Breakbulk Magazine Issue 4 2019

The Publication for the Industrial Project Supply Chain Industry

Issue 4 / 2019

CARBON

COUNTDOWN 2020 Weighing Heavy on Carrier Minds

MCDERMOTT’S CENTRAL VISION

FAR EASTERN PROMISE OR PAIN?

DON’T SQUEEZE TRAINING MARGINS

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IN THIS ISSUE Cover Story

14

28

38

14 CARBON COUNTDOWN 2020 Weighing Heavy on Carrier Minds

22 MANUFACTURING

38 ENERGY UPDATE

How Two EPC Giants Became One

South America Breathes New Life Into Oil and Gas

A CENTRAL VISION

28 LOGISTICS PERSPECTIVE

FAR EASTERN PROMISE OR PAIN?

Mixed Emotions of China’s European Inroads

32 LOGISTICS PERSPECTIVE

DON’T SQUEEZE TRAINING MARGINS

Education Still Comes First and Last

08

BACK IN BLACK

42 REGIONAL REVIEW BURDENED BY BUREAUCRACY

South Africa Prospects Stunted by Red Tape

49 CASE STUDY

TURBINE NICHE EXPLORED Offshore Project Cements Taiwan’s Renewable Ambitions

06 EDITORIAL 08 CONVERSATION 41 OPINION 58 BACK PAGE

4 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

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EDITORIAL

RISK VS. REWARD Since the 1970s, China has been an international trade tsunami to be reckoned with.

Following the close of its Cultural Revolution, China’s growth in trade outstripped the world – from US$20 billion in the late 1970s to US$475 billion in 2000, prior to its admission into the World Trade Organization in Dec. 11, 2001 under President George W. Bush’s first term.

Despite the U.S. imposing considerable conditions to sign off on China’s WTO memberGary Burrows ship, evidence of the world’s current plight were reflected in the runup, when U.S. imports from China nearly doubled, from US$51.5 billion in 1996 to US$102 billion in 2001.

China’s WTO ascension required considerably more strident conditions than other developing countries. But at the time the inclusion broadly reflected the multilateral trade approach that reached back to U.S. President Ronald Reagan, who campaigned in the 1980 election on creating a North American trade pact.

That led to the North American Free Trade Agreement, which President George H.W. Bush’s administration negotiated and was ratified in 1993.

Despite the stringent conditions of WTO, China’s second-largest economy has hurdled headlong into vying with the U.S. for the world’s top spot. With George W. Bush, along with the administrations of Bill Clinton and Barack Obama, industry claimed China ignored or violated WTO conventions, from dumping products into markets, piracy, reverseengineering of U.S.-oriented products outsourced to China, flaunting intellectual property rights and stealing technology.

Negotiations and trade talks have failed to satisfy non-China interests that there are equal protections under the current circumstances. So, one should be 6 BREAKBULK MAGAZINE www.breakbulk.com

reluctant to argue with Donald Trump trying something new, with his punitive tariff approach towards China.

To be honest, the trade approaches towards China since 2001 have been conciliatory though largely unproductive.

As China has expanded from a low-cost – though arguably lower quality – manufacturing option at the onset of WTO, to company tech giant Huawei vying for a world-changing edge in 5G technology, they’ve expanded their scope and role of global influence.

To western businesses, Trump’s tariffs present an alternative direction to diplomatic efforts that have previously failed.

Perhaps an unconventional change can bring a new result. It certainly gained China’s attention.

However, there has been extensive and repeated claims of the harm American businesses are experiencing at the heart of tariffs – viewed as tariffs as taxes – that have seen U.S. steel, agriculture, chemical and countless other industries struggle.

Does the risk to U.S. business equal any potential reward on the chance that Trump’s tariffs would bring China to its knees? Or, for that matter, continuing to swim upstream on the newly proposed U.S.-Canada-Mexico Agreement, against those industries and opponents who claim its protections aren’t sufficient for U.S. businesses?

That is not a plight of Trump’s choosing. The reality is that irreparable harm has been created by uneven application – through companies’ unbridled will for gain over consequence as well as government action – and industries and global positioning have moved on from 1993 and 2001. But to fail to give it room to succeed or fail might prove equally ineffective.

There is the obvious concern that Trump is an unpredictable and reactionary figurehead in these global challenges. The current escalation with Iran, the continuing questions about Russian interaction, and his ‘bromance’ with North Korea’s Kim Jong-un, are all unnerving red flags to global leaders and industries beyond those who unconditionally support the current administration.

Stay tuned.

EDITORIAL DIRECTOR Gary G. Burrows / +1 904 535 5460 gary.burrows@breakbulk.com NEWS EDITOR Carly Fields carly.fields@breakbulk.com DESIGNER Mark Clubb REPORTERS Paul Scott Abbott Helen Campbell Hariesh Manaadiar Amy McLellan Lori Musser Simon West

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

Global Logistics Consultant

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 / +66 62 804 6746 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 4 / 2019

CONVERSATION Conversation this issue provides comments from the Business Strategy Forum at Breakbulk Europe in Bremen, Germany (for additional event coverage, see page 52). Illustrations are by Mark Clubb and digital scribe Barbara Schneider, Visual Facilitators. Join in the conversation – submit your views to gary.burrows@breakbulk.com, or through Breakbulk’s social media channels on LinkedIn, Facebook or Twitter.

In a world where we are talking about digitalization and integrated processes over multiple units, how is it that we still get cargo which has no lashing points? We have high-paid engineers in all of our companies so how can it be that we are getting wrong measurements; how can it be that we are getting cargoes marked as 500 tons and then when we pick them up they are 550 or 580 tons just because no-one updated the weight? If we do proper planning in advance, we can lower the cost just by combining the different modes that we have and we can reduce insurance costs. These things can be reduced if we do it together – none of us can do this alone.”

It has been a buyer’s market which by nature has created a lot more pressure. Now we need to get more sophisticated in negotiations. Grab any negotiation book you like and it will talk about a collaborative multi-prong approach – that’s a much more efficient way to get the right price.”

–A lex Azparrent, director of logistics, commercial strategies and sourcing, Fluor

–O ve Meyer, managing partner Zeaborn

If we look at competence levels in the industry we have lost a huge amount of experience over the past five years. At all levels of the supply chain we have to invest in people. I’m hugely excited for the next five years ahead, but we need to work together up and down the supply chain to innovate.”

–T im Killen, executive vice president of deugro group 8 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

We have never had a project that has performed as per the initial plan.

There are always major deviations and all of these bear high risks.

The only way forward is collaboration, visibility and transparency. We all have to come together with open books and put the project down.”

–K yriacos Panayides, managing director, AAL Shipping

Today we have a very complex and diverse global supply chain for project logistics. We really need to have visibility and understanding of what the client is looking for. Ten years ago we were dealing with logistics specialists, now we are dealing with procurement specialists.”

The last five years were tough for all of us, and while looking forward it looks much more positive, we now face a different challenge of replenishing expertise.”

–N ikola Hagleitner, global CEO industrial projects, executive vice president marketing & sales, DHL Global Forwarding

–T im Killen, deugro group

Projects are coming much faster to us, so the time period from RFQs from our customers to our order intake and then for the RFQ to the forwarders and carriers is much shorter than before.

Because of this we need more collaboration to simply be agile and to be able to adapt to this situation.”

Now we are dealing with procurement people and this is where you end up with pricedriven models. Cheap, cheap, cheap is what we’ve been hearing for the last five years and that’s bad news.”

–K yriacos Panayides, AAL Shipping

When we look at the avoidable costs of shipping, being in the loop in the prestage of the project could easily save 10 percent to 15 percent of transportation costs. That needs to be an effort that we make together.”

–R uediger Fromm, senior director global project logistics, Siemens AG

–O ve Meyer, Zeaborn

www.breakbulk.com BREAKBULK MAGAZINE 9

CONVERSATION

Deciphering Cryptocurrencies

Currency Choice Just Got Interesting

O

BY MARGARET VAUGHAN

n beaches along the coastlines of New England one can find quantities of white and purple shells produced by the quahog or Western North Atlantic hard-shelled clam. These shells were once known as “wampum” and used by North American Indians as money, ceremonial pledges, and ornaments. It was a “fiat” money; currency without intrinsic value that was established as medium of exchange. Fiat money does not have use value and has value only because a government maintains its value, or because parties engaging in exchange agree on its value.

All global currencies today are fiat money.

Until the early 1930s, currencies were backed by gold (also known as the gold standard) but this model was retired due to World War I and its subsequent inflations and depressions, not to mention the war debts incurred. In 1971 the U.S. suspended the convertibility of the dollar to gold and essentially ended the gold standard. Other nations followed suit and the world currencies went on a floating exchange rate.

So where does that put cryptocurrencies?

Are they also fiat money? By now you’ve heard of electronic peer-to-peer currencies like Bitcoin, Ethereum, Ripple, Litecoin, and so on.

There are more than 2,300 types of cryptocurrencies in existence so it’s hard to keep up.

Even Facebook is building a cryptocurrency

Could cryptocurrencies be used as payment for breakbulk services in the future?

CREDIT: FLS / SHUTTERSTOCK

10 BREAKBULK MAGAZINE www.breakbulk.com

payment platform for its social network which will reportedly let users use digital coins to make purchases on Facebook and third-party sites.

The thing about cryptocurrencies is that they don’t physically exist. You can’t pick up a Bitcoin and hold it in your hand, or pull one out of your wallet. Cryptocurrencies are virtual mediums of exchange meaning that they only exist in cyberspace. Which begs the question of the intrinsic safety of electronic money: can they be wiped out if a massive solar flare knocks out our electronics or can a computer virus clean out our accounts? But are they fiat money? Fiat currency is “legal tender” backed by a “central government.” It can take the form of physical dollars, or it can be represented electronically, such as with bank credit. The government controls the supply.

Cryptocurrency, on the other hand, is not “legal tender,” nor is it backed by a central government or bank. It is decentralized and global. Its form is more like bank credit without the bank. An algorithm controls the supply.

Otherwise, there is no intrinsic difference.

Both fiat currency and cryptocurrency can be called money or currency, both are mediums of exchange that are used to store and transfer value, both can be used to purchase goods and services, both have their value governed by supply, demand, work, scarcity, and other economic factors. Both have their value affected by the quality of the system surrounding it, and both can be traded on exchanges.

Cryptocurrency, gold, a dollar, and wampum are all stores of value and all have exchange value. Some have use value and some, like fiat currency and cryptocurrency, are meant to be a store of value and medium of exchange only. Will we see cryptocurrency used for payment in breakbulk? Probably, but it’s really too soon to tell when. 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.

ISSUE 4 / 2019

If You Think There Is No Way, We Will Find One. At deugro, we have a lot of passion for difficult and challenging projects, and we always find a way to make it work!

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CONVERSATION

Lynchpin of a Sustainable Economy Why Shipping Ticks Green Boxes

H

BY STEFAN KJELLSTRÖM

istorically, the cost difference between renewable energy and fossil fuel has been too high to gain support for a green shift across the energy sector. But with new and innovative technology we are seeing a big change.

The latest example from the U.S. shows that renewable energy is a more cost-efficient alternative than coal, which essentially means that the cost of building new solar and wind plants is lower than running existing coal-fired power plants. Naturally, technical development will continue, and this will further strengthen the case for renewable resources.

All around the globe huge wind parks and solar energy farms are being built. China and India are at the forefront, competing to have the world’s largest renewable power plants. A good example is Kamuthi; a single location plant in India which powers more than 150,000 homes. The Gansu wind farm in China targets capacity of a staggering 20 gigawatts by 2020, and in Europe there are plans for offshore wind farms with combined capacity of 100 gigawatts.

These developments in combination with new innovations and technical developments

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CREDIT: WALLENIUS WILHELMSEN

mean that it is only natural that some of the necessary equipment to serve these project cargoes are growing in size. Turbines are moving towards 1,000 tonnes and huge solar panels are too big for transportation in containers. This is forcing manufacturers and engineers to think in new ways, with dismantled transportation being one option.

Further, this technologically superior and more sensitive equipment needs to be carefully handled and the number of lifts should be limited in order to reduce the risk of damages. Taking these factors into consideration, there are interesting logistics challenges ahead that will require deep logistical experience, global reach with local support, as well as tailored equipment to ensure efficient and secure transportation.

As more industries turn their focus to sustainable technology, they must also take into account responsible transportation, making the whole project as sustainable as possible. It is a well-known fact that world trade and maritime transportation are fundamental to sustaining economic growth.

What is less recognized is that maritime transportation will be indispensable in maintaining a sustainable global economy as it is the most environmentally sound mode of mass transport, both in terms of energy efficiency and the prevention of pollution.

Within the shipping industry, responsible shipping lines should always strive to continuously minimize their environmental footprint through innovative technology and sophisticated engineering. Vessel design should mirror this and strive for less impact.

With digital transformation as the fourth industrial revolution, big data is being used to track and control vessel performance which should lead to a decreased CO2 footprint.

Renewable energy is necessary for a sustainable future, and hopefully green partnerships will be formed between cargo owners and transportation providers to make this happen. BB Stefan Kjellström is vice president for breakbulk and pricing at Wallenius Wilhelmsen.

12 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

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COVER STORY

14 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

BY CARLY FIELDS

CARBON

COUNTDOWN 2020 Weighing Heavy on Carrier Minds

I

t’s real, it’s happening, and the countdown is on.

Any hopes that there might be a last-minute reprieve or extended grace period offered for the International Maritime Organization’s incoming global ruling on maximum sulfur content in marine fuels have disappeared in a puff of non-polluting smoke.

With less than six months to go until the IMO regulation limiting sulfur content in marine fuels to 0.5 percent mass-by-mass, multipurpose operators are scrambling to set their own unique solution to the problem as they look to share the burden of cost – and confusion – with project cargo owners needing their services.

Container lines, with their easierto-bunker fixed schedules, have been making their voices heard, especially in the scrubbers vs. low-sulfur fuel use debate. Ove Meyer, managing director of Zeaborn, said that it’s time for MPV operators to step up and escalate their own discussions on IMO 2020. Zeaborn has already held meetings with a plethora of engineering, procurement and construction companies worldwide to discuss and detail the impact of 2020.

SHARED RESPONSIBILITY

Those cargo owners are happy to share the burden … but only to an extent. Matthieu Jeannin, global category manager for logistics and warehousing activities at SCM, told Breakbulk that as long as fuel-related surcharges are identifiable, justified and invoiced in the same way to all customers then SCM would pay.

However, a lack of transparency in some “all-in” ocean freight bookings – which do not differentiate between freight and surcharges – could breed distrust on the validity of fuel Ove Meyer surcharges.

To protect Zeaborn itself SCM has negotiated a cap on the level of fuel surcharges. In its Frame Agreement, it states that surcharges will remain the same on an acceptable range of plus-or-minus 5 percent from initial negotiated rates. Above or below this level they could be back-charged.

Wallenius Wilhelmsen reports that the majority of its cargo owners have been supportive of the move to reduce sulfur emissions. However, “that is not to say that they are happy to bear the cost,” said Roger Strevens, vice president of global sustainability at Wallenius Wilhelmsen. “The IMO compliance cost is just part of the offer a carrier makes to a shipper, and it therefore falls within the scope of the normal commercial negotiations.”

But shippers need to be on board.

If not, they will undoubtedly be shocked by the post-Jan. 1 freight rates that will be quoted for sea shipments. Zeaborn’s Meyer runs through the math. “If you take a standard ship, let’s say a 12,000 deadweight-tonne MPV E or F type, the fuel cost is about 35 percent to

40 percent of the voyage expenses.

Assuming that low-sulfur is close to the cost of marine gasoil, fuel costs will increase by about 80+ percent, leading to an increase of freight rates just from fuel cost by about 35 percent.”

Compounding this is an anticipated decrease in available tonnage in the fourth quarter of 2019 and the first quarter of 2020 onwards. This will lead to increased charter rates as supply decreases, potentially to the tune of 15 percent to 25 percent.

“Taking all of these factors into consideration, there could be an increase in freight rates of 50+ percent, purely driven by the 2020 regulations – and this increase is driven by cost only!” Meyer said.

He added that this cost increase is a fact, and the market has to openly deal with it, in partnership and with open books: “We don’t want EPCs to be hit by overnight increases in freight rates.”

PRICING DISPARITY

That there will be a price variance between the high-sulfur fuel oil and the very-low-sulfur fuel oil is largely undisputed. The actual spread, though, is a topic of hot debate as the market edges closer to the Jan. 1 deadline.

While unkeen to put a price on the spread, Peter Zachariassen, global director of Bunker One, pitched it as “large,” adding that it will gradually decrease over the coming years, as the industry adds more vessels with scrubbers – air pollution control devices that remove some particulates and/or gases from ships’ exhausts – increasing demand for the high-sulfur www.breakbulk.com BREAKBULK MAGAZINE 15

SHOCKING COST OF CLEANING UP

Zeaborn’s Ove Meyer believes that everybody is doing whatever they can to be compliant with IMO 2020 – but within their limits. And those limits include the fact that 80 percent of the world multipurpose vessel fleet, by his calculation, is under massive stress or distressed.

To comply with IMO 2020, fuel tanks need to be cleaned, either physically or through the burning of additives. “Either way you go, there is a one-off investment of about US$200,000 per ship, which needs to be paid either by the owners or the charterers.”

With many owners struggling to pay their finance installments, the cash to pay for that cleaning is simply not available. They may be able to secure bridge financing, but not if their existing loans are already under stress or, worse still, already in default.

Therefore tank cleaning costs will, in many cases, fall on the operator’s shoulders. And those costs add up to a huge headache: running a fleet of 10 ships will lead to a tank cleaning bill of US$2 million; 50 ships, US$10 million; and 100 ships a whopping US$20 million.

This cost is before any increase in the price of fuel is factored in. “Fuel price will possibly double, and this means that the total risk of bunker payments based on credit terms will also double,” Meyer said. “Assuming that suppliers are not willing or able to double their outstanding risk, this will result in shortened payment terms and additional working capital requirements on the carrier side.”

In numbers, this equates to an average value of US$250,000 per ship and, based on 100 ships, this scales up to the requirement for US$25 million in additional capital.

“How likely it is that an operator is able to provide a bridge/working capital facility of US$40 million to US$50 million to take the pressure from ship owners? I strongly believe we need an open discussion on this, as I doubt that most owners, operators or customers are fully aware of the situation and the consequences escalating in the next six months.”

16 BREAKBULK MAGAZINE www.breakbulk.com

Wallenius Wilhelmsen installed one of the larger and more complex scrubbers on its Tarago in 2014 to cover 30 megawatts of installed power across one main and five auxiliary engines.

CREDIT: WALLENIUS WILHELMSEN

fuel oil that they will continue to use.

This uncertainty makes quoting for future projects challenging.

“Although we have indications, it still is a big risk quoting for future business that extends beyond 2020,” noted Kyriacos Panayides, managing director of AAL Shipping.

Strevens confirmed that Wallenius Wilhelmsen is “prepared to deal with a wide variation in pricing.” Its approach to compliance is made up of three parts: • Use of low-sulfur fuels on some vessels, and scrubbers and use of heavy fuel oil on others.

• Hedging of the forward price spread between high sulfur fuel oil and marine gasoil for the last quarter of 2019 for 100 percent of its fuel volumes.

• Engaging in discussions with customers to advise them of the regulatory changes that are afoot and to ensure that the same are reflected in its commercial agreements.

“Since the most cost-effective compliance solution is vessel specific, that approach allows us to achieve the best outcome on a per-vessel basis and, by extension, for the entire fleet,” he said.

But there is an upside to the pricing picture. With increasingly bad press, scrubbers are seen as

only part of the solution to meet the incoming regulations for the global fleet.

But while an estimated 20 percent of the world’s container fleet is expected to have scrubbers fitted by the end Roger Strevens of 2020, the MPV Wallenius Wilhelmsen fleet is largely shunning them in favor of switching to burning lowsulfur fuel oil. This herd mentality will bring about the unanticipated benefit of a level pricing playing field for MPV operators and those that employ MPVs for project cargo moves.

AAL Shipping’s Panayides told Breakbulk that scrubbers will not be installed on AAL’s ships as they are “not beneficial for our types of ships.” Meyer explained that there are significant technical hurdles for installing scrubbers, especially on the smaller ships. “Also, on the smaller units and the older ships – and here I’m talking about the assets that are 12+ years, the ratio of scrubber investment, asset value and remaining lifecycle is simply not there,” he added. Even if that ratio ISSUE 4 / 2019

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Airborne pollutants from shipping will be curtailed by IMO’s 2020 fuel regulation CREDIT: SHUTTERSTOCK

could be balanced, MPV operators are hardly flush with cash and are therefore unable to make that level of investment. There is the added concern that the high-sulfur fuel oil necessary for powering scrubberfitted ships may not be available in some of the smaller ports which are frequented by the MPV fleet.

SUPPLY QUESTIONS

But while the shunning of scrubbers might bring fuel pricing parity for MPVs operators, fuel supply remains a large unknown. According to Bunker One research, Asia could face a lack of low-sulfur fuel oil supplies, which could prompt a large increase in distillate demands. This could lead to a decline in the supplied volume in Singapore.

“The geographical differences will play a big role, as some areas are long in product and others short. In those areas where we see a shortage and in many smaller ports, distillates supply will naturally increase and be the main product,” Zachariassen said.

Fuel supply is less of a concern for Wallenius Wilhelmsen. Strevens said that the operator is “confident” that it will have sufficient supplies of compliant fuels for and after Jan. 1, 2020. “That stems from the fact that we have some inherent advantages 18 BREAKBULK MAGAZINE www.breakbulk.com

from the type and size of company we are. As a liner operator, we know where our vessels will be a long time in advance, which means that we can plan our bunkering in advance.”

Peter That means Zachariassen that Wallenius Wilhelmsen Bunker One can consolidate where its ships bunker. That consolidation coupled with the fact that it is a large operator means that it is a major buyer in its bunker ports, “which helps move us to the front of the queue at the fuel pump, so to speak.”

However, Strevens stressed that Wallenius Wilhelmsen is not passively relying on those advantages as the deadline approaches and is maintaining “close and continuous” dialog with its key bunker suppliers.

He is sage enough to appreciate that none of its strategies will guarantee sufficient quantity and quality, but he believes that the company is well prepared to deal with what’s on the horizon.

Zeaborn is also leaning on scale to ensure adequate supply. Its ship management arm operates close to 170 ships and has put a taskforce in place to evaluate and analyze its postJan. 1 options.

TRAMP VS. LINER

Zachariassen dismisses concerns that the overbearing container ship sector will ride roughshod over the smaller MPV sector when it comes to fuel supply. “I don’t think that should create deep concerns,” he said. “All customers are important to a supplier – big and small.”

Indeed, Bunker One is active in niche ports, and is dependent on a broad spectrum of customers. “It goes without saying that we, as a supplier, are also looking for reliable and longlasting customer relations, just as a customer is looking for reliable and financially stable suppliers. “[It’s] important to partner up with the right counterparts that can offer not only good price ideas, but also information and technical sparring on product quality,” he added. “We estimate that the immediate focus on product availability and quality will shift to a pricing focus in September 2019 with contract negotiations to start to secure sufficient supply.”

ISSUE 4 / 2019

Early movers stand to gain much, Zachariassen said, specifically when it comes to that all-important security of supply. “As a supplier of different 2020 products, we would be very focused on locking in contracts with customers – as this will give us a foundation of building up the supply infrastructure for 2020.” So customers can benefit from security of supply and clearer cost expectations.

AAL confirmed that it will start burning low-sulfur fuel oil in the fourth quarter of 2019. “All the reports are showing a predictable price,” Panayides said, “but history shows that nothing is predictable.”

We estimate that the immediate focus on product availability and quality will shift to a pricing focus in September 2019 with contract negotiations to start to secure sufficient supply.

–P eter Zachariassen, Bunker One

LOOKING BEYOND 2020

IMO 2020 will unquestionably have a profound impact on the MPV fleet and shipper/operator relationships going forward. But this regulation is just one cog in the wheel to decarbonize shipping, and if the project cargo and breakbulk sectors focus solely on the 2020 deadline they will completely miss the bigger picture.

Emissions from shipping are in the public crosshairs, and with countries like the UK recently announcing its aim of carbon neutrality by 2050, IMO 2020 is just one step on the journey to zero emissions. Speaking at Breakbulk Middle East, Mohamed Zaitoun, founder of Zaitoun Green Shipping and president of the International Maritime Consortium, pointed out that MPV operators cannot continue to operate as they have in the past.

“You cannot only look at the IMO; countries can come with their own requirements. The rules will not end in 2020, there will be more rules coming.

If you want to stay as a ship operator you have to think about this.”

Ship operators buying an MPV today need to be thinking about the requirements of 2030, not just 2020; retrofitting to solve problems is a solution with a shelf life. “We have to change the model and be proactive,” Zaitoun said. “Define the needs, mitigate the risk and form integrated technical specs prior to ordering new vessels to ensure building efficient and profitable vessels. The current and old newbuilding approach will lead to bad vessels and assets which will lead to negative finance results.”

But back to the here and now – to what is for many the only topic on their minds at the moment, despite www.breakbulk.com BREAKBULK MAGAZINE 19

LEFT: A tanker loads up with marine fuel supplies. / CREDIT: BUNKER ONE

Zaitoun’s words of warning – and there is still work to be done.

Bunker One’s Zachariassen offers words of advice for MPV operators still wavering on what to do next: start talking … to suppliers, to traders, to local experts, and to consultants.

Spread the net as far as possible so that you can build up an accurate picture of supply security and pricing in regions where your fleet normally trades. Only then can operators create a workable strategy to deal with the game-changer that is IMO 2020 and get on the right path for what will come after that.

Carly Fields has reported on the shipping industry for the past 19 years, covering bunkers and broking and much in between.

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20 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

CREDIT: SHUTTERSTOCK

MITIGATE PRICING RISK WITH FUTURES The multipurpose vessel market is for the most part resigned to the fact that the price of low-sulfur marine fuel come Jan. 1, 2020 is a rather large unknown.

And for all the reports and analyses undertaken, there remains a lack of clear indication on how much low-sulfur fuel oil will actually be available globally. These basic questions have left the good and the great scratching their heads.

Frustratingly, it’s this global confusion that has held back take-up of a tool that could actually mitigate the unknown pricing risks. According to Chris Hudson, fuel oil futures broker at Freight Investor Services, or FIS, volumes of futures traded as a risk management strategy to mitigate the low-sulfur fuel pricing unknowns have been small compared with the usual levels of forward trading on high-sulfur fuel oil contracts. He told Breakbulk that he finds that lack of inactivity surprising given the closeness of the IMO regulation deadline.

FIS publishes a forward curve for compliant 0.5 percent low-sulfur fuel oil, and provides data for the settlement of trades against the published indices. Hudson explained that MPV operators can enjoy much more price certainty by hedging fuel costs forward.

“The risk of leaving the price of fuel unhedged is that you are much more exposed to physical price swings in the market as IMO 2020 takes effect,” he points out. “There’s not too much Chris Hudson that an operator FIS can do about the operational risks on the physical side, but they can protect themselves against the financial risk of rising prices as refineries and suppliers take advantage of an explosion of demand in January 2020.”

However, he acknowledged that the greatest barrier to futures trading on low-sulfur fuel oil is that many owners and operators still do not know what their physical fuel usage is going to be.

“If we remove scrubber-equipped vessels from the equation, it’s still a choice between marine gasoil or a particular grade of new 0.5 percent sulfur fuel. Only those that have clarity on this decision have had the ability to put futures hedging in place,” Hudson said. “Those without the security of

knowing the exact fuel they will be using are reluctant to do proxy hedges of any kind.”

That said, Hudson expects further pickup in trading activity as the deadline approaches. “From about six months out to the deadline, I think we will have much more certainty in the futures market as well as in the underlying fuel market that the futures prices are based upon.”

Further, as physical suppliers start providing significant volumes of the new specification fuel, the whole market will become more secure in what kind of fuel they will be bunkering.

BP has already indicated that it will begin six months out from January 2020, and FIS expects other major suppliers to follow suit. “With this in place, we should see a significant uptake in the use of 0.5 percent derivatives to match the growing physical market,” Hudson said.

Futures are to some extent still misunderstood in parts of the shipping industry, something that Hudson finds surprising considering how much physical risk owners and carriers are prepared to take. In his view, futures represent a combination of flexibility, the safety of knowing that default risks are removed – because all trades are cleared – and good value compared with the risks of the physical market. BB

www.breakbulk.com BREAKBULK MAGAZINE 21

MANUFACTURING

A CENTRAL VISION

How Two EPC Giants Became One

BY LORI MUSSER

E

ffortless? Not on your life, but hard work has made the transition seem so.

Taking two massive companies and weaving them together into a 32,000-employeestrong energy-industry engineering, procurement and construction company behemoth is the task of a lifetime.

Almost a year into the McDermott combination with CB&I, a seemingly non-stop stream of new contract announcements is indicative of how the outside world perceives the transition’s success.

The top executive at Houstonbased McDermott International Inc. appears pleased.

“Fundamentally, McDermott is a different company today – we are a larger, technologyled integrated company with a formidable presence in the offshore and onshore energy markets,” said David Dickson David Dickson, McDermott McDermott’s president and CEO, during calls with analysts on Feb. 25. “We are confident in our future as a combined company, and that confidence continues to be validated by the solid performance of the vast majority of our offshore and onshore portfolio and a rebounding 22 BREAKBULK MAGAZINE www.breakbulk.com

market that we believe will allow our company to grow,” Dickson said.

“Our customers have tremendous confidence in us. More importantly, though, they trust McDermott and – based on that trust – choose our standard of excellence in execution to deliver on their respective needs,” he said.

“Every client is unique — as are their projects. We have identified a number of best practices that enhance the overall execution of any given project under our stewardship.

For instance, being involved in the pre-front end engineering design and front-end engineering design (FEED) studies has tremendous advantages to a project, enabling the engineering, procurement and construction contractor to bring current execution know-how into the development of the project as early as possible, and ensure the engineering incorporates this know-how,” Dickson said to Breakbulk.

McDermott may be winning new awards that neither company would have won independently. For example, it was awarded a contract from Bayport Polymers LLC, a joint venture of Total Petrochemicals & Refining USA, Inc. and Novealis Holdings LLC (itself a joint venture of Borealis AG and NOVA Chemicals Inc.), for a high-density polyethylene plant, the Borstar Bay3 Project in Bayport, Texas. McDermott will bring modularization expertise to the project, while utilizing its Altamira fabrication yard nearby in Mexico.

The compounded strengths, it’s claimed, will reinforce schedule certainty and reduce client risk.

GETTING ITS CULTURE RIGHT

McDermott International has sought to unify the organization through a single collaborative culture, one that seizes opportunities and converts them into success.

Using somewhat of a bottom-up process – to create a level of goodwill sufficient to override disparate interests and pull together a cohesive whole – McDermott employed a series of cultural summits. Employees from ISSUE 4 / 2019

McDermott successfully executed engineering for the BP Trinidad & Tobago Angelin project, with engineering work from pre-FEED all the way through detailed engineering. Shown here is the jacket and topsides at McDermott’s fabrication yard.

CREDIT: MCDERMOTT

every level, and from every region of the world participated, resulting in a new corporate vision and set of values to guide success. Essentially, the employees shaped the culture.

Clearly prioritizing the employee experience during a merger is half the battle.

The company’s new purpose statement is: “We proudly create and deliver complete, innovative solutions as the trusted global partner, enabling

our customers to maximize the potential of natural resources.” Solutions for complex projects from “concept to commission,” as the company likes to say, is McDermott’s métier.

While some of McDermott’s newly articulated values are somewhat ubiquitous – Integrity, Well-being and Commitment – they are spiced up with a “Go Beyond” mindset (seeking courageous and creative solutions) and a “One Team” approach

(which sees everyone in the company as equally important). Combined, these values are meant to strengthen every aspect of its business so that McDermott can offer exceptional solutions.

SPANNING LAND AND SEA

McDermott International designs and constructs infrastructure and technology solutions all along the bigenergy chain. www.breakbulk.com BREAKBULK MAGAZINE 23

LEFT: McDermott’s work scope on the Peru LNG Export Terminal included the entire liquefaction plant, with a designed production capacity of 4.45 million tons per year of LNG. McDermott was also responsible for providing the permanent community and facilities on site. / CREDIT: MCDERMOTT

Prior to the corporate combination in May 2018, McDermott was doing mostly offshore work and CB&I focused on onshore work.

Combined, operations now span land and sea, blanketing the world. With strengths already proving highly complementary – such as McDermott’s modularization abilities and CB&I’s proprietary technologies – the new McDermott is kitted out with enhanced capabilities. It operates in 54 countries, and it employs diverse resources including a fleet of specialty marine construction vessels and fabrication facilities.

In the energy industry, even toptier companies must continuously hone their craft and present best solu-

tions to earn contracts. McDermott aims to differentiate itself in technology, customer relationships, culture and geographic footprint.

Two key areas distinguish McDermott from its competitors, according to Dickson. The first area is that, as a combined company, McDermott now offers services across the project life cycle. Besides performing the traditional EPC services such as front-end engineering and design, engineering, construction and close out, it can also perform specialized life cycle offerings such as technology, permitting, procurement and fabrication. Another unique advantage is that it can perform almost all of this work in-house.

Full vertical integration offers a

second set of important advantages to clients. Each functional strength, from technology to engineering to construction, is intertwined with the next. McDermott’s engineering experience, for example, is shaped by its practical knowledge of construction and installation. This may give clients a level of comfort; when McDermott designs something, implementation cost and schedule constraints have already been considered.

There can be knowledge-based advantages, scale-economy advantages, and technology-led advantages related to vertical integration. These advantages help McDermott “create and deliver complete, innovative solutions as the trusted global partner, enabling customers to maximize the potential of natural resources,” according to Stuart Spence, McDermott’s chief financial officer, speaking at the Scotia Howard Weil Energy Conference March 25 in New Orleans.

TALKING TECHNOLOGY

MEASURES OF SUCCESS In the combination with CB&I, McDermott gained a world-class technology portfolio which the company is intent on leveraging to “pull through” opportunities for growth.

This is especially important with an improving market in the petrochemicals sector. Already McDermott is enjoying increased booking activity. A buoyant second half of 2018 has carried momentum through into 2019.

Selected Recent Awards, 2019 • Pan Malaysia Field Development – two contracts for Malaysian offshore projects from Sarawak Shell Berhad and Sapura Exploration and Production.

• Ethylene Award in Russia – technology contract for Irkutsk Oil Co. ethylene plant in Russia.

• Ethylene Furnace in Indonesia – technology award for Chandra Asri

24 BREAKBULK MAGAZINE www.breakbulk.com

Perkasa (CAP2) ethylene plant in Indonesia.

• EPC contract by BP Trinidad & Tobago – for the Cassia Compression Project.

• EPC contract for CB&I Storage Tanks in Saudi Arabia – award from Daelim Saudi Arabia Co. Ltd. for engineering, procurement and construction of four ammonia tanks and nine CB&I Storage Tanks for the Ma’aden Ammonia Plant at Ras Al-Khair.

• EPC contract for largest hydrogen cryogenic sphere ever built for NASA. • EPCI subsea tieback contract from LLOG for the Stonefly Development.

• Golden Pass LNG export project in the Sabine Pass, Texas.

• EPC contract for fuel tanks in Australia from Puma Energy.

• Two EPCI awards from Saudi Aramco.

Technology is particularly important to McDermott’s energy clients.

McDermott’s Lummus Technology is a leading licensor of proprietary petrochemical, refining, gasification and gas processing technologies, and a supplier of proprietary catalysts and related engineering, Spence said.

The company has had about US$8 billion in petrochemical and refining pull-through success in the past five years resulting from licensing sales, and anticipates significant on-shore pull-through potential based on its revenue opportunity pipeline, he added.

In fact, during his presentation Spence reported that as of the fourth quarter 2018, McDermott had US$93.1 billion in its revenue opportunity pipeline – the highest revenue opportunity pipeline in McDermott company history. The strength is in part due to recovery in offshore and subsea, LNG and downstream markets.

ISSUE 4 / 2019

THP/SL FAMILY UNBEATABLE COMBINABILITY THE VEHICLE AT A GLANCE High bending moment and axle loads up to 45 t depending on legal and operational requirements Pendular axles with proven ball-bearing race ring technology Universal compatibility with all components of the SL family The right member of the family for every operation Biggest selling heavy-duty module worldwide

The PB-Abkatun-A2 platform was installed in late 2018 in Mexico’s Bay of Campeche utilizing McDermott’s Derrick Barge 50 and Intermac 650 vessels. / CREDIT: MCDERMOTT

Lummus Technology has about 120 licensed technologies, and more than 3,000 patents and patent applications and trademarks, according to Spence.

Roughly 40 percent of the world’s ethylene is produced under licenses from Lummus. In the long term, Spence said, the Lummus Technology “business segment is expected to house all the technology that underpins McDermott’s business.”

To build scale, which can result in economies, to diversify downstream and onshore, which opens up markets, and to acquire a well-respected technology portfolio, addressing increasing tech demand, the corporate combination made sense.

Mergers are often about building capability, but there is always some cost-cutting, especially of redundant resources or underperforming sectors.

In McDermott’s case, there was an initial target of US$350 million in savings.

Dickson said to Breakbulk: “Our savings from CPI proceeded at a rapid pace that exceeded our original expectations … we ended up raising our targeted savings to US$475 million. We have successfully completed our integration efforts and achieved the full actioning of US$475 million of annualized cost synergies from the CPI program.

“The cost savings were focused on reducing selling, general and administrative costs in back office support, 26 BREAKBULK MAGAZINE www.breakbulk.com

systems and applications, and reducing the costs of operations in our supply chain and on operations and projects.

Our largest savings of US$195 million were achieved in our supply chain area by: consolidated buying power to negotiate improved pricing or rebates with suppliers; improved category management and strategic sourcing; and negotiated improved subcontract pricing with providers based on volume,” he said.

“As a result of our transformation, the company more than doubled its 2018 backlog, revenue and new orders to US$10.9 billion, US$6.7 billion and US$5.6 billion, respectively, as compared to 2017,” Dickson said.

To help the transition and integration with CB&I along, the leadership team was installed quickly, the new work environment and culture rolled out within the first year (reinforcing goals, attitudes and performance), and business development and project execution carried on as usual, perhaps with renewed motivation.

CHANGES LARGE AND SMALL

The combination has created an integrated EPC to compete for the world’s most challenging offshore and onshore projects – one whose global fabrication facilities allow it to modularize projects which helps meet deadlines and control costs.

The combination has also given McDermott’s global workforce substantial in-house engineering, fabrication and construction experience as compared with many competitors.

Dickson said to Breakbulk: “Another way to create value is to use modularization to build the key components of a project at our fabrication yards around the world.

“The key to a successful approach is to determine the extent and scope of modular execution through early detailed evaluation of key aspects of each project which includes safety, schedule, worker density, craft cost, site congestion and constraints, weather impacts, environmental and social risk mitigation, shipping constraints, location, and cost of installation, regional productivity, craft availability, and local content requirements. By doing our quantitative analysis at this level and detail during the early development phase, we can reduce risk and improve cost and schedule certainty for the project, which is the key advantage of modularization,” Dickson explained.

Last year, McDermott completed a comprehensive strategic review of its portfolio and determined that its storage tank business and its U.S. pipe fabrication business are not core to long-term strategic objectives; it is divesting both.

ISSUE 4 / 2019

McDermott is organized by area, function and product line. Its four geographical areas, each responsible for project delivery, are: • North, Central and South America.

• Middle East and North Africa.

• Europe, Africa, Russia and Caspian.

• Asia-Pacific.

Its product lines, guided by long-term viability and business diversification strategy, are: • Offshore and subsea (upstream).

• LNG. • Storage.

• Pipe fabrication.

• Downstream.

• Power.

McDermott reported in February that all of its end markets are growing. While upstream and downstream businesses have historically run counter-cyclical to one another, both sectors have been trending upward.

Across the board, energy demand is on the rise. This bodes well for 2019.

“Our revenue pipeline is robust, customer confidence is high, integration is nearly complete, our cost synergies are almost fully implemented and the processes for our planned business sales are proceeding well, Dickson said. “The industrial logic of combining the two companies is as sound as it ever was. Our enhanced offering of products and

services has positioned us to take advantage of growth opportunities across all of our served markets,” Dickson told analysts in February.

Dickson said he believes that the geographic orientation of McDermott’s business units will continue to help it meet growth targets by ensuring that it maintains a strong presence and close customer ties in each region. He added: “The good news is that the energy infrastructure market is strong enough for us to grow profitably, while maintaining our bidding discipline.

“The LNG cycle is here and continuing. The petrochemical cycle is emerging and the offshore cycle appears to be shifting into high gear as illustrated by the 30-percent sequential quarter increase in our offshore bids, change in orders outstanding and targets as of the end of Q4,” Dickson said. There are increased capital investment plans in the works by Saudi Aramco, Qatar Petroleum and other national oil companies that are buoying the offshore market.

“The pace of new orders has accelerated, as evidenced by the first quarter 2019 announcements to date of approximately US$5.5 billion of bookings, including an award from BP for the Cassia C offshore project, two awards from Saudi Aramco and the Golden Pass LNG project,” Dickson said.

ABOVE: McDermott has received the mechanical completion certificate for the LACC ethane cracker project in Calcasieu Parish, near Lake Charles, Louisiana.

CREDIT: MCDERMOTT

FUTURE OUTLOOK

“With the integration being largely complete, the management team is redirecting its undivided attention to the McDermott playbook to ensure that operating performance across the entire portfolio meet such standards of excellence and execution,” Dickson said. He noted that the McDermott playbook includes identifying and stemming losses of problem projects, strengthening customer and partner relationships, maintaining a standardized industry-leading approach to project execution, applying discipline to bidding and risk management processes, rigorously controlling costs, and operating under one common culture.

“As we closed the book on 2018 where integration was the theme, 2019’s focus is aimed at optimizing and executing the McDermott playbook to lead us to significant growth in 2020 and beyond,” Dickson said. BB Based in the U.S., Lori Musser is a veteran shipping industry writer.

www.breakbulk.com BREAKBULK MAGAZINE 27

LOGISTICS PERSPECTIVE

China President Xi Jinping visited Italian Premier Giuseppe Conte to sign economic agreements in early 2019.

CREDIT: MISTRULLI/FOTOGRAMMA/ ROPI/ZUMA PRESS/NEWSCOM

FAR EASTERN PROMISE OR PAIN? Mixed Emotions of China’s European Inroads

C

hina’s influence on the rest of the world took a significant step forward in March this year, when Italy became the first of the G7 countries to sign a deal with Beijing under its ambitious Belt and Road Initiative, or BRI. This was the latest move

by China to sign agreements with a fast-growing number of countries worldwide in its quest to construct a 28 BREAKBULK MAGAZINE www.breakbulk.com

BY HELEN CAMPBELL

land and maritime trade and infrastructure network of ports, roads and railways. Designed to connect Asia with Europe and Africa, it is dubbed the “New Silk Road for the 21st Century.”

More than 150 countries and international organizations have signed BRI agreements with China, some of them no more than symbolic memoranda of understandings for

the time being, but China’s ambitions and intent are clear. The big question is what it means for participating countries, their existing industries and the shape of trade across a very sizeable swathe of the globe.

Geopolitics and geography mean southern Europe has a particular role to play in China’s ambitions.

Portugal and Greece signed up to ISSUE 4 / 2019

become BRI partners in 2018; it is Italy’s status as the first of the G7 to do so that has raised eyebrows, and hackles. On the one hand, critics have warned the whole BRI strategy is predatory and risks indebtedness to China of participating nations, with figures in the Trump administration, for example, even going so far as to say the latest part of the project will bring no benefit to the Italian people.

Conversely, supporters have criticized the concerns as hysteria and say the BRI tie-ups will reboot and re-energize the national finances of countries that join up to be part of the Chinese chain.

Regardless of the backdrop of criticism from European Union circles, link-ups with China under the BRI umbrella proved irresistible for countries like Italy and Greece to jumpstart their struggling economies.

BROAD SCOPE OF WORK

BRI is about infrastructure of all descriptions; that includes bridges such as the Morandi in Genoa that collapsed in 2018, killing more than 40 people, leading to accusations of serial underinvestment.

The latest agreement, signed with Italy in March, includes investment in port infrastructure at Trieste, Genoa and Palermo, all key to Chinese ambitions. Trieste is perfectly placed to be the terminal connection for central Europe via Slovenia and its port of Koper, itself a signatory in 2018 to a BRI agreement with Ningbo, a major Chinese port, while Palermo, Sicily, is another gateway to North Africa that China needs in order to complete the next stage of its BRI. Palermo’s status would be raised if a project to build the Messina Strait Bridge were revived. Other key southern European/Balkan ports for China are Ravenna, Capodistria and Fiume.

There have been trials and tribulations along the way. When China bought a majority stake in the Greek port of Piraeus in 2016, there

were concerns then that Greece had sold out and would end up massively indebted. Montenegro’s experiences of investment tie-ups with Beijing have not gone smoothly, and Sri Lanka and Pakistan have also had negative experiences.

However, concerns about Italy could well be overplayed.

Whereas Piraeus was an insolvency situation, Trieste had been receiving investment for the past few years. “We don’t want to sell the port, we just want to rent it out,” Antonio Paoletti, president of the Trieste Chamber of Commerce, said recently. “I see that as a huge economic opportunity for the entire region.”

EYE TO FUTURE PROGRESS

For Federico Bartoli of Titan Projects, whose project cargo operations predominantly involve oil and gas infrastructure packages, there can be only opportunities arising from the Chinese investment.

“I think that China is already in our area and if they put money in and invest, that can only be a good solution,” Bartoli said. “At the same time, it is important that it is Italian companies that will actually be working in Italy.

“I don’t see any negative implications from this, but maybe opportunities,” he continued. “This certainly does not create any crisis for us and any new activity creates opportunities. The most important thing is to be in the right place at the right moment.”

Cargo movers will need to prepare and to be reactive and nimble to take advantage of changes and opportunities as a result of the Chinese moves.

“Our strategy will come, once we’re ready to do so,” Bartoli said.

Guido Nazzari, executive vicepresident of Tuvia Italia, sees Chinese investments as a chance to shake up a sluggish Italian economy and, perhaps, also stabilize the political climate. Dealing primarily with the energy sector, specifically oil and gas and also wind, solar and

biomass cargoes, and also working with the construction and engineering and heavy industry sectors, Tuvia already has substantially closer links with China than some of its peers. In Guido Nazzari 2017, it became part of AsiaTuvia based shipping, transportation and project cargo company Kerry Logistics and its Milan-based project cargo division has branches in several international locations including Shanghai.

“You won’t hear everything always in a positive way or everything in a negative way and there are shadows and lights, but we definitely see more opportunities [from the Chinese investment] than threats,” Nazzari said to Breakbulk. “We are ourselves an example of investment

by Chinese companies in Europe but, even before the direct investment in our own capital, we always tried to consider the BRI as an opportunity in the Mediterranean and not as a kind of colonization.

“It is true we are a European company, but we are now a European company with an Asian background and a very strong Asian focus. We consider the BRI will be a big boost to the economic exchange between continental or Mediterranean Europe and China. If you start being afraid of foreigners coming into our country, it’s not going to be a good way to become more competitive. We don’t see this as a trap.”

NODES IN THE NETWORK

No business in any sector can afford to sit still, and incoming Chinese investment is expected to stimulate European companies to compete more effectively. Elsewhere in southern Europe, Beijing has been making inroads in locations such as Marseilles, Spanish terminals such as Valencia on the www.breakbulk.com BREAKBULK MAGAZINE 29

Chinese investment in Trieste may return it to its heyday as a gateway to central Europe. / CREDIT: SHUTTERSTOCK

Mediterranean and Bilbao on the north coast, Malta, and Piraeus in Greece.

It should perhaps be a consideration for project cargo carriers that the longer and more comprehensive the “belts” and the “roads” and the fewer the infrastructural breaks in them, the smaller the need for transshipments and those capable of undertaking them. Why search for different carriers to get your cargo from China to the Mediterranean, for example, if it can be sent by rail via a continuous rail-link from Wuhan in China to Lyon, in 15-18 days and at lower cost than air or ship? True, the China-Europe Railway Express trains that now hurtle the 10,000 kilometers towards Lyon on a weekly basis are carrying tightly packed containers of sports and other consumer goods rather than outsize wind turbines or giant generators, but the foundations are there for larger cargo moves in the future.

What may hamper the extent and reach of the Chinese ambitions in southern Europe is the reluctance of other European countries elsewhere, such as Germany for example, which are substantially less keen to welcome Beijing into its maritime infrastructure, although the port of Duisberg does have strong connections with China.

30 BREAKBULK MAGAZINE www.breakbulk.com

To really succeed and make their faith in China pay off, European governments like Italy’s will need to convince other European partner-states of the BRI’s strategic importance; crucially, they will have to clearly present wider take-up of the BRI as a way to promote European integration and not damage it.

STAYING ADAPTIVE

Whatever Beijing and its partners plan and however the BRI continues to evolve beyond memorandums of understanding to physical infrastructure development, project cargo carriers will have to be nimble and ready to react to stay competitive.

“The implication of this additional competition that I can see is that the project cargo sector will need to be more efficient and more cost-conscious, and I think it’s a good way to stimulate things to become better,” Tuvia’s Nazzari said.

“So I see this as a good point and not a negative. For example, technology is changing a lot in our world, and if you remain stagnant, a company does not have a very brilliant future.

“I am optimistic and I do see a lot of people in the project cargo sector sharing this view.”

While the port of Trieste had a very important history as a gateway

to central Europe in the days of the Austro-Hungarian Empire, today it is a container port not used to take project or heavy industry cargo.

Other Adriatic ports, such as Porto Nogaro, Maghera or Ravenna, are of high importance to the logistics of moving outsize cargoes in and out of southern Europe where Italy is involved, owing to the favorably flat land contours and lack of physical land obstacles in the region of the Po River and the Padania Valley.

A project cargo engineer at another Mediterranean-based bulk transporter declined to comment on the latest move by China, other than to say: “The Chinese are powerful and they know what they want – the deal is done so they’re here and we will have to see what comes. We have to accept them here.”

However, one of the most striking characteristics of the BRI ambition, in addition to its sheer reach, is its apparent ambiguity. The paradox for breakbulk and project cargo movers made nervous by the lack of clarity is that the future looks like one where anything could happen. BB Helen Campbell is a freelance journalist based in London who has specialized in energy, environment, sustainability and technology for over 20 years.

ISSUE 4 / 2019

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LOGISTICS PERSPECTIVE

DON’T SQUEEZE TRAINING MARGINS Education Still Comes First and Last

BY PAUL SCOTT ABBOTT

D

espite diminishing profit margins, now is not the time for project forwarders and related logistics entities to cut back on education and training.

As several industry leaders told Breakbulk, reducing focus on maintaining a knowledgeable workforce would be a big mistake in these challenging times.

“We can’t afford to let market fluctuations and business model changes dictate whether or not we are continuing with training and education,” said John Hark, chartering director

John Hark

Mirko Knezevic

Bertling Logistics

UTC

for North America for global project cargo forwarder Bertling Logistics.

Mirko Knezevic, chief operating

officer for global projects at UTC Overseas, put it even more directly: “It would be a grave mistake to compromise or cut back on education and hands-on training for our staff.

Project freight forwarding is a knowledge-based business, and our people, their professionalism and specialization are our biggest asset.”

Others, including executives of C.H. Robinson and Crowley Maritime, concur that investments in talent must continue for movers of project cargo, while broader initiatives are advancing to ensure availability of sufficiently trained labor throughout maritime and supply chain logistics industries.

TOP: Using their specialized training, Crowley Maritime workers load a 12,000-pound enclosure for a 44,000-pound generator on a barge at Jacksonville, Florida, for transport to Puerto Rico. / CREDIT: CROWLEY MARITIME

32 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

TIME TO ‘SOLDIER ON’

Bertling’s Hark said all global project forwarders need to maintain a certain critical mass in such areas as technical heavy-lift capabilities and information technology services and, “most importantly, our people and their experience.”

“Education and training in general go hand-in-hand with maintaining this critical mass that allows us to be ready to successfully execute projects,” Hark said. “We take a more pragmatic approach to the changes and challenges and soldier on.

“You can either evolve and roll with it or be left behind,” he continued. “Our training and education of employees has therefore not suffered.”

The majority of Bertling’s education and training is done in-house, through various modules covering numerous pertinent topics.

“The modules have been rolled out globally,” said Hark, who is based out of Bertling’s North American head office in the Houston suburb of Humble, Texas. “Our clients therefore continue to experience the same professional service no matter which global Bertling office they are liaising with.”

At the same time, according to Hark, it is important for project forwarders to flexibly adapt to change, including through supportive training.

“We will continue to adjust to inevitable market fluctuations and business model changes,” Hark said.

“As the future role and scope of the capital project forwarder changes, we will adjust our service offerings accordingly. These changes will continue to be supported by our purpose-matched global education initiatives and programs.”

resources spent on education,” said Knezevic, who is based in UTC’s New Jersey office. “This includes quality time spent passing on one-on-one experience from senior project managers to junior project team members as they work side-by-side dealing with real-life project challenges.”

Echoing her colleague’s views, Diana Davila, UTC’s project director, commented: “UTC understands the relevancy of improving our staff’s performance in this ever-changing environment and in light of tight margins.

“To continuously improve the performance of our staff, it is essential for our organization to ensure that our team has the required experience and training to achieve our objectives,” said Davila, who works out of the company’s corporate office in Houston. “This is also critical for the success and future growth of our company.

Training is not an area that the industry can afford to reduce or eliminate, she added and stressed that this needs to be pushed forward to ensure the industry attracts new candidates: “Our industry is aging, and an important mechanism to attract new talent is through training and education.”

UTC states that it is a strong believer in maintaining core competencies and knowledge in-house and advises against ceding this to thirdparty entities. Otherwise companies risk becoming a limited process forwarder rather than a single one-stop, full-service provider.

INVESTMENTS CONTINUE

Frank Guzman, director of project logistics for third-party logistics provider C.H. Robinson, agreed that ongoing education and training are critical to its ability to offer the full spectrum of services to project shippers.

“Customers appreciate the ability to work with one company to service all their transportation needs – including ocean, air, customs brokerage, vendor management and surface transportation – the full Frank Guzman project logistics C.H. Robinson package,”

EDUCATION ESSENTIAL

UTC’s Knezevic said success in the project sector requires solid education in the logistics field, including specialization with hands-on experience in all modalities.

“Thin margins cannot be a reason to neglect or reduce time and

Project logistics team training proved critical to C.H. Robinson’s success in transporting components for 40 windmills in Quebec, Canada. / CREDIT: C.H. ROBINSON

www.breakbulk.com BREAKBULK MAGAZINE 33

Guzman said. “Having a global scale and account base to efficiently secure the rates and capacity needed is vital to a healthy project logistics organization. To best serve our customers, we will always prioritize the investment of education and training for our global talent in those areas.”

Guzman noted that many project owners, including a host of engineering, procurement and construction companies and original equipment manufacturers, have reduced the role of project logistics 3PLs in certain industry sectors.

However, he said, opportunity remains in other industries and niche global regions.

Pointing out that C.H. Robinson is a non-asset-based company, Guzman said: “Instead of investing in planes, ships or trucks, we invest in our people, processes and technology. One of C.H. Robinson’s largest investments is our experts around the globe, training them in our processes and proprietary technology platform, Navisphere, to achieve smart solutions and better outcomes. Speaking specifically about

C.H. Robinson’s project logistics service line, we continue to invest in educating and training new talent.”

UPHOLDING IDEALS

Holding to core corporate values by means of workforce training is seen as imperative by Crowley Maritime, which counts third-party logistics among its offerings.

“Despite any external industry pressures, Crowley has remained true to our values of safety, integrity and high performance through our continued commitment to training our workforce, especially on the marine side,” said Vicky Ellis, Crowley’s director of marine development and learning.

“If any impact has been felt from industry factors,” she said, “it has been to drive the continual Vicky Ellis improvement of the trainCrowley Maritime

ing programs we offer and how we deliver them. Crowley has turned toward new and creative means of developing and delivering training to our employees, such as through customized and scalable online learning courses that can be delivered globally and economically without sacrificing quality.” Crowley has also begun to develop microlearning courses, which deliver content to employees in smaller, easier-to-absorb pieces which results in learning with a lesser impact on operations.

Ellis said Crowley not only continues to meet all regulatory requirements to train employees on critical safety and job-specific topics, but the organization goes above and beyond to maintain and improve the skills of marine employees through training initiatives, including the company’s simulationcentered navigation and engineering assessment program, as well as regular officer seminars on a wide range of leadership and supervisory skills.

Crowley also maintains strong working relationships with unionaffiliated training schools such as

Crowley Maritime deck officers receive simulator training at the Seafarers Harry Lundeberg School of Seamanship in Piney Point, Maryland.

CREDIT: CROWLEY MARITIME

34 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

the Seafarers Harry Lundeberg School of Seamanship in Piney Point, Maryland, and the AMO STAR Center in Florida.

Peter Sutton, managing director for safety at Crowley Petroleum Services, added that mariners benefit from regular shoreside training conferences, an online training portal and the efforts of several fleet traveling officers who sail with vessels to conduct onboard equipment-specific training, all with an emphasis on safety.

BROADER CONCERN

APPRECIATION OF APPRENTICESHIPS Both Bertling’s John Hark and UTC’s Mirko Knezevic said the European practice of offering apprenticeships in freight forwarding is a model that could be increasingly beneficial in North America as well.

Hark said Bertling continues to work with the apprenticeship education model in Europe and this will not change. The apprenticeships will also stay in line with any business model changes.

“We are confident that young professionals coming up through that traditional system will continue to get an appropriate education that matches industry needs,” he said.

Specific to the U.S., Bertling works closely with Houston area universities, colleges and high schools to guide curriculums around current and future business trends, with an eye toward advancing a sufficient industry labor force amid a rapidly aging U.S. populace.

“This collaborative effort has continued to gain momentum and has become an effective partnership that we are proud of,” said Hark, who, in addition to his work at Bertling, also serves as an adjunct professor in the Department of Maritime Business Administration at Texas A&M University, his alma mater.

36 BREAKBULK MAGAZINE www.breakbulk.com

“The talent gap is growing,” he said, “and we all have a responsibility to work towards filling it with the most capable professionals as possible, regardless of market cycles or business model changes. This will always be a topdown driven priority at Bertling on a global basis.”

Knezevic said maintaining a high level of competence and building up young people represents a particular challenge for U.S.-based project forwarders.

The European model for freight forwarding apprenticeships includes attending a trade school and a three-year training program with a company, Knezevic said, commenting: “The result is a formal freight forwarding certificate and a solid education that prepares a new generation of professionals for a career in our field. The fact that these apprenticeships feature part theoretical education and part hands-on work with an actual freight forwarding company is priceless.

“The hands-on European-style freight forwarding classes would be a valuable addition to the curriculum at community colleges and trade schools in the U.S.,” he said. “I believe this would attract more young people to the profession and provide a much-needed talent pool for our industry.”

And in tandem with improving training efforts, industry is stepping up to address broad concerns related to the sufficiency of trained workforce.

The American Association of Port Authorities, with membership throughout the western hemisphere, scheduled its first Workforce Development Summit as a three-day affair in June in Long Beach, California, in conjunction with the Port of Long Beach, Long Beach City College and TransPORTS, the official national industry intermediary chosen by the U.S. Department of Labor to expand registered apprenticeships in ports and the multimodal transportation, distribution and logistics industry nationwide.

“Our industry faces increasing challenges in filling port-related jobs that require highly skilled or specialized technical training,” said Mary Beth Long, vice president of external affairs for AAPA. “The pool of viable candidates to fill these jobs is diminishing as other industry sectors, such as technology and manufacturing, are competing for applicants from the same job pool.

“Finding creative ways to develop the workforce is requiring ports to ramp up their efforts,” Long said.

From development of elementary education initiatives and internships, to apprenticeship programs and college-level curriculum, project cargo ports and logistics providers are playing an ever-increasing role in preparing job candidates for new opportunities in this sector. BB A professional journalist for nearly 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.

ISSUE 4 / 2019

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ENERGY UPDATE

BACK IN BLACK

CREDIT: SHUTTERSTOCK

South America Breathes New Life Into Oil and Gas

BY SIMON WEST

T

he success of Colombia’s latest oilfield auction is further proof that the country’s sluggish oil and gas sector is on the road to recovery.

After exploration activity all but dried up after the oil crash in 2014, investment is starting to trickle back into the Andean nation, helped by better crude prices, changes to offshore contract rules and a gradually improving security situation.

38 BREAKBULK MAGAZINE www.breakbulk.com

President Ivan Duque, who took office last August, has pledged to support the sector by slashing corporation tax and what he has dubbed the “inflated costs” of oil production and transportation. Fast depleting reserves, which in output terms equate to just 6.2 years of oil and 9.8 years of natural gas, is serious cause for concern.

In Colombia’s first oil tender for five years, the government said in early June that seven companies had placed bids for 11 exploration blocks – 10 onshore and one offshore. The

result was “excellent news” for the country, said Luis Miguel Morelli, the head of the National Hydrocarbons Association, or ANH. State-led oil giant Ecopetrol, its upstream subsidiary Hocol, India’s ONGC Videsh, and independent operators Frontera, Parex, Gran Tierra and GeoPark placed a combined 19 offers, with the outcome of the bidding due on July 16. The tender is expected to generate spending of US$600 million during an initial exploration phase and could boost crude oil reserves by 1 billion barrels.

ISSUE 4 / 2019

“Maybe the number of companies involved in the auction could have been higher, maybe the infrastructure in Colombia fell short of their demands,” said Camilo Silva, founder of the Bogota-based financial advisory firm Valora Analitik. “At the same time, it is no bad thing that investors are arriving, that they believe in Colombia’s oil industry. It is such an important driver for the economies of those regions where blocks are located.”

The ANH has also this year modified contractual terms for offshore drilling, creating a more stable legal framework for operators.

Changes include the use of arbitration to settle disputes between producers and pledges to safeguard the interests of communities living close to oil and gas projects. Operators that apply to extend offshore contracts will also have to hand over an additional 5 percent in royalties to the state.

FRACKING OPPORTUNITIES

Since March, the government has signed offshore contracts with Ecopetrol, ExxonMobil, Repsol, Royal Dutch Shell and Noble Energy for rights to explore offshore Caribbean blocks. Drilling activity at those blocks could begin in May 2020, the ANH said.

The anticipated demand for new rigs, piping and other heavy equipment for onshore and offshore blocks bodes well for movers of breakbulk and project cargoes.

Still, according to Santiago Lloreda, executive director at Medellin-based shipping agency Multiport, the really big opportunities could arise if Colombia green-lights hydraulic fracturing, or fracking, a controversial technique that uses a high-pressure mix of water, sand and chemicals to unlock unconventional oil and gas.

Duque’s government has signaled it is ready to start the fracking approval process. Trade groups believe the country could hold up to 9 billion barrels of unconventional crude reserves, or five times its current conventional tally.

Ecopetrol revealed in February it had earmarked US$500 million over the next three years for a series of strictly controlled, small-scale fracking pilot projects, mainly in Colombia’s shale-rich Middle Magdalena Valley. If environmental authorities give the pilots a thumbs-up, then commercial expansion could begin as early as 2022.

“If the legislation is approved, then fracking will be on top of the Colombia’s President Ivan Duque has made support for list for investments,” reviving the country’s oil and gas sector a priority.

CREDIT: ANDRES PANTOJA / SOPA IMAGES/SIP/NEWSCOM Lloreda said.

MOVING ACROSS MODES

In terms of port capabilities, Colombia imports most of its cargo through two main ports: Cartagena on the Caribbean Coast and Buenaventura on the Pacific Coast.

According to Jennifer Bohorquez, general manager at DAP Cargo Line, both ports are well equipped to deal with breakbulk and oversized cargo.

The port of Cartagena, for example, proved its capacity to handle heavy project-related cargo during the US$8 billion construction of Ecopetrol’s Reficar oil refinery.

The project, completed in 2015, called for the installation of 34 new processing units to boost fuel and petrochemical production.

But while port capabilities are adequate for project cargo in Colombia, that’s not the end of the story for project cargo moves.

“Colombia has evolved a lot in terms of port capacity, mainly thanks to Cartagena,” Bohorquez said.

Further inland, things are trickier, with the transport of cargo from coastal ports to inland destinations complicated by Colombia’s mountainous terrain.

Furthermore, much of Colombia’s road network fell into disrepair during a five-decade civil conflict that saw left-wing guerrillas take control of vast swathes of the countryside. A peace accord signed off in 2016 between the government and Colombia’s largest armed group, the Farc, has allowed the state to return to some of those regions hardest hit by the conflict.

“Whenever we talk about project cargo in Colombia we must first analyze the route it will take from port to final destination. Some of our roads simply do not have the necessary infrastructure for this type of movement,” Lloreda said.

“However, it is important to say that movement of extra-heavy equipment has been accomplished in the past, and companies do exist that have the necessary experience for multimodal logistics.” www.breakbulk.com BREAKBULK MAGAZINE 39

Cartagena port is well equipped to deal with breakbulk and oversized cargo. / CREDIT: SHUTTERSTOCK

WIDER SCOPE

Colombia is not the only country in the region seeking to breathe life back into its oil and gas sector.

Ecuador’s decision to ditch service contracts for more investor friendly production agreements paid off in March after it received bids from six international operators in the Intracampos XII oil auction.

The four winning groups have pledged to spend US$370 million by 2023 to drill 27 exploration wells across seven onshore blocks in Ecuador’s prolific Oriente Basin.

Peru, meanwhile, is looking to attract billions of dollars in investment to its hydrocarbons sector through new legislation that would, among other measures, extend drilling concessions, create a more competitive royalty system and boost anti-corruption clauses in contracts.

Here, the so-called Organic Law for Hydrocarbons, awaiting congressional approval, could help reactivate some 4,500 shuttered oil wells, according to Peru’s National Society of Mining, Petroleum and Energy.

Perhaps, though, the most exciting developments in South American oil and gas right now are in Guyana.

A string of major offshore discoveries by a consortium led by U.S.-based energy major ExxonMobil could see the former British colony, with its population of just 790,000, becoming the world’s top per capita oil producer in less than a decade.

ExxonMobil announced in April its 13th oil find at the 6.6 million-acre offshore Stabroek Block, which has 40 BREAKBULK MAGAZINE www.breakbulk.com

added to the acreage’s estimated 5.5 billion barrels of technically recoverable resources.

Production of 120,000 barrels a day at Stabroek’s Liza-1 well is slated to begin early next year.

ExxonMobil, alongside consortium partners, U.S.-based Hess and China’s CNOOC, believes the acreage off Guyana’s Atlantic Coast has the scope for at least five floating production, storage and offloading vessels, or FPSOs. Crude oil could be flowing at a rate of 750,000 b/d by 2025.

“It’s a really exciting time for us there right now,” said Jack Williams, senior vice president for ExxonMobil, during a conference call with investors on April 26.

INFRASTRUCTURE CHALLENGES

Stirred by ExxonMobil’s success, other operators are arriving in Guyana, including Spain’s Repsol, UK-based Tullow Oil and Canada’s Frontera Energy. The pace of offshore development, however, has exposed the nation’s logistical constraints and the deficit in infrastructure and equipment required for handling project cargo.

“It’s very challenging for heavylift and breakbulk,” said Bob Stevens, APAN’s chief operating officer for Trinidad & Tobago.

“All the heavy pieces are going direct from Trinidad; they’re not coming from Guyana. Even though the government insists there has to be local content, the local content really is the small stuff, because they

don’t have the capacity to handle more.”

Still, once production starts up next year at Liza-1, and the money starts rolling in, it should be just a matter of time before infrastructure challenges are addressed and serious construction work begins, Stevens said.

Some firms have already begun expanding. Guyana Shore Base Inc., for example, is planning to boost its shore-based logistics area on the outskirts of capital city Georgetown from 35 to 85 acres and double its capacity to facilitate vessels.

Others are already striking deals with oil companies. John Fernandes has been hired by one of ExxonMobil’s largest contractors, Saipem, to provide shore-based services for the development of the Liza-1 well, including the load out of piping and other project equipment.

“Most of the port operators are investing in upgrading their infrastructure and equipment to cater for the needs of the oil and gas breakbulk industry,” said Clayton Charles, general manager at shipping firm CMA CGM Guyana. “A lot of oil companies will actually want to focus their attention on Guyana and try to participate in the sector, and that in itself makes it pretty exciting for those involved in breakbulk.” BB Colombia-based Simon West is freelance journalist specializing in energy and biofuels news and market movements in the Americas.

ISSUE 4 / 2019

OPINION

Balancing Trade and Tariffs Highs and Lows of Americas Agreement

Mexician President Enrique Pena Neto, left, President Donald Trump, center, and Canadian Prime Minister Justin Trudeau, right, during a press conference following the signing ceremony for the USMCA trade agreement.

CREDIT: RON PRZYSUCHA/ZUMA PRESS/NEWSCOM

I

BY MATTHEW BEY STRATFOR

t has been six months since the United States-Mexico-Canada Agreement, or USMCA, was signed, and the ratification process has begun in all three countries.

But as with all trade agreements and trade issues, there is good news and bad news.

Despite concerns that U.S. President Donald Trump would place significant trade barriers within the agreement that could reduce trade, for most industries, the USCMA is only a minor update to the status quo and should it be ratified, will not cause major repercussions.

This is not true, however, for the auto sector or some narrow parts of the agricultural sector. Both were focal industries for the White House. The rules of origin for goods to qualify for USMCA trade benefits have been significantly tightened for the auto sector. In order to qualify, the regional content level of goods must be 75 percent – up from 62.5 percent. Moreover, 40 percent to 45 percent of the value must be produced by workers with a wage of at least $16 per hour.

This would disincentivize using cheaper Mexican labor and incentivize sourcing more parts from NAFTA countries.

But there is a potential side effect.

President Trump has threatened to place 25 percent tariffs on cars coming into the U.S. – and threatened to eventually place them on cars coming from Mexico and Canada that do not conform to USMCA-standards. This stance has proven deeply unpopular and may not last beyond his first (or potential second) term. For many automakers – especially companies that source components outside North America – simply not conforming to these tighter USMCA standards and paying the U.S. typical tariff of 2.5 percent on auto imports might be desirable.

Broadly speaking, the USMCA is likely to have a small net positive impact on North American economies. This is not necessarily because of the agreement’s details per se, but rather the certainty that the agreement brings. But therein lies the bad news.

President Trump’s threat to impose up to 25 percent tariffs on all Mexican goods due to perceived lax immigration controls, looms large over Mexico. This time, a quick deal was made. But given that one of President Trump’s signature domestic issues has been stricter immigration enforcement, the risk of that threat re-emerging ahead of 2020 elections remains high. This peril has undermined the certainty that it was hoped the USMCA would bring.

Trade is, of course, the other signature issue for Trump. Despite all three USMCA parties starting their own respective ratification process, Trump has an uphill battle on Capitol Hill to get the deal passed quickly. House Speaker Nancy Pelosi will not give him an easy win, and if Trump tries to force the issue, she may well suspend Congressional rules that allow for an expedited approval process. This could raise the prospect of Trump triggering a six-month NAFTA withdrawal process as a means of forcing Pelosi’s hand. Thus, regardless of the limited benefits it brings, the future of the North American trade relationship remains fraught with political risk. BB Matthew Bey is senior global analyst for Stratfor.

www.breakbulk.com BREAKBULK MAGAZINE 41

REGIONAL REVIEW

A 66-ton dragline bucket being moved from Johannesburg, South Africa, to the U.S. CREDIT: HELLMANN WORLDWIDE LOGISTICS

BURDENED

BY BUREAUCRACY South Africa Prospects Stunted by Red Tape

S

outh Africa has arguably some of the best infrastructure on the African continent and can have several infrastructure development programs on the go at any one time.

With its 4,000-kilometer coastline and nine active ports, capable of handling some of the most complicated, heavy and abnormal type cargoes for use in the mining, power, renewable energy, transportation and infrastructure industries, South Africa is well-positioned to serve many countries in the region as a transport and logistics hub.

Combine this with the presence of many experienced companies in the fields of engineering, construction, 42 BREAKBULK MAGAZINE www.breakbulk.com

BY HARIESH MANAADIAR

mining, energy and logistics, and South Africa has long been considered the gateway to the African continent and especially Sub-Saharan Africa.

South Africa serves as a gateway to the bordering markets of Zimbabwe, Botswana, Lesotho, Swaziland, Mozambique, Namibia; to near regional markets such as Zambia, Angola, Malawi; and in some cases to distant regional markets like the Democratic Republic of Congo and Guinea.

But Sub-Saharan Africa may be losing its sheen and is seen to be stagnating while the rest of the Southern African Development Community region is catching up and may end up becoming less and less dependent on South Africa.

According to Africa’s Pulse, a biannual analysis of the state of African economies conducted by the World Bank, Sub-Saharan Africa experienced a slowdown in growth from nearly 8 percent in 2014 to 1.0 percent in 2018 and to 1.3 percent in 2019 before it is expected to rise to 1.7 percent in 2020, coinciding with a sharp deceleration in economic growth in Africa.

This report analyzes trends in infrastructure quantity, quality and access, and explores the relationship between infrastructure growth and economic growth in the region.

While South Africa has made great progress in telecommunications coverage and in access to safe water, little ISSUE 4 / 2019

progress has been made in per capita electricity generating capacity in more than two decades.

As per the report, only 35 percent of the population has access to electricity, with rural access rates less than one-third urban ones. Transport infrastructure is likewise lagging with Sub-Saharan Africa the only region in the world where road density has declined over the past 20 years.

This may take some time and while waiting for this, the port already starts charging the client for storage as they only have a limited standing time for the cargo in port.

“While this issue increases the time taken for delivery to the destination, this also affects the costing for the projects, in some cases rendering the movement via South Africa uncompetitive.”

STILL ROOM FOR GROWTH

RENEWABLE OPPORTUNITIES

But PwC has reported that SubSaharan Africa, which has been on a strong, sustained growth trajectory since the late 1980s, is projected to grow from 2.6 percent in 2017 to 3.9 percent in 2022 on the back of its commodity exports and rapidly transforming economies.

Sub-Saharan Africa is expected to spend 10 percent more in infrastructure per year over the next decade.

As the two largest economies in Africa, South Africa and Nigeria are seen as the leaders participating in this growth and spend, but Ghana in the West, Kenya, Tanzania and Ethiopia in the East and Mozambique in the South are fast catching up to these two countries.

While there are many challenges for South Africa, there have also been drivers for growth as recent announcements of projects in mining, energy and infrastructure and also improvement of sentiment bear testament to.

However, Filda Jacobs, general manager industrial projects of Hellmann Worldwide Logistics, explained that some clients are a little wary about spending on various projects due to some of the current market uncertainties in South Africa.

Age-old challenges such as issuance of road transport permits, port charges, and uncertainties in terms of documentation still exists. “The authorities who issue the permits for the movement of abnormal cargo along the roads will only issue the permits once the cargo has been fully loaded, lashed and secured on the trailer that will carry this cargo,” Jacobs said. “All this loading, rigging, etc., must be done inside the port before the cargo is moved out.

South Africa has been very involved in renewable energy projects, including wind and solar farms, for several years.

The renewables sector in South Africa had proven its capacity to contribute to the country’s economic growth, and also contributed to its development objectives through the creation of jobs, social progress and creating new opportunities for economic ownership. But many of these projects have either slowed or stalled over the past few years.

This has been attributed to indecision, incapacity and lack of skills within the government departments and regulatory authorities, combined

with policy uncertainty created by stop-start procurement in previous years.

During that period, state-owned electricity generator and distributor Eskom was seriously contemplating nuclear energy projects, due to no new licenses being issued to renewable energy projects or companies.

As an example, DCD Wind Towers, a joint venture project between the Industrial Development Corp. and DCD Group, was set up in 2013 based on an expected investment in new wind generation capacity which was supposed to come online through to 2030.

However, this ZAR400m (US$28.3 million) facility, which supplied steel towers to wind farms in the Eastern Cape from April 2014, shipped out its last order in November 2016.

This shutdown is attributed to failure by Eskom to finalize the power purchase agreements with private wind energy firms, although these were approved by the Department of Energy as part of their renewable energy program. This is just one example of an inefficiency within the government’s transport department.

Ball mills of 130 tons each being transported from Richards Bay, South Africa, to West Africa.

CREDIT: HELLMANN WORLDWIDE LOGISTICS

www.breakbulk.com BREAKBULK MAGAZINE 43

LICENSING HEADACHES

Other inefficiencies are costing truckers millions and restricting capacity for growth and service offering.

There are limited transporters with access to specialized trailers capable of transporting windfarm project cargoes. The few transporters that were operating in this space had to send equipment out of South Africa because of several issues related to registering these specialized trailers with the Department of Transport due to regulations and system inefficiencies.

A leading project forwarder who declined to be named said that red tape surrounding project cargo moves through South Africa is “one of the continuing problems.” For example, each province in South Africa has its own permit requirements. So a project cargo that moves from Durban in Kwa Zulu Natal Province to Botswana via Free State Province, Gauteng Province and North West Province requires permit approvals from each of these provinces, although all of the provinces are in South Africa.

The forwarder further attributed the slowdown in project cargoes into South Africa to one entity in particular: Eskom.

Eskom is responsible for 95 percent of the country’s energy needs and the world’s 11th-largest power utility in terms of generating capacity. It ranks ninth in terms of sales, making up 60 percent of the total electricity consumed on the African continent, and boasts the world’s largest dry-cooling power station.

For many years, Eskom was the single-largest project cargo importer into the country. Due to the sheer volume of Eskom’s projects, this business is handled by several project forwarders and consultants.

Although dubbed as the “singlelargest disaster in South Africa’s economic history” by the South African media, Eskom’s Medupi and Kusile projects, two of the biggest coal-fired generating plants in the world, were the source of many project cargo shipments for project forwarders. This work has now come to an end along with the appearance of substantial cracks in Eskom’s operability.

44 BREAKBULK MAGAZINE www.breakbulk.com

OPERATOR PROBLEMS STACK UP

Eskom’s high-profile administrative problems relating to State capture, corruption, mismanagement, flouting of procurement procedures, neglected maintenance resulting in constant breakdowns and load shedding, electricity theft, non-payment by municipalities and other issues has resulted in Eskom’s debt ballooning to around ZAR419 billion (US$29.7 billion).

“Until this serious issue is sorted out, Eskom is in no position to start any other projects,” the forwarder said.

Its nuclear energy program has also been shelved for the foreseeable future due to lack of funding in Eskom and the government’s reluctance to involve private companies in the process.

So, is it all doom and gloom for the project industry in South Africa? Not according to Juan Enslin, CEO of Contour Logistics, a forwarder in South Africa.

Juan Enslin

Duncan Bonnett

Contour Logistics

Africa House

“South Africa still has most of the project cargo business, and the reason underpinning this is the expertise and reaction time to service the customers.

While some of the neighboring countries may have taken some work away, it was mainly based on costs. But not all these have been successful due to infrastructure and equipment requirements/issues in those countries.”

Enslin added: “South Africa has a good potential in terms of its projects industry despite all the above challenges. In fact, if anything, the challenges mentioned above, create opportunities for more projects. Companies that are able to react to these challenges and opportunities will reap benefits in the years to come.”

He said that while mining projects have picked up, power and energy as well as maintenance on previous water projects are also topping up the current projects landscape.

Several projects, such as Vedanta Zinc International’s Gamsberg mine near Aggeneys in the Northern Cape, manufacturing of wind turbine tower sections for Kangnas Wind Farm at the Atlantis Special Economic Zone in the Western Cape, coal exploration projects in Botswana, desalination plants in Sub-Saharan Africa, and the Lesotho Highlands project, are expected to improve project business into and via South Africa.

MINING OUTLOOK POSITIVE

The outlook for the mining sector in South Africa for 2019 remains fairly bullish, and there is cautious optimism in the mining sector on the back of strong commodity prices.

Shirley Webber, coverage head natural resources at Absa Corporate and Investment Banking, said: “Platinum, palladium and diamonds seem to be leading this charge currently with improved base metal prices for copper and nickel foreseen on the back of global commodity demand for infrastructure development, especially in China and the U.S.” Duncan Bonnett, of Africa House, a consultancy company specializing in various projects in Africa, added: “Power generation is a critical element in South Africa and Africa’s future given all the issues that we have been seeing in the recent past.” He said that there has been a significant increase in power projects on the continent, with many African countries investing in power projects.

“The South African project market and infrastructure is quite mature and has the capacity to handle many of the projects destined for Africa and its hinterland,” Bonnett said. “There is a growing number of renewable projects across the region, including solar, wind and geothermal, that are requiring sophisticated logistics solutions.”

But he also warned that while South Africa has been the main gateway to Sub-Saharan Africa and other African countries for several years, countries in the East, such as Kenya, ISSUE 4 / 2019

Construction of highway flood tunnels in Hammarsdale Peacevale, South Africa.

CREDIT: SHUTTERSTOCK

Tanzania, Ethiopia, and ports like Lobito and Walvis Bay, are getting competitive and are working on taking a big share away from South Africa. Projects in countries like DRC can now get their cargoes in via Lobito and Walvis Bay more cheaply and with a quicker transit time than via South Africa.

However, Bonnett added: “In many instances, the logistics chain in other countries is not developed enough to manage cargoes of this nature, especially into remote areas, so project developers will look to companies with experience in delivering these solutions.

“Many projects happening within Africa are driven from outside of South Africa and Africa. With the last few projects that were delivered into Mozambique, not a single nut or bolt came from or via South Africa.

Countries like Australia are delivering fully built-up and prefabricated cargo for these projects.”

UPTICK STILL EXPECTED

Based on extensive research by Africa House on the African continent, Bonnett is confident that the project basket in Sub-Saharan Africa will increase with mining projects in South Africa including platinum group metals, manganese, coal and other mines, hydro and rail projects in Ethiopia, coal and gas in 46 BREAKBULK MAGAZINE www.breakbulk.com

Mozambique, oil projects in Uganda, and infrastructure projects in Kenya and Tanzania all in play. West Africa is also seeing an uptick in areas such as mining, power, ports and rail to support both mining and oil and gas, as well as urban development.

Despite the recent financial crisis facing industry giants like Aveng, Basil Read and Group Five, Fitch Solutions predicts that the South African construction industry will emerge from recession in 2019 but at a lukewarm 2.4 percent growth.

Issues facing local construction companies are likely to drag down the performance of the construction industry in Southern Africa compared with other Sub-Saharan Africa regions.

Fitch expects the construction industry in the Sub-Saharan region to grow by 6.8 percent year-on-year, and this growth and investment flow is expected to continue over the medium term in order to meet pressing infrastructure demands.

Ethiopia is expected to remain Sub-Saharan Africa’s top performer, with its construction industry value likely to increase 12.3 percent in 2019.

South Africa is the largest economy in the African continent and an important member of the BRICS economic group (Brazil, Russia, India, China and South Africa).

Project cargoes and their handling have been a staple in South Africa’s logistics and transport offering for many of the countries around South Africa for many years.

South Africa has the infrastructure, capacity, capability and skills required to handle the projects that are in the pipeline and those which are envisaged. However, the current administration in South Africa is holding back progression with a severe erosion in public and investor confidence in its abilities to create jobs and drive economic growth. For the government, the public of South Africa and its investors, a great deal hinges on the outcome of the elections in South Africa in May. Much depends on how the government plans to handle core issues such as its infrastructure projects, its development programs, its socioeconomic issues and Eskom and its affairs. Many investors are consequently playing a waiting game. If the government plays its cards right, South Africa can look forward to a massive resurgence in the development of its projects and transit business. BB Hariesh Manaadiar is a shipping and freight professional in the industry for over 30 years and also the author of Shipping and Freight Resource.

ISSUE 4 / 2019

PROFILE

SENDING THE RIGHT MESSAGE

BY CARLY FIELDS

Specialist Knowledge a Must

W

hen played in the schoolyard, the childhood game of Chinese whispers or telephone was the source of much hilarity. But this “game” is being played out by a few unscrupulous forwarders in the modern-day project cargo business – and the results are no laughing matter, according to Emil Skavlem, Samskip’s business development manager.

While Samskip values its relationships with several reputable freight forwarders, Skavlem said that there are others operating in the sector that lack the necessary understanding of this specialist sector. As a consequence, they are misdelivering key instructions from the shipper.

Speaking to Breakbulk, Skavlem acknowledged the many competent and good freight forwarders operating in the breakbulk and project cargo business today, but also noted a lower class of forwarder that is failing to provide a worthy service to clients.

That minority are “milking the top,” he said, “and ruining things for those that are doing a good job.”

Those forwarders are not communicating properly with subcontractors and carriers, or Emil Skavlem worse still, passing on half-baked Samskip messages, with negative consequences. “The issue is this creates a communication barrier between the actual carrier and the client, which is being filtered by the forwarder,” Skavlem said. “That is definitely a negative.”

Samskip knows its own forwarding subsidiary, Samskip Logistics, can be relied on to correctly relay its messages. Its in-house specialist is also well versed in the myriad cargoes that this niche northern European

multipurpose ship operator can carry, although Skavlem concedes that this diversity can present a challenge.

Its vessels can carry temperaturecontrolled cargoes – and moves a lot of fish on southbound routes. Northbound, the temperature control can be switched off to ship dry bulk cargo.

Then there are the project cargoes that can be carried, such as pipes and drilling equipment both up and down the Norwegian coast – Samskip’s ships have a lifting capacity of 80 tons and weather deck capacity of 1,560 square meters. Topping all this off are containers on the weather deck.

“There you have already touched three to four different segments,” Skavlem said. “In a market where you need to offer everything, it’s tricky to make sure that people are competent enough to sell it to the respective clients. To balance all the different segments, you need different types of people that will not make it too complicated.”

TOP: Samskip carries a range of cargoes on its MPVs. / CREDIT: SAMSKIP

www.breakbulk.com BREAKBULK MAGAZINE 47

RIGHT: Samskip’s Kvitnos is powered by LNG. CREDIT: SAMSKIP

CARVING A NICHE

Skavlem is unapologetic of Samskip’s comparatively niche offering.

The operator connects breakbulk and project cargoes from the full length of the Norwegian coast to the European continent. It even connects cargoes further to Murmansk, Russia.

A sector that shows particular promise for its fleet is the oil and gas sector. “Naturally, our segment is oil and gas, and I think oil and gas will always be an important segment in Norway,” he said. “We’ve got the knowledge and the infrastructure already in place for this sector.”

However, he acknowledges that while improving, the sector still has a way to go before it returns to its golden days. “Contracts are being handed out and activity has gone up the last two years. I hope it’s going to be even more going forward, but that’s too difficult to predict right now.”

In the meantime, Samskip is busy moving a glut of construction materials destined for the huge infrastructure projects going on, including for wind turbine parks and aquaculture.

The company prides itself in its local presence and “good dialog” with the local market, and hosts a salesforce in Europe and in Norway.

“Regardless of who is actually paying the freight we work together with clients to find a long-term solution,” Skavlem said. “We have shown several times in Samskip that we are more than willing to create business cases to meet their needs.”

He also points out that Norway’s rugged landscape is more suited to short-sea and coastal moves than it is to road or rail transportation, which can be hampered by size-restricted tunnels, extensive fjords and untamed mountains. “It’s not always possible to transport things by road, and that’s why we have these beautiful multipurpose ships.”

48 BREAKBULK MAGAZINE www.breakbulk.com

In terms of innovation, Samskip is the lead in an ambitious initiative to develop autonomous, zero-emission container ships. Dubbed Seashuttle, the project seeks to bring emissionfree, autonomous and, crucially, profitable container ships to market.

It’s an exciting development for the container sector, but not one that will be mirrored in the company’s breakbulk activities any time soon, Skavlem said. “An autonomous ship for breakbulk cargoes would be ground-

breaking, but that’s very tricky. Also, the fjords and the places we call with these vessels are very isolated, with variable tides, rough weather and wind, so I don’t think people would be comfortable trusting computers yet on that front.”

Carly Fields has reported on the shipping industry for the past 20 years, covering bunkers and broking and much in between.

GAS GAINS AND FLEET DRIVERS The incoming International Maritime Organization’s limit on sulfur content in marine fuel – entry into force is Jan. 1, 2020 – presents no challenge to Samskip.

When it acquired Nor Lines in 2017 it took on two liquefied natural gas-propelled multipurpose vessels.

Developed by Rolls-Royce, the ships do not need costly scrubbers to take pollutants out of high sulfur fuels. “So while everybody else is in dry dock, we are sailing,” Skavlem said. The ships were delivered in 2015, so they also have youth on their side.

But green credentials are not necessarily reflected in current freight rates, despite the very public furor about the need for green shipping.

And while the MPV fleet needs to be modernized, according to Skavlem,

there’s a lack of willing investors for ships that might need to be writtenoff within 10 years. “Who’s going to make those investments? They need to be reflected in the rates. That’s the challenge and it’s difficult to persuade the market.”

He adds that Samskip follows the cargo when it comes to its own fleet replacement and expansion: “If demand is there and there is a need for more ships we will not rule out new orders. It has been a very successful year and we’ve been very well received by the market. If it keeps developing this way, there might be a need for more ships in the future.

“Samskip always has a willingness to invest in good business cases, so do not rule out Samskip making more moves in the future,” Skavlem said. BB

ISSUE 4 / 2019

CASE STUDY

BY AMY MCLELLAN

TURBINE NICHE EXPLORED

Offshore Project Cements Taiwan’s Renewable Ambitions

T

wo years ago, two turbines with a combined capacity of 8 megawatts began operations some 3 kilometers off the coast of Miaoli, Taiwan. It was the first real test of the country’s offshore wind potential. The demonstration project, led by a subsidiary of leading manufacturer of corrosionresistant materials Swancor Holding, was clearly a success.

Today the Formosa 1 Offshore Wind Farm has moved into second phase, which involves the installation of 20 6-megawatt turbines to take total capacity of Taiwan’s first offshore commercial-scale windfarm to 128 megawatts. And while it is the first, it will certainly not be the last in a country that has ambitions to become an offshore wind center in the Asia-Pacific.

The Formosa 1 Offshore Wind project, which Swancor Renewables had been progressing since 2013, gained real traction in early 2017 when, with the test turbines being readied for commissioning, international partners came on board: Danish green energy giant Ørsted took 35 percent, Japanese energy group JERA 25 percent and investment bank Macquarie Capital 25 percent. Swancor

The monopiles needed to be transported with extreme care – like “eggshells, very heavy eggshells.”

CREDIT: JAN DE NUL GROUP

www.breakbulk.com BREAKBULK MAGAZINE 49

Foundation monopiles get ready to depart for Taichung.

CREDIT: JAN DE NUL GROUP

retained 15 percent. Tenders went out and experts in offshore wind construction and installation were hired, among them Spain’s Siemens Gamesa for the turbines and Luxembourgheadquartered engineering firm Jan de Nul Group, which secured the contract for design, procurement and installation of the wind turbine foundations in May 2018.

STARTING BLOCKS

The contract to build the 20 foundation monopiles was awarded to EEW SPC in Rostock, Germany, which began work in Autumn 2018.

This was the German company’s first offshore wind project in Asia, having secured the contract following its success working with Jan de Nul on 51 monopile foundations for the Nobelwind project in Belgium.

Then came the huge task of transporting the steel structures – which varied in size, with the heaviest weighing 1,250 tonnes – from fabrication yards in northern Europe to the Port of Taichung, Taiwan, the marshalling harbor for the project.

50 BREAKBULK MAGAZINE www.breakbulk.com

This is where Hamburg-based United Heavy Lift came in.

“We could see very quickly that utilizing the normal heavy-lift vessel as we would in northern Europe would not be economical so we came up with an innovative solution using our deck carrier,” said Andreas Rolner, United Heavy Lift managing director.

Despite the size and weight of the monopiles, they needed to be transported with extreme care – like “eggshells, very heavy eggshells,” according to Rolner. “Transportation can put a lot of fatigue on the monopiles, which is an issue because developers have to give guarantees on lifespans and it could cut the lifespan of such monopiles if, for example, accelerations are exceeded,” Rolner said. “We also had to give a lot of thought to deformation and all of this had to be considered when designing the cradles.”

United Heavy Lift spent a great deal of time on the engineering of the cradles to protect the precious cargo.

“Every cradle – and we built 80 of them – had wooden inlays for every

single monopile, which meant each one was unique,” Rolner said, admitting that the engineering involved was far greater than expected in the beginning.

“We did everything in-house and it took at least five to six months. It was a very unique project and we had to use two ships for the job.”

The transit went very well, he reported, and the German firm was impressed with operations on arrival at the Taichung, despite it being the first time the harbor had handled an offshore wind job. “Everything has been very well organized at Taichung, we had no issues and it has been much smoother than expected,” Rolner said.

This is echoed by Formosa 1 project EPC director, Ulrik Lange of Ørsted.

He said the partners had learned a lot from the demonstration project. “For Formosa 1 phase two, we already had experience of working with most of the suppliers before and therefore the process was quite smooth,” he said.

“Also the collaboration with Taichung harbor was positive. It had no previous experience of working with the ISSUE 4 / 2019

offshore wind industry, but took up the challenge and had a constructive approach in supporting the industry.

There were, of course, challenges and the harbor as well as the industry needed to find joint solutions.”

Among those challenges was delivering a project of this scale in a country with no track record of offshore wind.

In June 2019, the UK’s SMC, which established a branch in Taipei earlier in the year, was hired to deliver fullscope marine coordination services during the offshore construction phase, including cable, foundation and wind turbine generator installation.

AN EYE ON LOCAL CONTENT

Although many of the key contracts were held by European companies, the project partners, no doubt mindful of the need to build capacity ahead of Taiwan’s incoming local content requirements from 2021, were keen to involve the local supply chain wherever possible. This, of course, started with Taiwan’s Swancor, which supplied the resin used in the Siemens Gamesa turbines.

Andreas Nauen, Siemens Gamesa’s offshore CEO, said the company was proud to work with “industry pioneer” Swancor and to be “moving the Taiwanese offshore wind supply chain forward together.

“We’re furthermore looking forward to expanding our collaboration with Swancor in making Taiwan an offshore wind center in Asia-Pacific,” Nauen said.

The towers were supplied by CS Wind, a global supplier of wind turbine towers, which set up its Taiwanese factory in 2018 at the Port of Taichung, another signal of the expected growth in Taiwan’s wind capacity. The transition pieces were built outside Taiwan,

by Thailand’s CEUL Ltd., the company’s first offshore wind contract.

At the time of writing, the monopile foundations and transition pieces had arrived in Taichung and preparations were underway for installation, with Seaway Heavy Lifting’s Seaway Yudin heavy-lift crane ship installing the monopile foundations and UK-based Seajacks deploying its 10,000-tonne jack-up vessel Seajacks Zaratan to install the 6-megawatt wind turbines.

Niels Steenberg, Siemens Gamesa’s executive general manager, APAC, said the specialist Seajacks Zaratan would

The steel structures varied in size and weighed up to 1,250 tonnes. / CREDIT: JAN DE NUL GROUP

“relieve one of the bottlenecks for utility scale offshore wind in the region.”

This is important. It takes specialist vessels to handle these huge pieces of kit, which is why project developers have turned to foreign-flagged operators with the capacity and expertise to undertake lifting and installation projects of this scale. Yet in April 2019 it was reported that government agencies in Taiwan are considering making use of Taiwan-flagged vessels mandatory for certain offshore wind farm activities, a move that could threaten one of the more promising and open offshore wind markets in the region.

This comes just six months after the government lowered the price it will pay offshore wind groups for power by 5.7 percent, a less severe cut than some had feared but one which still had investors casting an anxious eye over margins at the start of this year.

GRAND IDEAS FOR FUTURE

Taiwan has big ambitions for offshore wind, with plans to build 5.5 gigawatts of offshore wind power by 2025 to switch from coal, cut import bills and lift the contribution of renewables to the country’s electricity generation to 20 percent, up from about 5 percent now.

Formosa will be the first, but it won’t be the largest; German company wpd has secured debt financing for its 640-megawatt Yunlin wind farm, which will lie 8 kilometers offshore and comprise of 80 8-megawatt turbines, with offshore construction set

to start in March 2020 while Ørsted is developing the 900-megawatt Changua County project, which will generate enough power to supply the equivalent of 1 million Taiwanese households and will be under construction through 2021-2022.

A number of contractors hope Formosa will be a stepping-stone to further contract wins in Taiwan and the wider offshore wind sector. “We see offshore wind as a real growth area for us,” United’s Rolner said. “We learned a lot from this project, which will stand us in good stead as we see that turbines are only growing in size, which means the foundations are getting bigger too. At some point normal heavy-lift vessels won’t manage and all of these projects will need deck carriers or semi-submersibles – we’ve already got experience of doing this successfully.” Ørsted’s Lange is certainly positive about the future of this industry in Taiwan. “Energy transition is an important part of the energy policy from the Taiwan government for creating a low-carbon, sustainable, stable, high quality and economically-efficient energy system,” he said. “This policy created the opportunity for offshore wind to grow, and we are glad we can be part in being the first to contribute to this goal.” 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.

www.breakbulk.com BREAKBULK MAGAZINE 51

HEARD AT BREAKBULK EUROPE

Economist Predicts Stable Outlook Global Growth Seen as Slowing But Healthy

BY CARLY FIELDS

S&P Global Ratings’ Senior Economist Boris Glass opened Breakbulk Europe 2019’s conference program with an upbeat assertion that economic expansion “doesn’t just die of old age.”

Dismissing naysayers that claim an economic expansion has a limited shelf life, Glass said he did not see evidence of the usual triggers for a global recession.

“We don’t see oil prices getting to a threshold that will be critical for global growth and from a macro perspective, IMO 2020 will not have a significant effect,” Glass said of the International Maritime Organization’s pending Jan. 1, 2020 deadline for high-sulfur fuel for vessels. Addition-

ally, “the share price decline of last year was ‘just’ a scare and broadly they have recovered.”

However, he did concede that there was one risk that might upset his stable outlook. “The U.S. credit cycle could turn, which would be an abrupt change in access to credit for businesses.” This presents a significant risk to growth, he said.

Overall, S&P Global Ratings believes that global growth going forward will be slower, but a little bit healthier. Slower because Europe had a bad starting point last year, any boost from the U.S. stimulus is subsiding, the global growth cycle has matured in the U.S. and Chinese growth is expected to stabilize at a lower level. On the “healthier” side, Glass saw gradual deleveraging of

China, domestic demand driving growth in key economies, strong labor markets in Europe, and central banks maintaining lower rates for longer.

S&P Global Ratings forecasts GDP growth at 3.4 percent for 2019 and 3.6 percent for 2020, describing this as a “moderate recovery.”

However, Glass added: “Global trade doesn’t look too good generally and developing markets are not doing so well in manufacturing, which impacts imports and exports.”

He expected trade to pick up in the second half of this year, as the European car industry gets back up to speed and manufacturing recovers. However, U.S. President Donald Trump’s new additional 15 percent tariffs against China “will limit this recovery.” BB

Startups Within Breakbulk’s Reach Solutions Sought for Growing Industry Talent Gap

theDOCK’s Nir Gartzman challenges the breakbulk sector to be part of startup projects.

CREDIT: ITE GROUP

52 BREAKBULK MAGAZINE www.breakbulk.com

Startup accelerator theDOCK has thrown out a challenge to breakbulk and project cargo companies: send in your business challenge and they will find the appropriate startup solution.

Founder and COO Nir Gartzman told Breakbulk Europe delegates that Israel, where theDOCK is based, is home to the largest number of startup companies in the world, and that its “enablement platform” can expediate the market readiness of startups in this sector.

While he conceded that much of the startup technology currently available focuses on containers and automated features of terminals, Gartzman saw the “next blue ocean

of opportunity” in breakbulk.

“I am looking to understand your customers’ needs. This is where we see opportunity,” he said. “I promise you that if you present the challenges in front of the right people you will get out-of-the-box thinking.” theDock is looking to invest in startups that will change the business paradigm for breakbulk, he added.

“Instead of being disrupted from the outside we invite you to be part of our project,” Gartzman said.

Andrea Frahm, managing partner of Israel-based TechMatch said there was a “no-fail attitude” in Israel.

“It’s a whole different mindset,” she added. BB

ISSUE 4 / 2019

Johan-Paul Verschuure. / CREDIT: ITE GROUP

Wind and Infrastructure Hope Time Has Come for Projects Investment

BY CARLY FIELDS

Delayed investment in infrastructure and wind turbine replacement offer two bright spots on the horizon for project cargo and breakbulk movers, an audience at Breakbulk Europe was told.

Johan-Paul Verschuure, technical director with the maritime team of consultant WSP, said in a keynote speech that lagging infrastructure development in Europe will soon face a turning point where investment can be put off no longer.

“Over the last 10 years the easiest thing to save money on has been infrastructure, but at some point, something will need to be done,” he said.

On renewables, Verschuure pointed out that the lifespan of installed wind turbines was initially pegged at 20-25 years. However, there are increasing concerns on whether all will reach that milestone. Therefore, replacement business could come sooner than anticipated.

“Knowledge of the considered lifetimes of the wind turbines in your area is really important,” he advised.

More generally, Verschuure said the sector appeared fairly stable, in spite of attempts to knock it off kilter. Specifically, he said that WSP’s research had revealed that U.S. tariffs imposed on steel had not yet had the desired effect.

“The only region where we have

seen a trend of imports declining – as President Trump intended – is the Far East, excluding China.” He conceded that for trade overall, tariffs are a “definite risk,” however steel trends cannot be quickly influenced by “slapping on a tariff.”

“We have to remember that there is a lot of trade with different regions and that shifting trade brings opportunities,” Verschuure said. “The longer the dispute goes on the more this effect will trickle down.

Verschuure also told attendees to expect more consolidation in the breakbulk fleet in the near future.

“There is a need for shipping lines to tie up and have more economies of scale in their networks,” he concluded. BB www.breakbulk.com BREAKBULK MAGAZINE 53

HEARD AT BREAKBULK EUROPE

Breakbulk stakeholders can embrace digitalization at a basic level. / CREDIT: ITE GROUP

Baby Steps with Digital Innovation ‘There Must Be a Rethink in the Industry’

BY CARLY FIELDS

Forget the big-ticket items, digitalization can bring benefits to the project cargo market at a very basic level, according to Patric Drewes, managing owner of LP Belgium & LP Projects Germany.

Criticizing the mass of Excel spreadsheets that are still being used every day by companies in the sector, Drewes told a Breakbulk Europe Tech and Innovation Hub audience that there are many tools already out there that can be used to “add value and make our life easier.”

He pointed up the inability for many operators to get even the basics right and an ever-shortening timespan to respond to tenders. This latter point, he said, was making effective risk assessment almost impossible.

“There must be a rethink in the industry,” he said. “We all need to 54 BREAKBULK MAGAZINE www.breakbulk.com

speak with customers about it if we want to do something right.”

Drewes added that the way some players quote on projects has to change: “It’s a charterers’ market at the moment, but the market will recover and I’m sure some forwarders will suffer then.”

He explained that freight rates have become unsustainable and that only when margins become fair again on all sides will the industry recover properly.

“It is not comfortable to work in an industry where so many companies are near bankrupt. Do you want to work with carriers in this situation?” he asked.

Fellow panelists Christoph Homeier, manager innovation and digital transformation at BLG Logistics Group, and Sven Hermann, managing director of ProLog Innovation, said it was important to find the right

partners for innovation and that larger companies with a bigger data set to call on have an advantage over smaller companies when introducing modern data analysis techniques.

However, Encoway Data Scientist Alexey Fofonov added that the potential for technological development can only be ascertained on a case-by-case basis.

“Artificial Intelligence today is still a data-driven decision-making process,” he said. “In order to make data useful it has to contain useful information.

First, you have to have a strategy and an idea of what you want to do with data. Most companies have a lot of opportunities to collect, store, and maintain data properly, but they don’t.

“Where solutions are known, we can introduce modern data analysis and AI, but first we have to have the data. We have to ask people if they are ready for this,” Fofonov said. BB

ISSUE 4 / 2019

Still Time to Catch Tech Train Opportunities for Forwarders Who Keep Pace

BY CARLY FIELDS

Technology is an opportunity and a tool that project cargo freight forwarders can and should harness, according to a panel at Breakbulk Europe.

And it’s not too late to take advantage of the benefits technology offers, as long as forwarders are open-minded and “ready for a rethink of process,” said Kaleido Logistics CEO Xoan Martinez.

“Saying that you will die if you are not already working with artificial intelligence is not true,” he said. “We

must try, try, try. The point is to learn and be ready.”

Fellow panelist Stefano Repetto, head of projects at Fracht Italia, pointed out opportunities for the project cargo business if project forwarders keep pace with technological advances.

“In the future, I see a discrepancy between project cargo work with dedicated personnel focused on the job and the general cargo market with non-specialized individuals. This is a big opportunity for the market.”

During a discussion on the uniqueness of a Dutch online bid for

a recent project, Leif Arne Strommen, vice president of innovation at G2 Ocean, suggested that AI be introduced for pricing of projects, taking the human out of the equation.

He added that blockchain could be useful for charter party agreements, despite a lack of standards between engineering, procurement and construction companies. He also questioned why there is still a need for invoicing for projects. “We should just be paid when the project has been completed,” he said. “We as an industry need to challenge our customers, come up with new ideas.” BB

Cyber Risks Real and Here Now Industry Lags in Applying Adequate Protections

Shipping and logistics are now direct targets for cyber criminals, yet the industry is still dragging its heels on applying adequate cyber protection.

That was the stark message from a digital risk session at Breakbulk Europe, where panelists agreed that the industry needs to “tighten its belt.”

Addressing the audience, Capt.

Rahul Khanna, global head of marine risk consulting at Allianz Global Corporate & Specialty, criticized the industry for reacting too late to risks. He conceded that awareness of cyber risks is growing but so is the threat.

“It’s only a matter of time before something serious happens,” he said.

“The risk is there and industry understands that, but cost is the biggest barrier.”

While some stakeholders still see cyber security as money down the drain if they never have an attack,

Khanna pointed out that if protection seems expensive, operators should try totaling the costs related to an attack.

He added that the industry also needs to worry more about what third-party suppliers are doing on a cyber front and pointed out that cyber concerns are no longer solely an IT problem. “This is much bigger and the commitment has to come right from the top for resources and direction,” he said.

Khanna recommended a fourprong approach to assessing risks.

First, look inside at vulnerabilities. Second, develop plans to address those vulnerabilities. Third, put those plans in place and monitor them. Fourth, have a contingency plan.

“The best place to start is to get an independent consultant to stress test your systems,” he said.

The panel also discussed a lack of accurate reporting of cyberattacks.

This needs to change for the greater good, they agreed.

“The whole risk management process is learning from mistakes,” Khanna said. “This can only happen if you share information. This will go a long way in preparing those who haven’t had an attack.

“This is new to us all. Industry needs to come together and share info on a common platform. Cyber knows no boundaries. The threat is out there and the more we go down the connected route the more the threats will escalate.”

Khanna also acknowledged the “silent cyber exposure” keeping insurers awake at night. He explained that there is ambiguity in insurance policies that were not built with cyber risks in mind.

“We could be sitting on a huge amount of exposure, hundreds of millions of dollars,” he warned. BB www.breakbulk.com BREAKBULK MAGAZINE 55

HEARD AT BREAKBULK EUROPE

TSL Shipping & Trading’s Jessica Lakmann sees mentoring as a step where “we need to take action now.”. / CREDIT: ITE GROUP

New Tools Needed to Attract Next Gen Solutions Sought for Growing Industry Talent Gap

BY CARLY FIELDS

Smarter working hours, mentoring, compensation for intensive work periods and better links with academia – all these were offered up as solutions to the growing talent gap in the project cargo industry by a panel at Breakbulk Europe.

AAL General Manager Felix Schoeller blamed a fundamental lack of visibility of the shipping and logistics sector for the dearth of young people coming into the industry, adding that 10 “terrible years” have made the sector even less attractive as a career choice.

Schoeller stressed that the industry needs to be clear on its value proposition to improve its appeal.

56 BREAKBULK MAGAZINE www.breakbulk.com

Part of the problem is reaching out to a new audience, the panel agreed.

Sari Safianti, managing director of

Rhenus Project Logistics Indonesia, said that the industry is evolving and must use the right tools to reach this new audience. “Make use of social media, be there and show them what we are doing – millennials have big ambitions and dreams,” she said.

“Tell them we have an international network and trust them.”

Christoph Hilgers, head of global projects at Germany DB Schenker, talked up the link with academia. “I think it has been proven successfully in the past that cooperation between business and academia works,” he said, adding that project cargo companies need to work that much harder to keep young and promising talent today. In this respect, he suggested greater interchanges of

ISSUE 4 / 2019

staff between companies so that new employees get a more rounded view of what it is to work in this business.

“I think this would be a great opportunity to make the next generation and talent see what it is to be part of our industry,” agreed Schoeller. AAL encourages its trainees to spend time on its multipurpose ships so that they can understand projects from a different viewpoint. “When young talent comes in, even in difficult times, we need to give them the opportunity to see what shipping and logistics are all about.”

Hilgers said that the industry also needs to develop smart systems to compensate periods of intensive working with periods of less intensive

working. “This requires flexibility from both sides,” he said.

Moderator Tina Benjamin-Lea, logistics manager at SNC-Lavalin, posed the question of what can be offered to make 40 working hours more palatable. “It’s about finding a compromise,” she said.

There was agreement on the need to reach out to potential recruits through different routes too. “We have to be more outgoing as companies, attend universities and careers fairs. We have to look at how we talk to them,” said Jessica Lakmann, head of MENA at TSL Shipping & Trading.

Lakmann also acknowledged the importance of stepping up to give knowledge to the next generation: “Mentoring is one of the most impor-

tant steps where we need to take action now,” she said.

Giving a working example of the benefits of a rethink on pitching a project cargo career to the next generation, Steve Thornley, director of Malin Group, explained how his company had turned tradition on its head. “We had an old stuffy shipping office and we bought a new office and asked staff what they wanted to see. Now we have a climbing wall, table tennis and communal dining,” he said. “One rule was that we must eat together – no desk dining.”

Malin also offers a nine-day working week over a two-week period and core working hours of 10 a.m.-4 p.m. to deliver more flexibility to Millennials and Generation Z workers. BB

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BACK PAGE

TOP STEELMAKERS 2018 LEADING GLOBAL STEELMAKING COMPANIES

The top three Chinese companies accounted for 11.8 percent of global steel production (in million tonnes).

Rank Company

1 ArcelorMittal

Tonnage

96.4

Rank Company

14

Valin Group

Tonnage

Rank Company

23.0

27

Baotou Steel

Tonnage

15.3

Rank Company

40

Jinxi Steel

Tonnage

10.3

2

China Baowu Group 67.4

15

Hyundai Steel

21.9

28

Rizhao Steel

15.0

41

Nanjing Steel

3

Nippon Steel Corp. (1) 49.2

16

Maanshan Steel

19.6

29

Liuzhou Steel

13.5

42

Matinvest Holding

9.4

4

HBIS Group (2) 46.8

17 NLMK

17.4

30 EVRAZ

13.0

43

Xinyu Steel

9.4

16.8

31 MMK

12.7

44

Tsingshan Stainless Steel 9.3

JSW Steel

10.1

5 POSCO

42.9

18

6

Shagang Group

40.7

19 IMIDRO 16.8

32 thyssenkrupp

12.6

45

Erdemir Group

9.1

7

Ansteel Group

37.4

20 SAIL

15.9

33

CITIC Pacific

12.6

46

Steel Dynamics Inc.

8.9

8

JFE Steel Corp.

29.2

21

Benxi Steel

15.9

34 Severstal

12.0

47

Zenith Steel

8.7

9

Jianlong Group

27.9

22

China Steel Corp.

15.9

35

Sanming Steel

11.7

48 SSAB

8.0

10

Shougang Group

27.3

23 Gerdau

15.8

36

Shaanxi Steel

11.4

49

Tianjin Steel

7.8

11

Tata Steel Group (3) 27.3

24

Fangda Steel

15.5

37

Jingye Steel

11.3

50

Donghai Special Steel 7.6

12

Nucor Corp.

25.5

25

Techint Group (5) 15.4

38

Anyang Steel

11.3

13

Shandong Steel Group 23.2

26

U.S. Steel Corp.

39

Taiyuan Steel

10.7

(4)

15.4

1) Formerly named Nippon Steel and Sumitomo Metal Corp. (NSSMC). Tonnage includes that of Nippon Steel Nisshin Co. Ltd., Nippon Steel Stainless Steel Corp., Ovako Group and part of USIMINAS (31.45 percent voting shares). (2) Includes tonnage of Serbia Iron & Steel d.o.o.

Beograd and MAKSTIL A.D. in Macedonia Ltd. (3) Includes tonnage of Bhushan Steel. (4) Combined tonnage of Mobarrakeh Steel, Esfahan Steel, Khuzestan Steel and NISCO. (5) Includes part of USIMINAS tonnage (39.6% voting shares).

For an extended company listing go to www.worldsteel.org/steel-by-topic/statistics/top-producers.

Source: World Steel Association, World Steel in Figures, www.worldsteel.org/.

LEADING COUNTRIES FOR CRUDE STEEL PRODUCTION

Leading producer China, with a 6.6 percent volume increase, continued to account for 51 percent of global steelmaking tonnage.

Rank Company

Tonnage

1 China

928.3

Rank Company

14 Mexico

Tonnage

20.2

27 Indonesia*

Rank Company

Tonnage

5.5

Rank Company

40 Qatar

Tonnage

2.6

2 India

106.5

15 France

15.4

28

Saudi Arabia

5.2

41 Belarus*

2.5

3 Japan

104.3

16 Spain

14.3

29

Slovak Republic*

5.2

42 Luxembourg

2.2

4

United States

86.6

17 Vietnam

14.1

30 Argentina

5.2

43 Portugal

2.2

5

South Korea

72.5

18 Canada*

12.9

31

4.9

44 Oman*

2.0

6 Russia

71.7

19 Poland

10.2

32 Pakistan

4.7

45 Algeria*

2.0

7 Germany

42.4

20 Belgium

8.0

33 Sweden

4.7

46 Hungary

2.0

8 Turkey

37.3

21 Egypt

7.8

34 Kazakhstan*

4.6

47 Serbia

2.0

9 Brazil

34.9

22

7.3

35 Thailand

4.3

48 Switzerland*

1.5

10 Italy

24.5

23 Austria

6.9

36 Finland

4.1

49 Philippines*

1.5

11 Iran

24.5

24 Netherlands

6.8

37 Romania

3.5

50 Greece

1.5

12

23.2

25

South Africa

6.3

38 Malaysia*

3.5

Others

14.0

21.1

26 Australia

5.7

39

United Arab Emirates 3.2

World

1808.4

Taiwan, China

13 Ukraine

United Kingdom

Czech Republic

*Estimate

Source: World Steel Association, World Steel in Figures, www.worldsteel.org/.

58 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 4 / 2019

Green Power for 136,000 Homes AAL shipped a record-breaking 45 units of Australia’s longest-ever wind blades (63m each) on a single sailing for the 200MW Silverton Windfarm in New South Wales. The farm will produce 780,000MWh of clean energy and reduce CO2 by 655,000 tonnes every year.

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