Breakbulk Magazine Issue 4 / 2017

SUPPLY CHAIN SECURITY n APPALACHIAN PETROCHEMICALS n BOOSTER FOR PROJECT CARGO

ISSUE 4 / 2017

BANISH THE BOX Containers Shouldn’t Dominate Commodity Discussions

RICKMERS-LINE

contents Cover Story

08

16 ENERGY UPDATE

PETROCHEMICALS’ NORTHEAST FRONTIER Appalachia Looks to Gain from Reserves

24 LOGISTICS PERSPECTIVE

A HIDDEN PEARL

AEO Benefits Revealed for Breakbulk

32 TRADE NOTES

MAKING A PACT

Think Twice Before Trashing Trade Deals

08 BANISH THE BOX

Containers Shouldn’t Dominate Commodity Discussions

16

54

39 REGIONAL REVIEW

PHILIPPINES SEIZES POTENTIAL

Projects by Presidential Decree

44 TRADE NOTES

ANTI-CORRUPTION CLOUT Brazil Wakes Up to Project Transparency

50

62

ADVERTISERS’ SPOTLIGHT

NORTH AMERICAN PORTS

06 Editorial n 50 Mexico’s Energy Reform is Paying Off n 54 Reusable Rocket Boosters Provide Project Payloads 57 Gas Discoveries to Transform Egypt’s Economy n 60 Thought Leaders n 68 Index n 72 Photo Contest Winner n 74 The Last Word ON THE COVER: In this 2015 file photo, ABP takes a weekly delivery of paper in breakbulk vessels from Sweden and Finland. / Credit: ABP 4 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

editorial

UNEXPECTED FORTUNES

N

Gary Burrows

BREAKBULK SESSIONS Breakbulk has expanded its editorial media channels to include webinars.

The next session will cover Incoterms, attempting to cut through the misunderstanding that surrounds use of these business trade terms. “Incoterms Rules 2020: What Can We Expect,” presented by Jaynette Kettler, of UTC Overseas, will air 11 a.m.

EDT, Wednesday, Aug. 16. The half-hour presentation will include a question-and-answer period. Register at www.breakbulk.com/ breakbulk-sessions.

Future presentations will include Breakbulk research partners, including global intelligence partner Stratfor, and a slate of sessions that will integrate with our magazine coverage.

owadays, you can’t pick up a business publication, view a website or crack open a market study without plunging into angst and uncertainty regarding trade among world markets, threatened by undercurrents of populism and protectionism.

Political turmoil and hints of isolationism pulls at loose threads in long-forged trade alliances, blurring the distinctions between trade partners and adversaries.

The International Monetary Fund, in its Global Economic Outlook, in starkest terms sees protectionism “leading to trade warfare.”

In Mark Willis’ story this issue on trade pacts, (“Making a Pact,” page 32), he details how changes to trade deals such as the North American Free Trade Agreement, and the United Kingdom’s exit from the European Union, could begin to jeopardize “free” trade.

However, the story also conveys the development of trade pacts, how their complexities wrought a complex, integrated economic and political environment that has brought great benefit, and more recently, political and socioeconomic costs.

Simply scrapping these forged alliances is like cutting electricity to your house, then wandering through rooms, flipping switches and cursing the darkness.

Instead, trade and the brightest business minds find a way.

They provide the energy, intelligence and intuition to develop alliances that drive economic stability and growth – often demonstrating to politicians how it’s done. The project industry is at such a juncture and must find ways to make trade work, as it finds its way out of an historic downturn.

6 BREAKBULK MAGAZINE www.breakbulk.com

Willis’ trade pact story points out some “silver linings” of trade agreements, such as the Comprehensive Economic and Trade Agreement between the European Union and Canada, and the Trans-Pacific Partnership – minus the U.S. – and a negotiated EU-Japan free trade agreement.

There is further evidence within this issue’s pages of trade success and development from unexpected places and unanticipated circumstances: • In the Philippines, Jaya Prakash reports that President Rodrigo Duterte is attempting to fast-track a tax reform bill to fund the archipelago’s infrastructure to drive economic activity and job creation (“Philippines Seizes Potential,” page 39). From a political leader with such a checkered past, the efforts may be to recast his legacy, but it also reflects the potential of the East Asia region.

• From the ashes of the Odebrecht bribery scandal, Alan Field writes that Brazil has begun waging battle against the endemic corruption, changing cultural norms and becoming an influence over the rest of South America (“Anti-corruption Clout,” page 44).

• For decades Mexico was hamstrung by its state-owned petroleum giant PEMEX in its ability to adapt to global markets.

However, Kerry Dimmer reports, (“Power For Change,” page 50), that the country’s energy reform, initiated in 2013, has reversed its energy fortunes and has led to nearly a dozen free trade agreements, as well as economic cooperation agreements and other important pacts.

While trade news appears overwhelming, there’s ample historical evidence that business and trade finds ways to shine in even the darkest hours.

EDITORIAL DIRECTOR Gary G. Burrows / +1 904 535 5460 gburrows@breakbulk.com NEWS EDITOR Carly Fields cfields@breakbulk.com HEAD DESIGNER Catherine Dorrough DESIGNER Mark Clubb REPORTERS Paul Scott Abbott Jaya Prakash Kerry Dimmer Thomas Timlen Alan M. Field Mark Willis

BREAKBULK EDITORIAL BOARD John Amos Amos Logistics

Ed Bastian

BBC Chartering

Murray Cooper

McDemott International Inc.

Dennis Devlin DB Schenker

John Hark

Bertling Project Logistics

Dennis Mottola Bechtel Corp.

William Moyersoen

ArcelorMittal Antwerp Logistics

Albert Pegg

Antwerp Port Authority

Dirk Visser

Dynamar D.V.

Grant Wattman

Agility Project Logistics

MANAGING DIRECTOR Alli McEntyre / +353 21 477 3808 amcentyre@breakbulk.com ACCOUNT MANAGER Robert Janusauskas / +353 21 477 3808 rjanusauskas@breakbulk.com SUBSCRIPTIONS To subscribe, email gburrows@breakbulk.com, or call from inside the U.S. +1 904 535 5460 between 8:00 am and 5:00 pm EST. You can also subscribe at www.breakbulk.com/subscribe.

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ISSUE 4 / 2017

cover story

8 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

BANISH THE BOX CONTAINERS SHOULDN’T DOMINATE COMMODITY DISCUSSIONS

B Credit: Peel Ports

BY CARLY FIELDS

Big, beefy project cargoes often steal the limelight when it comes to breakbulk moves. Scale and sheer quirkiness allow them to win out over the more mundane commodity side of breakbulk. Moving a large transformer might call for months of preparation to arrange a shipment overland and by sea, perhaps closing roads and shifting obstacles to make the move a success.

By comparison, handling and moving breakbulk commodities is a cinch. But despite its more-demure appearance, commodities remain integral to the breakbulk business. Steel rebar, girders, slabs and coils; paper pulp and rolls; timber; bagged cargoes; and perishables – all benefit from the specialized handling and carriage that breakbulk terminals and multipurpose carriers offer.

However, their importance is being eroded.

Without the protection of scale that project cargoes enjoy, breakbulk commodities are particularly susceptible to the intrusion of the container sector, and the box invasion dominates discussions on the future of the breakbulk commodity sector.

Port of Antwerp handles what it describes as the “big five” breakbulk cargoes, namely steel and non-ferro, project cargo, forest products, fruit and perishables, and rolling stock. While volumes dipped slightly – 2 percent – in 2016 www.breakbulk.com BREAKBULK MAGAZINE 9

cover story

BETTER TIMES AHEAD

compared with 2015, its market share in the Hamburg-Le Havre range grew 2 percent to 27 percent. The losses in the range are almost exclusively attributable to the rising dominance of containers.

Those standardized, secure and weatherproof boxes are undeniably an attractive alternative mode for breakbulk cargo shippers. Wim Dillen, Port of Antwerp’s head of business development, sees the attraction as twofold: low freight levels due to the overcapacity in the container sector and improved inventory management.

“There is no denying that containerization continues in certain domains, especially fruit and perishables. In less than two to three years, our conventional volumes of fruit have dropped by more than 50 percent,” Dillen said.

However, that cargo has not left the port completely: the cellular container fleet stills discharges bananas, pineapples, apples and more at the fruit terminals in Antwerp. Other traditional breakbulk volumes, such as forest cargoes and steel, use containers when convenient.

The encroachment of containers is “a matter of comparative advantage 10 BREAKBULK MAGAZINE www.breakbulk.com

and opportunity cost,” pointed out Tim Polson, a shipbroker with breakbulk specialist AIS. When the container-shipping market was at an all-time low, it made sense for container-shipping companies to carry breakbulk cargo because the extra space it occupied and extra time it took to load, lash and secure were worth less than the extra revenue the breakbulk cargo brought, he said.

Chris Smith, Ports America vice president breakbulk, admitted being concerned about the containerization trend.

“When container rates are low and there is excess capacity we believe [container lines] will continue to be aggressive and target traditional breakbulk cargoes. Breakbulk terminals need to be continually looking for ways to improve productivity and keep costs down to compete.”

For its part, Ports America has been aggressively deploying its process improvement teams throughout its network to keep costs in check.

Credit: Ports America; above: Shutterstock

“THERE IS NO DENYING THAT CONTAINERIZATION CONTINUES IN CERTAIN DOMAINS, ESPECIALLY FRUIT AND PERISHABLES.” – Wim Dillen, Port of Antwerp

But it’s not all doom and gloom. The recent improvement in freight rate levels for container ships has lured some shippers back to the pure breakbulk sector.

In the first five months of 2017, Antwerp saw its breakbulk volumes increase by more than 20 percent compared with the same period last year, with steel performing exceptionally well, as well as rolling stock.

“Now that container rates are higher, space on container ships is scarcer and time is valuable again, breakbulk is becoming less attractive for the container lines, which is of course good for multipurpose ships,” Polson said.

And there is also the question of suitability, which becomes relevant when pricing gains are taken out of the equation. Simply put, multipurpose ships are built to carry breakbulk cargo and container ships are built to carry containers.

Polson gives an analogy: 20 maritime lawyers could probably lift a one-ton concrete block onto the back of a truck by hand given enough time, though this would only be viable if there were no maritime incidents to work on. If only three of them had high-paying maritime law work to do, then it would be more viable to just hire a forklift that can lift up to six blocks onto the truck at a time, in less than a minute. “When time and resources are scarce, it makes sense for everyone to stick to their core competencies,” he said.

Andrew Grindley, Peel Ports’ solutions development manager, bulk terminal operations, agreed that the economies of scale are simply not there to switch all breakbulk cargoes to containers. “It really is labor intensive to place

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30,000 tonnes of steel coils into containers,” he said. “It works if there are small volumes, but from a container line’s point of view I’d be very surprised if you could find one able to deal with such big breakbulk volumes in containers. Big breakbulk shipments bring the best value and the best economies of scale.”

AAL Managing Director Christophe Grammare believes that the initial craze to containerize everything is finished.

“Now, shippers make a cognitive choice on what remains as breakbulk cargo.

Everything in the maritime industry is based on cycles, but at the end of the day, breakbulk is a specialty service; it will always be there.”

DEALING WITH PRESSURES

Credit: Peel Ports; above: Shutterstock

There are other pressures that are specific to breakbulk commodities that don’t involve a box. For one, steel volumes fluctuate on the back of anti-dumping measures, particularly in developed countries.

“Coming from the Australian market, we’ve seen anti-dumping measures on a regular basis for the last 10 years,” Grammare noted. “Now, every country is trying to protect their economies.

This has an influence on the sourcing of cargoes and the effect can be quite interesting.”

12 BREAKBULK MAGAZINE www.breakbulk.com

“IT REALLY IS LABOR INTENSIVE TO PLACE 30,000 TONNES OF STEEL COILS INTO CONTAINERS.” – Andrew Grindley, Peel Ports

Usually specific suppliers are targeted, which necessitates the sourcing of new suppliers, either in the same country or from alternative countries.

For example, shippers that were sourcing from China now source from Korea, Vietnam or Thailand.

“So, the anti-dumping measures are actually changing the geography of the trade,” Grammare said. However, that change is often temporary as over time the replacement suppliers may well get hit by anti-dumping measures, leading the whole sourcing merry-go-round to start again. Indeed, the initial supplier may eventually come back into favor as anti-dumping measures soften or as additional costs are built into the price.

“It tends to be a bit of a cycle: there’ll be four or five years of peace and then suddenly an anti-dumping action will come which will disrupt the supply chain,” he said.

Grammare raised another challenge: the shrinking availability of specialist breakbulk terminals. The industry has been reducing its facilities “for breakbulk because it has been seen as a bit of a dying industry.” This decline in specialist terminals will be the “biggest issue we have to deal with in the next 10, 15 years,” he said. To overcome this, large manufacturers and buyers are investing in their own wharves or port facilities to ensure that they can continue to move their cargoes in breakbulk form as ports increasingly favor container over breakbulk services.

Ports America’s Smith bemoans the aging infrastructure at many breakbulk terminals, warning that will continue to be a challenge for the industry. He also anticipates consolidation on the port servicing side, mirroring the amalgamations taking place on the carrier side.

Only “the strongest companies will survive,” he said.

Green needs are moving the goalposts further. “The world is demanding greener supply chain solutions at lower prices,” said AIS’s Polson. “Companies are under increasing pressure to deliver triple bottom line results, that is not just pure economic profit, but also the lowest possible societal and environmental impact.” For project cargoes, modular construction reduces the carbon tonmiles used to deliver cargo, making ISSUE 4 / 2017

cover story

breakbulk shipping a significant enabler.

“Windfarm towers can be shipped directly from the manufacturer’s berth at say, Esbjerg, Denmark, then shipped as close to the windfarm site as possible in say, Geelong, Australia. If it were to be broken down and shipped piece by

piece then it would take more trucks, more handling equipment, more voyages, more traffic through major cities as well as many other factors. Even if more economically viable, the modular and therefore breakbulk solution would be the winner in triple bottom line terms.”

VALUE-ADD BENEFITS

Breakbulk commodities also offer ports an additional revenue stream that give them a welcome edge: valueadd creation.

“Antwerp has always cherished its breakbulk segment, as it accounts for much more added-value creation than the container segment,” Dillen said.

“Apart from the actual stevedoring activities, Antwerp is home to seven steel service centers, three vehicle processing centers, numerous state-ofthe-art cold stores, a climate chamber for testing offshore equipment, and many, many more.” He believed that ports that provide a climate for that value-add creation will overcome the threat of decreasing breakbulk trade.

Evolving vessels types also offers opportunities: Antwerp noted a trend towards more specialized, niche vessels, such as wind turbine component carriers, larger roll-on, roll-off vessels and heavier gear. Ports America’s Smith also noted a tendency towards higher volumes of steel being transported on ro-ro vessels, a development that he expected to continue.

Yet, while he believes there will always be a need for breakbulk cargo and its supporting industry in the future, the road ahead will not be easy.

“Certain cargoes have a natural fit for breakbulk such as project cargo, structural steel, heavy coils, and bulk, and will continue to be shipped in traditional breakbulk ships. But as long as container line capacity continues to exceed demand and there are low freight rates, the breakbulk industry will have to fight for every ton of freight.”

And as the conversation returns to containers, it’s evident that the breakbulk commodities sector will never be able to shake off the omnipresence of boxes. But moving commodities in breakbulk still has efficiency, sustainability, flexibility and effectiveness on its side, ensuring that there will continue to be a place for the sector, regardless of the pervasiveness of containers. BB Carly Fields has reported on the shipping industry for the past 17 years, covering bunkers and broking and much in between.

14 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

A QUESTION OF SIZE

Dillen sees a light at the end of that tunnel. He expects slight improvements in the global economy to prop up prospects for oil and gas, mining and infrastructure projects, increasing project cargo movements.

Technology is also altering the shape of the sector. “With 3D printing, online ordering and other such technologies improving, buyers may soon expect to receive their heavy-lift shipments with the same completeness and accuracy as they receive their Bluetooth headphones bought on Amazon.com,” Polson said.

Grindley anticipated more automation in the future, of warehousing, handling and processes. “The greatest benefit is the health and safety of the workforce, contractors and customers. It removes people from those risk areas as much as possible.

Ports are dangerous places, so anything that we can do to mitigate the risks is a big win for me and the organization.” BB

Less is more, it seems, when it comes to the movement of project cargoes.

The trend is for more, lower volume shipments, where previously the main breakbulk cargoes were large parcels for major infrastructure projects.

Indeed, AIS’s Tim Polson notes that breakbulk cargoes today are either being built small enough to fit in containers, or as large as can possibly be transported overland to the wharf, with not much in between.

Peel Port’s Andrew Grindley agreed that the industry has become more risk averse, preferring to commit to more small-sized shipments.

This is partly a result of the weaker markets; there is simply less project cargo out there. However, Port of Antwerp’s Wim

Credit: Port of Houston

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energy update

PETROCHEMICALS’ NORTHEAST FRONTIER Appalachia Looks to Gain From Reserves

T

he U.S. Northeast’s Appalachian Basin is the next frontier for American petrochemical projects. And while production is highly unlikely to ever come close to rivaling that along the U.S. Gulf, impacts are anticipated to be in the tens of billions of dollars.

The region – which includes large portions of western New York, Pennsylvania, Ohio, West Virginia and Kentucky – is rich in natural gas and oil supplies from the Marcellus/Utica and Rogersville shale plays, making it a logical place for building massive petrochemical plants, known as crackers, used in transforming raw materials into everyday plastics.

A U.S. unit of British-Dutch energy and petrochemical giant Shell has this year begun grade-level construction for a massive cracker complex about 30 miles northwest of Pittsburgh, while Thailand-based PTT Global Chemical Public Co. Ltd. is expected to decide by year-end whether to solidify plans for

building a 450-acre cracker plant of its own in Dilles Bottom, Ohio, about 15 miles south of Wheeling, West Virginia.

Shell plans to have its facility at a former zinc smelter site along the Ohio River in Beaver County, Pennsylvania, operational by early 2020s. It will take the natural gas liquid ethane from the Marcellus/Utica formations and use fur-

BY PAUL SCOTT ABBOTT

nace units to break it apart – or “crack” it – rearranging its large molecules into carbon and hydrogen atoms to create ethylene, which is to be further processed to create different types of polyethylene.

Polyethylene pellets, produced at a pace of 1.6 million tons a year, are then to be shipped to plastics products manufacturers via railcars and trucks.

The petrochemical cracker complex being built by Shell on the Ohio River northwest of Pittsburgh is the biggest project of its kind in the Appalachian Basin.

Credit: Shell

ABOVE: Polyethylene pellets with added pigments. Polyethylene pellets are produced at a pace of 1.6 million tons per year. / Credit: Shutterstock

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ISSUE 4 / 2017

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Ventures LLC, a Denver-based portfolio company of a private equity fund managed by Goldman, Sachs & Co., anticipates storing ethane below ground at a 200-acre site 12 miles south of Dilles Bottom by the end of 2018. That Ohio site is near Blue Racer Midstream’s Berne Complex of two cryogenic natural gas processing plants, both of which became operational in 2015.

American Chemistry Council economists see higher costs associated with Northeast crackers compared with Gulf counterparts, but they see Appalachia offering some advantages as well.

“The fixed capital costs are higher largely because construction costs are higher in the Northeast,” said Kevin Swift, chief economist at the Washington-based chemical industry trade group. He pointed out that states of the Appalachian Basin are heavily unionized, while Texas and Louisiana are right-to-work states, with opportunities for lower-cost nonunion labor.

Swift’s view on costs is supported by a May report from Petrochemical Update, a division of London-based market intelligence firm FCBI Energy Kevin Swift Ltd. The report indicates capital American Chemistry Council costs, including construction and detailed design, are US$250 million to US$270 million higher in the Northeast compared with the Gulf for development of a similar typical cracker.

Whereas hundreds of millions of dollars may seem to be a deal-breaker, one way to look at the comparison is that the capital cost difference is about 5 percent of the total investment for a new cracker.

While the companies haven’t released figures, the Shell and PTT cracker projects each have estimated price tags in the US$6 billion range.

COSTS EXPECTED TO RISE

PROXIMITY IS KEY

APPALACHIAN BASIN SHALE FORMATIONS Marcellus/Utica Shales Rogersville Shale

VALUE OF SHIPMENTS (US$BILLION) 11.0+

1.0-2.9

6.0-10.9

<1.0

3.0-5.9

n/a

The Appalachian Basin’s Marcellus/Utica and Rogersville shale formations are close to states with large volumes of plastics shipments, including Ohio, Michigan and Illinois.

Source: American Chemistry Council

SENATORS SEEK ACTION

Meanwhile, U.S. senators from West Virginia and Ohio are pushing legislation to direct the U.S. departments of Energy and Commerce to study establishment – likely along the Ohio River – of a subterranean Appalachian Storage Hub for holding and distributing ethane from the region’s shale plays. Currently, much of that ethane is shipped via pipelines to the U.S. Gulf region for cracking, with the rest blended into the overall methane stream and sold as commercial natural gas.

The Appalachian Ethane Storage Hub Study Act of 2017, S. 1075, was introduced in May by Sen. Shelley Moore Capito, R-W.Va.; Sen. Joe Manchin III, D-W.Va.; and Sen. Rob Portman, R-Ohio, and was referred to the Senate Committee on Energy and Natural Resources, where it remained without action through early summer.

But development of storage facilities for natural gas liquids, or NGLs, isn’t waiting on legislation. Energy Storage 18 BREAKBULK MAGAZINE www.breakbulk.com

Yet, even with the current and projected activity, expert observers don’t see the U.S. Northeast as ever coming close to the long-established Gulf petrochemical industry in production capabilities. This is in part because of higher construction and labor costs. Moreover, the Gulf is decades ahead in infrastructure, with more than a dozen major new cracker projects in the pipeline. An abundance of Gulf region feedstock is helping fuel a record boom in exports of plastic resins from Gulf ports.

Martha Moore, the American Chemistry Council’s senior director of policy analysis and economics, agreed that costs may be higher, but also cited several benefits related to Northeast crackers.

First of all, Moore said, Appalachian Basin crackers benefit from proximity to shale plays that are rich in NGLs, with production expected to increase, reaching 350,000 barrels a day of ethane available from Marcellus/Utica formations by 2025.

Furthermore, she said, the Appalachian Basin is close to Midwest ISSUE 4 / 2017

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Northeast petrochemical activity is seen as being centered.

“The right policies are critical to realizing this opportunity,” Dooley said, adding that he sees the Senate bill as “an important step forward [that] will help inform efforts to maximize America’s domestic energy and manufacturing potential.”

“Uncertainty around financing is a key barrier to the development of energy infrastructure in the Appalachian region,” Dooley added. “Policymakers can help by affirming that NGL storage and distribution projects are eligible for existing private-public financing programs. As Congress and the administration consider infrastructure modernization legislation, the Appalachian Hub should be a priority. And a timely and efficient regulatory permitting process is essential.”

‘NOT A COMPETITION’

A reactor for Sasol’s manufacturing ethylene cracker is hubs, includoffloaded in Lake ing those which Charles, Louisiana. demand plastics.

Moore offered Credit: Port of Lake the strength of Charles the U.S. economy as another factor favoring Northeast cracker development.

And her colleague, Swift, noted that the interior Northeast does not experience hurricanes as the Gulf does – although it does get plenty of snow.

A report from the American Chemistry Council, unveiled at a Capitol Hill press event featuring lawmakers from West Virginia, said the four-state region of West Virginia, Pennsylvania, Ohio and Kentucky could realize 100,000 permanent new jobs, including 25,700 new

20 BREAKBULK MAGAZINE www.breakbulk.com

chemical and plastic products manufacturing positions, by 2025, with new facility investments generating US$2.9 billion a year in federal, state and local tax revenues.

All told, the American Chemistry Council analysis projects a US$32.4 billion investment in petrochemicals and derivatives and a US$3.4 billion investment in plastic products in the Northeast through the mid-2020s, including construction of five ethane crackers and two propane dehydrogenation facilities, with each of the latter containing a polypropylene resin plant.

In releasing the report, council President Cal Dooley underscored the importance of supportive governmental policies in bringing to fruition the Appalachian Storage Hub around which

Swift emphasized that the Gulf, with its seven-decade lead in providing crackers and related infrastructure, should always be a much larger player than the Northeast when it comes to the petrochemical business. While development of U.S. shale resources is spurring a cumulative investment of US$181 billion, that is predominantly occurring in the Gulf, with a comparatively small US$16 billion announced for the Appalachian basin.

“We’re only talking about up to five crackers going into the Northeast,” Swift said. “The Northeast will never surpass the Gulf. It’s not a competition.”

In fact, the Mid-Atlantic Technology, Research & Innovation Center, a South Charleston, West Virginiabased not-for-profit group that is at the forefront in pushing for the Appalachian Steve Hedrick Storage Hub, is MATRIC anticipating plenty of activity for both regions.

“First, to be clear, we are advocating for a dual-region approach,” said Steve Hedrick, president and CEO of the group, which is known at ISSUE 4 / 2017

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energy update

EPCs REVEAL RELUCTANCE Despite the hype, leaders of major engineering, procurement and construction firms seem hesitant to commit to development of petrochemical projects in the U.S. Northeast.

Executives of several EPC companies declined to comment, while Jake Swanson, director of global logistics, engineering and construction for Texas-based energy industry technology and infrastructure provider CB&I, stated that his firm is not bidding on any oil and gas work in the U.S. Northeast. Swanson

said he does not see oil and gas project work picking up in North America in general, nor in the Northeast specifically. He also said projects in the Northeast would be at a disadvantage over the Gulf.

“It would be more expensive to build a similar [cracker] plant in the Northeast compared to the Gulf,” Swanson said, adding, “The Northeast has tighter shipping envelopes due to older infrastructure and there are less transportation service providers to choose from in the area.”

MATRIC. “Second, we can foresee significant projects in the Appalachian Basin enjoying the advantage of being collocated with major raw material resources in the Marcellus, Utica and Rogersville shales, and hence avoiding the transport costs of these raw materials to other processing locations in the U.S. Gulf.

“These manufacturing facilities will be complementary to those being built and those already operating along the U.S. Gulf Coast,” Hedrick said. “We may see that the major operations in the Gulf are utilized at maximum capacity to supply export markets around the world through supply chains with high elasticity, while significant operations in Appalachia may supply the domestic markets with cost-effective intermediates to be transformed into finished consumer goods.”

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ISSUE 4 / 2017

Hedrick said he believes most of the transport of raw materials and liquid intermediaries in the Northeast will be accomplished by pipelines, with intermediate solid goods requiring transport to converters via road, river and rail.

STORAGE HUB REMAINS VITAL

Development of the Appalachian Storage Hub is critical to maximizing potential of the raw materials from the Marcellus/Utica and Rogersville shales, according to Hedrick, who said the concept is similar to the Mont Belvieu hub in Texas that supports the Gulf Coast chemical industry. Mont Belvieu, about 30 miles east of Houston, has been the center of the NGLs universe since the 1950s, with salt dome storage served by an expansive network of pipelines.

The Appalachian hub project, with a cost estimated by TopLine Analytics to be about US$10 billion, would have capacity for 75 million to 100 million barrels of NGLs and liquid chemicals, and would include as many as 3,000 miles of underground pipelines to move the chemicals to industries along a 454-mile corridor in four states.

Advocates for the Appalachian Storage Hub are quick to note that 70 percent of all North American polyethylene and polypropylene demand is within 700 miles of the Appalachian Basin, thus offering a ready market for plastics that are used by consumers and original equipment manufacturers.

The other key selling point, proximity to NGL supplies, is driven home in a report produced by IHS Markit for Team Pennsylvania and the Pennsylvania Department of Community &

Economic Development. That report says transportation accounts for between 65 percent and 70 percent of the cost for ethane and propane transported to Mont Belvieu, while the Appalachian Basin has access to ethane or propane for “less than half the cost.”

The same report notes that, in 2015, natural gas from Marcellus/Utica shale plays accounted for one-quarter of all natural gas produced in the U.S., and these Northeast formations are expected to account for more than 40 percent of the nation’s natural gas production by 2030, with commensurate increases in availability of NGLs. BB A professional journalist for nearly 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.

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logistics perspective

24 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

BY THOMAS TIMLEN

A HIDDEN PEARL AEO Benefits Revealed for Breakbulk

AUTHORIZED ECONOMIC OPERATOR (AEO) – A party involved in the international movement of goods, vetted by a national Customs administration as complying with World Customs Organization or equivalent supply chain security standards. AEOs can include manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses and distributors.

Source: WCO SAFE Framework of Standards

A

Ships entering the Port of Singapore.

Credit: Shutterstock

re transporters of breakbulk cargoes reaping any of the benefits that can be gained from participation in supply chain security programs and related trade facilitation initiatives?

What about companies involved with project and heavy-lift transport?

Some are, more should be.

There are some breakbulk, project and heavy-lift carriers that have signed up with various supply chain security programs, but many others are not yet fully aware of the available benefits these programs provide. The reason for this can be traced back to the global perception, or misperception, that supply chain security initiatives are primarily focused on companies involved with containerized cargo and small express delivery parcels.

The history of supply chain security makes this misperception understandable.

During the 1980s, efforts to suppress drug smuggling gave birth to the concept of supply chain security and related initiatives, industry-driven and government-driven alike, all aimed at the protection of the integrity of the supply chain.

After the al-Qaeda attacks against the U.S. in 2001, the focus quickly shifted

from drug smuggling to terrorism. By 2004, the International Maritime Organization had rolled out the International Ship and Port Facility Security Code.

U.S. Customs and Border Protection had already developed and launched its Customs-Trade Partnership Against Terrorism. As C-TPAT was rolled out, the World Shipping Council committed all its membership – exclusively operators of containerships – to register as C-TPAT participants.

By this time, the concept of Authorized Economic Operator, or AEO, had become well understood, and there was a movement to establish Mutual Recognition Agreements, or MRAs, between customs administrations that had established supply chain security programs. The World Customs Organization, or WCO, played an important role in the global effort to protect the supply chain.

Yet, despite such progress, the mistaken perception that such programs are focused on the transport of containerized cargoes persists. However, as older programs are enhanced and new initiatives come on stream, benefits available to all sectors are gaining well-deserved attention. www.breakbulk.com BREAKBULK MAGAZINE 25

logistics perspective

SUPPLY CHAIN SECURITY DEVELOPMENTS

The global spread of supply chain security initiatives did not take place in a vacuum. This development was accelerated to a large degree by WCO efforts, internationally and specifically related to Southeast Asia.

The WCO found that global terrorism posed a variety of challenges, not only to the security and safety of people, but also to economic development and political stability, making it imperative for Customs administrations to further strengthen their efforts to secure borders and protect the international supply chain.

“Our new Customs counter-terrorism initiative for Southeast Asia demonstrates the collective determination of the Customs community to effectively fight global terrorism and its negative impact on international trade,” said WCO Secretary General Kunio Mikuriya. “This initiative enables us to actively support Customs administrations and other relevant stakeholders in the region to implement all necessary measures to further secure the supply chain and combat terrorism,” he added.

WCO Secretary General Kunio Mikuriya

AEOs are an integral part of the WCO Framework of Standards to Secure and facilitate Global Trade, or SAFE Framework. Under the AEO concept, if a company complies with the requirements, it can be considered as a potential member of such a program, even though Customs administrations have the final say on which operators they will allow to join their national programs.

26 BREAKBULK MAGAZINE www.breakbulk.com

However, benefits differ according to the characteristics of each AEO. These benefits will be commensurate with the risk factors and the role the operators play in the supply chain. Breakbulk handlers/transporters generally represent higher risks because they are consolidating goods from different consignors and for many consignees. This makes the verification of each consignment more difficult, hence the risks are also higher.

One way to mitigate these risks would be for regular operators to be recognized as compliant under an AEO Program. Successful Customs-to-business partnerships rely on several critical factors, accompanied by mutual respect for each other’s roles and responsibilities in this regard.

DRIVER FOR WIDE BENEFITS

The SAFE Framework’s AEO program is widely acknowledged as a key driver for: • A solid Customs-business partnership.

• A secure, transparent and predictable trading environment.

• In a wider context, enhanced economic prosperity.

The number of AEO mutual recognition agreements/arrangements signed and being negotiated have considerably increased, and these positive dynamics demonstrate an increased engagement among all relevant stakeholders, while providing a useful basis for a harmonized approach.

In the integrated Customs control chain, Customs control and risk assessment for security purposes is an ongoing and shared process commencing at the time when goods are being prepared for export by the exporter and through ongoing verification of a consignment’s integrity, thereby avoiding unnecessary duplications of controls.

To enable such mutual recognition of controls, Customs should: • Agree on consistent controls and risk management standards.

• Share intelligence and risk profiles.

• Exchange Customs data, taking into account work that has been carried out within the context of the WCO Global Information and Intelligence Strategy.

One of the main tenets of the WCO SAFE Framework is to create one set of international standards, and establish uniformity and predictability. It also creates the conditions for securing, facilitating and promoting international trade. This encourages and makes it easier for buyers and sellers to move goods across borders. It also reduces multiple and complex reporting requirements. These processes ensure that operators who are members of official AEO programs see tangible benefits to their investments in good security systems and practices, including reduced risk-targeting assessments and inspections, and expedited processing of their goods.

Of Southeast Asia’s 11 nations, only Myanmar is not yet a member of the WCO. With that one exception, the region is well represented, augmented by a constructive dialogue established between the WCO and the ASEAN Brussels Committee, which comprises the Brussels-based ambassadors and senior officials of the 10 members of the Association of Southeast Asian Nations, or ASEAN. While dialog and participation is good, to have a tangible effect on supply chain security, implementation is better.

On that front, Southeast Asian nations have made progress in applying the concepts promoted in the WCO SAFE Framework of Standards to Secure and Facilitate Global Trade, with Singapore serving as an example of how this has been achieved in practice.

THE SINGAPORE STORY

Singapore Customs has taken a multipronged approach to its supply chain security strategy, with enthusiastic support and participation among many sectors including logistics companies who have achieved AEO status, thereby reaping tangible commercial benefits.

Information provided by a Singapore Customs spokesman illustrates the scope of the city-state’s efforts and achievements in applying standards developed by the WCO. ISSUE 4 / 2017

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logistics perspective

“Singapore Customs’ Authorized Economic Operator program, the Secure Trade Partnership, or STP, is a voluntary certification program, which recognizes companies that offer a high degree of security in the supply chain.

Developed in line with the WCO SAFE Framework of Standards to secure and facilitate global trade, the STP aims to strengthen and safeguard the security of supply chain operations and prevent disruptions to the flow of goods, by encouraging companies to adopt robust

security measures using a risk-based approach in their trading operations.

Companies under the STP program will be recognized as lower risks during customs clearance of their cargo.”

Benefits of STP participation go beyond Singapore’s borders, within and beyond Southeast Asia, as further explained by the spokesman: “Singapore Customs also has AEO Mutual Recognition Arrangements, or MRAs, with other customs administrations, including Canada, the People’s Republic of

China, Hong Kong, Japan, the Republic of Korea, Taiwan and the U.S. With the MRAs, cargoes from the AEOs of the MRA partners would be recognized as low risks during cargo clearance by both MRA partners. Currently, there are 174 companies under the STP program.”

Singapore Customs has also taken steps to ensure that supply chain security does not leave out the important need to accommodate trade facilitation.

“Singapore Customs’ Trade Facilitation and Integration Risk-based System, or TradeFIRST, aims to provide a holistic and consistent approach to facilitating trade. By providing a single point of contact between Singapore Customs and the traders, and developing a single set of assessment criteria for all the schemes administered by Singapore Customs (including the STP), Singapore Customs can gain a better understanding of the operations and needs of traders. Using risk management principles, Singapore Customs is able to advise traders on the best practices to adopt and ways to enhance their compliance.”

REAPING BENEFITS

Credit: Future Ready Singapore

TRADE FACILITATION CLIMBS A NOTCH In terms of pure trade facilitation initiatives, Singapore has been active in developing two programs that could aid breakbulk and project cargo movements.

Singapore’s Economic Development Board has launched the Future Ready Singapore initiative.

This is a broad and all-encompassing activity, including among other things a “Logistics Industry Transformation Map” aimed at strengthening Singapore’s position as a leading global logistics hub by driving innovation, productivity and talent. It is hoped that this will help enterprises better capture growth opportunities in this sector.

Also under the umbrella of

Future Ready Singapore is another logistics-focused initiative, Smart Nation, Smart Logistics. This seeks to leverage new technologies in global freight to drive efficient endto-end supply chains capable of serving growing consumer demand.

The initial step will be to solve current inefficiencies in existing distribution networks through data analysis to increase collaboration between freight companies. New data exchanges will share information about delivery routes, types of goods, and delivery schedules among companies, government agencies and logistics service providers, with the goal of optimizing delivery processes.

28 BREAKBULK MAGAZINE www.breakbulk.com

How do the breakbulk, project and heavy-lift sectors benefit from such programs?

The WCO recognized the higher risks faced with breakbulk cargoes consolidated from multiple shippers, and how these risks can be mitigated with AEO programs. Singapore Customs has further explained that its initiatives are catered for all industries, therefore despite the misperception that such programs are aimed only at transporters of containerized cargo, there are no impediments to participation for transporters of breakbulk, project and heavy-lift cargoes. To the contrary, such companies are welcome and encouraged to participate.

The assessment process required to achieve AEO status reveals any vulnerabilities to company security that must be corrected. Once such corrections have been made, the AEO will benefit from a lower risk of losses from theft and pilferage, as well as losses that can result from breaches of systems from which commercial data can be stolen. A lower rate of such incidents can also result in lower insurance premiums.

Another important commercial advantage identified are the cost savings from the consolidation of licenses made ISSUE 4 / 2017

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“Without question, there is money to be saved and other commercial advantages to be gained from becoming an AEO.” available to TradeFIRST participants.

With fewer licenses required, there are fewer license fees to be paid.

In a world in which time is money, TradeFIRST participants save time on a regular basis due to the single-window approach for all customs to business trade facilitation needs, as well as faster clearance times for cargoes transported

by AEO companies.

With TradeFIRST now a matured program, the advantages have become more familiar to traders, including those in the breakbulk, project and heavy-lift sectors.

A specific recent example, which remains anonymous as it relates to an open fixture, involved a large engineering, procurement and construction tender for goods entering Thailand. The fixture did not involve containerized cargo, yet a request for AEO status was nevertheless made, confirming that the benefits of AEO status are on the radar, and companies that can provide a Customs AEO identifier may have a competitive advantage in securing new business.

A company’s AEO status can also be advantageous when subject to vetting and other due diligence efforts. Outside of trading, one international logistics association considers whether applicants are certified AEOs during the membership vetting process. Those who are AEOs with one or more customs programs are seen in a more favorable light.

‘MUCH TO GAIN’ FOR LOGISTICS COMPANIES

One supply chain security expert who has researched related developments in Southeast Asia and farther north to China encourages logistics companies to attain AEO status. Associate Professor Rob Preece at the Charles Sturt University Center for Customs and Excise Studies, told Breakbulk that breakbulk, project and heavy-lift transport 30 BREAKBULK MAGAZINE www.breakbulk.com

companies have much to gain.

“Under the general provisions,” Preece explained, “I would think that nothing excludes the sector from entering the programs, provided they meet the criteria around supply chain security. I think my biggest concern with AEO programs was in fact the lack of – and difficulty to obtain– mutual recognition between trading partners, and the gaps in the AEO programs between the requirements of developed economies and developing countries.”

While the MRA challenge rests with the customs authorities, seeking AEO status is something companies can pursue immediately. In an article Preece prepared for the Bangkok Post earlier this year, he pointed out that 69 countries have such programs in place.

And the number of AEOs and MRAs continues to grow. In Asia, China established its own AEO program in 2014, and has initiated efforts to establish MRAs in the region and globally. Other drivers that should lead to an increase in AEO programs and MRAs include the establishment of the long-awaited ASEAN Economic Community, or AEC, aimed at expediting intra-regional trade, and China’s push to develop and promote its

infrastructural “project of the century,” the One Belt One Road initiative. OBOR will encompass 60 countries in Asia and Europe, in addition to linking with Oceania and East Africa. Both the AEC and OBOR projects will benefit from, if not require, the establishment of MRAs throughout their respective scopes to ensure smooth crossings at the many borders.

Without question, there is money to be saved and other commercial advantages to be gained from becoming an AEO, whether operating in Southeast Asia or other parts of the world. In this competitive market, where every dollar counts, stakeholders who have not done so already would be well advised to get started. BB Associate Professor Rob Preece (right) with Tong Hua, program manager at the World Customs Organization’s Asia Pacific regional office in Bangkok.

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.

ISSUE 4 / 2017

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trade notes

BY MARK WILLIS

MAKING A PACT Think Twice Before Trashing Trade Deals

32 BREAKBULK MAGAZINE www.breakbulk.com

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OLLOWING THE POLITICAL UPHEAVAL of the first half of the 20th century, the post-World War II period in Europe, the U.S., and much of the developed world has been characterized by a steady increase in economic interdependency and cooperation, with a steady rise in cross-border commerce accompanied and driven by multilateral, rule-based free trade agreements.

Economic globalization and collaboration, and support for the liberal economic reforms encompassed in the so-called Washington Consensus policy prescriptions, accelerated further with the end of the Cold War, leading to the establishment of the supranational World Trade Organization to promote seamless crossborder trade and capital flows.

As the world’s largest economy, the U.S. has consistently been at the forefront of economic liberalization during this period, and the primary defender of rulebased global free trade.

In line with burgeoning globalization, recent decades have seen the establishment of increasingly complex project supply chains crisscrossing national borders, driven by wider multilateral free trade agreements and the integration of Asia’s fast-growing economies into the global trading system.

Accompanying this trend has been a steady reorientation of assembly line, low value-added manufacturing from developed to rapidly industrializing

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SILVER LININGS TO ECONOMIC MISERY Notwithstanding uncertainties surrounding U.S. economic policy, the outlook for international trade is not entirely one of doom and gloom, with several bilateral and regional trade agreements recently signed, or expected to take place over the next several years.

Notable recent trade agreements include the Comprehensive Economic and Trade Agreement, or CETA, between the European Union and Canada, and the TPP - which is likely to proceed despite U.S. withdrawal – while a EU-Japan free trade agreement remains on course for conclusion towards the end of 2017.

Forecasts that the Brexit referendum and burgeoning nationalism could presage economic and political turmoil in Europe have also fallen well wide of the mark, with the region witnessing its fastest period of economic growth in more than a decade, spurred on by the election of French President, Emmanuel Macron, on a pro-business reform platform.

With these signs of encouragement and notwithstanding uncertainty on NAFTA, Canadian project cargo operators are optimistic about their future business prospects.

“We are very bullish about the prospects for Canadian trade, with the U.S. set to remain a critical trading partner, regardless of the outcome of the NAFTA negotiations,” said Livingston International’s Mike Meierkort.

“Canada has provisionally ratified a trade deal with the European Union that will open up a market of 500 million people to Canadian businesses. This is an enormous opportunity for Canada to diversify its trade relationships and opens up countless windows of opportunity for Canadian businesses across all industries to flourish,” he added.

34 BREAKBULK MAGAZINE www.breakbulk.com

developing markets, such as China, with a corresponding erosion of traditional blue-collar industry jobs in areas of the U.S. and Europe.

This status quo has been turned upside down over the last several years, however, with rising income inequality and widespread disaffection with globalization in communities most affected by lost manufacturing employment, resulting in a surge in populist political movements that now threaten to dismantle the post-War consensus with the return of protectionist trade policies.

The decision by President Trump in January 2017 to withdraw the world’s largest economy from the Trans Pacific Partnership, or TPP – a trade agreement aimed at eroding trade barriers between the 12 original signatory countries – is perhaps the most prominent example of this current marriage of nativist politics and protectionist trade policy.

The UK’s ‘Brexit’ referendum vote last year, which will see it exit the world’s largest custom’s union in early 2019, alongside a wave of nationalist movements across the European Union that have threatened to disrupt regional economic integration, also reflect elevated disaffection with trade and economic deregulation across the developed world.

The outlook for global trade is therefore arguably the least promising it has been for several decades, with sectors and firms dependent on the cross-border flow of goods and services, including project cargo operators, facing a period of heightened uncertainty.

IMF PREDICTS ‘TRADE WARFARE’

This threat to cross-border trade and supply chains was articulated by the International Monetary Fund, or IMF, in its latest Global Economic Outlook report published in April, which highlighted that “one salient threat [to global economic growth] is a turn toward protectionism, leading to trade warfare.”

According to the report: “Mainly in advanced economies, several

factors – lower growth since the 2010–11 recovery from the global financial crisis, even slower growth of median incomes, and structural labor market disruptions – have generated political support for zerosum policy approaches that could undermine international trading relationships, along with multilateral cooperation more generally.”

In conjunction with elevated political uncertainty, international trade in recent years has witnessed a marked deceleration, with global economic growth outstripping the pace of crossborder commerce for the first time in several decades. Institutions such as the IMF forecast this trend to likely remain a feature of the global economy over the next several years.

The recent global trade slowdown is attributed to several factors, including creeping trade protectionism following the 2008-09 global financial crisis, according to Euijin Jung, a research analyst at the Washington, D.C.-based Peterson Institute for International Economics, or PIIE. “At the same time, there has been no [multilateral] Euijin Jung global trade liberalization Peterson Institute since the WTO for International Uruguay Round Economics concluded in 1994, with the impact of increasing in bilateral and or regional free trade agreements more limited when compared to earlier more widespread agreements,” she said.

While the accession of China to the WTO in 2001 provided a major boost to global trade, the recent deceleration of the world’s second-largest economy, and phasing out of massive post financial crisis government-led infrastructure investment, has also contributed to slowing cross-border trade over the last several years, according to Jung.

ISSUE 4 / 2017

The inauspicious outlook for global trade, and the ongoing political debate over the relationship between free trade and declining developed world manufacturing is encapsulated by recent U.S. government efforts to renegotiate the North American Free Trade Agreement, or NAFTA, that has seen the almost complete removal of tariff barriers for trade in goods between the treaty’s member countries, the U.S., Canada, and Mexico, over the last 25 years.

With the development of increasingly complex North American supply chains since the agreement took effect in 1994, U.S. trade with Mexico and Canada has more than tripled from US$340 billion to US$1.2 trillion last year. Cross-border commerce with its two neighbors now accounts for around a quarter of total U.S. trade in goods and services.

Critics of the agreement, however, have highlighted the failure of NAFTA to deliver the promised rejuvenation in domestic U.S. industry or manufacturing employment, and President Trump’s promise to overhaul the agreement is considered an important driver of his elevation to the White House through support from former manufacturing heartland blue-collar communities.

“This dissatisfaction is something that Trump has been able to channel his support from, with promises to renegotiate NAFTA to make it more protectionist in the hope of generating more jobs for those areas,” said Matthew Bey, senior analyst at geopolitical intelligence firm Stratfor.

Despite consensus on the need to update various elements of NAFTA, including issues such as the digital economy, e-commerce, and new environmental and labor standards, the renegotiation is unlikely to have that hopedfor profound impact on U.S. industry, according to many economic analysts. Neither is it likely to reverse the decline of manufacturing employment over the last 30 years that is at least as much the result of technological advancements and automation as the rise of global free trade.

Matthew Bey

Mike Meierkort

Stratfor

Livingston International

“The decline of the U.S. manufacturing sector is not a NAFTA story, and reflects broader issues such as the rest of the world catching up with the U.S., and American cost competitive advantage no longer being in manufacturing,” Bey said.

PROJECT INDUSTRY CONCERN

With the economic rationale behind a wholesale renegotiation of NAFTA, and its resulting benefit on the U.S. economy in debate, moves by the U.S. government to tackle the agreement that has helped stimulate cross-border trade has alarmed some regional project cargo operators and firms involved in cross border trade.

“There’s no question the uncertainty around NAFTA has resulted in a lot of questions from clients

about what the impact might be to their business,” said Mike Meierkort, president of international freight and transportation services at Livingston International, a North American trade services firm that specializes in freight forwarding, customs brokerage and trade consulting.

“As a trusted advisor, we have been providing counsel on the various scenarios that could take place, but for the most part we have been taking a wait-and-see approach, because until the negotiations begin in earnest in August, there’s just no way of knowing what the impact might be,” he added.

Other regional project cargo operators also stress the premature nature of predicting negotiation ramifications for regional trade, with NAFTA already earmarked for alternation prior to last November’s U.S. presidential election.

“In the mainstream press, there is a lot of scaremongering around the renegotiation of NAFTA, but even before the Trump Administration, there was a good deal of discussion around the need to revamp it or at least update it,” said Julia Kuzeljevic, public affairs manager of the Canadian International Freight Forwarders Association.

“Consider that many logistics service professionals trained in NAFTA have either retired or plan to soon. With erroneous NAFTA claims not uncommon, this would be a good opportunity for

Art by Banksy; Photo credit: Dezeen

RE-WRITING NAFTA

www.breakbulk.com BREAKBULK MAGAZINE 35

trade notes

re-education and retraining, and also for stakeholders to provide input about what the deal has done positively, and what could better benefit stakeholders,” she said.

AGGRESSIVE NAFTA DEMANDS

While there is broad agreement on the need to update NAFTA, there are concerns that the renegotiation may be used as a fig leaf for the more draconian measures that reflect the Trump administration’s protectionist stance.

“The big concern is what happens to some of the much more aggressive demands that the Trump administration has outlined it would like to include in an updated NAFTA, and the impact this may have on wider future U.S. trade policy,” said Stratfor’s Bey. Extreme measures outlined by Trump administration officials, which

could have far-reaching ramifications for global trade and the international project cargo community, if implemented, include allowing the government to restrict cheaper imports of goods such as aluminum and steel, if they can prove that they are hurting less cost-effective domestic producers or threatening national security.

Other floated proposals have centered on a new clause allowing the U.S. to withdraw from NAFTA with only 30 days’ notice – pitched as a “safeguard mechanism” to restrict imports on some goods that threaten domestic production of the same product – and a new border entry tax on various U.S. imports.

According to Bey, the protectionist policies proposed by Trump “could affect all the supply chains from automakers that crisscross the border,” and could result in reciprocal protection

tariffs being introduced by Mexico on some U.S. exports, for example.

While stressing it remains too early to assess the impact of NAFTA renegotiations, Livingston International’s Meierkort highlighted that the depth of North American supply chains could expose wide numbers of firms and sectors, including project cargo and heavy-lift operators, to a replacement trade treaty.

“NAFTA affects almost every industry in North America, so there’s certainly great potential for supply chains to be affected,” he said.

“Certainly, those industries that typically make use of oversized goods, such as energy, infrastructure and transportation, have the potential to be affected by the outcome of the NAFTA negotiations, but it’s premature to speculate at this point that they will be impacted,” he added.

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ISSUE 4 / 2017

UNCERTAIN OUTLOOK PERSISTS

In conjunction with the lack of political momentum towards agreeing a further wholesale free trade agreement at the WTO multilateral level, the apparent withdrawal of U.S. leadership from the international economy, and protectionist tendencies of President Trump’s administration point to an uncertain outlook for global trade over the next several years.

“The absence of U.S. leadership on free trade will increase uncertainty in international trade regime, which encourages developing countries to maintain their trading barriers, with global trade continuing to grow slowly over the next several years,” the Peterson Institute’s Jung said.

Given this environment, global trade growth is expected to underper-

form relative to recent decades and the pace of expansion in the international economy. Negotiations between the three NAFTA economies during the second half of 2017 could yet remain crucial for global trade over the next several years. The process will also represent an important bellwether on future trade positions the U.S. will seek to implement during President Trump’s four-year term, whether it will seek to radically overhaul other trade agreements, and reset economic relations with the world’s second largest economy, China.

At this stage, many analysts expect Washington may ultimately row back from the most controversial policies outlined by administration members over the last several months, with Congress likely to resist excessively protectionist legislation. Legislative logjam and mid-

term elections in 2018 will also restrict the government’s capacity to act.

“Some of the more extreme measures discussed by the Trump administration are outlier downside risks rather than the most likely scenario to play out, because there is going to be a lot of pushback from U.S. industry and Congress against them,” said Stratfor’s Bey. Still, even the possibility of a lurch towards protectionism by the world’s largest economy and longstanding champion of rule-based economic globalization is illustrative of the level of uncertainty facing global trade and supply chain participants. BB Mark Willis is a Dublin, Ireland-based freelance journalist specializing in politics and economics.

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www.breakbulk.com BREAKBULK MAGAZINE 37

regional review

PHILIPPINES SEIZES POTENTIAL Projects by Presidential Decree

BY JAYA PRAKASH

O

nce mocked as Asia’s sick man, the Philippines is sporting a new persona. Forecast after forecast have toasted the sprawling archipelago of 14,000 islands as the nation to watch and for infrastructure development potential.

Perhaps the most effusive praise has come from the World Bank when it said: “The Philippines is currently one of the most dynamic economies in the

East Asia region, with sound economic fundamentals and a globally recognized competitive workforce.”

Despite a weak external environment, growth in 2016 accelerated to 6.8 percent year-on-year from 5.9 percent in 2015 on the back of upbeat domestic demand. The country’s economy is expected to remain a top regional performer with growth projected at 6.9 percent in 2017 and 2018.

Supporting the optimism, President Rodrigo Duterte asked the nation’s legislature in May to fast track a tax reform

bill, because a “tax reform measure will sustainably finance the government’s envisioned massive investments in infrastructure, thereby encouraging economic activity and job creation.”

But there is an urgency for infrastructure improvements gripping the country.

With a population of more than 100 million people with harsh penalties for abortion, the population has surged exponentially over the decades. And so too has poverty on the back of creaking infrastructure and connectivity, brought on by years of political inertia and an incapacity

ABOVE: Makati City commercial district in Manila. / Credit: Shutterstock ABOVE RIGHT: Philippine president Rodrigo Duterte speaks during his first visit to the Philippine Stock Exchange in Makati City July 11, 2017. / Credit: Rouelle Umali/SIPA/Newscom

38 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

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regional review

to build the roads and bridges needed to weld the nation closer together. The Asian Development Bank estimates some 21 percent of the population are living below the national poverty line.

In response, the Duterte administration is reportedly planning to spend some 5.4 percent of its gross domestic product on the biggest spurt in publicsector infrastructure investment in decades. Not only is that a huge outlay by global standards, the president has also staked his political and historical reputation on this reinvention of his nation.

Advocacy group Arangkada Philippines calculates that the nation only spent 3 percent of its GDP on infrastructure developments last year, compared with spending for education and health at slightly more than 4 percent of the GDP. “It is the golden age of infrastructure,” said Victoria Mario M. Dimagiba Jr., the charge d’affairs in Singapore’s Philippine Embassy, speaking to Breakbulk of the promise this new era of developments brings to the Philippines. The US$173 billion infrastructure investment program – dubbed as Dutertenomics – is designed to take the Philippines to a high middle-income economy by the end of President Duterte’s term in 2022.

BUILD, BUILD, BUILD

Happily for project cargo movers, the catchphrase for these new times is “Build, build, build.” Under that all-encompassing slogan, the administration has formed the State Investment Coordination Council, responsible for a whole gamut of projects designed expressly to foster connectivity.

One project that sits at the heart of development when it comes to connecting the people, according to Dimagiba, is the Mega Manila Subway Phase 1.

This mammoth subway project will link Quezon City, Mandaluyong, Pasig and Taguig. The project is expected to be ready by 2024. The subway dovetails with the construction of an 18-kilometer Laguna section of the Cavite-Laguna Expressway. Combined, the subway and expressway will reduce travel times and, in doing so, raise productivity in the Philippines. The project is also expected to create some 3,000 direct jobs.

40 BREAKBULK MAGAZINE www.breakbulk.com

KEY FACTS As of March 2016, the World Bank’s Philippine portfolio comprised 15 active projects with a net commitment of nearly US$3 billion.

Sectors benefiting from World Bank-supported projects include infrastructure, social protection, health, basic education, rural development and environment.

1.2 million households in the Philippines have benefited from small-scale community infrastructure sub-projects, such as water systems, school buildings, day care centers, health clinics, roads and bridges.

Source: The World Bank

COMPETITIVENESS COMPARISON

Philippines ranks low for ASEAN competitiveness.

PREVIOUS ECONOMY SCORE RANK RANK Singapore 5.7 2 Malaysia 5.2 25 Thailand 4.6 34 Indonesia 4.5 41 Philippines 4.4 57 Vietnam 4.3 60

2 18 32 37 47 56

Source: World Economic Forum, The Global Competitiveness Report 2016-2017

MORE MONEY FOR INFRASTRUCTURE

Philippines public spending on infrastructure (percentage relative to GDP) 6% 5% 4% 3% 2% 1% 0%

2011

2012

2013 actual

2014

2015

2016

target

Source: The Philippine Development Plan (PDP) 2017-2022

The project, according to the nation’s Department of Public Works and Highways, will form part of the 45-kilometer closed-system tolled expressway. It is to be co-administered with private concessionaire MPCALA Holdings Inc. of the Metro Pacific Group, which won the bidding under the government’s publicprivate partnership program.

Dimagiba said that some of the financing will come from within the Philippines, while the rest will come from foreign donors, with China alone pledging some US$24 billion. Previously, finance has been somewhat of an Achilles’ heel in the push for overhauling infrastructure in the Philippines.

In one example, Beijing has forged an agreement for a full grant to finance the construction of two bridges that will soon be a new landmark in the cities of Manila, Mandaluyong and the commercial district of Makati. According to Public Works and Highways Secretary Mark Villar, the grant will cover the design and construction of the bridges, while the Department of Public Works and Highway will be responsible for the acquisition of its road right-of-way.

Then there is the Mindanao Infrastructure Logistics Network, a long-term development plan of the road network in Mindanao connecting the major ports. The network will be administered by the Department of Public Works and Highway with a US$161 million price tag.

Also on Duterte’s to-do list is the ultra-modern and ultra-expansive NLEXSLEX Connector Road, a four-lane elevated expressway linking major roads and thoroughfares within the Metro Manila commercial district. When completed in 2018, the Connector is expected to decongest traffic in the capital.

And with Japanese financial help in the form of an US$4 billion loan, the Mega Manila Subway System will link the nation’s commercial nodes and government centers, shaving 31 minutes off travel times and ferry some 400,000 passengers annually.

Further, the Subic-Clark Cargo Railway Project will connect with the Clark-Manila Railway, giving container traffic through the Port of Manila easier access to the hinterland. Outside of transportation, the Mandaluyong Main ISSUE 4 / 2017

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regional review

“Ease of business issues aside, there is certainly an air of optimism and dynamism in the Philippines.”

PICTURED: San Juanico Bridge, part of the Pan-Philippine Highway. / Credit: Shutterstock 42 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

Drainage Project and Pasig Markina River Channel Improvement Project aim to combat the flooding that the Philippines is prone to in typhoon season – when typhoon Haiyan savaged the nation in 2013 damages totaled US$2.9 billion.

And the smorgasbord of projects does not stop there: two new seaports and 18 airports are also planned. The NLEXSLEX Connector Road notwithstanding, there are a further 17 roads and railways projects under Duterte’s Build, build, build plan.

MOST PROBLEMATIC FACTORS FOR DOING BUSINESS

PERFORMANCE, COMPETITIVENESS ISSUES

There are, of course, challenges to development of this scale: the Philippines is ranked 71st in the World Bank’s global Logistics Performance Index, a position that leaves it lower than Indonesia, which is a larger archipelago with considerably more people. And in the last two World Economic Forum Global Competitiveness Reports focused on the ASEAN-6 economies, overall infrastructure quality in the Philippines ranked below Singapore, Malaysia and Thailand, and was about the same as Indonesia and Vietnam.

Rankings are also lackluster for power quality, telecommunications, access to water and sanitation, and roads, further complicating infrastructure projects. For example, the Philippines is ranked the lowest for fixed telephone lines per 100 inhabitants.

But these ease of business issues aside, there is certainly an air of optimism and dynamism in the Philippines.

Duterte, fully aware of the pitfalls of foreign lending, has been keen to steer clear of outside investment as much as possible, so as to not plunge his country into the same debt servitude as many Latin American nations fell into in the late 1970s and early 1980s. However, this may have been forced on the Philippines by its meager ratings: the country is rated at BBB by Standard and Poor’s, Moody’s has placed it at Baa2, while Fitch has given it a BBB with a positive outlook.

The president has introduced new taxes on fuel and sugar to partially fund the developments, although there have been no indications on how much revenue these new taxes will actually net. However, caution is being exercised and the

Respondents were asked to select the five global risks that they were most concerned about for doing business in their country within the next 10 years. The share is the percentage of respondents selecting the risk among the five of highest concern.

RISK SHARE

1.

Failure of critical infrastructure

56.4

2.

Extreme weather events

53.8

3.

Natural catastrophes

51.3

4.

Failure of urban planning

35.9

5.

Failure of national governance

33.3

6.

Terrorist attacks

24.4

7.

Energy price shock

20.5

8.

Unemployment or underemployment

19.2

9.

Asset bubble

14.1

Illicit trade

14.1

11.

Cyberattacks

12.8

12.

Profound social instability

11.5

13.

Data fraud or theft

9.0

14.

Water crises

9.0

15.

Critical information infrastructure breakdown

9.0

16.

Interstate conflict

7.7

17.

Man-made environmental catastrophes

7.7

18.

Biodiversity loss and ecosystem collapse

7.7

19. Failure of climate-change mitigation and adaptation

6.4

20.

Failure of financial mechanism or institution

5.1

21.

Food crises

5.1

22.

Unmanageable inflation

3.8

10.

23.

Deflation

3.8

24.

Fiscal crises

2.6

25.

State collapse or crises

2.6

26.

Misuse of technologies

2.6

27.

Spread of infectious diseases

2.6

28.

Weapons of mass destruction

2.6

29.

Large-scale involuntary migration

0.0

Source: World Economic Forum, Executive Opinion Survey 2016

government has openly said if the capability of the government agency is financially constrained by the need to press ahead with some projects, then public-private partnerships or Overseas Development Assistance, or ODA, will be considered.

Duterte’s projects are undoubtedly the biggest and most dramatic to be undertaken in the nation’s long and often fraught history. But if and when the colossal projects reach completion in 2022, which is when his presidential term ends,

Philippines

global

they will mark out a seminal chapter in the history of the Philippines and take it a step, or several steps, closer to its goal of becoming a high-middle income country. Duterte and his Build, build, build program has both enraptured the nation and brought an ambitious level of project cargo demand to the Philippines. BB Jaya Prakash is a Singapore-based maritime analyst with wide-ranging knowledge on Asia.

www.breakbulk.com BREAKBULK MAGAZINE 43

trade notes

$92.0

DOMINICAN REPUBLIC (2001-2014) $11.0

$10.5

COLOMBIA (2009-2014)

MEXICO (2010-2014) $18.0

$98.0

GUATEMALA (2013-2015)

VENEZUELA (2006-2015)

$59.0

PANAMA (2010-2014)

$349.0

$33.5

BRAZIL (2003-2016)

ECUADOR (2007-2016) $29.0

PERU (2005-2014)

ODEBRECHT’S BRIBERY REACH

Bribery payments shown in $US millions. The scandal has stretched across South America and into Mexico.

Source: U.S. Department of Justice

$35.0

ARGENTINA (2007-2014)

ANTI-CORRUPTION CLOUT Brazil Wakes Up to Project Transparency

BY ALAN M. FIELD

T

he bad news has been out for months. Prosecutors in Brazil have claimed the lion’s share of the credit for the world’s single-largest antibribery enforcement action, a settlement worth between US$2.5 billion and US$4.5 billion (depending on future ability to pay) against Odebrecht, a huge multinational conglomerate of firms active in engineering, construction, chemicals and petrochemicals.

Odebrecht admitted to having paid US$349 million in bribes in Brazil, US$98 million in Venezuela, US$92 million in the Dominican Republic, US$35 million in Argen44 BREAKBULK MAGAZINE www.breakbulk.com

tina, US$34 million in Ecuador, US$29 million in Peru, US$11 million in Colombia and US$10.5 million in Mexico, according to the U.S. Department of Justice.

Although the impact of the scandal was felt far and wide across the South American breakbulk and project cargo sectors, the longer-term impact may well turn out to be positive for the region’s efforts to combat long endemic corruption in the allocation of public sector engineering and infrastructure projects on that continent.

Related investigations have reached two former presidents and the current president, numerous members of the cabinet, an estimated 60 percent or more of the federal legislature, and countless state and municipal officials. Recently, Brazilian prosecutors began an investigation into bribery

IN THE 2016 CORRUPTION PERCEPTIONS INDEX BY TRANSPARENCY INTERNATIONAL, BRAZIL WAS RANKED 79, A FALL FROM ITS SCORE OF 40 IN THE PREVIOUS YEAR’S INDEX. ISSUE 4 / 2017

trade notes

ODEBRECHT SUMMARY GROSS REVENUE:

US$34.1 billion NET PROFIT:

US$157.78 million

in the meat packing industry, which has been called the largest police action in Brazil’s history.

Brazil’s troubled brand is now dealing with the repercussions. “Right now, there is a lot of fear” about how far the Odebrecht scandal will extend its tentacles, noted one infrastructure specialist active in South America. In Brazil, he said: “The scandal has reached Brazilian president Michel Temer – the man who replaced President Dilma Rousseff – and has widened to the Brazilian congress.

There is a total lack of order, and the police have had to double up and come down even harder on crime.”

WRITING A NEW CHAPTER

ACTIVE IN BRAZIL

and 24 other countries

EXPORTS PRODUCTS to 41 countries

128,000 EMPLOYEES

members of 70 nationalities

85% men 15% women

17% under 25 40% 25-35

25% 35-45

18% 45-60

4% over 60

Source: www.odebrecht.com

46 BREAKBULK MAGAZINE www.breakbulk.com

Anti-corruption specialist Andy Spalding, professor of law at the University of Richmond, argued that the Odebrecht debacle represents “a new chapter in the global fight against corruption.” Spalding, who is also a lecturer at the International Anti-Corruption Academy in Laxenburg, Austria, noted that the Odebrecht saga is proving that antibribery enforcement at the highest levels is no longer solely the province of the developed world.

“We all know that Brazil is enmeshed in a major bribery Andy Spalding investigation, University of Richmond Operation Car Wash,” which triggered the Odebrecht scandal in 2016.

“But we may not fully appreciate the way Brazil is emerging as a regional, and perhaps, world leader in both domestic and foreign bribery, and on both the enforcement and compliance sides.

“The world is largely getting the story in Brazil wrong,” Spalding added.

“The impression is that the Brazilian government is in some state of decline, however that’s the wrong narrative.

The message is not ‘there is systemic corruption in a developing country’s government’, rather it’s ‘systemic corruption has been exposed and prosecuted.’ ” What’s making that possible? “The global leaders in prosecuting international

bribery are the U.S., the U.K. and Brazil,” Spalding noted. “It’s stunning – Brazil’s a developing country where five years ago, corruption was so rampant, people joked about it. Now Brazil is more of a leader than France, Germany, Australia or Japan.”

Brazil didn’t have a good starting point. It transitioned from a military dictatorship to a democracy in 1988, and under the military dictatorship, corruption was rampant. After the transition, the educational curriculum changed, and children in public schools began learning the importance of individual rights, accountability, transparency and democratic values.

“What we see in the prosecutions today, including Dilma, Lula, Temer, et al., is that senior government officials who were educated under the military dictatorship are being prosecuted largely by young prosecutors who were educated under the current Brazilian constitution,” Spalding said. “So, it is a fundamental generational clash that is occurring right now. The older generation accepted or even admired the so-called Jeitinho – a term that refers to the ability to maneuver through a corrupt system and even get ahead, using its own rules. The younger generation does not accept that. And so, what we saw with presidents Dilma, Lula, and Temer was the older generation of officials for which corruption was acceptable. This younger generation of aggressive, idealistic prosecutors is slowly weeding them out, but it’s going to take time.”

A series of legal reforms adopted in Brazil between 2011 and 2013 in response to the public anti-corruption protests gave prosecutors the tools they needed to effectively prosecute corruption. These new tools were used in the Odebrecht case, with seemingly great success. “This is the rise of the rule of law in Brazil. This is the prosecutors holding corrupt officials accountable,” Spalding said.

One tool, the 2013 Organized Crime Bill, had two important provisions: First, it created a new “obstruction of justice” charge that the prosecutors could use.

Prior to 2013, obstruction of justice was not an independent prohibition under Brazilian law – it was not a crime. Second, it gave prosecutors enhanced plea bargaining and prosecuting authority.

ISSUE 4 / 2017

ABOVE: Protestors demonstrate against

corruption in São Paulo in April. The sign reads: “STF [Federal Supreme Court], stop once and for all the Privileged Forum.” The privileged forum is a legal right allowing some public authorities to be judged by higher courts rather than lower courts when they are the targets of criminal proceedings. / Credit: Cris Faga/ZUMA Press/Newscom

RIGHT: Odebrecht’s office in São Paulo. / Credit: Alf Ribeiro / Shutterstock

In a further move to wipe out corruption, in January 2017, the Prosecutors General of Brazil and Peru signed an agreement to increase cooperation between the two countries in the “fight against corruption,” as probes into bribery and fraud involving Brazilian companies spread to other Latin American countries where they operated.

“We will establish dialogue and the transmission of information in a more direct and spontaneous way,” Peru’s Prosecutor General Pablo Sanchez Velarde told reporters after meeting with his Brazilian counterpart Rodrigo Janot. “We are very interested in getting information to improve our investigations,” Velarde added.

CASTING THE NET WIDER

Brazil is now using “its substantial and new-found clout” to build capacity in other countries in South America, he added. In February, officials from 11 countries in the region met in Brazil and formed an agreement to carry out a joint investigation on Odebrecht’s bribery across Latin America. Their ranks included representatives from attorneygeneral and prosecutor-general offices in Argentina, Brazil, Colombia, the Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, and Venezuela.

The meeting was organized by Brazilian Prosecutor-General Rodrigo Janot. At the gathering, the parties signed the Brasilia Declaration for International Judiciary Cooperation against Corruption.

Brazilian enforcement authorities are also building capacity throughout the continent, working in conjunction with enforcement authorities in Argentina or Colombia. “They share information; and they enter into joint settlements,” Spalding said. “In so doing, they are building institutional capacity in these other countries and they are changing cultural norms. Just as the U.S. has been doing this with other countries, Brazil is now doing the same.”

In one notable case, Lima-based engineering and infrastructure firm Graña y Montero, which faces its own Odebrecht-related bribery investigation, recently made several internal corporate governance changes, including the appointment of Fernando Dyer as its new chief risk and compliance officer. Dyer’s task will be to help ensure the firm’s compliance with internal ethics, conduct and anti-corruption policies, under the supervision of the board’s new risk, compliance and sustainability committee. That committee is just one initiative in the firm’s Committed to the Future program for “good corporate governance,” released on May 10 by its board of directors.

The changes are especially significant, because the firm is the largest in its www.breakbulk.com BREAKBULK MAGAZINE 47

Credit: Stefano Kro, Wikimedia Commons

trade notes

ANTI-CORRUPTION ACADEMY READY FOR ACTION In a seminal move, in March 2017 a delegation from the International Anti-Corruption Academy, or IACA, based in Laxenburg, Austria, held bilateral meetings with its counterparts from Chile, Colombia, El Salvador, and Peru to discuss further cooperation in the burgeoning fight against corruption in Latin America and elsewhere.

Offering standardized and tailor-made training, academic degree programs, opportunities for dialogue and networking, and anti-corruption think-tank and benchmarking activities, IACA provides a new, holistic approach to anti-corruption education and research. It delivers and facilitates anti-corruption training for practitioners from all sectors of society, providing technical support and assistance to its wide variety of stakeholders. International cooperation, the sharing of knowledge and experiences, and mutual support are fundamental aspects of IACA’s mandate. It was established jointly

by INTERPOL, the United Nations

Office on Drugs and Crime, the European Anti-Fraud Office, the Republic of Austria, and other stakeholders.

Andy Spalding, an American attorney on the faculty of IACA’s Masters in Anti-Corruption Studies program, described it as, “an educational environment unlike any I have ever experienced.” Its 25-30 students have several years of practical anti-corruption work experience in both the public and private sectors, are fluent in English and have a keen desire to learn, he said. “This exchange of ideas among professionals of vastly diverse cultural and professional backgrounds is absolutely fascinating. And I’ve seen my students go on to do extraordinary work in the anti-corruption field.”

In October, IACA will launch another graduate program. Its Master in International Anti-Corruption Compliance and Collective Action, or IMACC, is especially designed for anti-corruption compliance and collective-action professionals involved in the business sector. As such, the IMACC will offer “a practical, comprehensive answer to the ever-evolving regulatory environment and rising demand for specialized skills in these fields,” according to its organizer.

48 BREAKBULK MAGAZINE www.breakbulk.com

sector in Peru, with more than 28,000 employees in five Latin American countries.

Kara Brockmeyer, chief of the U.S. Securities and Exchange Commission’s Foreign Corrupt Practices Act, or FCPA, unit, which prosecutes U.S. corporate bribery cases, said that the agency has “several cases in the pipeline.” Last year was a record fiscal year for FCPA enforcement, she noted. “Of the 87 companies whose 2016 public filings disclose that they are the subject of ongoing and unresolved investigations under the FCPA, 26 are in Latin America.”

In a further sign that the challenge of anti-corruption law compliance is being raised, “companies must consider not only the anti-corruption regulatory regimes in their home jurisdictions, but also the criminalization and prosecution of bribery in other locales – sometimes very distant ones – where they do business,” attorneys Jason Jones, Amelia Medina and Kyle Sheahan wrote in a research note. The team specialize in government investigations at King & Spalding’s offices in the U.S. “For corporations operating in Brazil and throughout Latin America, anticorruption compliance has become an especially fraught regulatory challenge.

The road to compliance requires navigating not only the FCPA [U.S. Foreign Corrupt Practices Act], but also the Brazilian Clean Company Act,” the attorneys said. “Given this reality of broad, multijurisdictional anti-corruption investigations and the significant consequences thereof, corporations doing business from, or within, Brazil must be mindful of a few key cross-border considerations.”

They warn companies that whenever they eye a tempting new project, “it is critical for multinationals operating in Brazil to perform comprehensive due diligence on all potential business contacts to evaluate whether they are – or resemble in status or function – government officials.” BB 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 4 / 2017

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energy update

BY KERRY DIMMER

POWER FOR CHANGE Mexico’s Energy Reform Is Paying Off

F

or more than 80 years, the state-owned Petróleos Mexicanos, or PEMEX, hegemony on the energy sector restricted Mexico’s ability to adapt to changing global energy markets.

The impacts have been profound.

One of the most significant changes saw the country’s oil and gas production decline, which in turn increased the nation’s dependency on imports of gas and oil products. Further exacerbation to its economy came from rising power production costs, aging infrastructure and a widening human resources gap, among other negatives.

So, it was with some relief that the government in 2013 announced its energy reform bill. Conceptually, it is an extremely significant and insightful document, because it underscores the government’s commitment to change Mexico’s economy and is touted as the catalyst for continued and sustainable growth and welfare.

With it comes a new era of free trade for the nation, with new global partners that view it as a strong and competitive energy hub, and one that also endorses environmentally friendly practices, a sign of Mexico’s intention indicated by it being one of the earliest nations to sign the Paris climate accord.

Fast forward to 2017 and Mexico seems to have made good on its promises, having agreed: • Eleven free-trade agreements with 46 countries.

• Nine economic cooperation agreements.

50 BREAKBULK MAGAZINE www.breakbulk.com

• Thirty-three Reciprocal Investment Promotion and Protection agreements.

These indicate that Mexico’s energy reform just might be something special to tap into.

MAKING MOVES IN RECORD TIME

It is remarkable that Mexico has been able to initiate its energy reform in just a few short years, compared with the 20-plus years that more mature markets have faced. As the world’s 10thlargest export economy, according to MIT’s Observatory of Economic Complexity, Mexico has also been named as the 21st-most complex according to the Economic Complexity Index. Whether its energy reform can bolster these rankings will be clear by the end of the decade, as Mexico hits the seven-year marker for its reform.

What makes Mexico’s progress all the most notable is that this blueprint has been actioned at a time when oil prices are in a tailspin and global economic volatility is at a peak.

National policies to improve energy efficiency are critical to all countries, but perhaps more so for Mexico, whose oil sector has taken serious knocks over recent years. Despite attempts to diversify away from hydrocarbons, oil revenue still accounted for about onethird fiscal revenue in 2014, according to the International Energy Agency, or IEA. In its report, the Mexico Energy Outlook (2016), IEA confirmed that Mexico’s

A general view of the PEMEX Pol-A Platform Complex located 44 miles from Ciudad del Carmen, Mexico. Interest in oil E&P has picked up since Mexico’s Energy Reform.

Credit: Claudia Guadarrama/ Polaris/Newscom

fiscal revenue fell by more than half in 2015 due to the global decline in oil prices. With crude oil production falling further in 2016, Mexico might have floundered into dire straits were it not for “the increasing availability of relatively cheap natural gas imports from the U.S. providing a welcome boost to Mexico’s power sector,” the IEA said.

With its energy reform in place, Mexico can return to the benefits of its large hydrocarbon resources, but in a more sustainable, efficient, transparent and productive manner.

ISSUE 4 / 2017

For project cargo interest, an indication of what is to come was highlighted by the first bidding process in December 2016 for eight of the 10 blocks of deepwater offerings. This first round opened Mexico’s oil and gas scene to international interest, and with some 80 percent of the contracts already awarded, it attracted the oil majors and proved that exploration and production is back on the agenda in Mexico. This bodes well for the project cargo market in transporting the large components needed in the construction of fields and processing plants.

CHASING GREEN ENERGY

However, while oil remains important, Mexico will also continue to encourage low-carbon sources of energy growth – mainly through gas, solar and wind farm power – on the back of the government’s desire to embrace clean power generation.

Alternative power source production will go a long way towards easing demands on the national power grid, an imperative given a 25 percent increase in energy demand since 2000. With the energy reform in place, this sector is also

expected to create some 2 million jobs by 2025, as an added benefit.

Generating 35 percent of total energy from clean sources by 2024 and 50 percent by 2050 are the goals, and in facilitating this the government is offering private companies opportunities to produce and sell electricity in competition with its state-owned utility Comision Federal de Electricidad, or CFE. Solar, followed by wind, are the most dominant and popular projects, unsurprising given the country is blessed with significant renewable natural resources. www.breakbulk.com BREAKBULK MAGAZINE 51

energy update

MEXICO’S ENERGY REFORM: THE LEGISLATIVE PROCESS President Pedro Peña Nieto takes office

President Peña Nieto submits constitutional reform proposal

Pact for Mexico signs agreement to submit energy reform proposals

APRIL

2012

DECEMBER 25

1

2

End of forums.

Total: 14

Mexican Congress formally receives president’s proposal

JULY

2013

AUGUST 31 12 14

Mexican Senate begins forums

SEPTEMBER 20

OCTOBER

20 23

18

Majority of state legislatures approve the bill

Energy Minister, head of CFE and PEMEX deliver testimony to the Senate

Senate approves energy bill

NOVEMBER 31

20

DECEMBER 28

11 12

17 18

20

PHASE I: PASSAGE OF CONSTITUTIONAL REFORM

Discussions begin in the lower house of Congress Presidential candidate Peña Nieto commits to reforming the energy sector

National Action Party (PAN) submits energy proposal to Congress

Party of the Democratic Revolution (PRD) submits proposal

Discussions end in the lower house of Congress PRD leaves Pact for Mexico after tensions

Chamber of Deputies approve energy bill

Source: Wilson Center

Both renewables are expected to account for about half of total investment in generation and half of generation capacity additions in coming years.

EYE ON DEVELOPMENTS

Augustin Valdivia, owner’s engineer at Think Forward Power, said the transition was slow when the energy reform was introduced, but after Mexican state-owned utility CFE and power grid operator CENACE (Centro Nacional de Control de Energia) concluded two public Power Purchase Agreements, or PPAs, more than 5.4 gigawatts of contracted power Augustin Valdivia capacity manifested.

“These PPA auc- Think Forward Power tions appear to have stimulated the market for new project development and construction,” Valdivia said, “and those companies that won PPAs from the CFE and CENANCE auction are currently working on developing and building those projects over the forthcoming years.”

Think Forward Power, whose main activities include consultancy, outage support, regulatory approvals and permitting, and power generation project development and construction, has 52 BREAKBULK MAGAZINE www.breakbulk.com

kept a keen eye on the growing energy market, given it is “still maturing,” as Valdivia described it.

“One of the current biggest challenges, but which we also see as being an opportunity, is for existing service providers to adapt to a new, more competitive market. New power plant construction is reportedly being developed with very aggressive and competitive prices, which in turn results in reduced project budgets. Spanish companies appear to be well-positioned in the market based on their familiarity with the culture, language compatibility and competitive pricing,” he said.

This does not mean, however, that other nations are excluded, Valdivia said.

“Mexico welcomes partnerships with foreign organizations and particularly those in oil exploration and production, liquefied natural gas export, solar, wind and gas-fired power generation. Each area of the energy market includes a number of active international participants, and those appear to be driven by individual companies’ skills, know-how and interest in investment in Mexico.”

Freight forwarders; cargo carriers; engineering, procurement and construction companies; and other logistics suppliers are some of the new investors, particularly for the wind energy projects, which depend heavily on effective, capable transportation and logistics.

“For example, a typical 125-megawatt project may require shipments of

approximately 1,000 large components, including blades, nacelles and tower sections,” Valdivia said. “These components are often delivered to Mexico through Altamira Port in the Gulf of Mexico, or Manzanillo Port in the Pacific. Such transportation is going to be crucial in helping contractors to deliver projects on time.”

BOON FOR TRANSPORTERS

Mexico’s energy reform is already having positive impacts for the region’s transport industry, including for wellestablished businesses like Mucino Transportes, which offers specialized transport services, particularly those of heavy and oversized loads in Mexico, the U.S. and Canada.

Raúl Cuevas Fernandez, in Mucino’s commercial division, said he anticipates being very active with the number of wind farms planned for development next year plus other wind combined cycle projects. Mucino already transports, across distances of 1,000 kilometers, heavy components ranging from 200 to 300 tonnes for energy projects in the towns of Topolobampo, Cortijo and El Carmen.

Mucino is also in the planning stages of transporting an oversized load from Topolobampo to San Miguel Zapotitlan in the Los Mochis area.

Given the potential, it’s a particularly competitive market. “There are a number of foreign companies entering Mexico, and combined with other major players that are dropping market prices, we are ISSUE 4 / 2017

Congress energy bi the execu branch fo publicatio

President Peña Nieto signs into law constitutional reform

MARCH

2014

Secondary legislation approved and sent to the executive branch

President Peña Nieto introduces the proposed secondary laws to the Mexican Congress

Senate Discussions begin resumes in the Senate discussions

APRIL

21

MAY 30

JUNE 10 13

17

President Peña Nieto signs secondary legislation

Senate sends approved bill to lower house

JULY 8 15

21 28

Round Zero results; Round One begins

AUGUST 2

8

SEPTEMBER

Creation of funds: • Mexican Petroleum Fund for the Development of National Suppliers and Contractors • SENER-NAFINSA Fund • Electric Service Fund Introduction of an educational program

OCTOBER

11 13

FEBRUARY

PHASE IV: EXPAND SECTORAL DEVELOPMENT

PHASE III: ROUND ZERO, JOINT VENTURES, CREATION OF REGULATORY ORGANIZATIONS

Round Zero: PEMEX sends regulators list of fields it wants to keep for development

PRD exits negotiations in the Senate Discussions interrupted after PAN leaves negotiations

starting to see some delays on projects.

This makes it more difficult to win bids, but we believe there are enough projects in forthcoming years, for many to benefit from,” Fernandez said.

Some transporters were concerned about access to projects, given that wind farms, for example, are usually sited in remote locations. However, Fernandez did not see this as a problem: “Mexico’s infrastructure is constantly evolving, but ultimately it’s about doing business with what exists and adapting to opportunities. As such we are expanding our capabilities with the acquisition of new equipment such as Faktor 5 and Addrive, along with other ultra-long decks so that we are well prepared with the right tools, for when new opportunities arise.”

However, while Mexico’s energy reform is certainly on its way to becoming one of the world’s most attractive investment destinations, challenges remain, including consolidation of the new model, and transparency and accountability. Also, the need to attract private investment means that value chains of supply, and delivery of those, will prove vital in changing the economic landscape for all involved. BB Kerry Dimmer is an award-winning freelance journalist, focused on African business affairs.

MARCH

2015

PHASE II: PASSAGE OF SECONDARY (IMPLEMENTING) LEGISLATION

s sends ill to utive or its on

JANUARY

Publication of Round One bidding terms

Chamber of Deputies discusses, approves legislation Senate committees advance bill to the full chamber

90 days from Aug. 11 Creation of CENACE, CENAGAS Nominations for members of new regulatory boards, boards of CFE and PEMEX

Pub. of legislation regulations and clean energy certificate guidelines Modernization of Mexican Petroleum Institute

Creation of Agency of Industrial Safety and Environmental Protection in the Oil and Gas Sector (ANSIPMA)

DELIVERING ON PROJECTS Mitsubishi Hitachi Power Systems Americas is actively involved in Mexico’s wave of new energy projects.

Brandon M. Strange from the organization told Breakbulk he traveled to several areas in Mexico, working with engineers, rigging and heavy companies, ocean carriers, reviewing railroad transport, and exploring customs and import formalities and challenges.

Initially, concerned with communication and response times, Strange said, “these aspects have improved over the course of our projects. Customs is a more rigorous and slower process in Mexico and the Latin market, but this was known to us going into these large-scale projects.”

Mitsubishi Hitachi is working on some of Mexico’s largest projects, such as Noreste/Escobedo, Topolobampo II, and El Carmen. He said Mexico’s energy reform provided opportunities to work with developers and EPCs to supply main equipment for Mexico’s next generation power fleet.

Mitsubishi Hitachi’s projects average 5,500 tonnes per project. While

some auxiliary equipment is sourced in Mexico, most is imported the U.S., Canada and several other countries.

Strange stressed the importance of communication in Mexican projects. “Communicating the critical elements of schedule, equipment specs and handling (i.e. rigging and transport requirements) leads to maintaining budget integrity, which is what we all are paid to do. The dynamics and constant changes of moving heavy-lift equipment drives the need for updates and constant communication.”

Project bidders must also be wary of developments with the North American Free Trade Agreement between the U.S., Canada and Mexico. U.S. President Donald Trump has vowed renegotiate NAFTA. “Everyone has their eyes on NAFTA to see if any changes are made that could affect import tariffs and the trade lanes,” he said. “This has definitely impacted some of our projects and how our customers have outlined certain requirements to mitigate risk and exposure to potential import cost increases.”

www.breakbulk.com BREAKBULK MAGAZINE 53

case study

A reusable SpaceX Falcon 9 rocket booster is floated into Central Florida’s Port Canaveral atop the drone ship Of Course I Still Love You. Credit: Canaveral Port Authority

BLAST FROM THE PAST Reusable Rocket Boosters Provide Project Payloads

BY PAUL SCOTT ABBOTT

Q

uite fittingly, the telephone area code for Central Florida’s Space Coast is 321 – an homage to the final three numbers in the countdown sequence for rocket launches.

54 BREAKBULK MAGAZINE www.breakbulk.com

But, while the area code wasn’t assigned by the Florida Public Service Commission until 1999, the Sunshine State’s Atlantic Coast has been home to unmanned space launches even before astronaut Rear Adm. Alan Shepard took off in May 1961 from what is now known as Cape Canaveral Air Force Station.

That launch station and adjoining Kennedy Space Center make up what is typically viewed as America’s Spaceport. But a third nearby facility, Canaveral Port Authority’s Port Canaveral, is increasingly coming into play as well, with the advent of reusable rocket boosters by the burgeoning commercial space industry.

ISSUE 4 / 2017

See more about the Falcon 9 rocket, including video of the first successful landing of Falcon 9 first stage on droneship, at www.spacex.com/falcon9.

docks of returning boosters will become increasingly commonplace.

In late March and early April, the process achieved a milestone as Space Exploration Technologies Corp., typically referred to simply as SpaceX, became the first company to successfully launch and return a booster that previously had been shot into space and recovered.

Just as a Lexus that’s been driven tens of thousands of miles is not called “used” but rather is termed “preowned,” such boosters are referred to by SpaceX officials as “flight-proven.”

MANY HAPPY RETURNS

Indeed, Capt. John Murray, former president and CEO of ocean carrier company Hapag-Lloyd USA, and, since early 2016, CEO of Port Canaveral, sees the reusable boosters, each with an empty weight of nearly 100 tons, providing a substantial boost to project cargo activity at the seaport.

PORT EYES GROWTH

“Absolutely, it’s a growth area for us,” Murray said, referring to the commercial space industry and, specifically, reusable rocket boosters. “It’s become a component of our business model now.

“It’s an exciting time to be here,” he said. “We are in a unique position here and

are privileged to be part of this special time in our country’s history. We look at it as a growing business for us.”

As competing commercial space industry players move to save tens of millions of dollars per launch by reusCapt. John Murray ing first-stage units while advancing Port Canaveral programs aimed at putting people on Mars, Murray anticipates that the towing to Port Canaveral

While, according to Murray, the April transit marked the fifth time that SpaceX brought a landed booster into the port vertically positioned atop a specially fitted bargelike structure – an “autonomous spaceport drone ship” in SpaceX-speak – it was notably the first flight-proven one to be floated into Port Canaveral.

A second such launch and return of a flight-proven SpaceX Falcon 9 booster to Port Canaveral took place in June, with several more on tap. Future SpaceX plans also call for launches of heavier rockets involving multiple reusable Falcon 9 boosters.

Reuse of the aluminum boosters is critical to the SpaceX goal of lowering launch costs by 30 percent. And, with the first-stage units representing about 70 percent of the cost of record of a typical launch, the recover-recondition-reuse program is being aggressively pursued.

Murray offered an analogy: “If you built a 747, you sold seats and you flew it to London and then disposed of it, that would be a mighty expensive seat. But, by reusing the plane ...”

SpaceX, a Hawthorne, Californiabased venture launched in 2002 by Elon Musk, the multibillionaire founder of such ventures as PayPal and electric car leader Tesla Inc., has another reason for seeking to master the vertical landing of rockets. www.breakbulk.com BREAKBULK MAGAZINE 55

case study

Port Canaveral welcomed back a SpaceX Falcon 9 rocket booster after its successful June 23 launch.

Credit: Canaveral Port Authority

The atmospheric conditions of Mars preclude the building of a runway long enough to accommodate horizontal landings on the Red Planet. And putting people on Mars is a key to the lofty SpaceX objective of turning humanity into an interplanetary species.

To date, SpaceX craft have been engaged in activities much closer to home, such as delivering commercial communications satellites into orbit and bringing U.S. National Aeronautics and Space Administration cargoes to the International Space Station.

A FIERY HICCUP

Though there were no casualties, SpaceX’s program encountered a fiery hiccup in September 2016 with the explosion of an unmanned rocket on a Cape Canaveral launchpad. But the company’s program now appears to be in full swing, with preparations under way for the carrying of astronauts to begin in 2018.

An in-house team leads the transportation logistics efforts of SpaceX. In the case of the March-April activity, the 180-foottall booster that on March 30 launched a communications satellite and about 10 minutes later safely landed upright in the Atlantic Ocean on the drone ship Of Course I Still Love You was floated April 4 into a 56 BREAKBULK MAGAZINE www.breakbulk.com

Port Canaveral cargo terminal area leased

by SpaceX from GT USA, the U.S. arm of global port operator Gulftainer.

From there, the typical path for returned boosters includes lifting them by crane from drone ship to dock, transporting them by specialized flatbed truck to a hangar at Cape Canaveral Air Force Station and then taking them by similar truck to a SpaceX facility in McGregor, Texas, for refurbishment.

Booster dimensions are such that the units can fit under highway overpasses.

SpaceX maintains two autonomous spaceport drone ships under lease from an unspecified barge company, with one based on the U.S. Atlantic Coast and a second on the U.S. Pacific Coast – the latter stationed to accommodate a lesser level of launches from Vandenberg Air Force Base in Southern California.

SHORT ON DETAILS

When it comes to providing details about the move, both SpaceX and Gulftainer are remarkably hush-hush.

SpaceX officials declined multiple interview requests, while Gulftainer retracted a press release on the MarchApril activity, as SpaceX alleged inaccuracies and violation of a nondisclosure agreement. Gulftainer also denied numerous requests for comment.

SpaceX has two major competitors in the commercial space arena, and Murray said he believes all three companies could soon be bringing activity through Port Canaveral.

Kent, Washington-based Blue Origin, begun in 2000 by Amazon.com founder Jeff Bezos, hasn’t launched from the Space Coast yet, but it has leased a launch complex at Cape Canaveral and is building a massive manufacturing facility at nearby Exploration Park, with plans for 2019 commencement of a new launch program, likely to include return of boosters via Port Canaveral.

The other key player yet to engage from the Space Coast is Centennial, Colorado-based United Launch Alliance, formed in 2006 as a 50-50 joint venture of Bethesda, Maryland-headquartered Lockheed Martin Corp. and Chicagobased Boeing Co. With the Space Coast and Port Canaveral at its nucleus and reusable boosters at its core, one need not be a rocket scientist to know that the countdown to more space-related project activity is on: 3-2-1...

Return ... Refurbish ... Repeat. BB A professional journalist for nearly 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.

ISSUE 4 / 2017

emerging markets

EGYPTIAN REVIVAL Gas Discoveries To Transform Economy

BY KERRY DIMMER

T

he discovery two years ago by Italian international oil company Eni of the 30 trillion-cubic-foot, super-giant natural gas field Zohr – the largest in the Mediterranean – along with BP’s West Nile Delta project, is expected to significantly change Egypt’s economy.

Together, the finds are likely to boost output by some 50 percent over the next decade, a welcome relief for a country that swung from an energy exporter to an importer during the late 2000s, a situation created largely by sociopolitical unrest that introduced two presidents in the same number of years.

Now stable, Egypt has introduced government reforms, and with increasing exports and decreasing imports by virtue of a new exchange rate, investor confidence is rising, which bodes well for the starved industrial and oil and gas players that have struggled to find their feet over the past five years. The revival also bodes well for project cargo-handling companies.

In some respects, it is as though the prodigal child has returned. Putting this into perspective are Wood Mackenzie’s Adam Pollard, senior upstream analyst, and Lucas Schmitt, senior gas and liquefied natural gas analyst, who discount media reports that Egypt has suddenly become popular as an oil and gas destination. “Egypt has a very well

The jackup offshore oil rig ST Bahari I lies in the shallow waters off the coast of Ain Sokhna, Egypt, in 2011, around the time when Egypt shifted from being an energy exporter to an importer.

Credit: Barry Iverson Photography/Barry Iverson/Newscom

www.breakbulk.com BREAKBULK MAGAZINE 57

emerging markets

An oil and gas control building under construction in Egypt.

Credit: Shutterstock

established oil and gas sector, with one of the most diverse corporate landscapes in the world. BP and Eni have been operating in the country for over 50 years for example.”

NOT FLYING SOLO

But it’s not just BP and Eni’s participation in the oil and gas sector that will transform the face of Egypt’s economy however, there are other players with a history. Apache is one such. With a 21-year heritage of exploration, development and operations experience in the nation, Apache holds 4.8 million gross acres in 23 separate concessions. With 63 percent of that acreage undeveloped, plans in 2017 to operate eight to 10 drilling rigs, and to drill some 90 to 100 wells, opportunities appear to be bountiful. This substantiates Pollard and Schmitt’s view that Egypt has become one of the top destinations for upstream development.

“The Egyptian investment of BP and Eni will make up 29 percent and 33 percent of their respective investments worldwide, which is a great shot in the arm for the country,” the analysts explained. “There will be an obvious impact on the local economy and 58 BREAKBULK MAGAZINE www.breakbulk.com

employment, and we’ve already seen new investors coming in, with Rosneft taking a stake in Zohr.” A recent Rosneft deal will support 10 liquified natural gas, or LNG, cargoes to Egypt this year.

“The new volumes of gas will help offset costlier imported LNG, and could ultimately lead to more gas exports – both of which will be a boost to the national budget.” However, the analysts added that in recent years, Egypt has struggled to pay its oil and gas producers, and they have built up several billion dollars of receivables. Clearing those and paying for large volumes of new domestic gas will be a challenge.

Pollard and Schmitt point out, however, that the government has managed to reduce arrears owed to independent oil companies from US$6 billion to US$3.5 billion “so 2017 is set to be a turning point for the country.

“Reversing its fortunes, after five years of falling production and the switch from net exporter to importer in 2015, has been driven by stellar exploration results and higher gas prices.

The Petroleum Ministry’s pragmatic approach to pricing has secured more than US$28 billion in new gas field

investments since 2015, at a time when investment in other regions has been slashed.”

PRIVATE INVOLVEMENT URGED

In that regard, the ministry is keen to see much more private sector investment in oil and gas activities. In the Oxford Business Group’s The Report Egypt 2017, Tarek El Molla, minister of Petroleum and Mineral Resources, emphasized the commitment to maximizing private sector participation in oil and gas activities in a more effective manner, “particularly in the petroleum industry, which has promising opportunities for fruitful partnerships with qualified private sector companies that have the technical and financial capability. In terms of the refining and petrochemicals industry, there are distinct models for a number of joint projects to fulfill the domestic market requirements and increase the value of the oil and gas sector.”

El Molla added that the Egyptian Refining Co. project was one of the most significant joint ventures with the private sector, and aimed to increase the amount of locally available petroleum products.

ISSUE 4 / 2017

There are also significant opportunities for greater private sector participation and investment, particularly in the natural gas domain, he said.

Under the country’s new gas law, active participation by the private sector in the Egyptian gas market and in mineral resources projects is encouraged, while the new investment law, which is expected to be passed shortly, will add several incentives to encourage private investors by creating a healthy climate to develop their investments in the petroleum domain.”

PREPARING FOR THE FUTURE

Egypt is preparing to become an important energy center. “Our geographical location and natural resources are enormous assets, (but) these are not enough in themselves,” El Molla said.

“Egypt has excellent infrastructure from the Suez Canal to the LNG plants in Damietta and Port Said, the refineries on the Red Sea and north coast to the Suez-Mediterranean (Su-Med) pipeline.

This makes us well positioned to not only produce our own energy, but to process supplies from other countries. So, the gas surplus in our system by 2020 will be used for two things: to satisfy local demand — electricity, industry and so forth — including an expansion of our petrochemicals industry.

“Second, it will go towards meeting our contractual obligations for export.

Between four big gas developments — BP’s West Nile Delta, Atoll, Zohr and Nooros — total production will amount to more than 5.5 billion cubic feet per day, representing more than US$30 billion worth of investments.”

For service providers, such as the logistics and supply chain players, this is good news. Many oil companies already have a presence in Egypt, given its long history. However the fast speed of growth is attracting new entrants to the country, such as Apex International, which picked up two blocks in last year’s Egyptian General Petroleum Corp.’s bid round.

“Developing supply chain and local content is also present across other sectors and could gain further momentum in the future,” Pollard and Schmitt added.

“For example, Siemens signed a deal to

build a rotor blade factory for wind turbines components in Egypt back in 2015.

New companies and strategic partnerships are always going to be welcome.”

ENI IN EGYPT

CUTTING OUT EPCS

1 | ZOHR OIL FIELD 850 BILLION CUBIC METERS –

potential gas resources

5.5 BILLION BARRELS of oil

equivalent (boe)

100 SQUARE KILOMETERS –

total extent of the Zohr field, the largest in the Mediterranean

4 5 6

7

2 | WESTERN DESERT PRODUCTION:

62,900 boe/day ENI’S SHARE:

26,900 boe/day 3 | GULF OF SUEZ PRODUCTION: 97,000 boe/day ENI’S SHARE: 64,000 boe/day

4 | BALTIM PRODUCTION: 40,000 boe/day ENI’S SHARE: 12,000 boe/day

5 | R AS EL BARR PRODUCTION: 83,000 boe/day ENI’S SHARE: 25,000 boe/day

6 | EL TEMSAH PRODUCTION: 115,000 boe/day ENI’S SHARE: 32,000 boe/day

7 | N ILE DELTA NORTH PORT SAID PRODUCTION: 25,000 boe/day ENI’S SHARE: 18,000 boe/day

Source: ENI

Eni CEO Claudio Descalzi has also reacted to the potential for transport suppliers. During the company’s most recent strategy meeting, he highlighted the restructuring of Eni’s supply chain and its contract strategy for supply chain management, both of which aims to reduce costs. Essentially, Eni is the main contractor and no longer outsourcing to an engineering, procurement and construction company. It is a system that is already working well in the organization’s Angola Block 15/06 operation and now in Egypt. Descalzi said that it allowed Eni to have direct contact with its contractors and interface on all the different packages of supply chain delivery while motivating a huge amount of savings. Eni’s needs in Egypt in terms of supply relies on drilling contractors to meet its commitment for production startup of the Zohr field by the end of 2017.

As the country seeks to elevate its status from being the fifth-largest oil producer in Africa, Egypt has on its plate a very significant advantage, as the Oxford Business Group pointed out. “In addition to being a major energy producer, Egypt serves as a transit platform for the global energy system thanks to two key pieces of infrastructure: the Suez Canal and the Suez-Mediterranean pipeline – the only alternative route in the region to move crude oil from the Indian Ocean to the Mediterranean Sea without going under Africa.” About 9 percent of waterborne crude passed through either the canal or the pipeline in 2014. Egypt’s energy infrastructure also includes about 7,000 kilometers of pipelines carrying oil, natural gas and fuels.

Such a crucial positioning coupled with increasing oil and gas activity means that Egypt will continue to be important to the project cargo industry and this, in turn, will solidify Egypt’s status as a regional and continental influencer. BB Kerry Dimmer is an award-winning freelance journalist, focused on African business affairs.

www.breakbulk.com BREAKBULK MAGAZINE 59

thought leaders

TURBINE TRIALS Safety Cobwebs Need to be Blown Away

O

nshore wind has been a major element in the rapidly expanding renewable energy sector for some years. Its growth has been remarkable. In Europe alone, the total installed capacity rose from 13 gigawatts in 2000, to 85GW in 2010, to 154GW in 2016, of which a startling 141GW was onshore.

In part, at least, the growing demand has been driven by the falling price of wind power, but that in turn has also meant great downward pressure on costs along the industry supply chain.

In addition, in the more mature markets, the most accessible sites have been developed, which has

BY SANDER SPLINTER meant new projects can be on hard-to-access sites, sometimes with difficult ground conditions.

And finally, there is the trend towards taller, bigger – and, for the developer – more efficient wind turbines.

Taken together, many in the mobile crane and heavy transport sectors fear that those factors are behind an increasing number of accidents. This is unacceptable and the whole industry needs to urgently act together to cut risks to an absolute minimum.

With our colleagues at FEM, the European Materials Handling Federation, we at ESTA want to see new industry-wide best practice guidelines for the lifting and transportation of wind turbines. We think such guidelines are vital and will improve both safety and the industry’s on-site efficiency.

The springboard for this latest work was a conference ESTA organized in Hamburg last February. This attracted 60 BREAKBULK MAGAZINE www.breakbulk.com

more than 130 delegates, many of them representing ESTA and FEM members.

Crucially, the conference also received support from VDMA Power Systems, part of the German Engineering Federation and whose members include the major turbine manufacturers. As a result, we are now talking to VDMA about producing such guidelines.

This is only a first step, but it is a start.

DIALOGUE NEEDED EARLIER

Many ESTA firms have experienced a situation where a site design has been fixed without proper consideration given to the requirements of the crane and transport companies involved – for example with steep inclines that could have been reduced or poor ground conditions that could have been avoided.

A lot of these issues can be resolved with earlier and better communication and planning. And that can often lead to greater efficiency in the project as a whole.

Quite simply, the quality of the preplanning and communication between all the stakeholders is the key issue – that is what must be improved.

For the turbine manufacturers and energy companies to agree, and act upon, a set of common minimum standards would be a major step forward.

The manufacturers must walk the talk. Their intentions on paper, agreed by management and procurement, are reasonable, but on-site crane and transport companies experience a completely different reality.

Through all of us agreeing and adhering to a uniform set of standards, we should be able to significantly improve safety. BB Sander Splinter is president of ESTA’s Section Cranes and managing director of Mammoet Europe. ESTA is the European Association for Abnormal Road Transport and Mobile Cranes.

ISSUE 4 / 2017

COUNTING CYBER COSTS Lessons to Learn From Maersk’s Infiltration

Credit, both pages: Shutterstock

A

s we continue to assess the fallout from the global cyber-attack that affected Maersk in June, alongside other global businesses across a variety of sectors, we must ask how the shipping industry can react to this event and ensure that similar such attacks are avoided.

Maersk is the world’s largest shipping company, which would suggest that hackers are aiming high, although smaller companies – including boutique freight forwarders perhaps with weaker security systems – are equally as vulnerable.

This is not the first time the industry has been targeted by cyber criminals.

Many may

BY GERRY remember the NORTHWOOD attack on the port of Antwerp in 2013, where hackers, acting on behalf of drug and weapons smugglers, infiltrated IT systems that controlled the movement and location of containers. This incident was a good example of how cyber breaches can significantly compromise port security and can create a financial risk for all parties involved, including ship owners.

What makes this most recent incident interesting is that criminals gained access through Russian-based companies, effectively exploiting the weakest point of access. This reinforces the importance of due diligence, not just on one’s own systems but on the entire supply chain. After all, every area and access point of a global supply chain is vulnerable. Manipulation of cargoes and management systems, as seen in the Antwerp attack, is just the high-profile tip of the iceberg, but just as damaging

is email spoofing and phishing. Infiltration by malicious actors into a company infrastructure could potentially expose sensitive data including payment cycles and open these up to abuse.

Such an infiltration might also manifest itself as an attempt at industrial espionage. Cyber hacking into shore-based or ship-based systems might well compromise commercial agreements, expose client information and result in handing competitive advantage to another company.

In the latest attack, the ransomware used exploited the “EternalBlue” vulnerability in Microsoft-based platforms.

Although a patch was released in March to protect systems from the infection, it appears some companies have not updated their systems despite the potentially catastrophic consequences of leaving these updates unchecked. Such attacks and their many repercussions are entirely preventable through the application of robust information security governance and assurance.

There are also some basic steps breakbulk and project cargo companies can carry out in the event of a cyber-attack.

It is very important that companies do not pay the ransom, as the email that the hackers use to demand the ransom will likely have been disabled by the attackers to cover their tracks. So, if you pay you will not be able to contact them to get what was promised on payment of the ransom.

Secondly, companies should try to interrupt the boot cycle before the encryption software loads, then format drives and reinstall from a known uncorrupted backup.

Lastly, companies should ensure all platforms are patched and antivirus is kept up to date. These simple steps should ensure that an attack is completely preventable in the future.

The cyber-attack on Maersk, as well as the other large global firms, should act as a wake-up call to the breakbulk and project cargo industry. It is important that there is awareness and partnership throughout the supply chain, along with effective protection of IT systems. In the modern era, criminals can relatively easily exploit any weaknesses in the supply chain, and this can lead to financial, operational and reputational damage.

There are simple steps that businesses can take to mitigate such risks and when there is so much at stake in the current business climate, most can ill afford a cyber breach. BB Gerry Northwood OBE, is chief operating officer at MAST, which provides physical, technical and cyber security and risk management services.

www.breakbulk.com BREAKBULK MAGAZINE 61

ADVERTORIAL

Port Serves Industry, Agriculture With nearly a century of experience in shipping, the Port continues to expand cargo capabilities by looking ahead to future maritime trends and growing transportation demands.

Positioned strategically on the Gulf Coast, the Port of Lake Charles in Southwest Louisiana has become a heavyweight in international transportation and a leader in cargo logistics.

According to figures from the U.S. Army Corps of Engineers, the Port of Lake Charles is among the top 15 busiest seaport districts in the U.S., and it handles approximately 57 million tons of breakbulk and bulk cargo annually on the Calcasieu Ship Channel—a major energy corridor for the nation.

Principal cargoes moving through the Port’s terminals include forest products, aluminum, grains, rice, petroleum and petroleum products, frac sand and heavy-lift project cargoes.

The Port District was established in 1926, and it encompasses 203 square miles, on which the Port owns and operates 6,000 acres throughout the District. Together with the Port’s numerous tenant facilities, Southwest Louisiana’s global ties grow as more international eyes look to the region.

With nearly a century of experience in shipping, the Port continues to expand cargo capabilities by looking ahead to future maritime trends and growing transportation demands. The Port has rebuilt historic transit sheds and docks in order to make way for modern cargo demands, and in 2016, it opened a two-story administration building to house Port staff and act as a welcoming beacon to the region for global clients.

A strong versatility in transportation modes and a proactive attitude toward cargo solutions

62 BREAKBULK MAGAZINE www.breakbulk.com

make the Port of Lake Charles a gravitational force for domestic and international business.

The many advantages of working with the Port can be attributed to its growing facilities, diversified workforce and hands-on management team.

The Port has developed a global reach as well as a local network of rail, Interstate highway systems and barge connections.

The Southwest Louisiana economic boom is fueling a surge in maritime activity on the Calcasieu Ship Channel. Many of the industry expansions and proposed projects are dependent on waterway access, and the channel offers significant advantages for companies looking to construct new facilities and expand existing ones.

The 13 berths and large lay-down areas at the Port’s City Docks facilitate the loading, offloading, staging and storage of project cargo needed by industrial facilities that require overdimensional pieces as close to their project construction sites as possible.

Since the beginning of the Port, it has played a strong role in handling all types of cargo needs of industries and agriculture along the Calcasieu Ship Channel.

The Port of Lake Charles is governed by a seven-member board of commissioners and comprises two marine terminals and more than 6,000 acres of property zoned for industrial use, including an industrial park. For more information, call +1 337 439 3661 or visit www.portlc.com.

ISSUE 4 / 2017

If it’s big and heavy, the Port of Lake Charles makes easy work of it.

Huge industrial plant components and oversize equipment arrive regularly at the Port by ship for transport to sites throughout the United States.

And overdimensional cargo manufactured in the U.S. is loaded aboard vessels at the Port of Lake Charles to ship out to world destinations.

The cargo-handling capabilities of the Port of Lake Charles and its strategic mid-Gulf location make it an easy choice for the region’s inbound and outbound project cargo.

Lake Charles, Louisiana, USA +1 337 439-3661 • portlc.com

Visit us at the Breakbulk Conference in Houston October 17–19 at booth 1009.

www.breakbulk.com BREAKBULK MAGAZINE 63

ADVERTORIAL

Container-On-Barge Services at the Port of Greater Baton Rouge

Diverse, Efficient Operations The Port of Greater Baton Rouge is ranked among the top ports in the nation in total tonnage, including export, import and domestic cargo. Recent, multimillion dollar projects have resulted in more deep-draft ship calls, diversification of operations, and increased efficiency for companies choosing to make their home there— and the Port still has ample room for growth.

“We feel that from a cargo and a deep-water shipping point, that we have adequate capacity left at the Port for existing tenants to grow and increase their ship counts or possibly for some newcomers to come in and utilize the docks,” says Executive Director Jay Hardman. “We are looking for companies that have a need for maritime components and hopefully have a fit for the infrastructure that we have in place to accommodate them,” he says.

Currently, companies located at the Port of Greater Baton Rouge total 24 and range from Genesis Entergy, L.P., Louis Dreyfus Commodities, Drax Biomass, and The Dow Chemical Company, to Community Coffee Company and Louisiana Sugarcane Products. Hardman says that in recruiting, they are ultimately trying to marry companies with opportunity and the need for infrastructure.

GENESIS ENERGY, L.P. Houston-based Genesis Energy L.P., which made a large investment at the Port with a $150 million oil storage and import/export terminal on 91 acres in 2014, also has plans to expand its storage and handling capacity of petroleum related cargoes. Genesis estimates that thirty-three million barrels of crude oil or other petroleum products will be moved annually through Genesis’s Port terminal.

Pipelines connect both the Port’s docks and Genesis’s tank farms located in West Baton Rouge and East Baton Rouge parish, and deepdraft vessels used to transport these cargoes can range to more than 700 feet in length. To complement Genesis’s investment and accommodate such large ships and barges, the Port 64 BREAKBULK MAGAZINE www.breakbulk.com

is rehabilitating its deepwater docks at a cost of approximately $6 million.

LOUIS DREYFUS COMMODITIES – GRAIN ELEVATOR The grain elevator at the Port of Baton Rouge, constructed in 1959, was taken over

by Louis Dreyfus Commodities (LDC) in 2013.

The company embarked on a $150+ million expansion and modernization of the facility for multiple grain and oilseed commodities.

Hardman says LDC’s investment in the modernization of the grain elevator makes it the most efficient deep-draft export grain elevator on the Mississippi River. The rehabilitated elevator can handle in excess of six million metric tons of grains and oilseeds annually, and the dock is able to load an ocean-going vessel at a rate of 100,000 bushels an hour and unload barges at the rate of 80,000 bushels an hour. Estimates are that the company has increased annual ship calls at the grain dock to about 120 and the handling of grain from 750,000 tons to more than 6 million tons last year.

DRAX BIOMASS – WOOD PELLETS A development and operating company focused on manufacturing wood pellets for renewable, low-carbon power generation, Drax Biomass transports the pellets by rail to the Port from a manufacturing facility in Bastrop, Louisiana, and by truck from another facility in Gloster, Mississippi. These pellets are stored at the Port in two dome-shaped silos and then loaded onto ocean going vessels for shipment to the United Kingdom, where it is burned for fuel by industry.

Drax has invested about $150 million in each of its pellet mills and $50 million at the Port. Both mills produce about half a million tons of wood pellets, resulting in an additional 15 to 20 ship calls a year at the Port. As Drax creates more of an industry for wood pellets, producers are following suit. Hardman predicts the company will eventually be exporting about two million tons a year through Port facilities.

Before Hurricane Katrina, the Port offered container-on-barge services through a terminal off the Intracoastal Waterway. After many years of efforts to revitalize the service and the advent of new trucking regulations, containeron-barge service returned to the Port of Greater Baton Rouge in 2016.

Operated by SEACOR, the first leg of the service transports empty containers by barge into the Port at Baton Rouge, where they are loaded with products from nearby industries. The second leg of the service transports the loaded containers via the Mississippi River to the Port of New Orleans, where they are loaded on container ships for export.

“We’ve been successful teaming with the Port of New Orleans and SEACOR in order to obtain federal funding in the form of a $1.75 million grant from the U.S. Department of Transportation, Maritime Administration (MARAD) to purchase container handling equipment in order to improve the efficiencies of our container handling operations,” says Hardman. Currently, the Port’s terminal is handling approximately two hundred containers per week, and there are plans to expand the terminal’s size and capacity.

ISSUE 4 / 2017

Container-on-barge services at the Port of Greater Baton Rouge are providing area petrochemical industries with an efficient option to move products.

Operated by SEACOR, the first leg of the service transports empty containers by barge into the Port where they are loaded with products from nearby industries. The second leg of the service transports the loaded containers, via the Mississippi River, to the Port of New Orleans where they are loaded on container ships for export.

Benefits of container-on-barge shipping include: • Increased efficiency of logistics chain by eliminating congestion on both ends of the surface transportation system • Improving port throughput by reducing dwell time • Accommodating industry’s 24/7 production schedules • Ability to load 15% more cargo than truck transportation • Alleviating traffic congestion on surface highways

For more information, contact Greg Johnson: 225-342-1660.

2425 Ernest Wilson Drive • P.O. Box 380 • Port Allen, LA 70767-0380 PH: (225) 342.1660 • FAX: (225) 342.1666 www.portgbr.com

ADVERTORIAL

Port of San Diego: The Special Advantage With regular trade routes to Latin America, Asia and beyond, the Port of San Diego is the nation’s specialty cargo gateway to the Pacific.

San Diego’s booming craft beer industry (more than 100 breweries and counting) can’t be contained, and neither can the equipment needed to produce all those pints.

In comes the Port of San Diego. With its open berths and eleven acres of laydown space at the Tenth Avenue Marine Terminal, breakbulk pieces like four 24-ton, 69-foot tall fermentation tanks imported for one of the region’s largest and most successful brewing companies are handled with ease.

Whether it’s freestanding, on pallets, raw stacks, in bags, in bundles or in barrels, the Port of San Diego not only has the space, but the flexibility, expertise, competitive rates and commitment to customer service to handle large and small breakbulk and project cargo needs.

In addition to brewery equipment, the Port of San Diego specializes in other specialty cargo such as windmill components like towers, blades, hubs and nacelles; vessel components and raw materials like engines, steel beams and bars for shipbuilders; roll-on/roll-off cargo like automobiles, and tanks and support equipment for the military; transformers; generators; yachts; lumber and more.

With regular trade routes to Latin America, Asia and beyond, the Port of San Diego is the nation’s specialty cargo gateway to the Pacific. Located in San Diego Bay, the Port of San Diego is the fourth largest in California and has a natural deep-water harbor. Fewer larger container ships, easy access to nearby interstates 5, 8, 15 and 805, and on-dock Class I rail service all contribute to shorter wait times and shorter processing times, which means

less time is wasted and specialty cargo moves from ship to ground to market much faster.

The Port has two cargo terminals, the Tenth Avenue Marine Terminal (TAMT), a 96-acre facility in San Diego and the National City Marine Terminal (NCMT), a 135-acre complex in National City. TAMT is the Port’s omni-terminal, where refrigerated containers, break-bulk and bulk cargos are handled. TAMT also has an on-dock cold storage facility, providing approximately 300,000-square feet of temperature-controlled storage and cargo handling. TAMT also has ample open space, covered space and flexibility to efficiently handle and store non-containerized cargo. And, the Port will soon increase its cargo potential with a $24 million modernization project at the terminal scheduled to begin this fall.

When complete, there will be even more laydown space and flexibility for each cargo type.

NCMT, located just 10 miles from U.S.-Mexico border, is the Port’s roll-on/roll-off cargo terminal, and is the home to the West Coast’s most efficient auto processor, Pasha Automotive Services.

Cargo received at the Port’s two cargo terminals originates from twenty countries including Mexico, the United Kingdom, Germany, France, South Korea and Japan, to name a few. Export business includes soda ash and mining-related materials originating from Trona, California that are shipped to South America. Other exports are beer, refrigerated perishables and other materials to South America, American-made automobiles to Asia and turbines to Asia.

Take advantage of being different with the Port of San Diego’s special advantage – call 619-656-6300 or email maritimeinfo@portofsandiego.org.

66 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

WE THINK OUTSIDE THE BOX

Breakbulk cargo ships in unique ways.

Sometimes being different is an advantage. It helps when you have a partner who thinks outside the box.

The Port of San Diego specializes in specialty cargo. We have the space, flexibility, expertise and competitive rates to handle all of your breakbulk and project cargo needs.

We help you take advantage of being different â&#x20AC;&#x201C; less time processing, less time waiting, less time wasted. Thatâ&#x20AC;&#x2122;s the special advantage San Diego offers.

PORT of SAN DIEGO Maritime Division 687 Switzer Street | San Diego, CA 92101 619.686.6300 | Fax: 619.686.7288 maritimeinfo@portofsandiego.org

portofsandiego.org/cargo

bb index

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 68 in June, compared with 57 in June 2016. Values above 50 on the zero-to-100 scale indicate an increase.

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 M J J 2012

2013

2014

2015

2016

2017

Source: Danske Market Equities, www.danskebank.dk

68 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

WIND POWER CUMULATIVE MARKET FORECAST BY REGION 2017-2021 GWC sees continued dominance by Asia, but continued growth throughout all regions.

ASIA – 357.1* EUROPE – 234.8 NORTH AMERICA – 159.1 LATIN AMERICA – 40.2 MIDDLE EAST AND AFRICA – 16.1 2016

PACIFIC – 9.7

2017

2018

2019

2020

2021

*gigawatts

TOP 10 NEW INSTALLED CAPACITY 2016

TOP 10 CUMULATIVE CAPACITY 2016

China, the U.S. and Germany provided more than twothirds of installed capacity in 2016.

China U.S. Germany India Brazil* France Turkey Netherlands UK Canada rest of world

China provided more cumulative capacity in 2016 than the next three countries combined.

23,370 8,203 5,443 3,612 2,014 1,561 1,387 887 736 702 6,727

China 168,732 U.S. 82,184 Germany 50,018 India 28,700 Spain 23,074 UK 14,543 France 12,066 Canada 11,900 Brazil* 10,740 Italy 9,257 rest of world 75,576

* Projects fully commissioned, grid connections pending in some cases.

* Projects fully commissioned, grid connections pending in some cases

Source: Global Wind Energy Council, Global Wind Report: Annual Market Update 2016, http://www.gwec.net/publications/global-wind-report-2/

TIME CHARTER RATES TOEPFER TRANSPORT MULTIPURPOSE SHIPPING TIME CHARTER INDEX

The index is based on a 12,500 deadweight ton MPP/HL “F-Type” vessel for a six to 12-month time charter, and represents the monthly assessment from operators, owners and brokers. $8,000

TIME CHARTER RATE PER DAY

$7,750 $7,500 $7,250 $7,000 $6,750 $6,500 $6,250 $6,000

Jan

2016

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

2017

Feb

Mar

Apr

May

Jun

Jul

Source: Toepfer Transport, www.toepfer-transport.com

www.breakbulk.com BREAKBULK MAGAZINE 69

bb index

ASEAN MEMBER STATES: KEY FACTS AND FIGURES ASEAN nations listed account for estimated gross domestic product of US$2.44 trillion, among a population of 646.3 million, with foreign direct investment inflows of US$132.2 billion.

THAILAND MYANMAR

GDP (estimated): $64.8 billion Population: 54,836,483 Annual GDP growth: 7.00% Industrial production growth rate: 13.70% FDI inflows: $2.8 billion

GDP (estimated): $395.3 billion Population: 68,297,547 Annual GDP growth: 2.80% Industrial production growth rate: 2.20% FDI inflows: $10.8 billion

VIETNAM

GDP (estimated): $193.6 billion Population: 95,414,640 Annual GDP growth: 6.7 Industrial production growth rate: 9.60% FDI inflows: $11.8 billion

LAOS

GDP (estimated): $12.33 billion Population: 7,037,521 Annual GDP growth: 7.60% Industrial production growth rate: 7.50% FDI inflows: $1.2 billion

THE PROJECT CARGO INDUSTRY IN MALAYSIA & THE ASEAN ECONOMIC COMMUNITY:

Transporting the Region to New Heights A Market Insights report from Breakbulk Media & Events March 2017

THE PHILIPPINES

GDP (estimated): $292 billion Population: 103,796,832 Annual GDP growth: 5.90% Industrial production growth rate: 6.00% FDI inflows: $5.2 billion

1

Read the full report: www.breakbulk.com/ breakbulk-southeast-asia/ market-report

BRUNEI

GDP (estimated): $15.4 billion Population: 434,448 Annual GDP growth: -0.60% Industrial production growth rate: 0.00% FDI inflows: $6.9 billion

CAMBODIA

GDP (estimated): $18.05 billion Population: 16,076,370 Annual GDP growth: 7.00% Industrial production growth rate: 11.70% FDI inflows: $1.7 billion

INDONESIA

SINGAPORE

GDP (estimated): $292.7 billion Population: 5,784,538 Annual GDP growth: 2.00% Industrial production growth rate: -3.40% FDI inflows: $65.2 billion

MALAYSIA

GDP (estimated): $296.2 billion Population: 31,164,177 Annual GDP growth: 5.00% Industrial production growth rate: 5.50% FDI inflows: $11.1 billion

GDP (estimated): $861.9 billion Population: 263,510,146 Annual GDP growth: 4.80% Industrial production growth rate: 2.70% FDI inflows: $15.5 billion

Notes: Data taken from the World Bank, Worldmoeters.info, CIA World Factbook and United Nations Conference on Trade & Development. Brunei FDI based on an article from the Borneo Bulletin. / Source: Transporting the Region to New Heights, A Market Insights report from Breakbulk Media & Events, April 2017 (www.breakbulk.com/breakbulk-southeast-asia/market-report/) 70 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

GLOBAL RISKS FOR DOING BUSINESS ASEAN NATIONS’ MAIN INDUSTRIES

Agriculture, construction, engineering, manufacturing, mining, oil and gas production and services are among the leading industries for ASEAN countries.

Economic risks account for eight of the top 13 risks identified in the World Economic Forum’s 2017 Executive Opinion Survey.

RISK SHARE

1

Unemployment or underemployment

2

Energy price shock

30.1

3

Fiscal crises

30.0

BRUNEI Oil & gas production Manufacturing – including petrochemical production Services

4

Failure of national governance

28.7

5

Profound social instability

23.8

6

Failure of financial mechanism or institution

21.9

7

Terrorist attacks

19.3

CAMBODIA Manufacturing – including rubber, cement & clothing Agriculture – including rice & corn production Services & tourism

8

Failure of critical infrastructure

18.2

9

Asset bubble

17.7

10

Interstate conflict

17.3

11

Unmanageable inflation

16.6

INDONESIA Manufacturing – including chemicals, cement

12 13

Illicit trade

16.0

& clothing

14

Data fraud or theft

14.9

15

State collapse or crisis

14.4

16

Large-scale involuntary migration

14.2

17

Water crises

13.6

18

Failure of urban planning

12.9

19

Extreme weather events

12.8

20

Natural catastrophes

11.7

21 Failure of climate-change mitigation and adaptation

11.2

Oil & gas production Mining – including coal & bauxite extraction LAOS Mining – including copper & zinc extraction Manufacturing – including clothing, cement & construction materials

Construction

MYANMAR Agriculture – including rice & seafood production Manufacturing – including clothing, cement

36.6

Cyberattacks 16.4

22

Misuse of technologies

9.6

23

Deflation

9.5

& construction materials Mining – including copper & tin extraction

24

Man-made environmental catastrophes

8.8

25

Critical information infrastructure breakdown

8.2

THE PHILIPPINES Manufacturing – including shipbuilding, electronics

26

Biodiversity loss and ecosystem collapse

7.2

27

Food crises

6.4

& clothing Mining – including gold & copper extraction

28

Spread of infectious diseases

6.2

29

Weapons of mass destruction

2.6

Oil & gas production

SINGAPORE Engineering – including shipbuilding & aerospace

Economic

Geopolitical

Environmental

Societal

Technological

engineering

From the list of global risks above, respondents were asked to select the five global risks that they were most concerned about for doing business in their country within the next 10 years. The share is the percentage of respondents selecting the risk among the five of highest concern.

offshore rig & FPSO fabrication Manufacturing – including electronics

2017 TOP 5 GLOBAL RISKS…

Oil & gas production & engineering – including

THAILAND Manufacturing – including automobile production, agricultural machinery & rubber products Mining – including tungsten & tin extraction

Oil & gas production

VIETNAM Manufacturing – including shipbuilding, automobile & steel production Mining – including coal & bauxite extraction

Services & tourism

Source: Transporting the Region to New Heights, A Market Insights report from Breakbulk Media & Events, April 2017 (www.breakbulk.com/breakbulk-southeastasia/market-report/)

…In Terms of Likelihood

1. Extreme weather events.............................................................................. environmental 2. Large-scale involuntary migration..........................................................................societal 3. Major natural disasters................................................................................. environmental 3. Large-scale terrorist attacks............................................................................. geopolitical 5. Massive incident of data fraud/theft........................................................... technological

…In Terms of Impact

1. Weapons of mass destruction......................................................................... geopolitical 2. Extreme weather events.............................................................................. environmental 3. Water crises.................................................................................................................societal 4. Major natural diasters.................................................................................. environmental 5. Failure of climate-change mitigation and adaption.............................. environmental Source: Global Risks Report 2017, World Economic Forum, http://reports.weforum.org/global-risks-2017/ www.breakbulk.com BREAKBULK MAGAZINE 71

photo contest

WATER, WATER EVERYWHERE PHOTO CONTEST WINNER:

Ceres Barge Line

LOCATION: Throughout the U.S. inland waterway system YEAR: 2012 DESCRIPTION: BIG HOPE 1 was inspired by Ceres Barge Line employee Vince Schu and his wife Julie, who have both had family affected by cancer.

When it was launched in 2012, Ceres agreed to donate a percentage of its earnings to cancer research for a minimum of 5 years. Through Ceres and its vast network of philanthropic customers and vendors, the BIG HOPE 1 has generated donations of more than $712,000 for Mary Crowley Cancer Research.

EDITOR’S PICK: Manson Construction Co. LOCATION: Lake Washington between Seattle and Redmond, WA YEAR: 2016 DESCRIPTION: Building the SR 520 Floating Bridge near Seattle, Washington.

Next Issue: Hot & Cold: Extreme Weather Transports Submission Period: Aug. 2-17 Submit entries at www.breakbulk.com. Entries will be displayed at Breakbulk Americas.

72 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2017

the last word

PLASTICS SHOULD ‘RESIN-ATE’ WITH BREAKBULK LINES

H

Credit: Keith Necaise Photography

That the carriers delivering modules and towers might also be able to load plastic resin for Asia is just not on the radar.

ere’s some non-news: U.S. petrochemical capacity is expanding.

Powered by access to cheap natural gas feedstock, this expansion has, mercifully, kept a respectable percentage of the project market busy despite the prolonged market downturn.

Estimates are that 9.4 million tonnes of new polyethylene production capacity will come online annually between 2016 and 2021, most of it on the U.S. Gulf Coast. The plastic resin produced, mostly bound for Asia and used in jillions of manufacturing processes, is expected to increase containerized exports by as much as a half-million TEUs annually. Houston, primarily, but also New Orleans and Mobile, can expect to see surges in this export commodity.

However, plastic resins are low-value backhaul for the container lines, who do not appear eager to add capacity or reposition boxes to handle a base cargo. While some resin tonnage will move east and west to container ports by rail, or perhaps south to Mexico, a massive bottleneck appears to be looming.

There is, of course, another shipping option. Thomas Damsgaard, newly appointed vice president of marine services North America at Inchcape and veteran of 25 years in the maritime trade, attended a panel discussion on export issues at a petrochemical conference a few months back. An audience member asked whether exporting resins as breakbulk cargo was being considered. “What’s that?” said the moderator. Only one panelist, out of four industry executives, knew the answer.

“The project industry is already servicing the petrochemical industry on the EPC side, delivering their heavy-lift and project cargo.

They already know our capabilities and our ability to come up with viable solutions to challenging situations. But on the commodity side, looking downstream, they have no idea,” Damsgaard said. That the carriers delivering modules and towers might also be able to load plastic resin for Asia is just not on the radar.

“This is a window,” Damsgaard said. “Two or three years from now, it will all be resolved.

It’s open for the ones that have the insight and the willingness to pursue a solution.”

74 BREAKBULK MAGAZINE www.breakbulk.com

However, like the container side, MPV and heavy-lift carriers are hanging back, reluctant to make commitments, Damsgaard said. They could work with terminals, port agents and stevedores to come up with options. These players are hands-on with customers, but they are rarely part of the larger discussion, he said, and meanwhile, “there is so much value that is never captured ... The carriers’ value propositions need to expand beyond control of their own assets, utilizing more resources. We can dive deeper into the supply chain.

“This is not about raw materials cost.

It’s about the competitiveness of the supply chain. It’s about making sure U.S. resins are attractive to Asia and India,” Damsgaard said. And it’s about picking up on opportunity when it arises.

“Industrial supply chains come in many sizes and permutations,” said Greg Gowans, a long-time EPC and OEM logistics executive, most recently with CH2MHill. These supply chains serve everything from a modest lessor of construction equipment to hydraulic fracking to mega-projects. They tend to be more stable than retail or food supply chains. Many are repetitive, even if origins and destinations change. “Equipment is used for long periods; parts rarely change.

Once you’ve done it once or twice, you’ve set your supply chain up,” he said.

The parties responsible for executing industrial supply chains toward the simple end of the spectrum are becoming more fluid, Gowans said. “Coming off the recession, the major oil companies and manufacturers are strapped for cash, and that creates an opportunity for companies to step in and fill the gap in terms of meeting those supply chain requirements. There are opportunities there for vessel owners and land transport.”

While he is talking about delivering cargo to job sites, the same logic applies to Damsgaard’s resin-to-outbound-breakbulk insight.

Does one stay in one’s niche, or step through the window?

Janet Nodar Content Director ISSUE 4 / 2017

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Domino Effect of a Colla psed Ca rrier ■ MODERN MODULARIZATION CHALLENGES WHISPERS OF RECOVERY

■ INDIA BUILDS UP STEAM

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NEW DIMENSIONS IN PROJECT CARGO

BETTER WAY TO PAY FORWARDERS?

■

CHINA’S COST CRISIS

■

RECOVERING FROM DISASTERS

ISSUE 1 / 2017

Unique Demands Fuel Equipment Innovation

MPVS: THE RELIABLE PERFORMER n BUILDING TOMORROWLAND n A BETTER WAY TO FIX CONTRACTS

ISSUE 2 / 2017

PROJECT CARGO CASE STUDIES REGIONAL REPORTS MARKET ANALYSIS AND COMMENTARY PORTS & TERMINALS

POWERALIVE STAYING SOURCE OUTLOOK |

2017

Consolidation May Boost Recovery Prospects

ENERGY INFRASTRUCTURE

SOUTHERN EUROPE’S WIND MOVES n PROJECTS STILL TAKING OFF n HYDROPOWER AND THE GLORY

OCEAN CARRIERS

ISSUE 3 / 2017

ROAD/RAIL/BARGE/AIR TECHNOLOGY & EQUIPMENT BREAKBULK EVENTS

TRADE AND TRIBULATIONS Populism Yet Another Project Cargo Rebuff

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