Breakbulk Magazine Issue 2 / 2019 by Breakbulk Events & Media

The Publication for the Industrial Project Supply Chain Industry

Issue 2 / 2019

Don’t Sidestep Mental Health Issues

KEEPING A SENSIBLE HEAD

EXPORT CREDIT AGENCIES PROP UP PROJECTS

MPV FREIGHT MARKET CHASES THE SMART MONEY

EUROPE’S CRISIS OF INFRASTRUCTURE

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IN THIS ISSUE Cover Story

12 KEEPING A SENSIBLE HEAD Don’t Sidestep Mental Health Issues

MANUFACTURING

PROPPING UP PROJECTS Global Export Credit Agencies Fill U.S. Ex-Im Void

SHIPPING TRENDS

CHASING THE SMART MONEY

Finding the MPV Financing Catch

PROFILE

NEW WORLD SHIPPING ORDER

Negotiation ‘on a Different Scale’ Now Necessary

LOGISTICS PERSPECTIVE

STILL IN THE SIDINGS China’s Rail Offering Not Yet Up to Speed ON THE COVER: IMAGE VIA SHUTTERSTOCK, WITH EDITING BY CATHERINE DORROUGH

06 EDITORIAL 08 CONVERSATION

PORT PROFILE

MULTIPURPOSE PORTAL Ahead of the Smart Nation ‘Next-gen’ Curve

THOUGHT LEADER

INDIAN SEA OF OPPORTUNITIES Transformation Brings Breakbulk Benefits

LOGISTICS PERSPECTIVE

CRISIS OF CRUMBLING INFRASTRUCTURE Urgent Repairs Needed to Facilitate Project Moves

CARGO LENS

EXCAVATING NEW BUSINESS

Mining Sector is Industry’s Buried Treasure

56 L EGAL SPOTLIGHT:

65 L AND AND SEA

60 N EWS FROM

66 C ORRUPTION PERCEPTIONS

WHAT BUGS YOU?

BREAKBULK MIDDLE EAST

4 BREAKBULK MAGAZINE www.breakbulk.com

PHOTO CONTEST WINNER INDEX 2015-2018

ISSUE 2 / 2019

EDITORIAL

CURE FOR WHAT AILS

Gary Burrows

While our cover story for this issue of Breakbulk (“Keeping a Sensible Head,” page 12) covers mental health issues in the work force, we assure you the topic wasn’t motivated by the International Maritime Organization’s impending low-sulfur regulations for ocean carriage. While not to make light of the stress and demands of the workplace – particularly within the complex and demanding world of project cargo – few topics currently draw so much fear and loathing as the Jan. 1, 2020 deadline for enforcement of the IMO’s global 0.50 percent fuel sulfur content cap for marine fuels. The rules have served as a prominent topic of discussion for webinars, seminars, media and Breakbulk conferences. (When the topic became a key talking point during an air cargo session at Breakbulk Middle East, you know that it has reached critical mass.) Yet, merely months from implementation, the talk and hand-wringing has brought few answers. Like mental health, each person acknowledges a problem, but identifying the root problem – and the preferred universal solution – is subjective and fails to collectively address a shared approach that is best for all involved. Even nailing down details has been divisive. There were some eye-opening comments in our event in Dubai. By few accounts the difference between conventional bunker and the required low-sulfur options would be up to US$300 per ton. There have been debates of whether refiners will be able – or even willing – to provide capacity in order to generate the low-sulfur bunker necessary to operate the world’s carrier

6 BREAKBULK MAGAZINE www.breakbulk.com

fleet. For carriers who were just finding some optimism in shipping markets, it’s an expense that strikes them at the worst possible time. There are also questions of sourcing, impact on vessels and routings. The air cargo conversation envisions air freighters benefitting from MPV carriers’ inability to respond to the IMO rules. Then there’s the big question, of course: who pays? Like any crisis, personal or otherwise, denial and procrastination are pretty potent defense mechanisms. Some likely still cling to the hope that it will all simply go away, and somehow IMO will decide to postpone the deadline, or that some 11th-hour wiggle room will be created. That, however, would be a travesty to those companies that consciously planned ahead and have spent the money and forged the plans to be compliant. Surely the deadline for carriers to opt to install scrubbers rather than going with low-sulfur bunker has passed. The regulation itself is vitally needed, as we’ve collectively kicked the can of global warming down the road for far too long. For its part, Breakbulk has sought to enlist industry input at our recent conferences. Those discussions have been helpful but obviously more needs to be done. For Issue 3, we will provide expanded coverage, reaching out to industry verticals to create a forum of thoughts, ideas and plans of action. Hopefully we can collectively distill solutions that will be useful in meeting the deadline. As always, please reach out with your thoughts, views and insights so that we can include them in this forum. Good health!

EDITORIAL DIRECTOR Gary G. Burrows / +1 904 535 5460 gary.burrows@breakbulk.com NEWS EDITOR Carly Fields carly.fields@breakbulk.com HEAD DESIGNER Catherine Dorrough DESIGNER Mark Clubb REPORTERS Paul Scott Abbott Michael King Amy McLellan Thomas Timlen BREAKBULK EDITORIAL BOARD John Amos Amos Logistics

Ed Bastian

BBC Chartering

Murray Cooper

LV Shipping Group of Cos.

Dennis Devlin Geodis

John Hark

Bertling Project Logistics

Dennis Mottola Bechtel Corp.

William Moyersoen

ArcelorMittal Antwerp Logistics

Albert Pegg

Atlas Breakbulk Alliance

Dirk Visser

Dynamar D.V.

Grant Wattman

Agility Project Logistics

PORTFOLIO DIRECTOR Nick Davison Nick.Davison@ite-exhibitions.com ACCOUNT MANAGER Robert Janusauskas / +353 87 414 3737 robert.janusauskas@breakbulk.com SUBSCRIPTIONS To subscribe, email gary.burrows@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. A publication of ITE JV Ltd. The Studios, 2 Kingdom Street Paddington, London W2 6JG, UK

ISSUE 2 / 2019

CONVERSATION

Conversation is a forum of thought leaders, commentaries, letters, editors’ notes and note-worthy social media from Breakbulk’s audience and staff. Join in the conversation – submit your views to gary.burrows@breakbulk.com, or through Breakbulk’s social media channels on LinkedIn, Facebook or Twitter.

CALL TO ARMS FOR MPV FREIGHT RATE INDEX We don’t have freight indices for MPVs; instead we have chaotic pricing from each carrier. This is a major challenge for our sector: we need an index and we need benchmarking to counter the absence of reliable market data. Financiers do not have a model for MPV investment or funding because it’s so unpredictable. And because nobody really understands it, it stays as a niche, specialized sector.”

TRANSFORMATIONS ‘HIDING IN PLAIN SIGHT’ A recently released McKinsey Global Institute study, Globalization In Transition: The Future of Trade and Value Chains, uncovers changes that have occurred since the mid-2000s, but were obscured by the Great Recession. Among the study’s key findings: • “Goods-producing value chains have become less trade-intensive. Output and trade both continue to grow in absolute terms, but a smaller share of the goods rolling off the world’s assembly lines is now traded across borders.” • “Cross-border services are growing more than 60 percent faster than trade in goods, and they generate far more economic value than traditional trade statistics capture. We assess three uncounted aspects (value-added services contribute to exported goods, the intangibles companies send to foreign affiliates, and free digital services made available to global users). National statistics attribute 23 percent of all trade to services, but including these three channels would increase their share to more than half. • “Less than 20 percent of goods trade is based on labor-cost arbitrage, and in many value chains, that share has been declining over the last decade. The fourth and related shift is that global value chains are becoming more

knowledge-intensive and reliant on high-skill labor.” • “Goods-producing value chains (particularly automotive as well as computers and electronics) are becoming more regionally concentrated, especially within Asia and Europe. Companies are increasingly establishing production in proximity to demand.” Three forces explain these changes in value chains: • “Emerging markets’ share of global consumption has risen by roughly 50 percent over the past decade. China and other developing countries are consuming more of what they produce and exporting a smaller share. • “Emerging economies are building more comprehensive domestic supply chains, reducing their reliance on imported intermediate inputs. Lower global trade intensity is a sign that these countries are reaching the next stage of economic development. • “Global value chains are being reshaped by cross-border data flows and new technologies, including digital platforms, the Internet of Things, and automation and AI. In some scenarios, these technologies could further dampen goods trade while boosting trade in services over the next decade.” The full report is available at: mckinsey.com/mgi.

Jeongmin Seong, senior fellow, McKinsey Global Institute, and Steve Saxon, partner, McKinsey & Company, will speak on the report at Breakbulk Asia, March 20-21 in Shanghai.

–K yriacos Panayides, managing director, AAL Shipping

TOEPFER TRANSPORT MULTIPURPOSE SHIPPING TIME CHARTER INDEX

RATE PER DAY

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.

$6,678

Jan 2018

$6,929

$6,956

Feb

Mar

$7,185

$7,247

Apr

May

$7,325

Jun

$7,216

Jul

$7,294

$7,385

Aug

Sep

$7,499

Oct

$7,508

$7,518

$7,593

Nov

Dec

Jan 2019

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

8 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

Our research makes a clear link between having a healthy democracy and successfully fighting public sector corruption. –D elia Ferreira Rubio, chair, Transparency International

‘CRISIS OF DEMOCRACY’ Transparency International released its 2018 Corruption Perceptions Index on Jan. 29, and its accompanying statement proclaimed the failure “to significantly control corruption is contributing to a crisis of democracy around the world.” The 2018 CPI (provided on page 66) is based on 13 surveys and expert assessment to weigh public-sector corruption in 180 countries and territories on a 100-point scale, where 100 is the best and 0 is the worst. The 2018 results show more than two-thirds of the countries fell below 50, with an average score of only 43. Only 20 countries “significantly improved” while 16 “significantly declined.” Western Europe and the European Union fared best, with an average score of 66, while Sub-Saharan Africa (average score of 32) and Eastern Europe and Central Asia (average score of 35) brought up the rear. In a statement, Patricia Morieira, TI’s managing director, warned: “With many democratic institutions under threat across the globe – often by leaders with authoritarian or populist

tendencies – we need to do more to strengthen checks and balances and protect citizens’ rights. Corruption chips away at democracy to produce a vicious cycle, where corruption undermines democratic institutions and, in turn, weak institutions are less able to control corruption.” Cross analysis with global democracy data reveals a link between corruption and the health of democracies. Full democracies score an average of 75 on the CPI; flawed democracies score an average of 49; hybrid regimes – which show elements of autocratic tendencies – averaged 35; autocratic regimes perform worst, with an average score of just 30 on the CPI. The U.S. fell four points from last year to 77, dropping out of the top 20 countries for CPI for the first time since 2011. The low score comes at a time when the U.S. is experiencing threats to its system of checks and balances as well as an erosion of ethical norms at the highest levels of power, Transparency International said. Brazil dropped two points since last year to 35, its lowest score in seven years. Alongside promises to end corruption, the country’s new president has made it clear that he will rule with a strong hand,

threatening many of the democratic milestones achieved by the country. “Our research makes a clear link between having a healthy democracy and successfully fighting public sector corruption,” said Delia Ferreira Rubio, chair of Transparency International. “Corruption is much more likely to flourish where democratic foundations are weak and, as we have seen in many countries, where undemocratic and populist politicians can use it to their advantage.” To make real progress against corruption and strengthen democracy around the world, Transparency International calls on all governments to: • “Strengthen the institutions responsible for maintaining checks and balances over political power, and ensure their ability to operate without intimidation. • “Close the implementation gap between anti-corruption legislation, practice and enforcement. • “Support civil society organizations which enhance political engagement and public oversight over government spending, particularly at the local level. • “Support a free and independent media, and ensure the safety of journalists and their ability to work without intimidation or harassment.” www.breakbulk.com BREAKBULK MAGAZINE 9

CONVERSATION

Taking Note of Turnarounds

Drawing Parallels Between Breakbulk Logistics, Petrochemical Turnarounds

BY AJ KOWALEUSKI AP-NETWORKS

TVPs ... hold promise for breakbulk logistics providers looking to achieve safe, competitive, predictable outcomes.” –A J Kowaleuski AP-Networks

here are striking parallels between breakbulk logistics and petrochemical process plant turnarounds. At the surface, the only commonality would be the fuel required to move the cargo. However, both are high-cost events requiring significant amounts of planning. Additionally, both possess a high risk of overage if the execution does not go as planned. As such, key learnings from turnarounds can be applied to breakbulk logistics. Oil refineries and petrochemical plants have large-scale events, known as turnarounds, that occur once every three to five years, whereby the site shuts down to safely refurbish, renovate, or upgrade every piece of equipment within the unit. Just as with large-scale logistics, turnarounds are high-value, highdollar events where minimizing overages and maximizing predictability are key concerns. Turnarounds can cost hundreds of millions of dollars and planning can start up to three years in advance. Quite often, cost and schedule goals are missed, resulting in added costs. This is compounded by lost productivity opportunities resulting from extended downtime. Based on years of industry experience and a quantifiable understanding of industry best practices, Asset Performance Networks, or AP-Networks, has developed Turnaround Value Practices, or TVPs, to maximize efficiency while minimizing costs for process

TVPS PRACTICES IMPROVE READINESS AND PERFORMANCE

SOURCE: AP-NETWORKS

10 BREAKBULK MAGAZINE www.breakbulk.com

Through TRI improvement alone

Value added by TRI improvement + TVPs

OPTIMAL

AVERAGE

Industry average WEAK

SCHEDULE OVERRUN

Value added by TRI improvement + TVPs

OPTIMAL

AVERAGE

WEAK

COST OVERRUN

Through TRI improvement alone

plant turnarounds. AP-Networks research statistically correlates specific TVPs with competitive event performance. While turnarounds may be seemingly localized to refineries, there are transcendent business concerns that are regularly addressed by best-in-class turnaround performers. The best performers weigh contract strategy concerns by designing an eventspecific strategy, contracting plan, payment plan, and associated timeline. Top-quartile performers actively pursue schedule optimization through a detailed review of an integrated schedule, validating the use of codes and structures, network logic, schedule control and calendars. The most competitive performers formally and thoroughly identify, evaluate, quantify and prioritize risks. Effective risk identification and management involves developing mitigation plans for high-impact and/or high-probability risks. Unsinkable ships have sunk with capable mariners at the helm by overlooking simple risks and failing to mitigate them. Contract strategy, schedule optimization, and risk identification and management are just some of the best-in-class practices defined by AP-Networks as TVPs. AP-Networks believes that the project cargo logistics industry, much like the refining and petrochemical industries, can also benefit from a targeted, TVP-based, up-front logistics planning process. Both industries need to ensure adequate resource availability for planning and execution. Both need realistic, predictable schedules. Both need well-thought-out contracting strategies. These, like many other challenges, are common and comparable business concerns. TVPs are proven solutions for addressing these challenges, and they hold promise for breakbulk logistics providers looking to achieve safe, competitive, predictable outcomes. BB AJ Kowaleuski is a consultant for Asset Performance Networks – Houston.

ISSUE 2 / 2019

Networking or Not Working Personal Interaction is Still a Necessity

behind their screens and limiting their communiques to 280 characters? Where are their communication skills? Why aren’t more of our younger colleagues taking advantage of social activities offered at industry events like the Breakbulk conferences to develop closer relationships with older, more experienced, industry professionals? Such opportunities are golden, easily mined, and especially important in discovering career opportunities. The old adage “it’s not what you know but who you know” is still true. Social media, while great for maintaining relationships, is no substitute for in-person sociability. Online employment sites work on algorithms seeking candidates who satisfy specific keyword criteria, whereas personal connections know you and your abilities thereby increasing your chances of getting in front of hiring professionals. One should not hire on the basis of a resume alone or marry someone simply based on their online profile; in both instances personal interaction is required. Networking, the development of contacts, whether on a social or business level, is an essential component of our lives – especially in business – and a tool to opening many professional doors. Networking or not working, the choice is yours. BB Margaret J. Vaughan has more than 30 years’ experience in all facets of supply chain management, serving most recently as logistics manager for Wood PLC where she worked for 12 years.

BY MARGARET J. VAUGHAN

CREDIT: SHUTTERSTOCK

arlier this year, while dining with friends at Eddie V’s restaurant in Houston, a group of a dozen teens arrived dressed in prom attire. They looked wonderful and appeared delighted as they were led to their table and seated. I watched them, thinking that, although the style of dress had changed, the excitement of this moment was the same as from my own prom. That was until they all took out their cell phones and started texting: to their friends, to their families, and, most astonishingly, to each other. The most personal interaction they seemed to have during the course of their dinner was with the waiting staff. I was astounded. And yet I now see this same behavior exhibited everywhere. What concerns me is not the unrelenting use of technology; it is the lack of personal face-to-face verbal interaction and communication. While technological advancements are wonderful and have added so much to our daily lives, they have, to a certain extent, also stripped us of human contact and the ability to hold meaningful conversation. Body language is a form of nonverbal communication (as anyone with a teenager knows). It is notable that emojis have been developed to import tone and emotion to text and email messages. One can truly only learn about a person by speaking with them, preferably in person. One cannot “read” a person from text and email messages the way one can when speaking directly to them. Ernest Hemingway, considered a literary master and thought by many of his readers to embody the romantic hero of his writings, was in person, according to one biographer, physically and verbally abusive, cruel to animals, compulsively nasty, congenitally dishonest and staggeringly petulant. Personal associates of Hemingway could “read” the difference between the real person and his written exemplar. But why are so many people hiding

www.breakbulk.com BREAKBULK MAGAZINE 11

COVER STORY

KEEPING A SENSIBLE HEAD BY CARLY FIELDS

Don’t Sidestep Mental Health Issues

12 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

CREDIT: SHUTTERSTOCK

t has long been a taboo subject, but employers in the project cargo and breakbulk industries are having to face up to the reality of addressing mental health issues in their workforces. With the heavy demands and stressful nature of the project logistics sector, focus is turning to early detection, better communication and greater transparency to deal with mental health challenges. Face-it Foundation founder Mark Meier has particular experience of mental health issues in men, the dominant sex in the breakbulk and project cargo industry despite a concerted drive to bring more women into the industry. He said that statistics reveal that one in 10 men experience depression, but fear, shame, and a lack of understanding about depression prevents many from seeking help. “Men often feel pressured to simply ‘man up’ and ‘get over it.’ There’s the fear that admitting to a struggle or asking for help will be seen as unmanly, and men often reject the idea of taking antidepressants or seeing a counselor,” Meier said. Worse still, some men are not even aware that they are depressed — they only know that life has become unmanageable. Tragically, in the U.S. more than 35,000 men die by suicide each year, often due to depression, he said. Meier has a master’s degree in social work and has taught and lectured on depression to mental health professionals across the U.S. Seventeen years ago he attempted to take his own life. It’s this personal experience with depression that prompted him to found the Face-it Foundation in 2009 with a goal to help men understand and overcome depression, and reduce the rate of male suicide. The foundation provides men’s support groups, oneon-one peer support, outreach events, public education, and training for mental health professionals. “The stigma and shame of being a man is alive and well in the U.S.,” he said. “Here – and I would imagine in most industrialized countries – about 17 percent to 18 percent of the popula-

tion suffer from anxiety, and about 10 percent suffer from depression.” The majority of these two groups will be in employment. “By and large the workplace represents society, so these figures are significant.” Suicide, he added, is on the rise globally in industrialized nations and he sees profound pressure on men that was not there just one generation ago.

IGNORANCE IS NOT BLISS

The worst thing a breakbulk or project cargo company can do is ignore a mental health issue. Still, too many employees – and employers – see mental health challenges as a weakness. Through their approach to mental health, companies need to demonstrate that it is no different to a physical illness. Vigere Managing Director Colin Payne spent 11 years as human resource manager at Swire Pacific Offshore. He brings medical expertise to the mental health problem through his training as a clinical neuropsychotherapist. “A company would get upset if an employee were to come to work with an illness that might affect others or have Colin Payne the potential to cause injury to Vigere themselves or others,” he pointed out. “Why would this be any different to mental health? My view is, put your head in the sand at your peril. “We now have the tools to understand the challenges, the skills to make life better for everyone, and to get the subject on the table and talk about it like adults. A great many celebrities and leaders have come forward in the past few years to show that it is OK to speak about this and to show vulnerability. Until we recognize the challenge and accept it we will never make inroads to solving it.” Andrew Turner, proposition www.breakbulk.com BREAKBULK MAGAZINE 13

manager, benefit consulting, at JLT Employee Benefits, pointed to a September 2018 policy paper produced by the Sainsbury Centre for Mental Health that found that 40 percent of days off per year in the UK are attributed to mental health problems, costing businesses £8.4 billion. Further, mental health was found to be the leading cause of sickness absence in the UK by the Business in the Community in its Transforming the Role of Line Managers report, costing an estimated £25 billion per annum. JLT is a specialist insurer offering coverage of the project cargo sector through its member group unit JLT Specialty. Turner sees mental health as “a continuum” that can be triggered by individual events or the buildup of stresses. Specialist charity MIND calculated that at any one time 25 percent of the workforce will be suffering from a common mental health condition, such as stress or anxiety. “However, many bottle this up,” he said. “The impact for businesses will then be increased attrition and increase need for recruitment – and all the costs associated with this. Business should work to create a culture in which employees can feel safe to disclose their mental health and ensure that the board and senior management are committed to this. This can demonstrate their commitment as a supportive and inclusive employer, enhance their employer brand and also positively affect their staffing and recruitment costs.”

own research, Meier has uncovered a high rate of anxiety and depression in the trucking industry, which he is unsurprised by. “Trucking is a very lonely and isolated industry. The nature of the work contributes to high rates of depression. Companies employing truckers have a responsibility to address wellness,” Meier said. This responsibility has to be driven from the top-down because, as Meier put it, “if top management

TOP TIPS ON ADDRESSING MENTAL HEALTH 1. Run any initiatives that will promote understanding and acceptance of mental health issues. 2. Encourage a top-down approach. 3. G et your leadership team on board. 4. C reate awareness of mental health issues. 5. Work to improve your employees’ culture and attitude towards mental health.

RISKS IN TRUCKING SECTOR

Multimodal transportation services and third-party logistics company C.H. Robinson supports Meier’s Face-it Foundation and the stigmas it addresses. “Face-it positively impacts our community by helping men overcome depression,” said Angie Freeman, chief human resources officer and president of the C.H. Robinson Foundation. “We have supported the non-profit for five years and are proud to be a part of furthering their great work. C.H. Robinson’s philanthropic efforts are driven by the talents and passions of our employees, and we are proud to support the issues that matter most to our people.” C.H. Robinson, a household name in the trucking sector, has a bona fide reason to support such charities. In his 14 BREAKBULK MAGAZINE www.breakbulk.com

Angie Freeman

Dr. Ralf Franke

C.H. Robinson Foundation

Siemens

don’t believe in it, it doesn’t go anywhere.” He once delivered a session on mental health to a Fortune 500 company where the CEO made it clear that he wanted to introduce Meier to the workers. “That CEO carried more weight in his four minutes of introduction than I did in my whole speech, because he sent a clear message that he believed mental

health was as important as everything else the company did.” Meier also has experience of companies telling him that mental health isn’t their problem. “I tell them to look at how much they are spending on drugs. Then they realize that there is a problem.” Further, suicide costs companies hundreds of thousands of dollars in insurance payouts, lawsuits, lost earnings and so on, yet prevention can be relatively inexpensive. “All of life boils down to one thing: do you care or don’t you?” he asked.

TOP-DOWN SUPPORT ESSENTIAL

The need for top-down support of workplace mental health initiatives is echoed by Dr. Ralf Franke, head of environmental protection, health management and safety and corporate medical director at Siemens. Franke has been instrumental in setting up a number of mental health projects over his 10-year career at Siemens, and was personally responsible for the establishment of the department he now leads. Like Vigere’s Payne, he also brings specialist expertise to the table. A trained medical doctor, Franke benefits from clinical understanding as well as emotional and corporate appreciation of mental health issues. “At Siemens I made this a cultural topic,” he said to Breakbulk. “Changing the culture from a company where psychological topics were a taboo to a company engaged in mental health awareness needs buy-in from the top. Those at the top act as role models and clearly lay out expectations so that everyone knows what’s the right behavior.” Siemens adopted a two-prong approach to the problem. The first was to systematically identify and evaluate stress in the workplace. It then made any necessary and appropriate changes. “We call this psycho-social risk management. Here we use our global employee survey as a regular screening tool. We have 13 questions embedded in our employee survey dealing specifically with mental health.” The second approach sees Siemens maintain a portfolio of local services offering free information, training and consulting to develop and promote health education for employees and managers. The OEM has also created ISSUE 2 / 2019

A PORT AS BIG AS TEXAS They say everything’s bigger in Texas and as the largest breakbulk port in North America, offering over 20,000 feet of docking space and capacity to accommodate cargo of 1,000 pounds per square foot, Port Houston is ready to accommodate all types of bigger-than-life cargo. The 52 general cargo and heavy-lift City Docks have put Houston at the pinnacle of industry rankings for steel and project cargo. It’s true everything is bigger in Texas... Better too. Call or visit us online to learn more about Port Houston, The International Port of Texas.

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Three years ago, Siemens asked its managers what they knew about mental health topics and what they needed to assist them in that area. They responded that they did not have the confidence to identify signs of mental distress in employees and had a low awareness of employee assistance programs – so they didn’t know what Siemens already offered – and had low confidence to interact with and support affected employees. On the other hand, they made it clear that they were absolutely willing to be trained and looked forward to being supported. “Today, e-learning is state of the art, but standard Web-based training programs are boring and are losing their attractiveness. So, we decided to run a pilot in a more innovative way with gamified learning,” said Dr Ralf Franke, head of environmental protection, health management and safety and corporate medical director at Siemens. The resultant program gives managers an opportunity to practice approaches and responses in a safe training environment with individualized training. The users also get regular feedback on their actions. “After the introduction of the program we asked our managers for their feedback and we received positive mid-term results. They told us that they have better knowledge and a better willingness to support employees with mental health issues. I would say that we have achieved our targets and will continue to bring this subject to the whole organization,” Franke said. On the back of this success the program was rolled out globally two years ago.

16 BREAKBULK MAGAZINE www.breakbulk.com

CREDIT: SHUTTERSTOCK

TAKING A GAMER’S APPROACH

videos with personal reports from employees, managers and the CEO speaking about their problems. These have been shared openly with staff, which, Franke said, “personalized and destigmatized mental health issues.”

• All owned vessels are equipped with a gym/sports room. • Healthy food options are available on board. • Extra medical is provided above and beyond what is mandated by regulation. The company states in its corMPV WORKFORCE porate social responsibility, or Vigere’s Payne gives his top CSR, literature that it prides itself three recommendations to tackling in being a responsible employer, mental health: providing a safe, • Put challenging and resources into fulfilling work managing the environment. It topic. also supports sea“CHANGING THE • Understand families CULTURE FROM A farers’ your workforce through supand their issues, COMPANY WHERE port for social perhaps through like PSYCHOLOGICAL initiatives, forums or feedback family days and TOPICS WERE forms. spouse clubs, • Engage reguand through A TABOO TO larly with your the provision of A COMPANY workforce and insurance prohelp them to feel grams. ENGAGED IN part of the total For the MPV MENTAL HEALTH seafaring corporate comworkmunity, not just force, Payne AWARENESS hourly labor. suggested helpNEEDS BUY-IN Looking after ing the master FROM THE TOP.” seafarers is seen manage the comas particularly munity on board, – Dr. Ralf Franke, Siemens pressing when it training them up comes to mental and establishing health. Roll-on, some corporate roll-off ship operator Wallenius Wilinitiatives to run across the company helmsen ensures that: or between vessels. “Personally I • All its vessels have access to think building positivity is critifree Internet onboard so that the cal to counter the global drive of crew can communicate with their negativity. Managing both sides families and friends on a daily basis. of a continuum is necessary or the ISSUE 2 / 2019

– Colin Payne, Vigere

continuum gets shortened to a less rich and less valuable one,” he said. The breakbulk and project cargo sector also offers particular buttons for stress with its requirement for overseas travel at virtually every level and on-site project roles that can take employees away from friends, family and their secure social network for extended periods of time. JLT’s Turner said that

surveying employees to understand what stresses they face at an individual level is critical in these instances. Then strategies and solutions will need to be built to support employees in managing those stresses, for example: • Flexibility around shifts. • Resources to support them and families with caring responsibilities. • Availability of Skype-type facilities

(even simply access to the Internet) to support face-to-face contact when away. • Building digital communities and forums to help share stresses and concerns. If money were no object, Payne recommended coaching for each and every employee. “We need to teach people to live in this new world. We don’t just need what they call ‘grit,’ we need peo-

Equipped to handle our customers’ needs Horizon Terminals is an International Marine Terminal, Processor and Logistics Operator. We provide tailor made solutions to the equipment and project cargo industry.

www.horizonterminals.com

18 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

CREDIT: SHUTTERSTOCK

“WE NEED TO TEACH PEOPLE TO LIVE IN THIS NEW WORLD. WE DON’T JUST NEED WHAT THEY CALL ‘GRIT,’ WE NEED PEOPLE TO THRIVE IN A WORLD OF DISRUPTION.”

ple to thrive in a world of disruption.” He added that leaders need to help employees understand the role and direction of social media and its often underappreciated negative side.

MORE TO BE DONE

There is much more that breakbulk and project cargo companies can do to address, alleviate and mitigate the problems associated with poor mental health. As well as some of the initiatives already detailed, Siemens explains how it has partnered with MIND to support the charity’s aims through different channels. First, Siemens’ CSR vision has a “business to society” function which encourages it to support businesses such as MIND. Second, it supports MIND’s information and advice info-line. Lastly, Siemens supports its employees in their fundraising for MIND with two days of volunteering leave annually. JLT has offered an Employee Assistance Program for a number of years, with face-to-face counseling available through this service. In addition, it has trained more than 60 employees to be mental health First Aiders across its national office base and publicized this to every employee through posters and desk drops. Wellbeing weeks and wellbeing days are promoted, on-site massages are offered, team walks are encouraged, visits from guide dogs are arranged, and stretching and meditation classes are offered. An intranet portal outlines what is available to employees. JLT also offers training for line managers on stress awareness and a financial wellbeing program in appreciation of the link between finance and mental health. This includes a financial education portal, a mortgage advice service and financial education seminars. But while some breakbulk and project cargoes have evidently stepped up to the challenge of addressing and managing mental health issues, those efforts might only deal with the tip of the iceberg. Siemens’ Franke explained why the digital transformation of work is increasingly affecting employees in the mental health arena. “Employees will have shorter and shorter innovation cycles and will have to digest information faster,” he said. “More and more will be unable to cope with the speed of change. Also, the border between work and leisure will blur,

which creates a risk that those employees that are engaged and motivated do not stop and take breaks when it is necessary.” This will affect both blue- and white-collar workers in the breakbulk industry. While blue-collar workers may not be able to “take their work home,” they still face the stress of compression of work, and constant pressures on cost and quality. Whitecollar workers will suffer from the soon-to-be unavoidable inability to

“switch off” as digitalization continues to stimulate the speed of work. Consequently, mental health challenges will only grow and companies that do not take their responsibilities seriously will suffer operationally, financially and reputationally. Carly Fields has reported on the shipping industry for the past 19 years, covering bunkers and broking and much in between.

www.breakbulk.com BREAKBULK MAGAZINE 19

As the former human resources director of Swire Pacific Offshore, Colin Payne has a keen eye on the shipping and project cargo industry. Now, as managing director of Vigere he is focused on resilience coaching for a disruptive world where he employs his clinical neuro-psychotherapy training in his work, using counseling and coaching skills alongside his neuroscience tools and knowledge. His background in psychotherapy has helped Payne see the bigger mental health picture. He encourages decisionmakers at breakbulk and project cargo companies to take the time to learn about the human condition. “Sometimes we need a different lens to look at things and then an opportunity to use it. Sometimes it pays to look elsewhere and see how much richer life is than the things we have been trained to see every day,” Payne said. While he makes clear that without valid data he cannot give a definitive answer on the depth or breadth of the mental health challenge in the logistics industry, he notes that industry surveys do seem to indicate that this is a growing issue for individuals and the companies they work for. Referring specifically to the seafaring sector, he points to negative trends in respect of incidents and ultimately suicide. “I have spoken to a large number of seafarers who all indicate there are growing challenges to being at sea,” Payne said. “There are also upsides, but we are seeing increasing focus on the negatives. I am not sure if seafaring is more pronounced than other industries, but it does have the added challenges associated with a workplace that is moving, multiple

20 BREAKBULK MAGAZINE www.breakbulk.com

nationalities in the workforce who change frequently, cultural differences at a nationality/ethnic and corporate level, and challenges where there may be no dominant cultures.” Seafarers on multipurpose and heavy-lift ships are denied the many freedoms of shore-based life, such as being able to go out and have a social drink with friends. Regulatory burdens are also weighing heavily on multipurpose ship officers. “I fear that there is now so much regulation at sea that we are teaching people to be helpless; that is to say that they cannot do something without a checklist or aide memoir. In many ways this takes away ownership and pride in a role. Unfortunately, society seems to think that making things more efficient and using governance will make life better. It may reduce errors and improve productivity, but I don’t think it is contributing to our sense of purpose or ownership of life challenges.” Reflective of the severity of the mental health challenge for those serving on the merchant fleet, there are a number of initiatives to address mental health at sea. For one, responsible ship operators are ensuring trip lengths are appropriate, likely with in-house crew or crew sourced from reputable agencies. But is that enough? No, Payne simply said. “I think the key elements that need to be in place include a stable crew, a limit to the number of nationalities where possible on each ship, decent food, and adequate rest – which means that social media needs to be managed.” He added that the master probably needs to play a bigger role in managing this aspect of shipboard life than was perhaps necessary in the past. BB

“I FEAR THAT THERE IS NOW SO MUCH REGULATION AT SEA THAT WE ARE TEACHING PEOPLE TO BE HELPLESS; THAT IS TO SAY THAT THEY CANNOT DO SOMETHING WITHOUT A CHECKLIST OR AIDE MEMOIR.” – Colin Payne, Vigere

ISSUE 2 / 2019

CREDIT: SHUTTERSTOCK

UNDERSTANDING THE BIGGER PICTURE

MANUFACTURING

PROPPING UP PROJECTS Global Export Credit Agencies Fill U.S. Ex-Im Void BY PAUL SCOTT ABBOTT

ith the ExportImport Bank of the U.S. stymied since mid-2015 and growing hesitancy of commercial banks to provide such financing, major global infrastructure projects are increasingly advancing with the backing of scores of export credit agencies, or ECAs, from all corners of the world. ECAs – public and quasigovernmental entities providing government-backed loans, guarantees and insurance to corporations engaged in overseas commerce – are now the world’s biggest class of public finance institutions operating internationally, according to ECA Watch, a non-governmental organization network seeking reform of the sector. Collectively, the world’s more than 100 ECAs and related programs finance or underwrite more than US$400 billion of business activity, meaning, according to ECA Watch, that they exceed the size of the entire World Bank Group and fund more private-sector projects in the developing world than any other class of financial institution. While ventures related to fossil fuels continue to be among the biggest endeavors benefiting from ECA financing, renewable energy projects are beginning to get more attention, as are undertakings in such areas as healthcare and aviation. 22 BREAKBULK MAGAZINE www.breakbulk.com

IMPORTANCE GROWS

“The export credit environment has changed considerably over the past 10 to 15 years and especially since the global financial crisis,” said Paul Heaney, associate director for outreach and communications at the London-based Berne Union, an international not-forprofit trade association representing the global export credit and investment insurance industry. “A number of factors are at play, but foremost has been the retrenchment of commercial banks from export finance,” Heaney told Breakbulk. At first, he noted, this was largely an issue of liquidity. But even now, 10 years since the collapse of Lehman Brothers, it has become more a question Paul Heaney of the high cost of finance for banks Berne Union due to regulation and internal competitive priorities, especially in the case of long-term, riskier deals or for very small-ticket transaction sizes. “Consequently,” Heaney said, “ECAs have increased in importance and, in many cases, expanded upon their original remit.” As ECAs shift to a more adaptable “national interest” approach to export

promotion, suppliers of components to a final shipment are starting to get export support. For example, a few days after the British government launched a new export strategy in August 2018, UK Export Finance unveiled support for sale of British-made Rolls-Royce engines to Israel’s national air carrier, El Al, thus promoting advancement of Britain’s aerospace industry. Earlier last year, the same United Kingdom ECA announced financing for sale to Korean Air of Bombardier aircraft made in Northern Ireland. Other UK Export Finance agreements last year included support for British firms to engage in building hospitals in Angola (in addition to upgrading Angolan power stations) ISSUE 2 / 2019

and backing of increased sales of British-made healthcare equipment to Austria-based VAMED, including for projects in sub-Saharan Africa. UK Export Finance, the world’s oldest ECA, clearly has evolved since its founding in 1919 to spur U.K. exports following World War I. “ECAs with a more flexible policy – and less regulatory restrictions – are usually able to be more proactive in their support of national interest,” Heaney said. A June 2018 report to U.S. Congress from the U.S. Ex-Im Bank notes that aggressive content policies give ECAs ability to help pull sourcing to their own countries in sectors of strategic interest, even in instances in which the backing

ECA’s country is not currently a major supplier. The report cites Italy’s Servizi Assicurativi del Commercio Estero, or SACE, and its support to buyers of Boeing 787 aircraft, despite the fact the 787 contains only about 14 percent Italian content, with a good-faith notion that Italian suppliers will be used to a greater extent going forward.

ENERGY REMAINS BIG

The broader trend notwithstanding, energy infrastructure projects continue to be among the most high-profile beneficiaries of ECA financing. In December, Perú’s state-owned Petroperú closed on US$1.3 billion in ECA-backed financing in what was touted as the largest-ever agreement

ABOVE: The Talara refinery of Perú’s stateowned Petroperú is undergoing a US$5 billion modernization supported by US$1.3 billion in financing backed by Spanish export credit agency CESCE. / CREDIT: PETROPERÚ

for Spain’s export credit agency, Compañía Española de Seguros de Crédito a la Exportación, or CESCE. The deal, which also represents the greatest ECA financing for any project in Perú, is helping advance a US$5 billion modernization of Petroperú’s Talara refinery. Indicative of the multinational nature of such arrangements, participants in CESCE’s Perú refinery deal www.breakbulk.com BREAKBULK MAGAZINE 23

include Germany’s Deutsche Bank, Spain’s BBVA and Santander, France’s BNP Paribas, New York’s Citi and JPMorgan Chase, and London’s HSBC. Another agreement announced in late 2018 is the extension by the Export-Import Bank of Korea of US$367 million – consisting of US$257 million in loans and US$110 million in guarantees – to finance refinery modernization in Bahrain under a US$4.2 billion engineering, procurement and construction contract awarded to South Korea-based Samsung Engineering in a consortium with Italy-based Technip and Spain-based Tecnicas Reunidas. More than three-dozen smaller Korean businesses are supplying equipment for the Bahrain project. UK Export Finance forays into the energy sector include multiple agreements supporting GE Global Services UK work on power generation projects in Iraq. Among ECA Watch’s criticisms of export credit agency practices is the financing of environmentally detrimental projects, such as those involving burning of fossil fuels. The

Having an ineffective ECA can potentially undermine domestic supply chains by making foreign components relatively more attractive to multinational exporters” –P aul Heaney, Berne Union

World Bank Group’s International Finance Corp. is several years into an initiative to back climate-friendly energy projects, and a number of ECAs are following suit. In November, in Spain, BBVA signed the first credit with CESCE coverage to receive “green” certification from consulting firm AECOM when the Spanish banking giant granted a fiveyear, US$19 million loan to jumpstart building of a hydroelectric plant in Colombia.

BBVA officials called it a major step in the bank’s sustainable finance strategy, while Beatriz Reguero, CESCE’s chief operating officer of state account business, commented: “Through the support for this operation provided by the Spanish government, CESCE reinforces its commitment to sustainable development through a project in a sector that is clearly in sync with the U.N. Sustainable Development Goals – goals which are also one of the essential pillars of our company’s corporate social responsibility policy.”

U.S. AGENCY ON HOLD

Whereas the ECAs of most countries remain active in bringing new financing to fruition, the U.S. Ex-Im Bank has largely been in a holding pattern since July 2015, as it has been lacking the quorum necessary for making board-level decisions, thus putting a US$10 million cap on its involvements. “This certainly has had consequences for U.S. manufacturers and exporters, perhaps most of all impacting smaller businesses and

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ISSUE 2 / 2019

suppliers, rather than the largest exporters,” said the Berne Union’s Heaney. Indeed, the Ex-Im Bank’s June 2018 report to Congress estimated a loss of more than US$5 billion in potential sourcing from U.S. companies due to the American ECA’s lack of presence in the long-term export credit market. “Foreign ECAs, particularly from Europe, are very actively trying to fill the gaps in the official export credit market left by Ex-Im’s absence,” according to the report to Congress, which cites ECAs of Germany and Italy as market leaders. An August 2018 report from Germany’s Federal Ministry for Economic Affairs and Energy says China and Russia dominate the German guarantee portfolio. “Foreign ECAs are using highly coordinated and aggressive strategies to secure export opportunities.” An anonymous quote from an exporter in the U.S. Ex-Im Bank report puts it succinctly: “Other countries are putting out the red carpet, while the U.S. government is putting out the red tape.”

PRIVATE MARKET GAINS

At the same time, the private insurance market’s capacity for export credit and political risk has escalated substantially in recent years, according to Heaney. “Some large private credit insurers have credit ratings higher than many small ECAs, and, due to sustained lowinterest rates and an influx of capital, the private market has increased its capacity, as well as risk appetite, and now offers tenors of cover similar to the ECA market,” Heaney said, citing as an example the industryspecific Aircraft Finance Insurance Consortium established by Londonbased Marsh. “Very often,” he said, “private market insurers are now working alongside ECA counterparts, providing added risk capacity through reinsurance, or co-insurance, and a flexible approach to underwriting.” While some observers may contend ECAs can be used as a bargaining chip in protectionism, Heaney said he believes it is difficult for an ECA to be deployed to implement a protectionist

policy, since the role of ECAs is to support exports to foreign markets, not to prevent imports. “On the other hand,” Heaney said, “having an ineffective ECA can potentially undermine domestic supply chains by making foreign components relatively more attractive to multinational exporters.” Rising protectionism is a concern for Berne Union’s members, he said, but largely because of the uncertainty and increased risk which tariffs and other barriers introduce to the underlying trade environment. “Since export credit insurers are usually taking risks on the ability of the buyer to pay for shipment received, protectionist policies could potentially cause an increase in claims paid, due to defaults in cases where the buyer is unable or unwilling to pay a foreign supplier.” 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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www.breakbulk.com BREAKBULK MAGAZINE 25

SHIPPING TRENDS

CHASING THE SMART MONEY Finding the MPV Financing Catch

CREDIT: SHUTTERSTOCK

BY CARLY FIELDS

26 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

s testified by the Boomtown Rats’ late-seventies classic, Monday isn’t the most popular day of the week. While Bob Geldof’s band had a dark reason for immortalizing the hatred of the start of the working week, the downbeat sentiment could have equally applied to a particularly black Monday in the heavy-lift carrier calendar. As industry specialists in Western Europe reached their desks on Monday, Dec. 10, 2018, whispered gossip of Hansa Heavy Lift’s collapse soon turned to a crescendo. Spawned by the collapse of Beluga Shipping back in 2010, Hansa Heavy Lift had become the latest victim of the decade-long depression of the freight markets. Financially backed by U.S.based investment management firm Oaktree Capital Management, HHL had quite simply outlived its equitybacked financing’s welcome. Equity funds usually operate on a five- to seven-year investment horizon. Eight years on and with no real expectation of the longedfor upturn in the freight markets, Oaktree said in a statement that it was “supportive of the company’s decision to file for insolvency and [had] decided not to make any additional capital investments in the business.” When it collapsed HHL operated 14 multipurpose vessels ranging from 12,700 to 20,100 deadweight tonnes, according to its website. The scavengers were quick on the bones and at the time of writing, four ships had been arrested by bunker giant World Fuel Services in addition to one arrested just prior to the bankruptcy announcement; a further five had been bought by Dutch shipping group Spliethoff Group; and three were rumored to be on Zeaborn’s radar, leaving slim pickings for other operators to feast on.

PLACE FOR INVESTMENT Paul Slater, a leading authority on domestic and international project finance, and global financial advisor to the maritime and energy industries, explained that the MPV

Two-thirds of the ships financed by Oltmann Gruppe funds operate in the MPV market. / CREDIT: OLTMANN GRUPPE

Paul Slater

André Tonn

First International

Oltmann Gruppe

and heavy-lift sectors present different characteristics to other cargo sectors of the maritime industry, and hence financing them can be a challenge. “They are operational sectors that employ their equipment to service other industries whose requirements vary by location and timing,” he said. Because of a lack of real market data or other statistics to assess the financial quality of companies in these sectors – other than their published accounts or past business – Slater said he did not see these sectors as a place for private investors to put their money.

“Private equity is not passive money and has limited time objectives. Get out within five years of investing, cut costs and limit fleet sizes are all simple objectives of private equity,” he said. “Companies in both of these sectors are better off using debt and not equity to finance their equipment.” Slater is CEO and chairman of First International Corp., a closely held private consulting and advisory company that provides global financial and commercial advice to the maritime and energy industries. But are banks any better when it comes to investment sources for MPVs? NORD/LB is one of the largest commercial banks in Germany and has significant exposure to the MPV sector. According to publicly available financial data from third quarter 2018, total loans to the “MPP general cargo and MPP heavy-lift” sectors stood at nearly €1.94 billion, 16.5 percent of the bank’s total shipping sector loans. Those sectors represented €358 million; or 11 percent of the performing part of NORD/LB shipping portfolio. However, while not the leading non-performing loan, or NPL, sector www.breakbulk.com BREAKBULK MAGAZINE 27

Oltmann Gruppe has initiated 243 ship funds since its start-up in 1986. CREDIT: OLTMANN GRUPPE

In our point of view the multipurpose sector is more interesting because it has better prospects. For container ships and bulkers, there is a risk of too many ships in some size classes.” –A ndré Tonn, Oltmann Gruppe

– containers and then bulk carriers hold those unhappy titles – MPVs and heavy-lift ships sit an uncomfortable third on the NPL ranking at NORD/ LB with an exposure of €1.6 billion, representing 22 percent of its NPL shipping portfolio. NORD/LB has a target of reducing its NPL portfolios to below €5 billion by the end of 2019; NPLs amounted to €7.3 billion as at Sept. 30, 2018. In an unhappy coincidence, HHL admitted that it had been unable to agree to terms on two ships under finance from NORD/LB back in 2015, demonstrating the depth of NORD/LB’s MPV pain. Rumors were circulating towards the end of 2018 that MPV ship operator Auerbach Schifffahrt was in the running to take over 43 MPVs being sold by NORD/LB, and had entered into exclusive talks with the bank. The fleet was said to have an estimated value of about €200 million. NORD/LB declined to comment on 28 BREAKBULK MAGAZINE www.breakbulk.com

the figures, or on any speculation on the sales of its NPL portfolios, while Auerbach Schifffahrt did not respond to a request for comment before publication.

MUTUAL MPV FUND

However, not everyone carries such a heavy MPV financial burden. Germany-based Oltmann Gruppe continues to hold a positive investment outlook on this market segment, based on what it sees as a reduction in the MPV fleet and an increase in demand. In October, a decade after the start of the current shipping crisis, the group established the placement of a mutual fund with a modern MPV, inviting private investors to invest in a German limited partnership. The MPV represents a new generation of ships promising better efficiency at lower costs and with improved green credentials. Oltmann Gruppe Managing Partner André Tonn explained that

the ship’s lower consumption makes the sums add up: “Our ship needs 5.5 tons [of fuel] a day, just under half the fuel of comparable older freighters. At a cost of US$360 per ton, this is an important item in the calculation.” Also, its wheelhouse is sited towards the bow of the ship allowing higher and larger loads to be carried without impeding visibility. Oltmann claimed that this investment is the only one available in Germany offering tonnage tax advantages for private investors. And although the downturn has deterred some investors in shipping, Tonn said the placement is “progressing well.” Yield-oriented investors, he added, are keen for ship investments in specific market segments. On the back of this introductory fund, Oltmann Gruppe is planning the placement of further MPVs in the near future, both as private placements for wealthy private investors and ISSUE 2 / 2019

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Private equity funded Hansa Heavy Lift is the most recent victim of the market depression. CREDIT: HANSA HEAVY LIFT

There are so many market participants planning projects, but finance from both sides – equity and debt – remains difficult since investors and financiers often struggle to understand this segment” – Hannes Hollaender, Toepfer Transport

as mutual funds. Tonn pointed to a “long and successful history” in this market, with two-thirds of the ships financed by the group operating in the MPV market. “In our point of view the multipurpose sector is more interesting because it has better prospects. For container ships and bulkers, there is a risk of too many ships in some size classes,” he said. Oltmann Gruppe was founded in 1986 and has initiated 243 ship funds covering a total investment volume of more than €3 billion. 30 BREAKBULK MAGAZINE www.breakbulk.com

PRIVATE EQUITY PROBLEMS

Perhaps unsurprisingly given Oltmann’s own fund offering, Tonn thought that investment from private equity in the MPV sector could be problematic as the sector is “too special and too non-uniform” for private equity investors. However, BBC Chartering’s Chief Operating Officer Henrik Pedersen takes a different view. He felt that private equity can give an option for a company to continue. “It will give a cash injection. It will give employees and management a piece of heart for a while to turn the profits around.” Unfortunately, that was not the case for HHL, as the ships it operated were simply too expensive for the freight returns on offer. However, Pedersen did concede that the shorter focus on private equity can catch some companies out: “Private equity wants to see a return on their investment. They will not wait about 12-15 years for a return.” That said, private equity – despite its issues – is still very important to the future success of the MPV sector, according to Hannes Hollaender, an S&P and newbuilding broker focused on MPVs at Toepfer Transport. But it is becoming harder to source. “There are so many market participants planning

projects, but finance from both sides – equity and debt – remains difficult since investors and financiers often struggle to understand this segment,” he said. He argued against the notion that private equity investment – with exit strategies that are based on a fixed term of investment, rather than the cyclicality of the sector – has made the MPV sector more vulnerable. Instead, Hollaender saw private equity as a decent replacement for the one-ship KG/KS fund schemes popular with Scandinavian and German investors in the 1990s and 2000s. Toepfer is working on its own independent online platform to help its German clients to invest in competitive equity online for innovative projects and bridge the gap for the construction finance. Hollaender added that he saw investors’ appetite improving for ships in the MPV and heavy-lift sectors. His statement is based on positive trends in key demand indicators and an orderbook that is not overwhelmed with new orders. However, both NORD/LB and Slater disagree with this outlook. NORD/LB puts the current market level for MPVs/ heavy-lifts at weak, which is unchanged for 2019 and only a slight increase is expected for 4Q 2019-4Q 2021. Slater added that the outlook for MPVs is “not good” given the recent bankruptcies and the sharply reduced demand for new oil and gas offshore resources. Zeaborn, the expansion-minded carrier, which has grown its operations through the acquisition of Rickmers-Line and a joint venture with Intermarine, was unable to comment in time for this story. Those mixed outlooks for freight market prospects mirror the mixed opinions on the value of private equity funding in the MPV and heavy-lift sector. However it’s currently more accessible than bank funding and may offer the lifeline that companies need to tide them over to better times, as long as operators acknowledge private equity for what it is: funding within clear prescriptive limits. Ship operators that go in with their eyes open and recognize that any private equity investment arrives with an expiry date stand to gain the most from what’s on offer. BB Carly Fields has reported on the shipping industry for the past 19 years, covering bunkers and broking and much in between.

ISSUE 2 / 2019

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BBC Chartering’s Henrik Pedersen

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32 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

taking a punt on unachievable terms and money. “There is, consequently, a big struggle, and this brings further turbulence into the market,” he said. This slide in principles has not happened overnight; it has been gradually taking place over many years, prompting ship operators to fight harder and dirtier for the toofew cargoes available. This shift has necessitated the introduction of an air of cautiousness in contracting, and a growing realization that if it sounds too good to be true, it probably is. “This,” Pedersen said, “is negotiation on a different scale. The 10 years since 2009 have been tough, and there has been constant financial pressure. These have been years of struggle for everyone.”

PRICKLY LOAN TERMS

‘O

ur word, our bond,”– four little words that used to carry a great deal of weight in the multipurpose ship chartering world. But their importance has been diluted by a market depression that seemingly knows no bounds, much to the chagrin of an MPV shipping veteran. An industry expert with more than 30 years’ experience, BBC Chartering’s Singapore-based Chief Operating Officer Henrik Pedersen admits he is saddened by this slide in chartering business ethics. “People are struggling,” he concedes, “and the shaking of hands and the commitment

to the ‘our word, our bond’ promise is not there as it was before.” Based in Singapore since 2009, Pedersen has broad shipping experience: he has held brokering, operation and commercial positions within liner, bulk, multipurpose and heavy-lift segments. While his despondency might be viewed in part as nostalgia for simpler times within any one of those sectors, there is a serious side to this loss of an important MPV moral compass. Pedersen relates how he has experienced a growing number of cases where contractual obligations have slipped when one party fails to deliver as promised after

Finance has been a particular thorn in the side for many banks, and consequently operators. Restrained earnings that have spectacularly missed the mark have failed to pay off debts, and profit margins have all but disappeared. Hansa Heavy Lift, which filed for insolvency on Dec. 10, 2018 and was itself spawned by the insolvency of Beluga Shipping in 2010, was just the latest casualty of the disaffected freight market. (See “Chasing the Smart Money,” page 26). Pedersen said he was unsurprised by HHL’s demise. “It has been known for a couple of years that Oaktree [the company’s U.S.-based investor] wanted to sell the vessels. They gave it some eight years, but with the high original price of the ships there have not been sufficient returns.” He does hope that this will be the last high-profile casualty on the MPV shipowning front. “Instead of worrying about finance and counting the money every day the industry needs stability, peace and quiet to work on cargoes.” His hopes for a period of calm might transpire given there are now only a handful of big players left, BBC being one of them. BBC has had its own path to forge to make sure it doesn’t become another Hansa. It has had to shift its chartering strategy to work the market in these unprecedented times. While www.breakbulk.com BREAKBULK MAGAZINE 33

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It’s a fantastic business. There will always be a shipping community, this is not something that will disappear overnight” –H enrik Pedersen, BBC Chartering

it has always had a mixed ownership strategy – some ships are owned by the Leer, Germany-based sister company Briese Schiffahrt, others are timecharted, others still are managed by the group – its chartering portfolio is now spot market heavy. “We have a lot more concentration on the spot market with 80 percent of the fleet on spot, one to two months ahead. This is the way of the market,” Pedersen said. But he would prefer a more equal split between spot and longer-term contracts, with 30 percent to 40 percent of the fleet on each. “That would be better for us,” he said. However, there is little likelihood that his coveted rebalance will materialize. Savvy shippers and forwarders are still demanding bottom-of-the-barrel freight rates for long-term contracts, despite a slight uptick in the market. Long-term freight rates on offer “make no sense at all, which is a big problem,” Pedersen said. The only fix in his mind is to reduce the number of MPVs competing for cargoes. There has been a reduction in the 5,000- to 12,000-deadweight-tonne fleet bracket – “We had around 800 ships in that size range, now we have 36 BREAKBULK MAGAZINE www.breakbulk.com

around 500 in total.” However, largersize newbuildings have entered the market, offering up more competition. “We need a better balance for the market to be comfortable,” he said. “The less ships competing over cargoes, the firmer the market will be. We need freight rates to be about 25 percent to 35 percent higher.”

REASONS TO BE CHEERFUL?

A hike of that proportion might be pushing it, but there are a few glimmers of hope on the horizon. Pedersen admits that he was overly pessimistic for freight market prospects at the start of 2018, having been jaded by the misery of 2017. “Fortunately, my pessimism did not come true,” he said. “We got off to a much better start for 2018, particularly in Asia. We saw a growth in demand and good cover for ships and that continued through the year.” It turns out that 2018 was “a very good year for BBC.” Looking to 2019, Pedersen plays the “cautiously optimistic” card, based on the better-than-expected market in 2018. However, he admits that so far it has been a slow start. While

increasingly grueling geopolitics have not had too much of an impact in the Asia region where he is based, trade tariffs threats have created turbulence throughout the shipping sector. That said, the breakbulk sector has been “spared the worst punishment” leaving the container sector to face the full wrath of U.S. and Chinese politicking. In a minor regional wrinkle, Pedersen acknowledged that some MPVs have shifted from the international trades into intra-Asian trades, which “puts on a bit more pressure here.” However, Pedersen refuses to be disheartened. Despite all the trade changes, despite the slip in chartering standards he still, after 34 years in the industry, believes in shipping. “It’s a fantastic business. There will always be a shipping community, this is not something that will disappear overnight,” he said. Hopefully 2019 will build on the rebound of 2018 and he’ll really have something to smile about. BB Carly Fields has reported on the shipping industry for the past 19 years, covering bunkers and broking and much in between.

ISSUE 2 / 2019

LOGISTICS PERSPECTIVE

BY CARLY FIELDS

STILL IN THE SIDINGS China’s Rail Offering Not Yet Up to Speed

wo years on from the trump and fanfare of the arrival of China Railway’s first direct service into the UK and the shine of the well-heralded occasion has dulled somewhat. On paper, a direct rail link connecting the world’s biggest exporter with its markets makes perfect sense. The Yiwu-London railway line promises to move cargo across continents for half the price of air freight and half the time of sea freight. Why wait up to 40 days for your cargo to make the journey when rail can do the job in 18? But there’s more to this story than simple math gains,

and questions are being asked about whether rail will ever be a mode to rival sea freight for ex-China project and breakbulk cargoes. Jonathan E. Hillman, fellow and director of the Reconnecting Asia Project at the Center for Strategic and International Studies, or CSIS, in Washington, D.C., wrote a detailed research paper on the Rise of ChinaEurope Railways in 2018. In it he outlined constraints against any dramatic growth in rail services, highlighting the uncertain future of Chinese subsidies and a chronic trade imbalance between Europe and China which undermines the profitability potential. Nearly all stakeholders interviewed for the CSIS report mentioned subsidies as a key driver of recent growth, but they had different expectations about when those subsidies might end.

Capacity constraints and a lack of standard gauge throughout the network were also noted as concerns. While Europe and China employ a standard 1,435-millimeter gauge, Russia, Kazakhstan, and other former Soviet states use a 1,524-millimeter gauge, meaning wagons need to be transferred from one train to another at interchanges. Added to this, Europe’s rail network is older than China’s and prone to bottlenecks. And then there are the border challenges. Speaking to Breakbulk, Hillman said: “There are these big structural constraints to rail. Even though the processes have become much better coordinated, every separate country and customs process you have to go through is something that’s going to slow things down. You obviously don’t deal with

ABOVE: The first container train carrying textiles and consumer goods arrives in London after a 12,000 mile journey from Yiwu in the eastern

Chinese province of Zhejiang.

/ CREDIT: PETE MACLAINE/ZUMA PRESS/NEWSCOM

38 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

RUSSIA

BE L AR U S

UK FR AN C E

MON G OLIA GE O R GIA

I TA LY

SPA I N

KAZAK HSTAN

R O MANIA

UZB EK ISTAN

N O RT H KO R EA

TUR KE Y CHIN A

Unknown

TA I WA N

CHINA-EUROPE MAIN RAIL ROUTES

1-6 7-21 22-39

Northern Corridor

CREDIT: CSIS

TRIP COUNT PER WEEK (Estimates as of Feb. 2018)

Middle Corridor Southern Corridor

that on such high numbers when you’re shipping something by the sea. Delays remain a major risk for China-Europe trains, the main selling point for which is speed.” Size is another issue. Rail capacity is completely overshadowed by the capacity of some of the larger ships, and without sufficient volumes there is no incentive to invest in larger capacity on the rails.

RANGE OF CARGOES

S O UT H KO R EA

China has the second-longest railway network in the world and those railways are carrying a greater range of cargoes. China’s rail freight had increased by 10 percent year-on-year in October 2018, up on the 6.7 percent increase in August’s year-on-year figures. There has also been a 7.3 percent growth in total freight volume this calendar year up to and including October 2018. China allocated US$113 billion for railway improvements in 2018, according to China Railway Corp, and year-on-year railway growth

Andre Wheeler

Asia Pacific Connex

is undeniably “impressive by volume, value, and service frequency,” Hillman said. But railways still carry only a small fraction of the trade between China and Europe. While maritime transportation remains dominant, air freight still carries more than 13 times the value of goods compared with rail. And even with subsidies, maritime shipping is roughly one-third of the cost.

Andre Wheeler is chief executive of Asia Pacific Connex and has more than 20 years’ experience in international business. He is working towards his Doctorate on the Impact of the China One Belt One Road initiative on infrastructure and logistics in the ASEAN Region, and is author of China’s Belt Road Initiative: The Challenge For The Middle Kingdom Through A New Logistics Paradigm. He stressed to Breakbulk that it is important to understand that the Belt and Road Initiative is an integrated logistics/ supply chain plan that pairs ports with rail networks to improve connectivity and efficiency to meet end-to-end supply. “As such, rail adds value and complements ocean freight and will not fully replace sea freight,” he said. Rail will, however, take a slice out of ocean freight, he added: “With the proliferation of block trains and flatbed rail, we are already seeing rail being the preferred method to transport particularly breakbulk product via rail.” Block trains are customer-dedicated www.breakbulk.com BREAKBULK MAGAZINE 39

rail transport services that transport goods from origin to destination without splitting them up en route. In 2017 there were 1,000 block trains in play and they did more than 3,600 journeys; by 2018 this had grown to more than 6,700 journeys. It is projected that a further 1,000 block trains will be added to the fleet by the end of 2020 with 10,000 journeys added. “With regards to flatbed, there are examples of project equipment being transported by rail, as it is more cost effective in terms of size and insurance costs associated with risks to damage by ocean transport,” Wheeler said. The growth is driven by China’s push to increase rail volumes by 30 percent by 2020, Wheeler said. “While the targets are ambitious, they are achievable in the medium to long term. There are, however, a number of infrastructure issues that need addressing.” In addition to those cited by Hillman earlier, Wheeler added bottlenecks on the Polish border as well as seasonality issues associated with rail in harsh winter conditions.

BORDERS AND BALANCES

A number of other issues have already been addressed – such as setting a plan to deal with those rail gauge differences. China has also started addressing Customs issues through the establishment of bonded warehousing and economic zones

along the route coupled with block trains. However, in Wheeler’s eyes, the questions of adequate border crossing infrastructure and the gap in container availability due to low volumes of east-to-west rail traffic still need to be overcome. “These two issues have the potential to collapse the system as they take away the competitive advantage of rail, that is to say short transit time translates into saving on inventory holding costs, warehousing and so on,” he said. Russian Railways is also stepping up its rail-related Chinese relations. In a statement to Breakbulk, a spokesperson said that the two countries have been “successfully cooperating in railway transportation for a long time, a partnership that is particularly flourishing now.” It stated that there has been a steady increase in freight rail traveling between Russia and China, and that it is “interested in further increasing transit volumes.” Russian Railways pointed to a promising project in the development of the Primorye-1 and Primorye-2 international transport corridors, which will allow goods to travel unimpeded from the northeastern provinces of China through the Suifenhe-Grodekovo and MakhalinoHunchun border crossings and the ports of Primorsky Krai (Vladivostok, Zarubino and others) to the south of China, as well as to other countries in

The first container train arrives in London after a 12,000 mile journey from China. CREDIT: PETE MACLAINE/ZUMA PRESS/NEWSCOM

40 BREAKBULK MAGAZINE www.breakbulk.com

the Asia-Pacific region. It also flagged up a large-scale initiative to create the Eurasia high-speed cargo and passenger railway corridor, which includes the construction of high-speed rail for freight and passenger transportation between China and the European Union. It will run between Berlin, Germany, and Ürümqi, China. The total length of the Beijing-Moscow-Berlin railway will be about 9,500 kilometers, of which 6,700 kilometers will be newly built lines, 2,300 kilometers of which will be in Russia.

RUSSIAN EXPERIENCE

Russian Railways has experience in transporting goods related to the manufacturing process, including finished products and semi-finished products such as pipes, rails, rolled metal products, and slabs. Its fleet includes specially designed wagons to transport out-of-gauge cargo. Russian Railways invested Rubles13 billion in upgrading track equipment in 2018, which included purchasing 397 special freight wagons as well as passenger carriages. Freight loading volumes on the network owned by OJSC Russian Railways increased by 2.2 percent in 2018. However, putting that in context, Hillman pointed to at least one project on the Russia-China border that was supposed to be completed last year, but has been delayed to this year. It was announced prior to the Belt and Road Initiative, but when commodity prices plummeted the project stalled. “The project has turned into this kind of metaphor for the Russian-Chinese relationship because only the Chinese side of the bridge was completed,” Hillman said. Breakbulk and project cargo carriers may have to wait a while longer before really seeing any benefits from China’s rail services to Europe and Russia. As Hillman summed up, while there’s something universally exciting about that idea that this ancient Silk Road is being revived by rail there is “certainly political incentive to make it appear bigger than it actually is commercially.” BB Carly Fields has reported on the shipping industry for the past 19 years, covering bunkers and broking and much in between.

ISSUE 2 / 2019

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PORT PROFILE

MULTIPURPOSE PORTAL Ahead of the Smart Nation ‘Next-gen’ Curve

nfettered development is a notable trait of Singapore across all sectors. Investments made in projects aimed at the expansion of the city-state’s capacity to handle container shipments has already seen activities winding down at the Tanjong Pagar, Keppel and Brani terminals as it picks up at the ever-expanding Pasir Panjang terminal, all part of the massive westward migration of all container handling towards its ultimate destination in Tuas. While the container segment gets most of the attention in Singapore, striking levels of investment have also been seen to the benefit of other cargo sectors, including bulk, breakbulk, heavy-lift and project cargo movements. Jurong Port, a steadfast maritime asset 42 BREAKBULK MAGAZINE www.breakbulk.com

on Singapore’s southwest coast that also can manage a fair share of containerized traffic, is also a beneficiary of such funding and the improvements that it can bring to the non-containerized sectors. Since 2017 Jurong Port has focused its efforts on achieving its vision of being a next-generation multipurpose port. Among several steps taken in pursuit of this goal were the establishment of the Combi Terminal and deployment of custombuilt side-loaders, both cited as means to enhance service offerings.

PULLING STRANDS TOGETHER

Yet hardware alone is not sufficient to meet next-gen benchmarks. The port has also developed and implemented a one-stop solution that integrates berth planning,

BY THOMAS TIMLEN

cargo handling, warehousing and supporting services aimed at supporting “fast and smooth” logistics operations. Shippers are able to go paperless and streamline the related documentation process with “JP Online,” the port’s one-stop e-portal. The pursuit of becoming a nextgeneration multipurpose port is admirable; adding “smart” to the equation presents further gains. At the end of 2018 the port signed a memorandum of understanding, or MoU, with M1 Ltd. to provide a terminal-wide wireless private network that will support the port’s transformation into an advanced digital “smart port.” M1, previously known as MobileOne, is one of the three major telecoms companies operating in Singapore. In collaboration with ISSUE 2 / 2019

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LEFT: M1 Ltd. agreed an MoU with Jurong

Port to provide a terminal-wide wireless private network. / CREDIT: JURONG PORT

Jurong Port, M1 will leverage its heterogeneous network, or HetNet, to enhance the network coverage in the terminal and along the port’s berths, using licensed 4G spectrum for the wireless private network. Sam Wei Hoong, the port’s vice president of information technology, said: “The heterogeneous network solution is aligned with Jurong Port’s strategic technology roadmap, and this partnership will further equip Jurong Port with the technological platform for the Internet of Things, or IoT/wearables endeavors and autonomous drones exploration.” M1 will tap into its expertise to improve connectivity in the port by providing commercially proven wireless backhaul network connectivity to the warehouses and access-layer in individual warehouses. The port will also enjoy a wireless access solution with enhanced 4G coverage and Wi-Fi network along the berths and 4G connectivity to the port’s data center via a private Access Point Name, or APN, as well as round-the-clock monitoring and technical support provided by M1. Using licensed 4G spectrum to support the wireless private network not only eliminates potential interference issues, but also allows the port to tap into the private network’s security features for internal communications and transmissions, as well as to leverage the cellular technologies for case testing of smart applications, sensors, analytics and other IoT applications. 44 BREAKBULK MAGAZINE www.breakbulk.com

EMBRACING NEW TECHNOLOGY

Denis Seek, the port’s chief technical officer, explained that in the future, more IoT and smart solutions will be developed that demand greater reliability, much lower network latency and massive connectivity of sensors. “Leveraging on our experience in deploying a private HetNet at Jurong Port on a dense cell grid architecture, we will be well-positioned to harness exciting new 5G capabilities and pilot innovative digital smart port use cases when 5G technology becomes mature in the coming years,” Seek said. The move to join forces with M1 has not happened in isolation. On a national level Singapore has embarked on a “Smart Nation” strategy, and the maritime sector, a key contributor to Singapore’s economy, is far from forgotten. To further digitalization efforts in the maritime sector and to bring about benefits to the wider supply chain ecosystem, the Maritime and Port Authority of Singapore is galvanizing the shipping community and other government agencies to develop interoperability enablers. This is a step up to another MoU, the one the Maritime and Port Authority, the Singapore Shipping Association and Singapore Customs signed at the Sea Transport Industry Transformation Map launch in January 2018 to jointly look into the digitalization of trade and maritime documentation. Since the signing of that MoU last

year, the industry has seen progress with successful electronic bills of lading trials among consortiums led by two shipping lines, one by APL and the other by PIL and IBM. The trials simplify existing processes as well as leverage blockchain technology to bring various trading parties together to support information sharing and transparency. To facilitate interoperability of the solutions developed by the various consortiums, the members welcomed a new MoU partner from the beginning of 2019, Singapore’s Infocommunications Media Development Authority (IMDA), to develop a new interoperability framework. Lam Pin Min, Singapore’s Senior Minister of State for Transport and Health, said that working together with IMDA, the industry can expect to see different digital ecosystems interoperate seamlessly with efficient exchange of electronic trade documents. The work will entail the development of a set of governance and legal frameworks, technical standards and interoperable digital enablers. Back at Jurong Port, the enthusiasm is palpable. “We are delighted with the partnership with M1,” said Desmond Lim, chief commercial officer and chairman of technology development committee. “As Singapore’s next-generation multipurpose port, an interconnected port with high-speed solutions is key to improved productivity and efficiency, bringing benefits to all our customers and port users, and enhancing our port’s overall competitiveness.” BB Thomas Timlen is a Singaporebased freelance researcher, writer and spokesperson with 29 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.

ISSUE 2 / 2019

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THOUGHT LEADER

Indian Sea of Opportunities

Transformation Brings Breakbulk Benefits

BY STEVE FELDER MAERSK

46 BREAKBULK MAGAZINE www.breakbulk.com

GROWTH POTENTIAL

In fact, the overall export potential for special cargo in India is about 130,000 20-foot-equivalent units per annum growing at a compounded annual growth rate of 9 percent. However, the critical problems faced by shippers in this segment are infrastructure and operational hurdles. Digitization and new technologies like blockchain are rapidly changing all industries, forcing businesses to prepare for an unpredictable tomorrow. For example, TradeLens, a global shipping digitization platform developed through a collaboration between Maersk and IBM that aims to eliminate siloed process for trade documentation and data sharing that creates delays and uncertainties in both Indian and global supply chain, has the potential to create billions of dollars’ worth of value for traders. We expect more progress in this regard, particularly through the creation of a common platform for the supply chain community to exchange data, eliminate paperwork, reduce handoff points and improve data quality. Gradually Maersk has been growing market share in the special cargo segment over the last few years. This has required a detailed understanding of the business with a strong customer demand for tailor-made solutions. We believe that industry needs to enhance the analog as well as digital solutions to achieve significant growth in the future. Further strengthening of collaborations between carriers, ports and other logistics businesses will also bring new opportunities to enhance the product offerings with the goal to create an efficient, customer-oriented and transparent transport network. BB Steve Felder is managing director for Maersk’s South Asia region.

ISSUE 2 / 2019

CREDIT: SHUTTERSTOCK

t’s clear that India’s transport and logistics sector is going through one of the most transformative periods in its history, consequently revolutionizing the industry in the region. Rapid growth of global trade, a huge manufacturing engine and a population of more than 1.3 billion all bode well for the industry in India. Particularly, the breakbulk/special cargo trade has tremendous potential for growth, as the country continues to experience strong economic growth in the domestic market. The segment, like many others, is also affected by factors ranging from political environment, crude steel production and oil prices to global GDP and investor assurance. The opportunity in the maritime logistics and transportation sector has also been recognized by the Indian government in the form of recent reforms, including: • The Sagarmala initiative with its multifaceted arms. • Cabotage relaxations that enable Indian ports to compete for transshipment traffic. • Dedicated freight corridors under construction that will potentially transform the logistics landscape, as they will provide better connectivity between inland and coastal markets. There has also been tremendous progress in port development in the past decade where, apart from a couple of exceptions, congestion has been eradicated. India’s increasing focus on infrastructural development across the nation and participation in global turnkey projects in the Middle East, Latin America and Africa is expected to maintain momentum in breakbulk/ special cargo trade in 2019 and beyond.

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LOGISTICS PERSPECTIVE

CRISIS OF CRUMBLING INFRASTRUCTURE BY AMY MCLELLAN

What is left of the west section of the collapsed Morandi Bridge in Genoa, Italy, after a structural failure killed 43 people in August 2018. / CREDIT: SHUTTERSTOCK

Urgent Repairs Needed to Facilitate Project Moves

urope’s aging infrastructure made international headlines in August 2018 when a motorway bridge collapsed in Genoa, killing 43 people. A 200-meter section of the Morandi Bridge, a key artery between France and northern Italy which was completed in 1967, fell 45 meters, along with dozens of vehicles, crushing buildings below. The tragedy shone a light on the poor maintenance of aging infrastructure across Europe, an issue that has long concerned operators in the abnormal transport industry. Indeed, only the year before, a bridge collapsed onto the A14 motorway on the Adriatic Coast, killing two people, while in 2016 48 BREAKBULK MAGAZINE www.breakbulk.com

a bridge over a dual carriageway in Lecco, northern Italy, collapsed when a heavy goods vehicle with a specially authorized heavy weight of 108 tonnes was crossing, killing one person. Little wonder Italy’s CNR civil engineering society has called for a “Marshall Plan” to repair or replace tens of thousands of bridges in Italy that have surpassed their lifespans. However, the problem is not confined to Italy. The month before the Genoa tragedy, the French Transport Ministry had been warned that 840 bridges, about one-third of those maintained by the state, could be at risk of collapse if not reinforced. The report, commissioned by the ministry from two private consultancies, pointed

out that bridges in France “are only repaired, on average, 22 years after the appearance of the first deterioration.” Meanwhile, a report by Germany’s Federal Highway Research Institute found that while only 12.4 percent of the country’s road bridges were in bad condition, just 12.5 percent were considered good. Infrastructure in eastern Germany is generally in better condition because of a postreunification renovation program in the 1990s and 2000s, while bridges in the west are typically of 1960s and 1970s vintage and not designed for today’s heavy freight traffic. Heavy goods vehicles are already barred from a number of German bridges, including the Leverkusen Bridge over the Rhine north of ISSUE 2 / 2019

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Heavy goods vehicles are barred from the Leverkusen Bridge over the Rhine north of Cologne, one of the busiest motorway bridges in Germany and which has been closed to large vehicles since 2012 after cracks were discovered. / CREDIT: SHUTTERSTOCK

Cologne, one of the busiest motorway bridges in Germany and which has been closed to large vehicles since 2012 after cracks were discovered. In December 2017, PORR Deutschland GmbH won the €360 million contract to demolish the bridge and build a new one, which, on completion in 2024, will have increased capacity of eight lanes. The work will be phased, enabling heavy goods vehicles to resume crossing the Rhine by the end of 2020, which will not only ease regional congestion but address the dismay felt by many at this very public exposure of cracks in the public infrastructure of Europe’s industrial powerhouse.

AGE-OLD PROBLEM

This is a problem that has been brewing for decades, with civil engineering experts long warning that the concrete so beloved of the 1960s and 1970s construction boom had a limited lifespan. “The bridge problem is not new,” points out André Friderici of Swissbased heavy transport and crane firm Friderici Spécial. “We’ve been having discussions about this for 40 years or more now.” Yet despite these warnings – in 2012, for example, the head of the Genoa Italian employers’ organization Confindustria told a local newspaper that the Morandi bridge would collapse within 10 years – there has been little political will or funding to replace crumbling infrastructure. One issue is that politicians have a “ribbon-cutting” approach to infrastructure, reveling 50 BREAKBULK MAGAZINE www.breakbulk.com

The Paderno Bridge, over the Adda River in Lecco, is closed to rail and motor traffic due to risk of collapse. / CREDIT: SHUTTERSTOCK

André Friderici

Ton Klijn

Friderici Spécial

ESTA

in the photo call at the opening of a new bridge or road but then conveniently forgetting the need for ongoing maintenance. As a result, industry players can cite examples of exceptional loads that have had to take 400-kilometer detours, and heavy cranes that have had to travel two to three times the required distance because road infrastructure has been downgraded or projects delayed by months while transport bosses wait for permits to arrive. It all adds to costs, time and the carbon footprint for project cargo moves, said Ton Klijn of ESTA, the European association for the abnormal road transport and mobile crane rental industry. ESTA is not just lobbying for much-needed infrastructure investment; it’s also keen to develop harmonized standards and documentation. Klijn pointed to a labyrinthine permitting regime, which varies from country to country and region to region. Given the

multiplicity of regulators, languages and formats, this generates a huge amount of red tape and piles costs onto the movement of abnormally heavy loads across the European continent. And this has only gotten more difficult in the risk-averse mood that followed the Morandi bridge collapse. “The authorities issuing the permits just don’t want to take the risk, so it’s easier for them to say no and make it someone else’s problem,” said one industry player. The result is ever more costly preparations to apply for permits – much to the financial credit of engineering consultancies that specialize in this kind of survey work – increased paperwork, delay and detours. ESTA worked out that the turnover of the big crane and heavy transport vehicles sector is about €2.4 billion a year, of which, Klijn said, roughly €500 million is spent on permitting, from the surveying of routes to the cost of permits. “We estimate about half that €500 million would be saved if we would only have transport corridors and standardize commonly accepted documentation,” he said, favoring the development of heavy transport corridors to streamline processing and permitting across the continent. “We want to do away with unnecessary red tape that doesn’t do anything to improve safety, structural integrity nor does it add any value,” Klijn said. “It’s very damaging to competitiveness, not just on a regional level but to the whole of Europe.” ISSUE 2 / 2019

MILITARY MIGHT

That may be about to change, however. Increased tensions with Russia and the results of recent NATO military exercises mean Europe’s infrastructure has become a matter of priority for military top brass on both sides of the Atlantic. “We … need to ensure that roads and bridges are strong enough to take our largest vehicles, and that rail networks are equipped for the rapid deployment of tanks and heavy equipment,” NATO Secretary General Jens Stoltenberg told reporters in November 2017 ahead of a NATO Summit. “NATO has military requirements for civilian infrastructure, and we need to update these to ensure that current military needs are taken into account.” His comments came after a spring 2017 pilot exercise initiated during the Estonian Presidency of the EU, which involved moving troops, tanks and other military equipment from the North Sea to the Baltic coast. The pilot uncovered height and weight restrictions on some bridges and a lack of heavy-loading capacity for oversized military equipment traveling by rail. The exercise also found that different permitting and regulatory regimes across Europe impacted the movement of military equipment: a convoy of U.S. howitzer guns traveling from Poland to southern Germany, for example, was held up when German police stopped the Polish company transporting them for violating local transport regulations. The exercise also found that NATO officials were held up by passports and customs checks, leading then Dutch Defense Minister Jeanine Hennis-Plasschaert, to call for the creation of a “military Schengen zone.” This certainly chimes with the EU’s ambitions to strengthen its defense capabilities. EU President Jean-Claude Juncker had previously stressed the imperative of creating a full-fledged European Defence Union by 2025, and this work is already underway in the form of the European Defence Action Plan and the European Defence Fund, with improved military mobility a key priority. A roadmap has been drawn up to improve military mobility with a focus on four key areas: legal aspects; customs; military requirements, including infrastructure-related military standards; and cross-border movement permissions, including diplomatic clearances.

HELPING HAND

The EU’s fast-developing military capability has been a shot in the arm for ESTA’s lobbying effort for heavy transport corridors. In December 2018, the Council of Europe adopted its position on the EU’s flagship program Connecting Europe Facility, or CEF, which focuses on developing and modernizing transport, energy and digital networks. When it comes to trans-European Transport networks (TEN-T), the CEF program will dedicate funds to the development of civilian-military dual-use transport infrastructure with a view to improving military mobility within the union. The news was warmly welcomed by the abnormal road transport and mobile crane rental industry. “It makes sense and will be beneficial to industry and government,” ESTA’s Klijn said. Friderici hoped the military imperative could see a breakthrough on an initiative that has struggled to make headway. “It’s always very difficult to get agreement across all the different countries, so we’re hopeful that if it’s coming from the top down then we will see some meaningful progress.” It’s early days, of course. “The next step will be for the presidency to start negotiations with the European Parliament on the final (partial) text,” an EU spokeswoman said. “The budget-related and horizontal aspects are part of the negotiations

on the EU’s next long-term budget Multiannual Financial Framework. The Romanian presidency aims to start the negotiations on the CEF soon and at least partially reach an agreement with the Parliament.” In layman’s terms, that means there’s a long way to go with much debate, analysis and horse-trading required to move the initiative forward – and that’s not including the need to liaise with military officials at EU, member state and NATO level. However, the hope is that overarching military needs will put real momentum behind the need to develop heavy transport corridors to streamline processes, permitting and planning, and unlock much-needed funding to address long-term infrastructure weaknesses that impact project cargo moves. “It’s not going to be easy,” Klijn conceded, readying himself for a trip to Texas to meet U.S. counterparts who are working to harmonize weight allowances and permitting systems across all U.S. states. “Between Rotterdam and Hamburg, for example, there could be 30 different road authorities to deal with, which means it will be difficult but it’s in the common interest so it’s worth doing.” BB Freelance journalist Amy McLellan has been reporting on the highs and lows of the upstream oil and gas and maritime industries for 20 years.

The transport of a reactor for producing chemical compounds from the port of Klaipėda, Lithuania, to a nitrogen plant based in Grodno, Belarus. Crossing road borders in the European Union can be challenging. / CREDIT: MTD/ESTA

www.breakbulk.com BREAKBULK MAGAZINE 51

CARGO LENS

EXCAVATING NEW BUSINESS

Mining Sector is Industry’s Buried Treasure

ocated in remote West Africa less than 20 miles from the Côte d’Ivoire border and about 200 miles from the Mali capital Bamako, the Syama Gold Mine is an unlikely setting for worldleading innovation. Yet the flagship development of ASX-listed Resolute is in the process of becoming one of the first underground mines anywhere to be fully automated. Resolute teamed up with Sandvik Mining and Rock Technology after studies revealed that the automation and digitization of Syama would improve efficiency and safety, reduce costs and extend the mine’s lifespan. Automating a gold mine is, 52 BREAKBULK MAGAZINE www.breakbulk.com

unsurprisingly, an expensive business – Resolute will spend a small fortune on the advanced Sandvik mobile and fixed equipment and the systems needed to manage and operate them. Yet the gold miner is not alone in investing in the latest automation technology and gear, nor is Sandvik the only supplier helping automate mines. Above and below ground, commodity majors worldwide are modernizing operations with the latest technology, driving demand for project shipments as they do so. In Zambia, for example, Nonferrous China Africa, a Chinese firm, is in the process of installing automated underground mining systems at its South East Ore Body project. Australia,

BY MICHAEL KING

meanwhile, is a hotbed for innovation. BHP is now using driverless trains, and at four of Rio Tinto’s mines the company has deployed some 73 driverless trucks to haul iron ore 24 hours a day with employees controlling and monitoring the vehicles’ operation from the mining giant’s control center in Perth, Western Australia, some 750 miles away. In short, autonomous trucks, drills, locomotives, and remotecontrolled equipment are transforming the global mining landscape. “It is clear that automation is not only reserved for first world mining countries, as this is already taking place in Africa,” said Lars Engström, Sandvik Mining and Rock Technology president. ISSUE 2 / 2019

Sandvik’s next generation of mining machinery pairs automation with a “smart” approach to productivity. CREDIT: SANDVIK MINING AND ROCK TECHNOLOGY

global workforce, this translates into at least 15,000 mining deaths a year. From a project and breakbulk supply chain perspective, commodity majors’ willingness to modernize existing mines to improve safety and productivity, and increasing investment in new capacity as mineral prices rise, are significant trends given how this plays out in terms of cargo generation. Kyriacos Panayides, managing director of specialist heavy-lift project cargo carrier AAL Shipping, told Breakbulk that shipping demand from the mining sector has been primarily driven by capital expenditure by commodity giants, with new mining projects generating “hundreds of freighted tons of cargo on each new project site.” The high value of mining cargo and its often unique nature also make it an attractive market to the project and heavy-lift shipping and logistics providers. Panayides said setting up a new mine often involves a “huge variety of over-dimensional, heavy and specialized units,” which require skilled and experienced handling and transport engineering. “It involves the shipment of giant ship-loaders, cranes, conveyors, massive steel structures, wagons, huge trucks and concrete pallets, and a variety of heavy machinery, all of which no other shipping sector can serve other than few specialized project carriers,” he added.

RANGE OF SHIPMENTS BOOSTING INVESTMENT

The embrace of new technology across the mining industry is aided, of course, by improved prices for many commodities. This is stimulating production increases and providing the capital for investments that boost productivity and efficiency. According to S&P Global Ratings, across 2017 and 2018, healthy demand for metals and mining products supported price and revenue growth for producers. Revenue growth for upstream producers, for example, grew 7 percent year-on-year in 2018. Although revenue growth in 2019 and 2020 is forecast to be flatter as demand and supply balance out, the

sector is forecast to remain in positive territory. Another element motivating the global mining industry to invest in new technology is its increased risk aversion. Higher levels of scrutiny on the safety of personnel is prompting the sector to deploy technology in a bid to simultaneously boost safety while also reducing costs. The International Labour Organization, or ILO, estimates that more than 2 million people die each year through work-related accidents and illnesses. Nineteen percent of these fatalities are due to occupational accidents, of which the mining industry is responsible for up to 5 percent. Despite comprising just 1 percent of the

Gary Dale Cearley, managing director of XLProjects Network, a project forwarding network, said demand from the mining industry was a mainstay of Asia-Pacific specialist logistics markets. “Heavy equipment such as large earth-moving vehicles are a major factor in Asian project forwarding,” he said. “But people tend to forget there are also a lot of regular-sized shipments that go into a mine as well. For instance, I have just seen an inquiry for bamboo mats to be used in storage lay down. These mats are huge.” As far as breakbulk vessels go, mining requires considerable shipments from Southeast Asia to western and northwestern Australia. www.breakbulk.com BREAKBULK MAGAZINE 53

But northern Vietnam, Laos, Indonesia and Papua New Guinea are all also huge in the mining world and present their own challenges, Cearley said. “For instance, Laos is landlocked, so shipments to southern Laos generally go through Vietnam and to central and northern Laos through Thailand; all overland. Philippines and Indonesia are both archipelagos so there can be lots of barging there.” The breakbulk shipping sector obtains dual benefits from increased cargo flows due to mining, because new investments in capacity often generate fronthaul and backhaul cargo for specialist carriers, according to Panayides. Although some of this cargo, Kyriacos including trucks Panayides and other earth-moving AAL Shipping machinery, is sometimes shipped to mines on roll-on, roll-off vessels, since these ro-ros generally only serve major ports, most projects rely on MPV and heavy-lift fleets. “Although the fronthaul voyages are focused mainly on project cargo, we do pay particular similar attention on the return legs of our voyages to the mining sites,” he said, adding that much of this cargo flow is shipped as breakbulk. AAL Shipping is tendering for mining project contracts worldwide, but continues to face stiff competition for cargo from ro-ro, bulk carrier and container ship operators. “This is serving to keep freight rates low and challenged,” Panayides said. “However, we expect this to improve over time as more projects come online and more tonnage is allocated to this purpose.”

DEMAND UPSIDE

While there may be pressure on the vessel supply side of the equation, when it comes to shipping mining cargo on specialist carriers, the demand side certainly looks healthy, both in the short- and long-term. Global production growth of major minerals – bauxite, coal, iron ore, gold, 54 BREAKBULK MAGAZINE www.breakbulk.com

nickel, tin, zinc, copper – is expected to continue expanding over the coming decade. Moreover, analysts expect processing equipment, mineral drills and breakers, crushing, screening and pulverizing equipment and surface mining equipment to all be subject to automation, accelerating project demand further still. According to one estimate by the International Institute for Sustainable Development, the global mining equipment market will expand by a compound annual growth rate (CAGR) of 9.5 percent to US$284.93 billion by 2025. Another report, Mining Automation Market by MarketsandMarkets, suggests that the combination of increased productivity and safety with decreased expenses may cause the mining automation market to grow by almost 50 percent in the next six years, reaching US$3.29 billion by 2023. Panayides certainly expects global demand from the mining sector to keep increasing. “After five years of reduced spending and relatively quiet market activity in new mining projects, we have seen an increase in capex spending in 2018 with the launch of a number of new projects on which we have been bidding,” he said. “Per the various market reports, we should expect increased activity in the mining project sector on a global scale,” he said. “2019 GDP forecasts predict mining sector growth in the U.S. near 3 percent, in the Eurozone near 2 percent, in Latin America at 2.5 percent, and in China at 6-7 percent.”

POSITIVE OUTLOOK FOR SERVICES

Martyn Lawns, global head of engineering and manufacturing in the mining sector at DHL Industrial Projects, also confirmed the company had seen demand for specialist forwarding services from the mining and commodity sectors pick up over the last 24 months. “We have seen double-digit growth in 2018, and we expect this to continue positively into 2019,” he said. “With new projects coming regularly to the market, the outlook for this year is extremely positive and we are already at advance stages of discussion on many good opportunities with both new and existing mining customers.” Deutsche Post DHL Group is active across multiple mining clients, with

the largest revenue generated from companies with interests in iron ore, gold, nickel and copper. It has mining projects in more than 20 countries supported by its Industrial Projects arm. “Our mining logistics business is generated from three streams – either direct engagement with the capital equipment suppliers, construction companies (EPCMs) or directly with the miners themselves,” Lawns explained. “We are typically shipping complete mining equipment units when they are small enough to be transported by road, and the larger haul trucks or heavy mobile equipment, or HME, cargo is broken into several shipments ready for final assembly at the mine site.” DHL Industrial Projects has executed a number of large copper projects in South America and Eastern Europe, and recently completed a major iron ore project in Brazil. “As with most mining projects these have been particularly challenging due to the scale, complexity and often challenging geography due to lack of infrastructure and the remote locations,” Lawns said. “Our dedicated projects team has been working tirelessly to meet the demands of EPCs and owners’ teams to bring these projects in on time and under budget.” He said gold and copper mining markets, in particular, continue to be buoyant. “Companies are continuing to invest in good quality copper assets, betting on the market going into a shortage further down the track,” he said. “We are still seeing both brownfield and greenfield gold projects progressing and the associated logistics contracts coming to the market, particularly in West Africa. In addition, we are seeing some larger copper investments going ahead as planned in Latin America. “The outlook for this year is extremely positive and we are already at advance stages of discussion on many good opportunities with both new and existing mining customers.” BB Michael King is a multi-award winning journalist as well as a shipping and logistics consultant.

ISSUE 2 / 2019

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LEGAL SPOTLIGHT

What Bugs You?

BY LAWRENCE W. HANSON

CREDIT: KYLE T. RAMIREZ VIA WIKIMEDIA COMMONS

Inspectors Crawl Over Pest Infestations

THE SCENE

• Containers of imported product that use wooden bracing, dunnage, support or other packaging. • Bugs or pests, dead or alive • At stake: expensive, time consuming and always inconvenient corrective action or significant ecological and agricultural disaster.

THE FACTS

Daily and throughout the U.S., Customs and Border Protection, or CBP, and Department of Agriculture, or USDA, inspectors select a container arriving at a port of entry for inspection of wooden products including, if not specifically, dunnage, wooden bracing, pallets or other wooden material necessary for shipment of imported goods. This high-stakes inspection may 56 BREAKBULK MAGAZINE www.breakbulk.com

result in the release of the goods. However, if pests are found, the inspection may result in the quarantine of the container and even a refusal of admission. U.S. authorities may require the Lawrence exportation of the W. Hanson entire container, Lawrence W. Hanson, including its P.C. contents, even if the predominant imported product did not include pests. The risk of refusal exists even for goods that cannot themselves be infested, such as imports of tile, stone, marble or steel products.

These inspections are not without cause. Agricultural pests have caused and threaten to cause significant economic damage, and foreignsourced pests arriving in dunnage, ballast water, or otherwise related to arriving in or with international products have been a source of these threats. On the other hand, the costs of treatment and, most importantly, the costs of exclusion are significant, especially if low-cost alternatives are available that would still achieve the shared goal of eliminating the threat of pests.

THE LAW

Federal law establishes the right and rationale for the inspection of wood packing materials. U.S. Code of Federal Regulations, 7 CFR § 319.40 regulates wood articles and ISSUE 2 / 2019

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infestation that would confirm their conclusions. Yet all too often they close the container and create an Emergency Action Notice (EAN) that is not reviewable in any helpful context. The considerable burden on an importer for mistakes in pest identification could be, at least in part, addressed by examining the evidence collected by the inspector to independently evaluate, confirm or disprove the inspector’s conclusion.

LESSONS LEARNED

The economic danger of unintentionally imported pests requires inspection, prevention and eradication of wood boring and other pests. On the other hand, the burden on importers is not insignificant if a claim of infestation is not true or if there are reasonable and effective alternatives to the exportation of the shipment as a whole. Importers into the U.S. that import wood, not only as the imported product but also with respect to bracing, dunnage, or other wood products, should address the following: • Understand the legal requirements for heat treatment or

fumigation of wood products as well as the labeling requirements for wood that has been treated. Ignorance of the requirements, whether feigned or actual, will not prevent the problems upon arrival in the U.S. • Work with an effective heat treatment or fumigation vendor. Ineffective treatment that does not eradicate pests will not prevent the consequences sought to be avoided. • Work with local CBP and APHIS personnel to develop procedures that confirm and document any alleged violation for your port and also provide a mutually agreeable solution that protects against the scourge of pest infestation with unnecessary burden on the importer. BB Lawrence W. Hanson is the principal with the law office of Lawrence W. Hanson, P.C. located in Houston, Texas. Formerly a U.S. Customs attorney, his private practice focuses on U.S. import regulation, U.S. export controls and other matters relating to international trade.

CREDIT: WIKIMEDIA COMMONS

defines “wood packaging material,” or WPM, as “wood or wood products (excluding paper products) used in supporting, protecting or carrying a commodity (includes dunnage).” Federal regulations similarly require “that all regulated wood packaging material shall be appropriately treated and marked.” Examples of WPM include but are not limited to: pallets, skids, pallet collars, containers, crating/crates, boxes, cases, bins, reels, drums, load boards and dunnage. Wood packaging made of exempt materials but combined with solid wood components must still be treated and marked. The USDA Plant and Inspection Service (APHIS) clarifies that “(a)ll wood packaging material entering or transiting the United States except wood of Canadian origin entering from Canada, must be heat-treated or fumigated and be marked with an approved logo certifying that it has been appropriately treated. Shipments containing noncompliant wood packaging material will not be allowed to enter the United States.” Violations of the wood treatment and marking requirements occur in three circumstances: • Wood that is treated but still infested. • Wood that is treated but not marked. • Wood that is neither treated nor marked, whether or not it is infested. The consequences of an inspection that identifies a violation can lead to liquidated damages or penalties, but frequently the most onerous consequence is a requirement of re-exportation at the expense of the importer. In some ports where circumstances, facilities and situations allow, remedial action can be taken, but not all ports of entry, or all circumstances merit that accommodation. Equally frustrating for importers faced with a denial of entry of wood products is the absence of due process procedures through which alleged mistakes in pest identification can be reviewed. APHIS inspectors have the options of taking samples or at least pictures of live or dead pests or other evidence of potential

ISSUE 2 / 2019

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NEWS FROM BREAKBULK MIDDLE EAST

GCC ‘View from the Top’

CREDIT: SHUTTERSTOCK

Low Contract Awards Belie Positivity BY CARLY FIELDS

New Gulf Cooperation Council contract awards hit a record low in 2018, with US$88.5 billion committed in the region in 2018, the audience at a Breakbulk Middle East “View from the Top” panel session heard. Drawing on figures from MEED Projects, Finn Roden, head of Middle East for Höegh Autoliners, said that the commitment marked a 14-year low and was down 28 percent from the previous year. However, Roden was confident that 2019 would bring better news. “If you look at just the named, awarded projects in 2018 in the Middle East, it was the worst year in terms of monetary value. However, this doesn’t take into account the named and awarded contracts that happened 2015-2017 that do not have funding yet. When we look at that, we do see signs of gaining momentum,” he said. “I think we will start to see opportunities in infrastructure start to happen in the third and fourth quarter of this year.” The final stages of preparations for Expo 2020 in Dubai are expected to bring last-minute shipments, and other developments in the region promise better medium- to long-term prospects. Roden gave the example of the Saudi Arabian budget for 2019, which is the highest in its history. “What 60 BREAKBULK MAGAZINE www.breakbulk.com

will that mean for the breakbulk and project cargo community in Saudi Arabia? We hope that some of these named contracts will get funded, will start to be built and that we start to see raw material moving in.” Saudi Arabia has also introduced a foreign investment initiative to encourage outside investment in its projects and is particularly focused on renewables growth. Infrastructure for solar installations is expected to be “a huge opportunity going forward,” Roden said. Another project of interest is Saudi Arabia’s Neom City, a smart city that will be built from scratch in the northwest of the country. Manufacturing is expected to be a

“growth sector” for the whole GCC, Roden added. However, there was a caveat to growth potential. “Projects will be dependent on the oil price for this region in the medium term and unfortunately, we haven’t had a good revenue spike in oil. If we don’t have the oil revenues, we don’t have the incubator in the Middle East,” he said. That said, once economies in the region have diversified away from oil revenue dependency, there will be long-term transformation. “There will be different cargoes and different projects throughout the region. The opportunity is tremendous, and in the long term, I believe it will happen,” Roden said.

ISSUE 2 / 2019

NEWS FROM BREAKBULK MIDDLE EAST

Going Green in the GGC

Demand Drives Renewables from Policy to Practice BY GARY BURROWS

Though fossil fuels remain the primary energy source in Gulf Cooperation Council member states, renewable energy is a growing and necessary component of their energy mix, a Middle Eastern logistician said. “Renewables are not just a serious value proposition for the region, but they have become a central element of energy planning for most countries in the regions, even those particularly considered big oil producers,” said Mohammad Jaber, chief operating officer, Agility Project Logistics, during a session at Breakbulk Middle East. Energy-intensive industrial expansion, growing populations with high incomes and high living standards have resulted in significant growth in demand for electricity across the GCC. Total energy consumption has doubled since 2000 and quadrupled since 1990. Industry accounts for nearly half of total demand; transportation accounts for one-third and growing, Jaber noted. “This surge in domestic energy consumption, has challenged policymakers to meet demand economically, without compromising current and future hydrocarbon export revenue, while also managing their countries, carbon footprint,” he said. 62 BREAKBULK MAGAZINE www.breakbulk.com

ENERGY VISION

Power demand in the region is expected to grow 3.3 percent annually in the Middle East through 2035, he said, while populations are growing even faster, with Kuwait, Oman, Qatar, Saudi Arabia and the UAE expecting a 3.5 percent growth rate. The Middle East region will need to boost its installed capacity from 277 gigawatts currently to 483 gigawatts by 2035. About one-fifth of that is expected to be renewable energy, compared with only 5 percent today. This would require 61 gigawatts of solar power and 27 gigawatts of wind energy to be added. “Renewable energy, alongside energy efficiency has gained significantly in appeal in the region, in particular in response to the dramatic, parallel fall in renewable energy technology costs relative to fossil fuels,” Jaber said. Despite the renewables push, gas would remain the largest source for power generation in the region, representing 60 percent of installed capacity, he said. Still, the shift would create a 23 percent reduction in oil, or 354 million barrels of oil equivalent, while reducing the power sector’s carbon dioxide emissions by 22 percent. “The Middle East countries have set some impressive targets but within reach. Embracing the region’s abundance of renewable energy resources, is key to long-term economic and social prosperity,” Jaber said.

CREDIT: SHUTTERSTOCK

GCC PROJECT PIPELINE

Plans and targets for the development of renewable energy “are gradually being translated into concrete policies and projects, and the short- and medium-term outlook is promising, particularly in the GCC’s biggest energy markets, Saudi Arabia and the UAE,” Jaber said. He highlighted some key projects within the region that are either active or were recently announced. UAE. “Where the market for renewables is most mature,” the UAE implemented its Energy Strategy 2050, “the first unified energy strategy in the country to become law,” in 2017, Jaber said. UAE has a clean energy target of 44 percent by 2050, and to cut carbon emission by 70 percent. Its energy initiative is also expected to save the country US$191 billion by 2050. The UAE is also the largest and fastest-growing solar market in the GCC, with nearly 79 percent of the installed solar photovoltaic, or PV, capacity. The four-phase, US$3.87billion Mohammad bi Rashid Al Maktoum Solar Park is reportedly the world’s largest concentrated solar power plant. UAE’s second nuclear power reactor, which is under construction, and its four units are expected to provide 5.6 gigawatts of electricity and save up to 21 million tons of carbon emissions each year, equivalent to removing 3.2 million cars from the roads.

ISSUE 2 / 2019

Saudi Arabia. Jaber said Saudi Arabia’s renewable energy plans date back to the 2000s, but they resurfaced as part of its economic reform drive in 2015-2016, with new plans, targets and institutional reforms. “In Saudi Arabia, where a changing policy focus is assigning greater priority to renewables,” plans are to attract US$30 billion to US$50 billion to install 9.5 gigawatts of renewable capacity by 2023, Jaber said. By 2030 it plans to produce 70 percent of its power from natural gas and 30 percent from renewables, nuclear and other sources. “Saudi Arabia saw some of the world’s lowest tariffs being submitted for its commercial-scale solar project,” he said. As competitive costs of wind improved, wind turbine capacity in the region grew from 81 megawatts in 2007 to 322 megawatts in 2016, according to the International Renewable Energy Agency. Its projects include the US$302 million Sakaka solar PV facility, which will be developed as an independent power producer model; and the US$500 million Dumat Al Jandal wind product. Both projects were awarded under public-private agreements with the Saudi Power Procurement Co. Saudi Arabia also expects to accelerate its nuclear energy program, to generate about 17 gigawatts from nuclear energy through 16 nuclear reactors over the next two decades, Jaber said. Oman. The sultanate is commissioning new renewables projects in an effort to diversify its energy mix. Partial privatization of downstream services is expected to generate domestic and international investment opportunities, Jaber said. In May, the state-owned Oman Power and Water Procurement Co. said it will develop six new projects by 2024 – three solar and three wind. The projects will be independent power producers with combined capacity of 2.65 gigawatts. The three PV parks will be located in Ibri, Manah and Adam; while two of the wind facilities will be in Dhofar and one in Duqm.

Prep for the Future

Industry Needs Improvement and Cooperation BY CARLY FIELDS

What are we doing today to stay in business tomorrow? That’s the key question that breakbulk and project cargo operators should be asking themselves, according to a global logistics director speaking at Breakbulk Middle East 2019. In a presentation, Cyril Varghese, global logistics director for strategy and commercial at multinational EPC Fluor, said that people need to improve their focus on value and demonstrate the same to clients. “Let’s get thinking, let’s get talking, let’s have an industrial collective,” he said at the event in Dubai in the UAE. In his address, Varghese said that as a whole, the breakbulk sector needs transformation and this cannot occur in silo. Stakeholders in the industry need to come together and help each

other to reach the next phase, he explained. Turning to a market outlook, Varghese said that the industry may have already witnessed the worst of the lackluster volumes for project cargo. He added that positive trends are now evident in the Middle East with renewable energies “a major focus” in the region, especially in Saudi Arabia. However, while there might be an uptick in project proposal requests and an improvement in sentiment, Varghese acknowledged that a return to project cargo growth is largely beyond the sector’s control. With that in mind, he urged stakeholders to use enforced downtime to invest in improvements. “This is a time where I think the focus should be in terms of looking internally and figuring out how can you make yourself better for the next wave,” he said, calling for operators to “not fall into the same logic of unsustainable growth.”

Cyril Varghese speaking at Breakbulk Middle East.

www.breakbulk.com BREAKBULK MAGAZINE 63

NEWS FROM BREAKBULK MIDDLE EAST

Detail Key to Projects

Local Presence, Improved Use of Data Needed

BY CARLY FIELDS

Logisticians and forwarders can see how holidays and other catalysts impact operations, he explained. “How long does parliament take, historically, to get announced postelections?” he gave as an example. “Also what were the lead-ups to the last two elections like? We’re using that kind of information for trafficability and for planning.” Wilcox also discussed the role of geopolitics in the planning of projects, using the example of Iran: “People and projects were warming to Iran and then Trump came in flipped everything on its head. Companies found themselves in a real predicament because they were relying on local suppliers and they couldn’t do the necessary due diligence.” BB

CREDIT: SHUTTERSTOCK

When it comes to local knowledge, “the devil’s in the detail.” That was one of the messages from Sicuro Group Founding Partner and CEO Scott Wilcox at Breakbulk Middle East 2019. In an interview at the UAE event, Wilcox said that when firms take on projects with a “40,000-feet view,” that really has the potential to cause delays. Timings of projects can dramatically alter “unless you’re versed, or at least aware, of the fact that a country is not just there to facilitate you and reconstruction efforts in these countries,” he added. Wilcox’s organization, a specialist intelligence group of companies, is

headquartered in Dubai in the UAE. He explained that having a Dubai base ensures a constant project connection. “Rather than using a long screwdriver from Washington D.C. or London to try and wind a nut here, we took Europeans and Americans and put them in Dubai so that there was a continuous link all the way through to make things happen,” he noted. Speaking about technology, Wilcox commented that people are mistakenly calling technologies “artificial intelligence,” when what they really possess is “data and a good memory.” He said: “One of the big things with data is people always try and manipulate it to their own need, but if you have big data, you’re able to use that for project-planning purposes.”

64 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

PHOTO CONTEST

LAND AND SEA PHOTO CONTEST WINNER: Magdenli Transport and Trade Co. LOCATION: Ankara, Turkey

YEAR: 2018

DESCRIPTION: On behalf of Kolin Construction, AKM-Kızılay Metro Line located in Ankara provided shifting and positioning services of components of a tunnel boring machine by Magdenli's SPMT and lowbed trailers.

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YEAR: 2017

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BACK PAGE CORRUPTION PERCEPTIONS INDEX 2015-2018

The index, which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, uses a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean. More than two-thirds of countries score below 50 on this year’s CPI, with an average score of just 43. # COUNTRY

CPI SCORES 2018 2017 2016 2015

1 Denmark 88 2 New Zealand 87 3 Finland 85 3 Singapore 85 3 Sweden 85 3 Switzerland 85 7 Norway 84 8 Netherlands 82 9 Canada 81 9 Luxembourg 81 11 Germany 80 11 United Kingdom 80 13 Australia 77 14 Austria 76 14 Hong Kong 76 14 Iceland 76 17 Belgium 75 18 Estonia 73 18 Ireland 73 18 Japan 73 21 France 72 22 USA 71 23 UAE 70 23 Uruguay 70 25 Barbados 68 25 Bhutan 68 27 Chile 67 28 Seychelles 66 29 Bahamas 65 30 Portugal 64 31 Brunei Darussalam 63 32 Taiwan 63 33 Qatar 62 34 Botswana 61 34 Israel 61 36 Poland 60 36 Slovenia 60 38 Cyprus 59 38 Czech Republic 59 38 Lithuania 59 41 Georgia 58 41 Latvia 58 41 St. Vincent & Grenadines 58 41 Spain 58 45 Cabo Verde 57 45 Dominica 57 45 Korea, South 57 48 Costa Rica 56 48 Rwanda 56 50 Saint Lucia 55 51 Malta 54 52 Namibia 53 53 Grenada 52 53 Italy 52 53 Oman 52 56 Mauritius 51 57 Slovakia 50 58 Jordan 49 58 Saudi Arabia 49 60 Croatia 48

88 90 89 90 85 89 84 84 84 88 85 86 85 85 82 83 82 82 82 81 81 81 82 81 77 79 75 75 77 77 77 78 75 77 71 70 74 73 73 72 70 69 75 74 71 66 70 71 68 61 67 65 67 66 60 65 66 63 62 62 58 63 61 63 61 61 60 62 64 60 62 61 61 57 55 57 55 59 59 56 57 58 57 58 60 57 58 55 59 57 59 54 53 59 58 55 54 55 60 56 55 51 52 52 56 50 47 44 45 50 54 50 51 48 48 49 46 49 49

91 91 90 85 89 86 88 84 83 85 81 81 79 76 75 79 77 70 75 75 70 76 70 74 65 70 55 64 62 71 63 61 63 60 61 56 59 52 56 58 55 54 55 54 60 53 44 45 53 51 53 52 51

# COUNTRY

CPI SCORES 2018 2017 2016 2015

61 Cuba 47 61 Malaysia 47 61 Romania 47 64 Hungary 46 64 Sao Tome & Principe 46 64 Vanuatu 46 67 Greece 45 67 Montenegro 45 67 Senegal 45 70 Belarus 44 70 Jamaica 44 70 Solomon Islands 44 73 Morocco 43 73 South Africa 43 73 Suriname 43 73 Tunisia 43 77 Bulgaria 42 78 Burkina Faso 41 78 Ghana 41 78 India 41 78 Kuwait 41 78 Lesotho 41 78 Trinidad & Tobago 41 78 Turkey 41 85 Argentina 40 85 Benin 40 87 China 39 87 Serbia 39 89 Bosnia & Herzegovina 38 89 Indonesia 38 89 Sri Lanka 38 89 Swaziland 38 93 Gambia 37 93 Guyana 37 93 Kosovo 37 93 Macedonia 37 93 Mongolia 37 93 Panama 37 99 Albania 36 99 Bahrain 36 99 Colombia 36 99 Philippines 36 99 Tanzania 36 99 Thailand 36 105 Algeria 35 105 Armenia 35 105 Brazil 35 105 Cote d'Ivoire 35 105 Egypt 35 105 El Salvador 35 105 Peru 35 105 Timor-Leste 35 105 Zambia 35 114 Ecuador 34 114 Ethiopia 34 116 Niger 34 117 Moldova 33 117 Pakistan 33 117 Vietnam 33 120 Liberia 32

47 47 47 49 48 48 45 48 46 46 43 48 44 46 45 45 45 44 40 44 39 39 42 40 37 43 45 41 45 42 41 43 41 42 42 40 43 40 40 39 41 42 39 41 35 40 41 39 36 39 36 41 40 41 42 38 39 37 37 38 36 39 30 26 38 34 39 36 35 37 36 38 37 38 38 39 36 43 37 37 34 35 36 32 37 35 33 34 35 33 37 40 36 34 32 34 33 36 37 35 38 35 37 38 32 31 35 34 33 35 31 30 32 32 35 33 31 37

47 50 46 51 42 46 44 44 32 41 36 44 36 38 41 38 47 38 49 44 39 42 32 37 37 40 38 36 37 28 29 33 42 39 39 36 51 37 35 30 38 36 35 38 32 36 39 36 28 38 32 33 34 33 30 31 37

# COUNTRY

CPI SCORES 2018 2017 2016 2015

120 Malawi 32 120 Mali 32 120 Ukraine 32 124 Djibouti 31 124 Gabon 31 124 Kazakhstan 31 124 Maldives 31 124 Nepal 31 129 Dominican Republic 30 129 Sierra Leone 30 129 Togo 30 132 Bolivia 29 132 Honduras 29 132 Kyrgyzstan 29 132 Laos 29 132 Myanmar 29 132 Paraguay 29 138 Guinea 28 138 Iran 28 138 Lebanon 28 138 Mexico 28 138 Papua New Guinea 28 138 Russia 28 144 Comoros 27 144 Guatemala 27 144 Kenya 27 144 Mauritania 27 144 Nigeria 27 149 Bangladesh 26 149 Central African Rep. 26 149 Uganda 26 152 Azerbaijan 25 152 Cameroon 25 152 Madagascar 25 152 Nicaragua 25 152 Tajikistan 25 157 Eritrea 24 158 Mozambique 23 158 Uzbekistan 23 160 Zimbabwe 22 161 Cambodia 20 161 Dem. Rep. of the Congo 20 161 Haiti 20 161 Turkmenistan 20 165 Angola 19 165 Chad 19 165 Congo 19 168 Iraq 18 168 Venezuela 18 170 Burundi 17 170 Libya 17 172 Afghanistan 16 172 Equatorial Guinea 16 172 Guinea Bissau 16 172 Sudan 16 176 Korea, North 14 176 Yemen 14 178 South Sudan 13 178 Syria 13 180 Somalia 10

31 31 31 32 30 29 31 30 32 35 31 29 33 36 31 29 29 31 30 30 32 32 33 33 29 30 29 28 29 30 30 28 29 30 27 27 30 29 28 28 29 30 29 28 29 29 27 24 28 28 28 26 28 27 27 28 28 26 23 20 26 25 31 30 25 26 24 26 26 26 21 25 20 18 25 27 22 21 22 22 21 21 21 21 22 20 19 22 19 18 20 20 21 20 18 17 18 17 22 20 17 14 15 15 17 17 16 16 14 17 12 16 14 12 11 14 13 9 10

31 35 27 34 34 28 27 33 29 32 34 31 28 25 22 27 25 27 28 31 25 29 26 28 25 31 26 25 24 25 29 27 28 27 26 18 31 19 21 21 22 17 18 15 22 23 16 17 21 16 11 17 12 8 18 15 18 8

Source: Transparency International, The 2018 Corruption Perceptions Index, www.transparency.org/cpi2018. 66 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2019

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