comprise the national associations that represent mobile crane and abnormal road transport companies throughout the EU, has long highlighted the difficulties associated with the volume and diversity of regulations facing its membership. It has placed particular importance on the need to harmonize legislation at the EU level, or, as a “second-best” option, reduce some of the more extreme intra-EU regulatory discrepancies. “A plethora of different national rules and regulations makes the industry less safe, less competitive and puts up costs for our clients, and ultimately the end users, the general public,” said David Collett, ESTA president. “The difficulties regarding permit granting in the transport industry remain as entrenched as ever.” 54 BREAKBULK MAGAZINE www.breakbulk.com
David Collett
Łukasz Chwalczuk
ESTA
Polish Heavy Transport Association
EMBRACING GUIDELINES
To deal with the lack of a unitary set of regulations, covering salient issues such as escort rules and signaling requirements, the European Commission has drawn up the European Best Practice Guidelines for Abnormal Road Transport, comprising a set of strictly non-binding guidelines for national authorities. “In the absence of European harmonization in this field, international transporters are confronted with a panoply of rules and procedures … for obtaining an abnormal road transport permit. Often, this results in delays and difficulties for carriers to make pre-
cise cost calculations, or to meet their contractual obligations to shippers and customers,” state the European Commission’s non-binding guidelines. If adhered to, the guidelines would greatly simplify the operations for many project cargo handlers. The Special European Registration for Trucks and Trailers, or SERT, within the guidelines, aims to reduce paperwork and bureaucracy, considered particularly important. So far, however, ESTA has had limited success in lobbying for wide adoption of the guidelines by regional national governments. “We will continue to lobby for EU member states to adopt the European Best Practice Guidelines for Abnormal Road Transport, published by the European Commission’s Transport Directive, but the simple truth is that we have struggled to persuade national governments to adopt it,” Collett said. The capacity of EU project cargo firms to operate across national borders has been further complicated by the introduction of new legislation by several EU states over the last five years, which, in addition to changes in the way some existing rules are interpreted and enforced, come across as protectionist measures designed to support domestic businesses. “Increasingly, in many European countries, we see a lot of ‘new’ or revived national regulations and documentation,” Collett noted.
PROTECTIONISM ON THE RISE
Consistent with the gradual but discernable return of economic protectionism throughout much of the wider global economy during the same period, an increase in non-tariff barriers within the large project cargo sector reflects economic frailties since the global financial crisis in 2008. An explanation for increased protectionism may be cost pressures and reduced profit margins for abnormally large project cargo transportation since the accession to the EU of countries such as Poland, just over a decade ago. This move reduced the competitiveness of transportation of West European economies with higher wage costs. ISSUE 2 / 2017
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“It is difficult to be certain as to why protectionist measures have increased, but they may well be related to increased competition and more operators in the European market following the entry of Central and East European states to the EU in the mid-2000s,” said Łukasz Chwalczuk, president of the Polish Heavy Transport Association and ESTA transport section executive. Chwalczuk highlighted Spain and Germany as two of the most prominent EU states that have attempted to protect local markets by introducing complex, new and arguably discriminatory regulations over the last several years. In the case of Germany, a less flexible interpretation of a 20-year law regarding haulage drivers’ capacity in German language communication skills, has been used by regulators to clamp down on
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foreign operators, with many firms having received substantial fines. “We have more than 20 languages in Europe, so it is completely unrealistic to expect drivers to know each one of them,” Chwalczuk said. Additionally, German regulators have dramatically increased insurance requirements for abnormally large cargoes, which again appear to favor domestic firms. “All over Europe there is a minimum sum of insurance of approximately €5 million and unfortunately in Germany they now require €25 million, which only German insurance companies are willing to provide,” Chwalczuk said. Arguably the most glaring example of protectionism relates to restrictions introduced in 2016 by the Spanish government. Here, instead of long-term
project permits for abnormal transport, non-Spanish firms are offered more expensive, short-term licenses, reducing the financial viability for foreign businesses to operate in the domestic market. International construction businesses that have been awarded contracts in Spain are thereby increasingly reliant on subcontracting the transit of project cargo to local transportation firms. “When it comes to Spain, it is very difficult, almost impossible, to obtain the long-term, cheaper permits required to operate in the domestic market on long term contracts,” confirmed Chwalczuk. Mark Willis is a Dublin, Ireland-based freelance journalist specializing in politics and economics.
2016-01-15 2:43:55 PM
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TACKLING PROTECTIONISM AT SOURCE In response to national legislation restricting international project cargo business operations in Europe, ESTA has raised its complaints with the European Commission. In response to the apparent discrimination against foreign firms operating in Spain, the European Commission sent a formal complaint to the government in Madrid in late 2016. However, given the length of time that can frequently elapse before authorities in Brussels process and investigate complaints, directly approaching national governments is often a more efficient way to lobby for regulation alterations, according to Polish Heavy Transport Association’s Łukasz Chwalczuk.
“It can be more effective to deal with national governments and transport departments, because project cargo heavy transportation is less visible and not large enough to necessarily make a difference at the European Commission,” he said. In addition to recently introduced legislation discriminating against foreign project cargo firms, Chwalczuk highlighted particularly glaring examples of differences between regulations and procedures applied by EU member states that severely restrict cross-border business. These include a variety of rules on load-axle pressure limits for abnormally heavy carriers on pub-
lic roads, with Germany and the Netherlands allowing for 12-ton axle pressure, while other countries restrict this to eight, 10 or 11.5 tons. Signaling rules and escort procedures are other key areas that vary considerably throughout the EU, and make life extremely challenging for abnormally large project cargo handlers. “This makes life difficult for individual companies to operate across national borders, and to grow and develop their businesses. The unification and standardization of regulations across the EU should be something that Europe in general, and we at ESTA, must focus on,” Chwalczuk concluded. BB
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regional review
GOLD RUSH Excavating East Africa’s Mining Potential BY KERRY DIMMER
T
here’s an old-time frontier feeling about a “gold rush” headline. While mining activities have advanced significantly since the days of panning streams or chipping at rock faces with a chisel, it remains somewhat of a tour de force to discover a maiden vein of gold. This is the case for Acacia Mining. Its gold strike in Kenya earlier this year has culminated in one of those rare finds – the highest grade of gold from a resource of at least 1.31-million ounces at 12.1 grams per tonne.
This advances the pioneering Acacia Mining’s desire to become a pan-African miner, given its existing exploration projects in the West, Burkina Faso and Mali, as well as three mining operations in Tanzania. The company has six drill rigs on site and plans to spend US$12 million this year on further exploring its Kenyan prospect. This, however, does not mean that Acacia will develop a mine in Kenya, let alone have product ready to export. Hesitations such as these have been one of the reasons why Kenyan Mining Minister Dan Kazungu has introduced a 20-year strategy which,
along with the nation’s new mining act, is intended to attract at least 20 additional operators to the country during that period. Kazungu’s target is a 10 percent increase in GDP by 2030 and a doubling of current mining revenue by June this year. Those who scoff at the target may not be as well-informed as Richard Kiplagat, group COO of africapractice, a pan-African strategy and communications consulting firm, who believes that the goals are feasible but dependent on several factors, not least of which is budget allocation, which has been sadly lacking of late. “The government has understand-
A ball mill is moved through Africa, destined for Kibali Gold Mine. Credit: Freight Forwarders Kenya Group
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ably shifted its funding priorities during this election year,” Kiplagat said. “However, recent announcements around gold mining and the impacts of titanium mining at the coast provide a clear signal of the potential of the industry, which once the election is over, will prompt the government to shift its focus and funding.” While titanium, coal, gold and rare earth minerals are trending globally, and with expectations that these commodities are expected to Richard Kiplagat remain strong over the medium term, africapractice investors should be looking at the mineral-abundant East African region. However, as Kiplagat pointed out, in Kenya, for example, 60 BREAKBULK MAGAZINE www.breakbulk.com
much of the mineral wealth remains unsurveyed. He recommends that aerial surveys would provide basic geophysical data to investors, allowing them to better assess prospects.
ELEMENT OF LUCK
David Mackay, an independent consultant in shipping and logistics in East and West Africa, adds to Kiplagat’s analysis of the current mining environment, putting into perspective the thoughts of those in his industry. “For Kenya to achieve its growth margins, it will need some luck outside of its control in terms of commodity price increases and continuing strength. The government will also need to ensure that there is a proper incentive in place to encourage investment by mining companies and allied stakeholders, and in so doing an
THIS PAGE: Acacia Mining’s Bulyanhulu gold
mine in the Shinyanga Region of Tanzania. Credit: Acacia Mining
environment of certainty is created. Obvious areas of focus must therefore be on incentives like tax holidays, a robust legal framework, as well as clarity on royalties,” Mackay said. Marc Das Gupta, director of the ISSUE 2 / 2017
regional review
THIS PAGE: Acacia Mining’s Buzwagi gold mine in the Shinyanga Region of Tanzania. Buzwagi is one of three mines operated by Acacia in Tanzania; the other two are Bulyanhulu and North Mara. Acacia hopes to expand its reach to other East African sites. / Credit: Acacia Mining
Freight Forwarders Kenya Group, who is also keeping a keen eye on market conditions, agreed with Mackay. “It is very hard for mining companies to make an investment case to their shareholders if a fixed royalty does not take into account swings in commodity prices and hence the consequences of those on the profitability of a mining project.” Further impacting on the financial viability of such projects is infrastructure. Das Gupta pointed out that a complete lack of infrastructure could mean mining projects become unviable, something that has happened in other jurisdictions. “Kenya’s current investment into its ports, roads, power and railways, however, is expected to manifest in many positive externalities that will enable the movement of goods and will help make mining projects viable,” he added.
CURRENT CLIMATE
From an infrastructure perspective, Tanzania, and now Kenya, have the local knowledge and support services that will allow both to effectively enhance mining operations in the region. Mackay includes major shipping lines; engineering, procurement and construction, or 62 BREAKBULK MAGAZINE www.breakbulk.com
EPC, companies; and many strong international forwarders among those. “While we cannot quantify an exact figure in terms of the demand from mining operations for cargo movers services, there exists a general undertone that they are gearing up. Aggressive tendering will be on the table as a result,” Mackay said. Local forwarding companies are well positioned to take advantage of an increase in the region, particularly in Kenya. “Logistics services always require a large amount of local knowledge; understanding of the customs and port processes, as well as the existing and proposed physical infrastructure and road networks,” said Das Gupta. “The latter is highly important for the transport of large pieces of equipment that are often crucial components to any mining project.” However, local knowledge might not be enough. There is also a need to understand the Health, Safety and Environment, quality and transparency standards that the mining industry requires when it comes to its contractors. “Forwarding companies and transporters have to raise their internal standards on all fronts,” Das Gupta said.
That said, several local forwarders and transporters have already built up substantial experience with complicated project cargoes, having built a solid reputation in the oil and gas sector as well as with the growing power and infrastructure environment in Kenya.
WORKING TOGETHER
However, Das Gupta would like to see indigenous players working together with local government to ensure that mining companies are held accountable to meet their side of the bargain when it comes to the contractual enforcement of rights, “and not just use their superior bargaining power to muscle local contractors into making large capital commitments in their fleet, etc., without providing the contractual certainty to recover those costs.” And the trend of offering first world solutions to African problems needs to be supported by on-the-ground training. Specialist trucks, flatbeds and heavy-lift equipment, as well as the most up-to-date IT solutions in terms of live tracking, documentation and delivery to the final consignee, are all welcome. But large mining development projects and investors must also commit to train ISSUE 2 / 2017
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Three Transeast trucks carry rig through a water course. The cargo is destined for Tullow Oil’s facility in Turkana. Credit: Freight Forwarders Kenya Group
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and develop their East African staff and associates as part of a long-term corporate social responsibility, Mackay said. “This is immensely important for developing countries across Africa, and gives developers credence with governments in terms of providing confidence in a public-private partnership.” Reciprocity is, however, required. “African host governments will need to create a go-to department that is enabled to solve the challenges that the mining investor faces. As we have seen in Tanzania, too often an investor must deal with several different government departments, which is not only confusing but uses up precious resources and manpower in solving what are often relatively simple issues. We are now seeing African governments addressing these frustrations, proving my point that all stakeholders need to do is be persistent and patient.”
ening of legal frameworks and the already proven successful large-scale projects that are underway mean that East Africa continues to be of interest as a greenfield mining destination. BB
Kerry Dimmer is an award-winning freelance journalist, focused on African business affairs.
BUILDING RELATIONSHIPS
However, there should be no tapping of fingers during this waiting period; now is the time to build partnerships in the region with international players. “Both are equally important if freight operators wish to share and benefit from best practice,” Das Gupta said. “Ultimately they need to make it clear now just how far they are willing to share the risks that inevitably come from engaging in big contracts and projects in the mining sector.” Prospective investors should be using this time to familiarize themselves with the operational environment in Kenya and the region as a whole, inclusive of politics and local cultures. In addition, with local content an increasingly important issue given legislation in the parliaments of Kenya and Tanzania, investors must ensure they are able to partner and hire local talent if they do decide to enter the market. “Strategies, while they may be careful and well-informed, also need to be optimistic and serious, given that regional governments are willing to work with investors across the sector to ensure not just early development, but long-term value-added benefits,” Kiplagat said. Despite the significant exploratory work required, the relative stability of the region, the existence and strength-
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COOL CARGOES HEAT UP Reefer Shipping Survives With Speed, Service BY ALAN M. FIELD
A
ccording to the World Bank, global population is expected to grow from 7.4 billion from the end of 2015 to 8.5 billion by 2030, 9.7 billion in 2050 and 11.2 billion in 2100. Developing countries, which will absorb a substantial share of that growth, will see their populations grow by a compound annual rate of 6 percent bringing increased wealth and consumer spending. A report from Drewry Shipping Consultants points out that, “unavoidably, an increasing part of this income will be spent on more and more luxury food, such as prepared from perishables, inducing a trend towards smaller shipments.” What kind of impact will that have on traditional, non-containerized reefer shipping? Already, reefer shipping has become “an allimportant player in the cold chains across the world,” said Drewry. From now through 2020, seaborne perishable trade is expected to expand 4 percent to 5 percent annually. Last year, maritime transport of fresh produce grew faster than the world seaborne trade of dry cargoes of all kinds, noted Dirk Visser, Dynamar’s senior shipping consultant at the Netherlands-based shipping consultancy. By 2020, he added, seaborne reefer cargo will reach a staggering 120 million tonnes – and is increasing by an average of 2.5 percent each year. However, a declining percentage of that trade will
A mix of containers and pallets is a common sight for reefer ships today. / Credit: Port of Dover
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million tons. This equates to either 16,900 laden conventional reefer ships of 500,000-cubic feet average, or to 3.65 million filled 40-foot equivalent units of high-cube reefer containers. Or a combination of capacity in both of those modes.
TOO FEW REEFER SHIPS Dirk Visser
Kevin Harding
Dynamar
Sextant Consultancy
be carried in non-containerized, or specialized, reefer ships. At the turn of the century, about 45 percent of all perishable trade traveled in these traditional, specialized vessels, rather than in ships that had at least some capacity to carry containers. In 2017, “only 22 percent of all perishable trade” will travel in those traditional vessels, said Visser. Last year, the total volume of seaborne fresh produce – whether carried by conventional reefer ships and/or in refrigerated containers – was estimated to have reached 108.5
With few new reefer ships on order, prospects for the trade do not seem promising. Only about nine or 10 specialized reefer ships are on the order books, noted Kevin Harding, director of Sextant Consultancy, as well as the main contributor to the Drewry Reefer Report. “The total is a little higher now” than in some past years, “but it is not enough to say there is a resurgence” of the dedicated reefer ship. Visser noted that the historically low oil prices, combined with low scrap prices, Sailing into the sunset has led to very low – are the days of levels of recycling conventional reefer of conventional ships numbered? reefer ships. “Only Credit: Charlie those vessels unfit
for further trading, usually over 30 years old, fell victim to the torch in recent years,” he said. That amounted to five, average 423,000 cubic feet units in 2015, a total that doubled to 10 units last year. “If the present trend to higher oil prices persists, scrapping may well pick up further again in 2017,” he added. At the start of the year, the order book for new reefer ships counted a relatively healthy 16 units, said Harding, with their capacities ranging from 120,000 to 650,000 cubic feet. “Most, if not all of the smaller – up to 350,000 cubic feet – units will be for the fisheries trades, including four on order for Seatrade. Just four vessels are of the largest sizes and are assumed all to be for Star Reefer.” Some have been delivered, leaving just nine to 10 on the order book. The first two of them were delivered in the very early days of 2017. This is a sector that – in line with the regular multipurpose sector – has also seen consolidation of late. In all, there were three mergers in the conventional reefer sector last year: • Eimskip (based in Ireland) acquired Nor Lines (Norway), including one conventional reefer ship. • Samskip (Netherlands) took over Silver Green (Norway), which operates seven small conventional reefers. • Fruit trade specialist GF Group (Italy) agreed to merge with Glenata Food (Italy), another fruit trader. But even with consolidation, the future does not look especially bright for reefer vessels that only have capacity to carry old-fashioned pallets of refrigerated cargo. Visser said: “With the average age rising and an overall restricted newbuilding activity, the conventional reefer ship fleet continues its decline, although now slowed somewhat by the current order book and the four ships delivered in 2016. Yet, by 2025, ships built before 1995 will reach the average scrapping age of 30, causing the fleet to fall by around 35 percent to some 400 units.”
FREIGHT RATE PRESSURE
When it comes to conventional reefer freight rates, conditions deteriorated last year. Annual average 2016 time charter equivalents for the 270,000 cubic feet 68 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
benchmark were the lowest since 2010; for 450,000 cubic feet vessels, they were the worst in 10 years. Does that mean that traditional reefer ships are destined to disappear entirely? Not necessarily, said Visser: “Non-cellular will survive because of the speed with which they serve their far-flung markets and because they are available in high seasons when container space may not be available in the numbers that they need; they function as an overflow.” Traditional reefers are also more suitable for the highly decentralized, less corporate world of global fishing. Harding explained: “It enables small fishing boats to fish at sea and to transfer [their catch] at sea. Small, tiny fishing boats – true traditional boats – tipping their cargo into other boats,” for transfer onto the specialized reefer ships. The
fishing trade, as Harding pointed out, is huge and growing. Perishable volumes are also growing – and they are resilient to adverse economic conditions. However, these are niche roles in an increasingly containerized world – the long-term prospects for conventional reefer ships are uncertain. It’s a loss that will be keenly felt. Harding admits to being nostalgic about the traditional sights and smells of the noncontainerized reefer vessel. “It is true shipping,” he said. “You are dealing with ship cargo owners. You are seeing the cargo on the pallets directly going into the hold.”
COMPETING HEAD-TO-HEAD
Harding added: “Nostalgia is a great thing, but I don’t want to imply that the industry is backward-looking,” he said, further noting that the same
kinds of advanced cargo tracking technology – pallet by pallet – is used for managing the valuable refrigerated cargo on specialized reefer ships as is used to track and manage that cargo when it travels in refrigerated containers. The other positive aspect of specialized reefer ships is their speed. Antwerp-based Seatrade Reefer Chartering’s marketing mantra highlights the speed and convenience of its specialized reefers moving from port to port. “This differentiates the specialized reefer from the liner containers that call at many ports and transship” their cargo to its final destinations, said Harding. Seatrade’s new, larger container ships are full container ships capable of carrying 100 percent of their cargo as reefer containers. While they can carry dry
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cargo lens
Discharging pallets of Chilean winter fruit at the Port of Wilmington, DE
cargo on some of the backhaul routes, they are designed to carry 100 percent refrigerated cargo. Other factors give specialized reefer operators hope for the future. John Haroldson, marketing director at the Port of Wilmington, Delaware, a major reefer port in the U.S. Northeast, said the advantage of conventional or specialized reefers is that they have express services, whereas third-party container services – such as MSC, Maersk, SeaLand – have liner routes with multiple stops. “Seatrade, the world’s largest reefer ship operator, has a mantra of ‘Fast, Direct, and Dedicated,’ which perfectly describes the advantages of the specialized reefer in general,” Haroldson said. “So, if you have a critical mass of cargo – as with the Chilean fruit we see here in Wilmington - you load it on the ship in Chile and the next 70 BREAKBULK MAGAZINE www.breakbulk.com
stop is Wilmington. Third-party liner services have trade between Chile and the Delaware River, but the transit times are longer, as they are making multiple, scheduled stops on route, for example, in Peru, Panama, and the Caribbean.” With perishables time sensitive in terms of shelf life and value, speed to market is critical, and that is where the specialized reefer can hold its own. “This mode makes the most sense when there is a critical mass of seasonal cargo, as is the case with Chilean winter fruit, when tens of thousands of pallets need to be shipped. Service is what counts,” Haroldson said. “To increase flexibility and counter the expanding emphasis on carrying high-value reefer cargo by the large container lines, specialized reefer ship operators are moving more toward containerization. We see this in conventional reefer new builds, where vessels are capable of carrying almost 200 reefer containers on deck supplementing 5,000 pallet capacity under deck,” he
added. This trend, which adds capacity and economies of scale for cargo intensive programs, is well established with the port’s Chilean trade. The key advantage is that these operators can bring a pure reefer logistics cargo focus to the marketplace through a dedicated reefer trade lane; that is to say a liner service hybrid that maintains both speed and service. “This absolutely works in underdeveloped or new markets when the volume of perishables does not justify carriage via a pallet vessel. This is the next evolutionary phase for the specialized and not so ‘conventional’ reefer, and it is already underway, making way,” Haroldson said. International news correspondent Alan M. Field has reported on trade, logistics and related technologies from numerous countries in North America, Latin America and East Asia (Japan, Taiwan and Korea) over the past two decades.
ISSUE 2 / 2017
EMS-FEHN-GROUP AT BREAKBULK EUROPE ANTWERP 24–26 APRIL 2016, STAND 127 IN HALL 2
Credit: Seatrade
SEATRADE TOPS REEFER RANKS Seatrade is the world’s largest conventional reefer ship operator, with a 56-strong fleet of 527,500 cubic feet average ships. Ranked second among conventional reefer operators is London-based Baltic Reefer, whose subsidiary, Stockholmbased Cool Carriers, operates 42 units of 590,000 cubic feet average; followed by third-ranked, Laviniacontrolled and Hamburg-based FSC Frigoship Chartering, which operates 33 units with an average of 351,000 cubic feet. In the container reefer segment, measured by reefer plugs on ships operated on the south/north routes, Maersk Line is still the leader, with 115,000 plugs. MSC comes second with 86,000, followed by Hamburg Süd with 79,000. Combined, Maersk Line and its future subsidiary Hamburg Süd operate 195,000 reefer plugs on the south/north
routes, equal to a 36 percent share of that market. In January this year, Seatrade announced details of its eight-ship Meridian service, which Dynamar’s Dirk Visser described as a “major happening.” The fully containerized service will be served by eight modern container vessels including Seatrade’s 2,200 20-foot-equivalentunit ‘Colour Class’ newbuildings, with ultra-high reefer capacity intake of more than 700 plugs per vessel. The Meridian Fast, Direct, Dedicated service connects 11 ports spread over New Zealand, Peru, U.S., Europe and the South Pacific, over an 80-day round trip. Port of Wilmington’s John Haroldson noted that as part of its 2020 fleet renewal program, the number of similar container ships in Seatrade’s fleet will increase to 20, replacing most of its current largest conventional vessels. BB
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» 527 PROJECTS APPROVED for Sarawak by federal government in Nov. 2016
» 48 PROJECTS COMPLETED;
remaining 479 were in various stages of implementation as of Oct. 31, 2016
» 1,436 STATE AND FEDERAL
FUNDED PROJECTS being implemented in Sarawak by the various ministries, departments and agencies
Credit: Sarawak government
BRUNEI
Pan-Borneo Highway Sarawak,
M A L AY S I A
INDONESIA
ISLAND LIVING
Borneo’s Demands Prop Up Project Cargoes BY JONATHAN DI ROLLO
I
n these turbulent times and with a general malaise covering the shipping industry, clever strategists may find value in looking for opportunities in far-flung regions. The State of Sarawak on the Island of Borneo, East Malaysia, represents one such region as an emerging growth hot spot for energy, manufacturing, and project cargo. “There is serious demand for project cargo in Sarawak,” said Anthonie Versluis, managing partner Malaysia, Roland Berger Strategy Consultants, who has been working with the State
Planning Unit, or SPU, of the Sarawak State Government on conceptual development plans for several years. A series of visionary development studies began with the Sarawak Corridor of Renewable Energy, or SCORE, initiated by the federal government of Malaysia as one of its five economic corridors for planning state development. SCORE management and administration is overseen by the Regional Corridor Development Authority, or RECODA, which oversees 1.2 billion barrels of known oil reserves, more than 80 million tonnes of silica sand and some 22 million tonnes of Kaolin China clay in a region with an abundance of natural resources,
ABOVE: With the development of Samalaju Industrial Park, project cargo imported through Bintulu Port has increased by 2 million tonnes in the last three years. / Credit: Bintulu Port 72 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
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An artist’s impression of the Baleh Hydro Electric Power Project – visionary plans for hydro power involve creativity as well as science. Credit: Sarawak Energy
the Baram Hydro project is on hold. “These hydro projects will create enormous movement in the economy that needs to be supported Credit: Bintulu Port by marketing, transportation and manufacturing growth,” he said. Limbang has two smaller hydro projects planned, but small is still big in Sarawak with targeted output of 180 megawatts. The Sarawak State Government functions independent of the federal government, meaning that it can get infrastructure work done more quickly, which helps with the development of power projects in Sarawak, according to Julian Ng, business sales manager at Alstom Power Malaysia. “Plans to develop infrastructure have downstream effects that will require project cargo depending on timelines, capacity and business goals,” he added. Beyond hydro, there has long been talk about creating a Pan Borneo Highway. But the government’s commitment of 16.5 billion Malaysian Ringgit (about US5 billion) in 2013 to fully develop Project cargo is serious business in Sarawak, with large hydro and coalpowered projects requiring imported boilers and turbines.
including clean and safe renewable resources, such as hydropower, that offers commercial users clean energy at internationally competitive rates. The 2008-2030 development plan for SCORE focuses on developing the energy sector, and targets 10 high impact priority industries that will complement the development plan and provides downstream opportunities for small to medium enterprises.
MEGA DAM PROJECTS
Versluis explained that the Bakun and Murum hydroelectric projects have been completed and their energy output is already fully booked, but 74 BREAKBULK MAGAZINE www.breakbulk.com
and upgrade the Pan Borneo Highway breathed new life into it. That was followed by a commitment in 2015’s budget. The Pan Borneo Highway is under construction with the stretch to Samalaju Industrial Park, the “engine of SCORE,” being broadened from two to four lanes to increase capacity, with more than 150 bridges to be built. Breakbulk cargo such as geotextiles is being brought in from Peninsular Malaysia for some of the construction projects. However, progress on the Pan Borneo Highway, as with some of the hydro projects, involves resettling locals, with compensation, hence how fast the project moves depends partly on how long it takes to align stakeholders.
SISTER PORTS
The well-established Port of Bintulu, which handles 90 percent of Sarawak’s LNG cargo, is being supported by the new Samalaju Industrial Port specifically designated to handle shipping to the Samalaju Industrial Park, a new development for international manufacturing. Breakbulk and project cargo to both ports has seen an uptrend due to the new project development for Samalaju Industrial Park, which has seven investors, and the supporting Balingian Coal Power Plant and new substation for Tudan, Miri. “With the development of the Samalaju Industrial Park, Bintulu Port also recorded an increase of approximately 2 million tonnes of imported project cargo over the past three years,” confirmed Rueben Ding of Bintulu Port Holdings Berhad. While only one current manufacturer in Samalaju Industrial Park, Press Metal Berhad, imports breakbulk cargo ISSUE 2 / 2017
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in the form of anode carbon, sister port Samalaju Industrial Port is focusing on an expected hike in project cargo in relation to the booming of industries within the park and its hinterland. Samalaju Industrial Port plans to expand to the same size as Bintulu Port, and there are aspirations to bring in more foreign and domestic investors to Samalaju Industrial Park. An ongoing tender at Balingian coalfired power station, where big boilers are imported for the coal power process, could also boost volumes. Project cargo to Sarawak follows the global trend of modularization, meaning onsite assembly is needed with the associated benefits of shorter completion time and higher quality. However, the logistics cost of importing cargoes has proven challenging due to the fluctuation of Malaysian Ringgit,
76 BREAKBULK MAGAZINE www.breakbulk.com
which has lost more than 30 percent of its value in recent times, affecting the value of products. Importers have had to adjust their costings and streamline this with their procurement. “Samalaju Industrial Park and Sharbini Suhaili Port were planned without the secuSarawak Energy CEO rity of long-term demand for these projects, and both investments made and power used has exceeded expectations on timelines. This is a gamble that has worked out, so far, and indicates future developments are also likely to be successful,” said Versluis, of Roland Berger.
VISION FOR ENERGY
With expectations already exceeded in hydro, port and manufacturing developments, there is an impetus among stakeholders to keep the momentum going. Sarawak Energy is the sole provider of electricity for the state and Sharbini Suhaili, its new group CEO, has ambitious plans for domestic and regional development. “Sarawak Energy’s transformation journey from a traditional power utility to a modern integrated electricity utility and power development company is well underway,” Suhaili said. “We want to benchmark ourselves against the bestin-class operators, and work towards being in the same group as these companies. We also aspire to grow our regional footprint and establish ourselves as a regional power player.” Sarawak Energy is owned by
ISSUE 2 / 2017
Sarawak State Government and is independent of federal government control so projects progress faster. As domestic living standards improve, demand for affordable energy has risen. In the past seven years, there has been a nearly five-fold expansion in the volume of electricity sales from 4.7 terawatt hours to 21 terawatt hours. Sarawak Energy’s installed capacity has also gone up from 1.18 gigawatts in 2010 to 4.6 gigawatts this year. “As Sarawak continues to make headway in advancing its economy and with the continuous development in SCORE, further rise in energy demand is inevitable. We anticipate that by 2020 our installed capacity will reach around 5,200 megawatts, increasing to 7,700 megawatts by 2025 to meet the rising demand,” Suhaili said. Sarawak Energy began to export power to neighboring Kalimantan Barat,
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or West Kalimantan, early last year, and is developing plans for interconnecting projects with other neighboring states and nations in a step towards materializing the ASEAN Power Grid. “We also anticipate going beyond our borders and exploring business and working opportunities with other establishments and power utilities in the ASEAN region. This year alone we signed a letter of intent with Indonesia’s Northern Province of Kalimantan, formalizing an agreement to explore opportunities in power generation projects and strategy formulation to improve the power supply infrastructure in Kaltara. We hope to expand on opportunities like this in 2017, as this will reinforce Sarawak Energy’s presence as a strong regional player in the power industry,” Suhaili said. Green power installations are also
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proving increasingly popular with major ongoing projects like the Kidurong combined-cycle gas turbine power plant taking shape, and a target to start the Baleh Hydroelectric Power Project this year. Plans by the Sarawak State Government, with its autonomous powers to develop energy and manufacturing sectors, have so far paid off. With more work in the pipeline, there will likely be a lot more demand for breakbulk and project cargo in Sarawak in the foreseeable future. BB Jonathan Di Rollo is a journalist and international conference speaker, based in Kuala Lumpur. Di Rollo previously worked as a project manager in Kuching, Sarawak, managing the production of development studies for Sarawak State Government.
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logistics perspective
UNLOCKING INDIA’S COASTLINE
Bold Initiative to Ease Cargo Movement BY VL SRINIVASAN
I
ndia’s much-hyped Sagarmala project has raised hopes among the country’s over-dimensional and project cargo movers. Taken up by the Indian government to develop the shipping sector, the ambitious
national initiative promises to bring about a sea change in India’s logistics sector performance by unlocking the potential of India’s coastline and waterways. The port-led development project aims to reduce logistics costs for domestic and export-import cargo with optimized infrastructure investment,
promising overall annual cost savings of about US$5.7 billion (Rs35,000Rs40,000 crore). While some of this will be direct cost savings, some will be from reduced inventory handling costs, as the time taken to transport out-of-gauge goods is reduced. Significantly in this era of sustainability, the project also intends to reduce carbon emissions from the country’s transportation sector by 12.5 million tonnes per year. Sagarmala – translated as Garland of Rivers – will modernize port infrastructure and develop integrated transport infrastructure for connecting the coast to industrial hubs and cities. Short-sea shipping, coastal shipping and inland waterways transportation will become better connected. There are also plans to develop logistics parks and warehousing near coastal locations to support port activity. The project’s goals can be encapsulated in one word: integration – welcome news for project cargo
One of six beer tanks, measuring 1,800 cubic meters, shipped from Mumbai, India, to a distillery plant in Colombo, Sri Lanka. / Credit: Anil Kotadia
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ISSUE 2 / 2017
logistics perspective
SAGAR – handle overflow traffic of Kolkata and bulk traffic from Haldia PARADIP SOUTH SATELLITE PORT – to handle 150-200 million tons per annum of coastal shipping of coal for power plants in Southern and Western India
VADHAVAN – Jawaharlal Nehru Port (handling ~40% of container traffic) is saturated and requires a satellite port
MACHILIPATNAM / VODAREVU – potential for facilitation of cargo including thermal coal, cement and containers
BELEKERI
CUDDALORE / SIRKAZHI – Facilitate cargo movement of thermal coal
VIZHINJAM – potential for a mega transshipment port to capture the opportunity
ENAYAM – ~25% of Indian EXIM container traffic is transshipped via Colombo and Singapore
6-8 POTENTIAL NEW PORTS region with existing port
existing port saturation
long coastline without a port
international trade capture
Source: Sagarmala National Perspective Plan, April 2016, Ministry of Shipping, Government of India
forwarders that have been stymied by red tape in domestic and cross-border moves. These government-led plans to develop India’s 7,500-kilometer coastline are expected to boost exports by US$110 billion and increase annual coastal shipping volumes by as much as five times to about 330 million to 420 million tonnes a year. Sagarmala is also expected to mop up investments of about US$60 billion (Rs4 lakh crore) in India’s infrastructure sector over the next five years, according to Indian Shipping Minister Nitin Gadkari. 80 BREAKBULK MAGAZINE www.breakbulk.com
OFFERING GDP SUPPORT
K Ramesh Babu, managing director of Mumbai-based Seashell Logistics, sees the Sagarmala project as a crucial infrastructure initiative whose development has the potential to boost the country’s gross domestic product, or GDP, by 2 percent. “So far, the government has not focused on developing the coastal and port infrastructure in an integrated manner that would have realized its full potential, and most ports lack adequate cargo handling infrastructure at present. The turnaround time for ships is
poor compared with developed ports in China, Japan, Korea, Dubai and other countries,” Babu said. Loading and unloading processes are cumbersome, while rail and road connectivity from seaports to their hinterlands is inadequate. There is also a lack of value-add industrial centers near port locations. Bound by sea on three sides, India’s ports handle 90 percent of exportimport trade volumes. While the railways contribute nearly 10 percent to GDP and the road sector about 5 percent, the seaports’ share is a meager 1 percent, underlining the vast potential for development of the country’s coastal cities and port. “India suffers from poor port linkages, underperformance of existing port infrastructure and lack of developed infrastructure near ports. In addition to this, an inefficient intermodal transport conK Ramesh Babu nectivity results in high cost of logisSeashell Logistics tics and exports. The share of merchandise trade in GDP needs to be improved and the Sagarmala project is the best option to achieve this,” Babu said. Moving across regions and states, shipping companies and heavy cargo movers unequivocally state that they face many constraints, including poor infrastructure in moving over-dimenISSUE 2 / 2017
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logistics perspective
PRIVATE CASH AND PUBLIC FEARS In the past, staid policies have done little to attract private investment into Indian infrastructure. However, the industry is confident that recent policy changes brought in via the Sagarmala project will provide a much-needed fillip in the coming years. The government believes that the project can mobilize investment of US$60 billion (Rs4 lakh crore) in Indian infrastructure over next decade. However, there is a fly in the ointment. The government’s plans to execute the Sagarmala project is opposed by many coastal communities, particularly those with fishing communities, who fear that the industrial corridors within the coastal economic zones, or CEZs, will adversely impact their livelihoods. By laying out a red carpet to private investors, the fishermen are concerned that their fishing movements will be severely curtailed and that the fish stock will be depleted by the works. Speaking to Breakbulk, National Fish Workers Forum Chairperson Narendra R Patil said there were an estimated 300,000 mechanized boats in the country, and most of them would be rendered useless once the project is completed. He said the government should have consulted stakeholders, including fishermen, before taking decisions. While their concerns have been brought to the government, little has been done to reassure them. “Talks are being held at various levels in the government to find an amicable solution and we will launch a nationallevel campaign from March 31 if the government fails to redress our grievances relating to the project,” he added.
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An 80-tonne electric transformer along with accessories is transported from Mumbai, India to Libreville, Gabon, on the central Atlantic coast of Africa. / Credit: Anil Kotadia
sional project cargo from the port of entry to the project sites located in the hinterland. Thus, providing endto-end movements of project cargo can be extremely difficult. “This requires multiple modes of movement to handle oversized cargo. With deficiency in each mode, it becomes a costly and delayed movement. Delays in government policy implementation, lack of future planning and an infrastructure bottleneck make the situation worse,” Babu said. Logistics costs account for 14 percent of goods movement in India, considered high. With just a handful of ports handling up to two-thirds of the country’s cargo, poor road and rail connections create choke points. “Collectively, the main bottlenecks for logistics in general and project cargo movement are: inefficient infrastructure, dominance of disorganized players, delayed planning, policies and projects, and skewed modal mix of goods,” Babu said. Kolkata-based Sayan Shipping’s Managing Director Sujit Chakraborty added that project cargo movers face immense delays
and problems in India due to lack of coordination among transporters, port management, warehouses and other stakeholders, factors that Sagarmala hopes to address.
AVOIDING PORT DELAYS
The Indian Ports Association, or IPA, was set up to foster growth and development of all major ports under the supervisory control of the Indian Ministry of Shipping. It has admitted that delays have affected project cargo movements, but the fault for the Sujit Chakraborty delays lies with the load-bearSayan Shipping ing capacity of roads, and not with the ports. IPA Managing Director A Janardhana Rao said importers and exporters could help themselves by sending their loading/discharging notices to ports well in advance, so that necessary arrangements can be made by the port authorities to avoid any delay. ISSUE 2 / 2017
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“In addition, if importers and exporters assure guaranteed traffic for project cargo, port management can be requested to create dedicated facilities for handling the same,” Rao said. As well as port development, the Sagarmala project proposes to develop 14 coastal economic zones in a comprehensive manner to support the Indian government’s “Make in India” initiative. It aims to facilitate economic growth by enhancing the country’s supply of goods. Sagarmala is seen as a solution for streamlining movements of overdimensional cargo at the six planned mega ports as part of the project includes four greenfield seaports. The port expansion and developments are expected at: • Vadhavan in Maharashtra. • Sagar Island in West Bengal. • Paradip satellite port in Odisha.
• Enayam and Sirkazhi ports in Tamil Nadu. • Belekeri in Karanataka. A Techno-Economic Feasibility Report has also been updated for Dugarajupatnam port in Andhra Pradesh. Vadhavan port will help ease existing congestion, while the proposed Paradip project will be developed to facilitate coastal shipping of thermal coal for power plants in southern and western India. It will also add value for over-dimensional cargo movement in the eastern region. Enayam in Tamil Nadu has been selected as India’s future mega transshipment destination, designed to capture international business opportunities presently enjoyed by Singapore and Sri Lanka. India’s cargo volume is estimated to rise by up to 2.5 billion tonnes per year
from the existing 1 billion tonnes per year, and the planned infrastructural enhancements will ease pressure on existing facilities. “The new ports will also boost coastal shipping, thus decreasing A Janardhana Rao the dependence on transportation IPA through railways and roadways. This is likely to cut down the inland transportation costs by up to 80 percent,” Babu said. Arguably, the most important part of the Sagarmala project is the 14 coastal economic zones, or CEZs, across major and non-major ports of India. These are being
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developed at a time when India lags far behind China in port-led industrialization. These zones are expected to significantly increase India’s merchandise exports and enhance industrial competitiveness. Under the plan, more than 10 clusters across three sectors – energy, material and manufacturing – have been proposed in the coastal zones. These CEZs will not only reduce logistics costs for project and related cargoes, but will also increase competitiveness. Under this plan, each coastal state will have one or more coastal economic zones. “The industrial clusters within the CEZs will enjoy the benefit of lower cost of movement of cargo by waterways. It has been observed that export-import containers in India travel up to 1,000 kilometers between production centers and ports. This plan attempts to decrease
this distance substantially by facilitating port-led industrialization,” Babu said. Four petrochemical clusters are also proposed in the CEZs, in Gujarat, Karnataka, Odisha and Tamil Nadu. In total, the Sagarmala project will commit US$10 billion (Rs70000 crore) to the facilitation of economic growth by enhancing the coastal shipping of all goods, he added. Sayan Shipping’s Chakraborty believes that the project will support the Indian government’s plans to encourage project cargo transportation through coastal shipping, justifying this ambitious project. “We have been emphasizing with the authorities for optimum utilization of inland waterways, which is absolutely necessary for a better way of logistics that will immensely help in relieving the rail and road congestion and reduce the ever-increasing transac-
tion cost to a great extent. It is the right time for coastal shipping to be properly developed with inland waterways development,” he said. Rao added that the government has placed great emphasis on its plans to push up movement of cargo through coastal shipping. Those improved coastal shipping connections coupled with fortified port infrastructure make the Sagarmala project a pivotal initiative in India and one that will certainly benefit those moving out-of-gauge cargoes both within and from the country. BB V L Srinivasan is a senior journalist based in Hyderabad, India, covering finance, infrastructure, energy, shipping, transportation, IT, environment and political and regional developments in India and the Gulf Cooperation Council region.
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regional review
CRACKING GAS CONSTRUCTION Benefits of Shell’s Monster Pennsylvania Project BY ALAN M. FIELD
Early stage of work on Shell’s ethane cracker project in Potter Township (Beaver County), Pennsylvania. Credit: Pittsburgh Regional Alliance; Larry Rippel, photographer
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W
hen it comes online – early in the next decade – the massive ethane cracker under construction by Shell in Potter Township, near Beaver, Pa., will produce 1.6 million tonnes of polyethylene pellets per year. The first such cracker in the region, in its production phase it will support varied project cargoes, while on completion it will provide a major boost to the economy of the Greater Pittsburgh region. “Game-changer” is the word often used to describe the project,
said Patty Horvatich, vice president, business investment, at the Pittsburgh Regional Alliance. But it will take four to five more years to complete construction of the Shell project. Horvatich said that, “at its peak, the construction phase of the project will provide jobs for up to 6,000 workers, with full-time employment of 600 expected to operate the facility once it’s online. Engineering, procurement and construction companies think in terms of man-hours, [and] that’s a lot of man-hours.”
www.breakbulk.com BREAKBULK MAGAZINE 87
regional review
IN FIGURES »
5,367 to 6,776
»
US$8.9 to US$11.4 billion
»
US$2.8 billion to US$3.3 billion
»
US$17.3 billion to US$22 billion
»
US$738 million to US$892 million
»
360 to 450
»
4,830 to 6,098
»
US$361 million to US$463 million
New jobs generated statewide post-construction phase Total labor income over the assumed 40-year operation period Value add in the region in the construction phase
Projection of total Pennsylvania value added from ongoing operations Projected total regional labor income for the construction phase Jobs generated for workers residing within the region, starting in 2020 Estimated total regional jobs Projection of ongoing annual labor income Source: Robert Morris School of Business
88 BREAKBULK MAGAZINE www.breakbulk.com
The impact on employment won’t deals are in manufacturing, energy, be limited to additional construction financial services, all of which are jobs. “There are construction jobs, described as legacy strengths of the but then there’s the whole supply region.” chain,” said Horvatich. The PittsThe region enjoyed a big upswing burgh Regional Alliance has visited in inward energy-related investment other crackers on the Gulf Coast – in from 2010 to 2012, in concert with the Louisiana and Texas – and has talked so-called “Shale Gale.” That led to a to companies and firms bidding to be large amount of upstream investment part of the supply chain. It’s also talkand the companies that wanted and ing to those further downstream – the needed to be there put down roots. compounders and converters and the “Their big investments carried companies that will handle the pelus through the Great Recession in lets and transport them. “In terms of a way that allowed our economy to the work shed and the supply chain, fare well. With the recent downturn this is a very big deal, and the decline in and it’s going to be a energy, we have seen tri-state effort,” Hora drop off. But again, “While vatich said. not extreme highs predictability However, comor lows. While premay not be mon with the U.S. dictability may not Gulf Coast, Pittsbe exciting on the exciting on the burgh does have a surface, it is one of surface, it is one the enduring assets shortage of certain skills, such as weldof the enduring of this region,” Cynar ers, and people with said. assets of this commercial driver’s The American region.” licenses. Chemistry Council “But what we keeps a running tally – Phil Cynar, Pittsburgh don’t have is a shortof how much petRegional Alliance age of collaboration rochemical-related – which is a way investment is being of doing business for us – whereby planned. Right now, seven ethane industry is working in concert with crackers are under construction in the community colleges, ‘vo-tech’ the U.S., with Shell’s Potter Town(vocational technology) schools and ship, Pa., facility being one of them. CTEs (career technical education) to “Industry experts are saying that get that workforce ready so that we our region alone can support four can meet the demand associated with crackers, in addition to the Shell the Shell project, as well as other cracker,” Horvatich said. Right now, projects underway, in tandem, with it a final investment decision is being in the region,” Horvatich said. awaited from PTT, the Thailandbased global chemical company, MORE TO COME concerning a second cracker in Despite any worker-related chalnearby Dilles Bottom, Ohio. lenges, it’s unlikely that Shell’s mega “This current – and anticipated cracker will be the last large-scale – petrochemical investment activity development in the region – good means that the greater region needs news for project cargo movers. to be ready to welcome and be supPhil Cynar, senior communicaportive, and I believe that we’ll be tions specialist, Pittsburgh Regional ready.” Horvatich said. Alliance, noted that the region is viewed by corporate investors HURDLES TO OVERCOME as “steady and predictable.” He However, a stumbling block for explained: “We haven’t seen extreme future oil and gas related projects highs or lows. Typically, we are in the region is that its hilly geogaround 275 to 300 [economic develraphy means that there is a lack of opment] deals a year.” Many of the shovel-ready sites. Responding to ISSUE 2 / 2017
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regional review
this, the region has launched a strategic site development fund to provide private mortgage loans to land owners and developers seeking funds to get critical infrastructure – water, sewer and gas lines and roads – in place at their sites. Cynar added that the Power of 32 Site Development Fund also gives priority consideration for loans to brownfield sites – which the region has a lot of – because these sites, in many cases, are ideal for large industrial operations. On the policy side, there is a greater role for the private sector, particularly through public-private partnerships, or P3s. These contractual agreements formed between a public agency and a private sector entity allow for greater private sector participation in the delivery and financing of transportation and infrastructure projects. Matt Smith, president of the Pittsburgh Chamber of Commerce, said: “I think you are going to see some focus in this area on both the state and federal 90 BREAKBULK MAGAZINE www.breakbulk.com
An overview of Shell Pennsylvania Chemical’s 1,300 assembled acres in Potter Township (Beaver County), Pa. where a world-scale petrochemical facility will be constructed between late 2017 and 2020 and brought online early in the next decade. Credit: Pittsburgh Regional Alliance; Larry Rippel, photographer
levels. We’ve got a pretty robust program for P3s in Pennsylvania, particularly as they relate to some of the transportation infrastructure funding. But at the federal level, in addition to the critical need for robust direct public investment, I think you are going to see that as the new administration rolls out its infrastructure plan, there could be more of a demand for the private sector, through P3s and other mechanisms, to come up with some of that infrastructure funding.” The Chamber of Commerce has a role to play in advocating at the state and fed-
eral level for infrastructure priorities, for example, lock and dam funding, which is critical to the region’s economy and the quality of life in the region, he said. Smith added that water and rail are critical transportation infrastructure for the region’s project cargo moves. Despite not being a deepwater port, Pittsburgh, with its unique geographical position, at the confluence of three rivers – the Allegheny, Monongahela and Ohio – makes it feasible to ship project cargoes by water all the way down the Ohio and Mississippi rivers to the Gulf Coast, an important transportation artery for many industries – for both shipping and receiving. BB International news correspondent Alan M. Field has reported on trade, logistics and related technologies from numerous countries in North America, Latin America and East Asia (Japan, Taiwan and Korea) over the past two decades.
ISSUE 2 / 2017
CASE CASE STUDY STUDY
BY LARA SHINGLES
BLADE RUNNER Turbine Molds Navigate Great Lakes
A
rising number of renewable energy projects has meant that more and more forwarders, longshoremen, shippers, carriers and ports alike are having to work with and handle larger and more unique project cargo. Case in point: late last year, the Port of Indiana-Burns Harbor handled six wind turbine blade mold sets – an essential component for the booming wind energy industry. Each set consisted of one upper and two lower parts, and was 60 meters long by 5.2 meters wide. Together, they weighed 195 tonnes. DHL Global Forwarding took the role of forwarder for the project, while Fednav, Canada’s ocean-going, dry bulk shipowning and chartering group was, tasked with moving the cargo from Aalborg, Denmark, to the discharge port, Burns Harbor in the U.S.
Two cranes worked in tandem to unload six wind turbine blade mold sets at the Port of Indiana-Burns Harbor. Credit: Burns Harbor
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CASE STUDY
FEDNAV’S GROWING FOOTPRINT Fednav welcomed the Federal Bering to its fleet at the Port of Antwerp in November 2015. The ship was built as part of Fednav’s newbuilding program that will see 19 new handysize lakers, specifically designed for the Saint Lawrence Seaway and Great Lakes, delivered through 2018. However, the company’s activities are by no means restricted to the Saint Lawrence Seaway. With a combination of handysize, supramax and ultramax vessels, Fednav also owns and operates two of the most powerful bulk-carrying icebreakers as well as the largest ice-class bulk carrier fleet in the world. The environmental characteristics of these vessels include 25 percent fewer greenhouse gas emissions than similar vessels built 15 years ago, a decrease of more than 15 percent nitrogen oxide emissions, a B+ rating from shippingefficiency.com and a CLEAN notation from the DNV/GL classification society. Etienne De Vel, commercial manager of European operations at Fednav, said: “By continuing to expand our fleet and operations, our fleet will be one of the most modern, efficient and environmentally friendly trading between Europe and North America, especially in the Great Lakes and Saint Lawrence Seaway System.” On the Federal Bering’s maiden voyage, the vessel transported mainly steel products but also some project cargoes from the Port of Antwerp to Chicago and Burns Harbor.
The cargo was carried on Fednav’s next-generation vessel, the Federal Bering. Built at the Oshima shipyard in Japan, the ship has six box-shaped holds with folding hydraulic hatch covers and four 35-tonne cranes to facilitate the handling of breakbulk cargo. According to Fednav’s Koen Ruts, who was involved with fixing the cargo on the company’s behalf, all handling processes to load, lash, secure and discharge were discussed and mutually agreed with the project’s forwarder, longshoremen and shipper. However, complications still arose when it came to loading the cargo, he said: “The biggest challenge was to have and position suitable tonnage for this cargo project, which had to be loaded on deck.” The vessel completed its main load in Antwerp on Oct. 1, 2016. Here, Ruts explained that the vessel was load-ready well before the cargo had arrived at the port, “so we agreed with the shippers/charterers to have the vessel waiting.”
DIRECT FROM DENMARK
The vessel then continued to the Port of Aalborg to pick up its deck cargo. Featuring a reinforced quay for project cargo, strong points, heavyduty machinery, large open spaces and a good location in relation to Denmark’s motorway and rail network, the Port of Aalborg was adequately equipped to handle such large dimensional cargoes.
Aalborg prides itself on strong cooperation and Credit: Burns Harbor logistics and the provision of “flexible solutions” customized to the needs of its customers. When it comes to project loading, the port can assist in all processes, whether handling bridge sections and platforms from nearby Bladt Industries or turbine blades from the Denmark hub of Siemens Wind Power. “The Eastern Port is the optimal place for the handling of project cargo, with reinforced quay multifreight terminal and strong points with a permissible pressure of up to 44 tons/square meter,” the port said. “Moreover, there is also an opportunity to use heavyweight machines, and the location of the motorway and rail network in relation to the Eastern Port makes it a perfect location for the heaviest production companies.” The Federal Bering left the Port of Aalborg on Oct. 16 and sailed directly to Burns Harbor, arriving just under three weeks later on Nov. 4. Ruts said that Fednav is “always happy to conclude such a special cargo project shipment,” and that it looks forward to future opportunities. A nearly 200-foot turbine blade mold was discharged.
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Because of the extreme length of the molds, the general cargo terminal for Burns Harbor, Federal Marine ISSUE 2 / 2017
Credit: Fednav
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Terminals, or FMT, used two cranes in tandem to discharge the units when they arrived at the port. The handling of these molds helped Burns Harbor to record the highest cargo month at the port in five years. Rick Heimann, port director, said: “We had a significant increase in ocean shipments [in November] – up 50 percent from last November and over 80 percent from the previous month.” In addition to this cargo, Burns Harbor also handled a competitive sailing yacht for a boat show and two 10-ton freezers for an Indiana food processor in the same month. Overall, project cargo shipments increased nearly 25 percent at Burns Harbor in 2016. Rich Allen, Ports of Indiana communications manager, said that for FMT and local workers from the International Longshoremen’s Association and International Union of Operating Engineers, “no cargo is too big to handle.” Indeed, other project cargoes have included 20,000-gallon fermentation tanks; air emission scrubbers for power plants; several oversize structures for the recent US$4 billion upgrade at the Whiting Refinery in Indiana; and the world’s largest conventional crawler
crane which, when fully assembled, weighs 1.65 million pounds, stands 473 feet tall and has a Credit: Nick Szymarek lifting capacity of 3,000 tons. Allen said the port’s location at the midpoint of North America on the southern tip of Lake Michigan – just 18 miles from the third-largest U.S. city of Chicago – continues to appeal to companies that need to ship large dimensional cargoes to the Midwest by water, avoiding trucking halfway across the country. In addition to its location, Allen said the port offers global shipping connecThe Federal Bering sailed directly from Aalborg, Denmark, to Burns Harbor.
tions via the Atlantic Ocean and the Gulf of Mexico by way of the Inland Waterways System, and boasts “unparalleled” freight transportation options. It handles ocean vessels, Great Lakes ships and river barges and has access to five interstate highways and eight rail carriers with connections to all Class I railroads. “Shippers appreciate port stevedore FMT and divisions of its parent company Fednav offering door-to-door logistics services for project cargoes going to the heartland of America,” he said. BB Lara Shingles is a UK-based freelance journalist specializing in maritime projects and services.
Burns Harbor’s midpoint U.S. location helps shippers to avoid lengthy truck journeys. Credit: Burns Harbor
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ISSUE 2 / 2017
SEE THE FUTURE
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port focus
HALVES OF A
WHOLE Tacoma, Seattle Alliance Pays Off BY LORI MUSSER
E
mulating the carrier alliances to keep seaports afloat in a turbulent market may seem risky, but the alternative of chasing each other to the bottom of the market is an even less attractive option. For the ports of Seattle and Tacoma, who have been friendly foes for almost a century, a seaport alliance of generous proportion was a surprise to the industry. But after a year and a half, the two ports are settling in to their new marine cargo operating partnership, the Northwest Seaport Alliance, or NWSA, and claim to have made real progress. Combined, the ports offer the fourth-largest container gateway in North America. Situated in the Pacific Northwest, their cargo is predominantly Asian. Within North America, their markets spread out from the coast and continue to the Midwest, Ohio Valley and even on to the U.S. East Coast. Seattle and Tacoma’s marine cargo facilities, located a mere 30 miles apart, handle project/heavy-lift cargo and traditional breakbulk, automobiles/trucks and bulk. Under a port development authority with the two ports as equal members, the The Northwest ports now manage most of their terminals Seaport Alliance together. The unification of the two ports’ has prioritized nonterminal investments, operations, plancontainer target ning and marketing aims to strengthen accounts and the the Puget Sound gateway and attract more development of marine cargo, helping to better serve breakbulk and auto shippers and receivers throughout North cargo business. America. The U.S. Federal Maritime ComCredit: NWSA mission approved the Alliance in mid-2015. 98 BREAKBULK MAGAZINE www.breakbulk.com
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port focus
MARKET SHARE RATIONALE
The timing was perfect. With both ports losing cargo to ports in Canada and Mexico, and the Panama Canal expansion nearing completion, their future success in serving the emerging trans-Pacific class of megaships was far from certain. “We’ve traded shipping lines, but overall we were losing market share,” said Tara Mattina, NWSA communications director. “We realized that what we had been doing wasn’t going to work in the future.” The fact that the two ports directly and indirectly support more than 48,000 jobs and generate more than US$4 billion in economic activity gave magnitude to the dilemma. A big fix was needed. Although the very existence of NWSA may have been triggered by container trades, its long-range strategy has an important breakbulk element, said Bari Bookout, chief commercial officer for non-container business. NWSA will “continue diversifying cargoes so that we make the best use of our facilities and provide bestin-class service. Breakbulk and project cargo growth continues to be an integral part of that strategy.” Bookout added: “Instead of competBari Bookout ing as individual ports, we have the NWSA ability to act like a gateway with a broader portfolio of facilities to meet changing customer needs. While our first investments have been in container terminals, we have the ability to look more comprehensively at all of our facilities, as we think about further diversifying our cargo mix.” The gateway’s primary breakbulk cargoes are agricultural, mining and construction rolling stock, as well as military equipment, airport ramps, and over-dimensional factory components. There are some exports, but the bigger part of the business is inbound from China. There is also a strong coastal trade with Alaska, moving equipment by barge and on TOTE Maritime and Matson roll-on, roll-off ships. 100 BREAKBULK MAGAZINE www.breakbulk.com
TOTE brings a strong coasting trade to NWSA. / Credit: NWSA
MAKING STEADY PROGRESS
NWSA CEO John Wolfe was handed a difficult leadership task. At a time of unprecedented change in the global marine cargo industry, he assembled a management team, brought together two employee bases with different work cultures, and introduced NWSA. If navigating organizational, cultural, business, personnel, legal and commercial hurdles from two independent public port authorities wasn’t enough of a challenge, NWSA also had to clearly and openly communicate its goals and plans to establish buyin from staff, the transportation and international trade community, and the public. Without all-in support, the
alliance would never have gotten off the ground. Within the first year, NWSA set its strategic plan, established an executive advisory council that in turn developed measurable terminal performance indicators, and created the NWSA Operations Center, providing real-time information to customers and measuring gateway performance. The new center offers transparency and connectivity to all stakeholders. Its performance metrics, put forward by stakeholders, revolve around efficiency and reliability as they impact the supply chain. While many of the alliance’s early plans peg hopes on container growth ISSUE 2 / 2017
– as reflected in improvements such as those made to accommodate 18,000 20-foot-equivalent-units ships at the Husky Terminal in Tacoma’s South Harbor – there are also plans to build breakbulk capacity. According to Bookout, NWSA has prioritized the identification of non-container target accounts and the development of business strategies to increase breakbulk and auto cargo volumes. And, overall, a wellrun port alliance should lead to better revenue streams and lower costs. If those translate to better capitalization, and smarter investments prioritized according to market potential, there will be room for continuing upgrades to infrastructure and service for breakbulk cargo. “The alliance allows us to leverage the strategic investments we make – instead of putting money into property to compete – we can now make the investments at a time when they make sense,” Mattina said. NWSA offers three primary breakbulk facilities: • Terminal 5, in the North Harbor, with on-terminal rail, about 100 acres of laydown area, covered storage and a 2,900-foot deepwater pier. • East Blair One, in the South Harbor, which offers on-dock rail, 20 acres, a 1,200-foot deepwater pier rated to 1,000 pounds per square foot, and a heavy-lift pad rated at 2,000 psf. • Terminal 7, also in South Harbor, which includes on-terminal rail, 12 acres and an 1,800-foot deepwater pier.
FOSS MARITIME AGREEMENT Timing seems to have been providential for Foss Maritime Co., who, with NWSA, recently entered into an agreement to lease Terminal 5 while it awaits its planned container terminal redevelopment project. At roughly 200 acres, Terminal 5 offers on-dock warehousing, 2,900 feet of vessel berth space, a 46-foot draft, and 18,000 feet of on-dock rail capacity. Paul Gallagher, Foss Maritime vice president, anticipates a cross-section of activities at Terminal 5 under the new partnership, all offering quick response to new opportunities.
“Whether a vessel simply needs a shortterm lay berth, or a customer needs a terminal to deliver or pick up a load of breakbulk or ro-ro cargo, T-5 is perfectly situated to meet project cargo or vessel owner’s needs,” Gallagher said. “Moreover, T-5 is an ideal facility for major project cargo operations in the Pacific Northwest, given its size, capabilities and surrounding transportation infrastructure.” Gallagher added that having Foss Maritime and their stevedore partners on site and fully equipped to respond quickly and comprehensively to inquiries will optimize use. When asked about plans once the Terminal 5 redevelopment begins, Gallagher said Foss Maritime continues to look for project opportunities in the Pacific Northwest. In addition to the Foss Maritime agreement, NWSA’s Bookout identified other points of progress for the noncontainerized trades. “We are setting up a new breakbulk terminal operating system to provide better visibility into information through electronic data interchanges with our shipping lines and develop performance metrics. The EDI with the shipping lines makes it easier for them to do business with us,” she said.
BREAKBULK HEROES
While there has been a downturn in the breakbulk market in general and the gateway’s volumes reflect that, there have been a few newsmakers in the last 18 months. The Olive Bay, one of the world’s largest single-deck bulk/log carriers, arrived in November at the West Hylebos log terminal, operated by Merrill & Ring Forest Products. At 650 feet long and 105 feet wide, the ship can accommodate eight million board-feet of logs. “Last year, we also received one of Wallenius Wilhelmsen Lines’ new high efficiency ro-ro, or HERO, vessels that came through the wider Panama Canal, providing our gateway with expanded capacity to such markets as Europe, the
The expanded Panama Canal allowed the likes of Wallenius Wilhelmsen Lines HERO fleet to call at NWSA. / Credit: NWSA
Mediterranean and South America,” Bookout said. “The new locks allow carriers like WWL to develop larger, more efficient vessels to meet customer demand and regulatory requirements,” he added. The Thaletta is the second in WWL’s HERO fleet, designed to increase capacity and cargo flexibility while reducing emissions. WWL senior executive Ray Fitzgerald spoke about the ease of doing business through the gateway, explaining that NWSA offers reliable, safe and capable ro-ro/breakbulk facilities that are well-positioned to allow WWL to effectively connect its global ocean and land-based networks to a wide geographic area. Yet, among the greatest challenges to the newly combined gateway are the market uncontrollables. “The strong U.S. dollar and low commodity prices definitely have affected the market,” Bookout said. “With our strong connection to Alaska, we have seen reduced breakbulk and project cargo volumes as that state continues to struggle with a decline in oil- and gasrelated project activity.” In terms of the political climate, she said it is too early to say what effect the new U.S. federal administration might have on markets and overall trade. BB Based in the U.S., Lori Musser is a veteran shipping industry writer.
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thought leaders
RAMP UP Ro-ro Chases Greater Breakbulk Share
L
egend has it that Malcom McLean was sitting in his truck one day waiting to be unloaded when the idea of containerization struck him and the rest, as they say, is history. Maybe so for smaller goods, but for larger-than-container goods there was a less familiar corresponding development which in its own way also changed the world. That development was roll-on, roll-off. The distinguishing characteristic of containerization was that it was a fully industrialized process relative to what it replaced. In its design, it was inherently more efficient and less risky; the parallels to ro-ro are striking. Even to the uninitiated, it’s clear that driving or towing cargo onto a vessel is more efficient and less risky than hoisting BY ROGER STREVENS it skyward one piece at a time. What ro-ro and containerization represent is a step change in process design. They are not the product of a slow evolution, but the application of pure industrial thinking to a logistical challenge. In taking such an approach, legacy constraints – such as vulnerability to weather conditions during loading – can be swept aside and new inherent benefits can be uncovered, such as the reduction in packaging requirements resulting from underdeck stowage. 102 BREAKBULK MAGAZINE www.breakbulk.com
Ro-ro has its origins in the middle of the 19th century, when railcars were rolled straight onto custom-built vessels to convey them across Scotland’s Firth of Forth. However, modern deep-sea ro-ro really began more than a century later to help Japanese vehicle manufacturers with their export miracle. Very soon, all vehicle and machinery original equipment manufacturers followed suit and the old lift-on, lift-off methods disappeared overnight. Since then, the range of cargo that ro-ro vessels can carry has been growing steadily to the point that the breakbulk abilities of the most capable ro-ro vessels would surprise many. For example, Wallenius Wilhelmsen Logistics’ Mark V series can accommodate cargo of 400 tonnes and 6 meters in height, meaning most project cargo moves are within their scope. Yet, while ro-ro vessels dominate the movements of vehicles and rolling equipment, breakbulk is not so familiar. This seems peculiar given that the same benefits are offered for the carriage of breakbulk. The explanation probably lies
in the fact that for a long time only one ro-ro carrier had considerable breakbulk capabilities. However, as new build specifications show, that is changing, so watching how the share of breakbulk cargoes is split between ro-ro vessels and multipurpose ships in the future will be interesting. Ro-ro carriers’ interest in breakbulk is mirrored by the interest in ro-ro from breakbulk shippers, especially OEMs. An increasing number of shippers of anything that’s serially produced – from transformers to luxury yachts – find that ro-ro vessels offer an attractive value proposition. We can call it the hidden treasure of logistics options. Moreover, in a self-fulfilling trend, the more interest from shippers, the more compelling the offer from the ro-ro segment becomes. You could say that when shipper and carrier “row” together the result is ro-ro. BB Roger Strevens is vice president, global head of key accounts at Wallenius Wilhelmsen Logistics.
ISSUE 2 / 2017
BEYOND PHYSICAL OPERATIONS Demands of Anti-bribery Compliance
A
fter years of struggling with excess capacity and tight profit margins, the breakbulk industry faces a tough competitive climate. In these circumstances, one needs to be careful about any temptation to cut corners. Given the industry’s global character and high degree of government interaction, there are potential compliance issues at every turn. Antibribery prosecution is on the rise. BY ROBERT CLARK The number of enforcement actions in the U.S. alone doubled between 2015 and 2016, and other countries have been following suit. Companies are subject to severe penalties, not only for their own actions, but also for actions taken by their agents and business partners. How do you protect yourself in the face of this increasing risk? It isn’t easy – just as with any other aspect of the industry’s work. Consider the planning and effort involved in moving a multi-ton piece
of delicate equipment halfway across the globe. Alongside the usual logistics of permits, routing, transport and personnel, there are the technical challenges of ensuring the load’s safety and stability at every stage of its journey. To address those challenges, you need a complete and detailed understanding of the object itself. You can’t accept it already locked in a container, with no opportunity to gauge its size, its weight distribution, or its particular handling needs. Each job is different, and each load and route requires its own precautions. The same could be said about antibribery compliance. Whether in your own organization’s activities or in your dealings with brokers, agents and other commercial intermediaries, you can’t take appropriate preventive measures if you can’t see what you’re dealing with. Within your organization, you need to be aware of the many opportunities for corrupt behavior – from a customs official’s mundane request for a “grease payment” to higher-level bid-rigging and kickback schemes. To guard against these risks, a company must not only enact sound anti-corruption policies and set the right sort of ethical tone; it must also establish effective monitoring and reporting processes to ensure that issues and incidents will be acknowledged and handled.
This kind of in-house transparency has a counterpart in third-party transactions. Enforcement agencies expect companies to perform appropriate due diligence on their partners and intermediaries, depending on the particular risks that are evident. But some of those risks can only be identified if you understand who you’re doing business with – including whether they have any suspicious financial interests or connections to government officials. Particular care is warranted when dealing with entities whose true beneficial ownership is obscured through the use of anonymous shell corporations or other mechanisms. Successful execution of a shipping project involves more than the physical work of transportation. It also requires that your company navigates a world of government and third-party interaction that carries its own risks and dangers – less physical, perhaps, but no less material. Insisting on transparency – internally and externally – can allow you to accurately assess those risks and dangers and make appropriate plans to move the project forward safely and ethically. BB Robert Clark is the manager of legal research at TRACE, where he oversees a team of lawyers responsible for production of analytical content.
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breakbulk china event recap
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ISSUE 2 / 2017
FREEDOM OF CHOICE Container, Ro-ro Options Benefit Shippers BY GARY BURROWS
L
ong in the shadows of their containerized cousins, breakbulk and heavy-lift shippers are finding themselves belles of the ball, with increased competition for their cargoes from container lines and roll-on, roll-off carriers. “Actually, it’s a very happy situation for me as a freight forwarder specializing in the project business,” said Thomas Wang, deputy branch manager, Shanghai division of COSCO Project Logistics. “It’s more diversified … everything can be on the table. All final decisions depend on
the demands or concerns of our clients – time, quality or cost.” During a panel session on alternatives for seaborne heavy cargo ocean transport at Breakbulk China in Shanghai, Wang and carrier executives from the alternative modes agreed each had something to offer, even when the market begins to rebound. “Basically, we have to acknowledge that these alternatives are here to stay,” said David Lloreda Calero, commercial manager, Shanghai office of BBC Chartering, the major multipurpose vessel operator. “Container and ro-ro have developed special groups within their organizations to handle cargo. We continually
FROM LEFT:
Moderator Miroslav Jakab, China logistics manager/global container negotiation manager, Fluor; David Lloreda Calero, commercial manager, Shanghai office, BBC Chartering; Oskar Orstadius, head of breakbulk sales, global commercial, Höegh Autoliners; Michael Juhler, global head of special cargo, Maersk Line; Jum Gyu Kim, managing director, Super Rack Shipping; Thomas Wang, deputy branch manager, Shanghai division of COSCO Project Logistics
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event recap
re-evaluate how we relate to the market and re-evaluate our setup.” Each carriage option has its advantages, Wang said. Container lines are getting more popular, especially in large projects where most of the cargo is already loaded in containers. Market rates and schedule reliability make it a competitive choice. Ro-ro is a worthy choice for urgent, oversized cargo. “They have a niche between container and breakbulk. There’s a hatch to hold heavy-lift and enough space and a very reliable schedule.” Because it doesn’t require cranes to lift cargo, terminals are less of a concern, he noted. “But for big volumes, and jumbo projects, if you have a 10,000-cubic-meter piece, breakbulk’s your first choice,” Wang added.
CONTAINER INVOLVEMENT
Michael Juhler, global head of special cargo, Maersk Line, said that while “a lot of container carriers have been playing in this segment for many years,” their increased involvement has been driven by the recession and aftermath, as well as “new markets, scaled-up capacities, 20,000-plus-TEU vessels, and port capacities to follow.” While agreeing that container lines can’t offer the extreme flexibility of a MPV carrier, Juhler said boxships offer reliable, high-frequency service “that you can arrange logistics around. Faster transit, weekly fixed-day arrival time. We’re flattening the conveyor belt, turning (container ships) into floating warehouses, lowering working stock and providing a more integrated solution.” Still, container lines have explored breakbulk options before, when their own business was in a downturn. But when box volumes returned, didn’t the breakbulk market fade in the rearview mirror? “It’s a fair question,” Juhler said. “Even though we’ve done this a long time, liners are the newcomers. We are investing a lot of resources and money into this segment. We have a big appetite to play in this market. We’ve doubled our team in headquarters and regional sales, new systems. We understand and appreciate that we need to be consistent to play in this segment.” 106 BREAKBULK MAGAZINE www.breakbulk.com
RO-RO ADDITION
BUILDING A BACKLOG
Ro-ro may not be the first option that However, Calero pointed out that “the springs to mind when exploring a heavybenefits of one of the options are the limlift move. “I tell our breakbulk sales team its of the others. They (ro-ro) will always that they have to put in the mindset of be better at some stuff, just as container many forwarders to consider ro-ro,” said carriers are advantageous in others.” Oskar Orstadius, head of breakbulk sales, Among the advantages of MPVs are global commercial, Höegh Autoliners. self-geared vessels and shallow drafts “Last year we increased breakbulk that eliminate port issues, flexibility of share tremendously. This year we intend to fleet, and knowledge and experience in continue to do that,” he said. handling all manner of heavy and overRo-ro carriers’ advancement into the dimensional cargoes. breakbulk market has been driven by flexRegardless of vessel option, each ible liner services with reliable schedules, mode still faces the economic, political good transit times and global trade netand international market woes that have works, he said. had economists and analysts scratching With the opening of the expanded their heads for the last three years. Panama Canal, ro-ro carriers built new ves“We are aware the market is oversels with increased ramp capacities, bigger supplied and that has caused unhealthy doors, and unique designs to handle higher, competition, not only with alternatives wider and heavier cargoes, Orstadius said. but with fellow breakbulk carriers,” Along with good stowage on deck, ro-ro Calero said. Container carriers have fewer provides dedicated decks competitors, but breakinside to offer safety for bulk lines’ young fleets “The benefits of breakbulk and highresist scrapping and one of the options and-heavy cargo. With mergers and consolidaare the limits of the tions have been limited appropriate lashing, a shipper can minimize others. (Ro-ro) will – though further moves packing, he added. are expected. always be better at “I’m happy to see BBC Chartering’s some stuff, just as ro-ro carriers providway to mitigate the ing more innovation on container carriers competitive risk is to equipment,” said Wang “generate one year of are advantageous in cargo backlog,” then of COSCO Project Logisothers.” tics. “Their equipment competing in the spot makes it more flexible to market “as the cherry – David Lloreda Calero, accept larger cargoes.” on top,” he said. BBC Chartering “We are eating into “We have 180 ships markets we haven’t trading worldwide. If before,” Orstadius said. “In the last few we don’t make sure there’s some backlog, years we’ve been loading fracking and rice then we are left with the spot market and and things we had never considered.” this is going to hurt us, having so many Höegh has sought to prioritize comvessels and assets,” he added. modities, and focus upon what makes In pointing out the advantages of each ro-ro unique, such as underdeck stowage ocean-shipping alternative, Wang urged for renewables and aerospace, mining, oil carriers and freight forwarders alike to and offshore and, surprisingly, railcars. provide more focus on management of “We’ve handled a lot of railcars. We specialized areas of the project market. offer a high-quality product solution that “Most project freight forwarders just has been very successful for us and we’ll want to take it in. They don’t have a point continue to focus on,” said Orstadius, who of focus,” he said. “COSCO focuses on avianoted this has been business that MPVs tion and power plants. If you put such deep have traditionally owned. investment into a specialty trade lane, you “I’m unpleasantly surprised about know your clients’ products. You know clithe railcar solution,” Calero said good ents’ demands and ways of thinking. Then naturedly. “I’ve heard about that before, you’ll be acting more as the client. but having it reaffirmed is actually a little “With unique skills in the market, scary.” you’ll stand, you’ll survive.” BB ISSUE 2 / 2017
AVOIDING BAD NEWS Cargo Owners Say Efficient Forwarders Communicate Well BY ERIC JOHNSON
No cargo shipper wants a middle-ofthe-night phone call from a client with bad news about a shipment that arrived with serious damage. Preventing those phone calls – and any other headache that can interfere with a cargo owner’s sleep – requires careful planning, quality packaging and
plenty of communication between shippers and freight forwarders, according to professionals participating Wednesday in a panel discussion at Breakbulk China 2017 in Shanghai. Participants representing three major shippers that rely on global breakbulk services – Technip China, PowerChina and Morimatsu China – mentioned damage prevention ideas and other suggestions for project efficiency while working with freight forwarders. Shao Bin, Morimatsu China’s logistics director, said shippers need to know their freight forwarders well, set high standards, clearly explain what’s expected of them and make sure they understand and follow all procedures. Morgan Meng, a deputy project director at PowerChina’s Hubei Electric Power division, said a shipper should “have very detailed conversations with a logistics
provider before signing a project.” And Frank Zhang, Technip China’s senior shipping coordinator, recommended face-to-face communications and conference calls. “Communications and cooperation will affect the efficiency of a project and its success,” he said. A first step for shippers shopping for a freight forwarder should be a meeting “with no written transcript,” during which the shipper describes the project, Shao said. A forwarder that easily understands and responds well during such a discussion should win the contract. “Mutual understanding of each others’ needs and the ability to quickly respond when problems arise” also should influence a shipper’s choice of freight forwarder, Zhang said. Meng said he wants a forwarder who is “committed to the cargo owner. I want a partner.” BB
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event recap
RO-RO LINES DIVERSIFY BY ERIC JOHNSON
ZHOU URGES MPV LINES TO ADAPT BY ERIC JOHNSON
China is by far the world’s largest auto market, but that vastness hasn’t stopped global roll-on, roll-off carriers that transport the nation’s car imports and exports from pursuing cargo diversification. Indeed, according to experts participating in a Breakbulk China 2017 panel discussion, opening ro-ro ship holds to a wider variety of cargo – from buses to construction equipment – has been a key to success in the huge China market. Bob Tang, country sales manager for Höegh Autoliners Ltd. China, said his company has added railcars, wind blades and construction equipment to its China service mix in the face of fluctuating auto demand. Rider Liu, commercial director and Beijing office head for Wallenius Wilhelmsen Logistics, said Chinese car exports fell after peaking at about 1 million cars in 2012-13. Although exports could rise again since some brands such as Volvo are being shipped to the U.S., he said, WWL is accepting a variety of cargo including buses. Carriers have benefited from the rapid development of ro-ro terminals that have popped up over the past 15 years along China’s coast. China has 14 terminals licensed to handle cars in ports such as Shanghai and Ningbo. China’s ro-ro terminals are still expanding and improving, said Xi Jialin, marketing director at the Shanghai Haitong International Automotive Terminal. By 2030, he said, ports accommodating ro-ro ships nationwide will have the capacity to process about 3 million cars annually. Tang and Liu predicted the China market will strengthen in coming years. In Tang’s view, the market has been improving since the second half of last year. “Our loads were almost full on the major routes” during those months, he said. “We think we’ve already been through the worst.” Liu said, “We believe that in the next few years, the ro-ro business may be better, with bigger fleets and bigger cargo volumes. And in next 10 years, the ro-ro market in China will contribute greatly to the global market as car exports will continue increasing.” BB 108 BREAKBULK MAGAZINE www.breakbulk.com
Exploring niche markets, cooperating with container lines and expanding “horizontally” are some of the creative business options worth pursuing for breakbulk carriers dedicated to China in today’s challenging environment. Stressing those options – and an optimistic outlook – for breakbulk shipping companies serving China is industry veteran Zhou Bin, general manager of the Sinotrans & CSC Group subsidiary Shanghai Changhang Shipping Co. Ltd., who delivered a keynote speech at Breakbulk China 2017. Addressing trade professionals in Shanghai at the sixth annual Breakbulk China exhibition, Zhou expressed “cautious optimism” for multipurpose vessel cargo demand in 2017, thanks to rising exports of China-made steel and the nation’s EPC-focused Belt and Road overseas commerce initiative. “It’s expected the MPV market in 2017 will maintain a steady development pace, and that the overall situation will be better than in 2016,” he said. “Fortunately, MPV market demand has been driven by construction projects, such as infrastructure and energy projects worldwide, especially in the developing countries and emerging markets.” But breakbulk shipping companies should adapt to meet business challenges stemming from weakening global cargo volume growth, excess ship capacity worldwide and China’s cooling economy, Zhou said. Some of Zhou’s suggestions for adaptation come from the playbook for his own company, which is pursuing niche markets such as ocean transportation of live cattle and offshore wind power projects. He also recommended breakbulk carriers “actively cooperate with container carriers on feeder-line container
transportation. This will help a lot in ports where container ships cannot frequently anchor due to capacity constraints or idling cost restrictions.” And Zhou’s idea of a “horizontal” business plan – the opposite of vertical integration – involves breakbulk carriers working closely with logistics providers, port terminals and warehouses to offer diversified customer services. Nevertheless, Zhou said, China’s four-year-old Belt and Road project is expected to continue generating business for ocean haulers of rolling stock, power plant equipment, mining supplies and construction machinery sailing between China and Africa, the Middle East and Southeast Asia. Much of this traffic has been tied to Chineseled EPC projects requiring bulky engineering components. In coming years, Zhou expects the Belt and Road’s EPC projects – and engineering cargo – to shift attention “away from Africa and other low-end equipment markets to mid-end equipment markets such as the Middle East and South America.” “With the reorganization of the high-end manufacturing industry worldwide, and China’s implementation of the Belt and Road commercial initiative, big changes are expected for international shipping routes,” he said. “The high-end equipment business will transfer from domestic trade inside the EU, or foreign trade between the United States and EU, to trade from China to countries in Africa, Asia and Latin America.” Zhou noted that the China breakbulk carrier fleet is the world’s second-largest, after Germany’s. As of mid-2015, Chinese ship owners operated 247 MPVs, with combined tonnage equal to 14 percent of global MPV fleet capacity. Changhang, where Zhou has worked as general manager since 2002, operates more than 50 vessels with a total capacity of nearly 2 million deadweight tons. BB ISSUE 2 / 2017
INDEX Breakbulk cargo is an eclectic mix, encompassing forest products, steel, pressure vessels, windmill blades, rolling stock and out-of-gauge items. With this in mind, BREAKBULK INDEX data ranges from steel production to details of planned capital projects.
The global nature of today’s breakbulk and heavylift sectors requires transportation professionals to be on top of economic trends worldwide, which calls for inclusion of focused macro-economic data on prices and events that affect EPCs, the breakbulk community and the multipurpose fleet.
EUROPEAN FREIGHT FORWARDING INDEX The index, based on European forwarders’ actual and expected freight volumes, rose to 54 in March, compared with 49 in February and 56 for March 2016. Values below 50 on the zero-to-100 scale indicate a decline. 100 90 80
Actual
Forecast
70 60 50 40 30 20 10 0
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A 2012
2013
2014
2015
2016
2017
Source: Danske Market Equities, www.danskebank.dk www.breakbulk.com BREAKBULK MAGAZINE 109
bb index
ECONOMY, EUROPEAN UNION GDP FORECAST
Economists forecast flat to slight declines in GDP in 2017 and 2018.
Euro Zone: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.
4% 2016
3%
2017* 2018*
2%
1%
ZO NE EU RO
UN ITE DK ING DO M WE ST ER NE UR OP E EU RO PE AN UN IO N
SW ED EN
SP AIN
NO RW AY
SW ITZ ER LA ND
*Forecast
NE TH ER LA ND S
ITA LY
GE RM AN Y
FR AN CE
BE LG IUM
0%
INFLATION FORECAST
While GDP rates are projected to slide, inflation rates are projected to steadily increase through 2018. 4%
3.5% 3%
2016
2.5%
2017*
2%
2018*
2.5% 1% 0.5% 0%
Current account balances are the difference between a given nation’s imported and exported goods, services and transfers and are an indicator of foreign trade trends.
300
ZO NE EU RO
Western Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK.
500 400
UN ITE DK ING DO M WE ST ER NE UR OP E EU RO PE AN UN IO N
SW ED EN
SP AIN
NO RW AY
CURRENT ACCOUNT FORECAST
SW ITZ ER LA ND
*Forecast
NE TH ER LA ND S
ITA LY
GE RM AN Y
FR AN CE
BE LG IUM
-0.5%
2016 2017 2018*
200 100 0 -100
Source: Consensus Economics, www.consensuseconomics.com
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ZO NE EU RO
SW ITZ ER LA ND
SW ED EN
SP AIN
UN ITE DK ING DO M WE ST ER NE UR OP E EU RO PE AN UN IO N
*Forecast, in US$billions
NO RW AY
NE TH ER LA ND S
ITA LY
GE RM AN Y
FR AN CE
BE LG IUM
-200
European Union: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.
ISSUE 1 / 2017
TIME CHARTER RATES TOEPFER TRANSPORT MULTIPURPOSE SHIPPING TIME CHARTER INDEX The index is based on a 12,500 deadweight ton MPV/HL “F-Type” vessel for a six to 12-month time charter, and represents the monthly assessment from operators, owners and brokers.
TIME CHARTER RATE PER DAY
$8,000 $7,750 $7,500 $7,250
$7,178
$7,168 $6,963
$7,000
$6,902
$6,860
$6,750
$6,778 $6,645
$6,500
$6,389
$6,250
$6,370 $6,366
$6,280
$6,335
$6,260 $6,017
$6,000
Jan ‘16
Feb ‘16
Mar ‘16
Apr ‘16
May ‘16
Jun ‘16
Jul ‘16
Aug ‘16
Sep ‘16
Oct ‘16
Nov ‘16
Dec ‘16
Jan ‘17
Feb ‘17
Source: Toepfer Transport, www.toepfer-transport.com.
As the demand for renewable energy solutions rises, we’re ready with all it takes to keep the world’s energy moving. Port Corpus Christi provides more advantages for the movement of breakbulk and heavy lift cargo, like wind energy components. Our facilities include: • Dockside rail loading and truck transfer capability • A 47' deep ship channel • Three Class I rail carriers and short line railroad • State of the art security and safety operations • A skilled labor force
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bb index
CORRUPTION PERCEPTIONS INDEX 2016 Transparency International ranks the perceived levels of public sector corruption in 176 countries/territories around the world. More than 70 percent of the countries scored below 50 in 2016.
COUNTRY/ RANK TERRITORY SCORE
COUNTRY/ RANK TERRITORY SCORE
COUNTRY/ RANK TERRITORY SCORE
COUNTRY/ RANK TERRITORY SCORE
1 1 3 4 5 6 7 8 9 10 10 10 13 14 15 15 17 18 19 20 21 22 23 24 24 24 27 28 29 29 31 31 31 31 35 35 35 38 38 38 41 41 41 44 44 46 47 47 47 50 50
52 53 54 55 55 57 57 57 60 60 62 62 64 64 64 64 64 69 70 70 72 72 72 75 75 75 75 79 79 79 79 83 83 83 83 87 87 87 90 90 90 90
90 95 95 95 95 95 95 101 101 101 101 101 101 101 108 108 108 108 108 113 113 113 116 116 116 116 120 120 120 123 123 123 123 123 123 123 123 131 131 131 131
131 136 136 136 136 136 136 142 142 142 145 145 145 145 145 145 151 151 153 154 154 156 156 156 159 159 159 159 159 164 164 166 166 168 169 170 170 170 173 174 175 176
Denmark New Zealand Finland Sweden Switzerland Norway Singapore Netherlands Canada Germany Luxembourg United Kingdom Australia Iceland Belgium Hong Kong Austria United States Ireland Japan Uruguay Estonia France Bahamas Chile U.A.E. Bhutan Israel Poland Portugal Barbados Qatar Slovenia Taiwan Botswana Saint Lucia Saint Vincent and the Grenadines Cape Verde Dominica Lithuania Brunei Costa Rica Spain Georgia Latvia Grenada Cyprus Czech Republic Malta Mauritius Rwanda
90 90 89 88 86 85 84 83 82 81 81 81 79 78 77 77 75 74 73 72 71 70 69 66 66 66 65 64 62 62 61 61 61 61 60 60 60 59 59 59 58 58 58 57 57 56 55 55 55 54 54
Korea (South) 53 Namibia 52 Slovakia 51 Croatia 49 Malaysia 49 Hungary 48 Jordan 48 Romania 48 Cuba 47 Italy 47 Sao Tome & Principe 46 Saudi Arabia 46 Montenegro 45 Oman 45 Senegal 45 South Africa 45 Suriname 45 Greece 44 Bahrain 43 Ghana 43 Burkina Faso 42 Serbia 42 Solomon Islands 42 Bulgaria 41 Kuwait 41 Tunisia 41 Turkey 41 Belarus 40 Brazil 40 China 40 India 40 Albania 39 Bosnia & Herzegovina 39 Jamaica 39 Lesotho 39 Mongolia 38 Panama 38 Zambia 38 Colombia 37 Indonesia 37 Liberia 37 Morocco 37
The FYR of Macedonia 37 Argentina 36 Benin 36 El Salvador 36 Kosovo 36 Maldives 36 Sri Lanka 36 Gabon 35 Niger 35 Peru 35 Philippines 35 Thailand 35 Timor-Leste 35 Trinidad and Tobago 35 Algeria 34 Côte d´Ivoire 34 Egypt 34 Ethiopia 34 Guyana 34 Armenia 33 Bolivia 33 Vietnam 33 Mali 32 Pakistan 32 Tanzania 32 Togo 32 Dominican Republic 31 Ecuador 31 Malawi 31 Azerbaijan 30 Djibouti 30 Honduras 30 Laos 30 Mexico 30 Moldova 30 Paraguay 30 Sierra Leone 30 Iran 29 Kazakhstan 29 Nepal 29 Russia 29
Ukraine Guatemala Kyrgyzstan Lebanon Myanmar Nigeria Papua New Guinea Guinea Mauritania Mozambique Bangladesh Cameroon Gambia Kenya Madagascar Nicaragua Tajikistan Uganda Comoros Turkmenistan Zimbabwe Cambodia Dem Rep of Congo Uzbekistan Burundi Central African Rep Chad Haiti Republic of Congo Angola Eritrea Iraq Venezuela Guinea-Bissau Afghanistan Libya Sudan Yemen Syria Korea (North) South Sudan Somalia
29 28 28 28 28 28 28 27 27 27 26 26 26 26 26 26 25 25 24 22 22 21 21 21 20 20 20 20 20 18 18 17 17 16 15 14 14 14 13 12 11 10
Source: Corruption Perceptions Index 2016, Transparency International, www.transparency.org/cpi. 112 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 2 / 2017
photo contest
INTO THE WILD PHOTO CONTEST WINNER:
Logistics Plus Inc. LOCATION: Istanbul, Turkey YEAR: 2017 DESCRIPTION: This transportation was from Gebze, Istanbul, to Orhangazi, Bursa Factory. The challenge was harsh weather conditions and cargo dimensions. It was snowing that night in Istanbul and it was not possible to carry the cargo directly with truck due to dimensions. We drove through the heavy snow until the nearest shipyard to take the ferry. There was no available barge on those dates and as a solution we found a car carrier ferry and cut some parts of the ferry off for a safe loading and discharging operation. Cargo Type: steep tank Dimensions : 16.00 x 6.00 x 6.10 – gross 22.500 kg Equipment Used : 4 Axle Special Tank Carrier Lowbed and Ferry
Voting is open at www.breakbulk.com for our next contest, Wonders of Technology, through April 23. All entries from Into the Wild and Wonders of Tech will be on display at Breakbulk Europe, April 23-26.
www.breakbulk.com BREAKBULK MAGAZINE 113
the last word
SUPPLY, DEMAND AND POLITICS
A
Credit: Keith Necaise Photography
The project logistics community has a front-row seat when it comes to the ups and downs of the global economy.
lthough we are beginning to hear some faint (very faint), cautious (very cautious) optimism from engineering, procurement and construction companies, see some stability in oil prices, and see a mild rebound in commodity prices, a punishing project market and widespread geopolitical instability continue to take a harsh toll. Central Asia and the CIS region are economies driven by natural resources. As energy prices fell, EPC projects and new exploration went by the wayside, according to Siddique Khan, president and CEO of Globalink Logistics Group, based in Almaty, Kazakhstan. No one was willing to spend when gas was less than $50 a barrel. Although oil prices are showing some stability, they’re still not sufficient for smaller producers to invest in new projects. So, they are producing, but there is no new drilling. Meanwhile, oil majors are merely completing previously made investments. “My main concern is not today, but the projects that go into the pipeline. Projects designed five years ago are moving now. Over the next five years, what will happen? Nobody has put anything into the future pipeline,” Khan said. The same cold reality applies to commodity extraction. China’s slowdown has also hit the region hard. Kazakhstan, like most commodity exporters, learned to rely on China, so long a ravenous consumer of raw materials as well as a primary investor in the projects market. Bright spots are difficult to pinpoint and political factors are running through it all. “There are so many buts and ifs,” Khan said. Rebuilding troubled areas in MENA/CIS cannot go forward without a better sense of geopolitical stability and the removal of sanctions. Regarding Iran, “we are now hearing about the reinforcing of sanctions; it puts all investors, including ourselves, on the back foot. Nobody wants to experiment,” Khan said. “The same goes for infrastructure and oil and gas investments. Nobody wants to go full throttle into the market.” Project business is also thin on the ground in Turkey, according to Emre Eldener, general manager of Kita Logistics in Istanbul, Turkey. Political turmoil there has taken a harsh toll. “I’m hoping things
114 BREAKBULK MAGAZINE www.breakbulk.com
will start getting back to normal in terms of investment later in 2017,” he said. Yet, the mega-projects spoken of in Turkey for years rumble on: work continues on the multibillion-dollar Ataturk airport. Eldener noted some 60 tower cranes there when he drove by the site recently. And a contract for a US$2.7 billion bridge over the Dardanelles was recently awarded, while a long-discussed nuclear power plant is back on track. Hicri Guneri, country manager for BBC Chartering/Normed, also based in Turkey, sees an ongoing state of emergency there, as well as continuing regional risk. “It’s all about politics,” he confirmed. The loss of transit cargo to Iraq and Russia, Ukraine and the Black Sea region has been painful. There’s interest in Iran, but nothing is moving yet and sanctions continue. “It is a prospect, but not for this year,” Guneri said. Maybe in 2018. Peace in Syria would be an enormous boon, geopolitically, humanely and in the most practical business sense. Rebuilding there and in other war-ravaged areas would be a source of project business for Turkish EPCs and logisticians. Eldener sees Iran very slowly opening to the rest of the world, with a few power plant and manufacturing projects. And normal relationships with Russia, assuming stabilized and even increasing oil prices, would go a long way toward easing Turkey’s woes. One interesting project trend is the dismantling and moving of small, older natural gas-fired power plants from Turkey and other regions to Africa. Locked by contract into buying relatively high-priced feedstock in Turkey, these 40- to 60-megawatt plants cannot compete with cheaper, more efficient hydroelectric and coal-fired power producers. Africa’s power production remains woefully underserved. Thus, Guneri has also noted a few dismantled power plants out of Turkey, India and Sri Lanka for Africa. The project logistics community has a front-row seat when it comes to the ups and downs of the global economy. Few other disciplines are as aware of or affected by trade flows, the vagaries of supply and demand, and the way politics can skew business practice. Janet Nodar Content Director ISSUE 2 / 2017
22
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September 25-27, 2017 • Savannah International Trade and Convention Center Savannah, Georgia, USA • www.transportsymposium.com
The must-attend event for anyone involved in the transportation, materials handling, or distribution of forest products.
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