Breakbulk Magazine Issue 2 2020

Issue 2 / 2020

The Publication for the Industrial Project Supply Chain Industry

GOODBYE TO RISK?

Lump Sum Contracts Losing Devotees

AN AIRBORNE ARK

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STRUCTURE LOAD UTOPIA

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EASTERN AIRSTREAM

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IN THIS ISSUE

12

20

Cover Story

32

12 GOODBYE TO RISK? Lump Sum Contracts Losing Devotees

16 ENVIRONMENT

36 TECHNOLOGY

Mixed Messages of Carbon Emission Calculators

Infrastructure Sensors Hold Promise for Heavy Hauls

VOICE OF TRUTH

20 EMERGING MARKETS

AN AIRBORNE ARK

Animals: The Ultimate Project Cargo

26 EXECUTIVE SUMMARY BELEAGUERED BALANCE SHEET

A Dissection of McDermott International’s Restructuring

28 ENERGY UPDATE

EASTERN AIRSTREAM 04 EDITORIAL 06 C ONVERSATION 48 FROM BREAKBULK.COM 54 BACK PAGE

Asia Prepares for Exponential Offshore Wind Growth

32 INTERMEDIARIES

STRUCTURE LOAD UTOPIA

40 REGIONAL REVIEW

SOFT REVOLUTION IN THE ANDES

Political Upheaval Spells Uncertainty for Industrialization

44 INSURANCE

TAKING BACK CONTROL Getting to the Root of Breakbulk Cargo Claims

52 INSURANCE

HIDDEN EXPOSURE Worrying Lack of Coverage for Cyber Risks

FORWARDING CORRAL

DSV’s Panalpina Takeover Precursor to More Acquisitions?

www.breakbulk.com BREAKBULK MAGAZINE 3

EDITORIAL

ISOLATIONISM NOT THE REMEDY Chinese President Xi Jinping’s envisioned “Chinese Century” has struggled in recent months.

Despite its aggressive international reach through the Belt and Road Initiative, and redoubled efforts to emphasize its domestic market, the world’s second-largest economy by nominal GDP was already facing its slowest growth in nearly Gary Burrows three decades, a brutal trade war with the No. 1 economy, the U.S., and flagging consumer and business confidence.

Now comes the novel coronavirus, or Covid-19, as it has been labeled by the World Health Organization, or WHO. While it has been said that when China sneezes, the world catches a cold, the virus’ global impact became more apparent as the country raced to bring it in check and avoid it turning into a global pandemic.

At the time of writing, tens of thousands had been diagnosed with Covid-19 and more than 1,000 deaths had been reported, predominantly in Hubei and the city of Wuhan, China’s key oil and gas hub and a major manufacturing base.

(Due to restrictions in travel, Breakbulk Asia’s organizers decided to postpone the event, originally schedule for March 18-19, to a later date in 2020.)

Officials and media have been using the severe acute respiratory syndrome, or SARS, outbreak of 2003 in China as a measuring stick by which to compare Covid-19. By all measures, the latest virus has surpassed SARS’s destructive force – both in human and economic measures.

Until more is known about the impact of China’s unprecedented transportation blockade and quarantine around Hubei province, a region of about 60 million people, and experts are 4 BREAKBULK MAGAZINE www.breakbulk.com

able to better understand the disease and how to combat it, estimating Covid-19’s full impact is a fool’s errand.

Already economists are revising downward expectations for Chinese growth by as much as a percentage point, to an average of about 4.9 percent, compared with original forecasts of 6.1 percent for the year. The world’s biggest oil importer, China’s sagging demand has led to a double-digit dip in crude oil prices, forcing the Organization of Petroleum Exporting Countries to call an emergency meeting.

The SARS epidemic caused US$40 billion in lost productivity in 2003, according to WHO. The 2009 H1N1 swine flu pandemic’s impact was measured at US$55 billion, both of which involved China. An Ebola outbreak in West Africa from 2014 to 2016 had an economic and social impact of US$53 billion.

Much has changed in the 17 years since SARS. For starters, China’s economy was the sixth-largest vs. the second today, and its impact on global GDP was less than half the value it is today, according to the International Monetary Fund.

International disasters like floods in Thailand and the earthquake and nuclear disaster in Fukushima, Japan, both in 2011, had significant impacts on the supply chain which were slow to recover.

Given the global impact of the Covid19 virus, while China is the epicenter, it’s obvious that this is a global issue. Many countries are already dealing with the impact of another epidemic, one of protectionism.

World leaders have credited China for its dramatic approach to fighting the disease. While a veil of mistrust remains, it behooves China to invite and coordinate on a global basis to get the virus under control. It also is incumbent upon other global leaders and trade adversaries to provide open channels and needed assistance.

While quarantine is a tried-and-true means to combat contagion, isolationism is not.

EDITORIAL DIRECTOR Gary G. Burrows / +1 904 535 5460 gary.burrows@hyve.group NEWS EDITOR Carly Fields carly.fields@hyve.group DESIGNER Mark Clubb REPORTERS Helen Campbell Felicity Landon Amy McLellan Lori Musser Simon West David Whitehouse

BREAKBULK EDITORIAL BOARD John Amos Amos Logistics

Ed Bastian

BBC Chartering

Murray Cooper

LV Shipping Group of Cos.

Dennis Devlin Maersk

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@hyve.group ACCOUNT MANAGER Robert Janusauskas / +66 62 804 6746 robert.janusauskas@hyve.group SUBSCRIPTIONS To subscribe, email gary.burrows@hyve.group, or call from inside the U.S. +1 904 535 5460 between 8:00 am and 5:00 pm EST. A publication of Hyve Group plc.

The Studios, 2 Kingdom Street Paddington, London W2 6JG, UK

ISSUE 2 / 2020

RoRo by WW Ocean -The safer, smarter way for your breakbulk

Find out more at walleniuswilhelmsen.com

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

REALITY OF IMO 2020 – DAMP SQUIB OR REVOLUTION? As the clock ticked over into the new decade, the much-discussed and long-awaited International Maritime Organization regulations on sulfur content limits in marine fuels finally kicked in.

Today, the heavy-lift and multipurpose fleet must burn fuel with a sulfur content no greater than 0.50 percent mass by mass in global waters not already subject to the 0.10 percent m/m limit in emission control areas.

In the lead-up to the deadline, low-sulfur fuel oil sales rocketed as shipowners prepared for this landmark change. Preliminary estimates from The Maritime and Port Authority of Singapore and cited by shipping organization BIMCO indicated that sales of low-sulfur fuels in the bunkering hub, including low-sulfur fuel oil and low-sulfur marine gasoil, rose by 51 percent month-onmonth in December 2019 to 3.13 million tonnes, compared with the 1.27 million tonnes of high-sulfur fuel oil sold in the same month.

In a comment in January, BIMCO Chief Shipping Analyst Peter Sand said: “The shipping industry has been riddled with market uncertainty in recent months, but the bunker sales in the port of Singapore provide one of the first readings as to how the industry has transitioned into compliance with the IMO 2020 regulation. We have now surpassed the first wave of IMO 2020

and hopefully the accompanying market uncertainty will diminish as we proceed into 2020.”

At the start of 2019, low-sulfur fuel sales accounted for just 8 percent of total sales compared with a jump to 70 percent in December.

“The shift in bunker sales underlines the massive transition that the shipping industry has been faced with at the turn

of the decade,” Sand said. “Almost from one day to another, IMO 2020 has resulted in a massive increase in bunkering costs for shipowners and operators, costs which for many companies cannot be sustained for a prolonged period.”

Breakbulk asked key players how the changeover has gone and whether the fuel concerns of 2019 have proven true in 2020.

Murray Cooper Director Corporate Governance LV Global “Our exposure has been focused on the implementation of the BAF (bunker adjustment factor) surcharges imposed by shipping lines, which vary from between +40 percent to +15 percent on the same port-port trade lane.

“In some instances, shippers are

being exposed to the challenge of selecting the most competitive BAF option on alliance vessels where the shipping line partners have published different rates for containers loaded on the same vessel/voyage.

“Shippers are having difficulty quantifying the overall cost impact of the IMO 2020 regulation on the products they are trading.

“It’s interesting to note that the

offshore oil and gas workboat fleet has been dealing with the challenges of variable bunker fuel sulfur content regulations by region for a number of years. However the commercial shipping industry is facing new challenges.

“IATA publishes monthly fuel surcharge and security surcharge rates – a baseline/standard for all airlines – for each major region; the IMO should consider offering a similar service.”

6 BREAKBULK MAGAZINE www.breakbulk.com

The new year heralded dramatic changes to fuel oil specification. / CREDIT: IMO.

ISSUE 2 / 2020

Roger Strevens Vice President, Global Sustainability Wallenius Wilhelmsen “The maxim, ‘the more you prepare the luckier you get’ has held true. As a liner operator we know where our vessels will be long in advance, which allows us to plan our bunkering in advance too. That in turn enables us to consolidate our bunkering, which when combined with the fact that we buy fuel for a fairly large fleet means that we’re in a somewhat stronger and more predictable situation than many, particularly smaller tramp operators.

“To sound a note of caution though, one of the big uncertainties of the IMO 2020 sulfur transition, compatibility, still lies ahead. It will not be until carriers start bunkering very-low-sulfur fuel oil for the second time, that the scale of that challenge will be known.

“It is also too early to understand the character of enforcement on a global basis. The Trident Alliance, a group of shipping companies that are campaigning for full and effective enforcement of sulfur regulations, is paying close attention to that issue.

“We have taken a very proactive approach to our bunkering and that has served us well. However, just because Jan. 1, 2020 has come and gone does not mean that we’re back to plain sailing. The fuel markets are still volatile, price differentials have not settled and nor has a new equilibrium been struck between supply and demand. On the technical side (and as mentioned above) the magnitude of the compatibility issue is not clear either. For all of these reasons we will maintain our highly vigilant and proactive approach.”

Albert Pegg Managing Director Atlas Breakbulk Alliance “Having previously worked for a major shipping line I’m convinced that the bunker adjustment factor will be effective in this new environment.

Shippers will need to choose carriers or operators that have done the necessary with regards to choosing bona fide bunker suppliers and can prove they have a ship implementation plan for IMO 2020 in place.”

Hansje Dahmen-Verkade Corporate Communications Spliethoff Group “Up to this moment we have not encountered any issues with the fuels. But we are not even one month into 2020, so it is too early to draw final conclusions “Our main concern on low-sulfur fuels is the compatibility of different blends, the compatibility of different viscosities and the effects of the use of lower viscosity fuel.

“Also the costs of being compliant, either via investment in an exhaust gas cleaning system or by using compliant fuel, cannot be borne by the carrier and should be accounted for in the project or shipment contracts.”

William Moyersoen CEO ArcelorMittal Logistics Belgium “So far the new IMO 2020 rules have not created any changes in our operations. Obviously existing bunker clauses in our agreements with carriers have been updated taking into consideration the new situation. In many cases these new bunker clauses were already in place in the fourth quarter of 2019.

“The future will bring us to have a closer look to CO 2 emission and the reduction thereof.

ArcelorMittal has announced it will reduce drastically its CO2 footprint, including on the production of steel itself.”

Stack fumes – a sight of the past? / CREDIT: SHUTTERSTOCK.

www.breakbulk.com BREAKBULK MAGAZINE 7

CONVERSATION

Cyril Joseph Varghese Global Logistics Director – Strategy & Commercial Fluor “Many shippers have made provisions for freight increases for projects going into 2020, but there are also a great number of shippers and freight forwarders who have remained ignorant about the upcoming disruptions. It is too early to assess the full commercial impact of the regulations, as it takes time for the market to react to changes.

“I am interested to see how the pricing of compliant fuel fluctuates over the year and how the availability of fuel in required

Ulrich Ulrichs CEO BBC Chartering “We have had no major concerns with regards to the sourcing and use of very low sulfur fuel oil, but the operations and chartering departments need to continue to carefully plan the voyages and check availability of fuels where and when required.

“We are very concerned, however, about the spot market. The tremendous extra costs (early January very-low-sulfur fuel oil prices were almost double high-sulfur fuel oil prices, and early February they were about 40 percent to 50 percent higher) are not being accepted by the market or all clients yet. However, the industry has no choice but to pass on those costs to the shippers as otherwise the number of players in the market or service levels will be reduced. BBC has no choice but to say no to certain cargoes that are not able or willing to bear the extra costs carriers are facing.”

8 BREAKBULK MAGAZINE www.breakbulk.com

Marco Poisler Executive Vice President UTC Overseas “We are not aware of any major issues to date in terms of supply.

The industry anticipated that there would be initial shortages, and that the required fuel would not be available in all locations when needed.

There is per all studies done sufficient refinement capacity, but it will be some time before the supply requirements are fully understood, and until then it is inevitable there will be some supply issues, and of course considerable pricing volatility.

“The more difficult part of the question concerns the use of lowsulfur fuels. From the outset we were fully supportive of the switch.

However, there are several aspects attached to the switch. Shipowners were faced with several choices: convert to the new fuel; install scrubbers that allow use of less prescriptive fuels; or scrap vessels as any conversion costs relative to age and other parameters do not justify conversion. Each of these choices has several implications and all come at a cost. The carriers justifiably feel entitled to redeem these costs from their user base. Whether they will or won’t is debatable, and only time will tell whether they redeem all costs or actually make a margin on them.

But this is not a healthy industry and it’s a further threat to their viability.

There are subtle, less understood

commercial quantities at most of the bunkering gateways eventually materializes.

We are very keen to understand with carriers how the pricing is impacting operating costs and how much they are able to recover from the market.

“For both existing and planned projects, we have made significant efforts to segregate the fuel component from total shipping costs by trade lane, and have made provisions for additional freight based on projected average bunker cost assumptions. We are now in the stage of reviewing proposed changes from the carriers and closely monitoring market freight developments.” factors such as banks increasingly less likely to loan to the industry, all of which add to a clouded longerterm picture.

“Project owners look for certainty in pricing for extended periods to cover their projects. In terms of the transport aspect of these, floating bunker clauses have always been a contentious issue. The added specter of uncertainty the new fuels standards have bought in has been another point of debate.

“Our biggest concern regarding the new fuel standards and their impact on project contracting is the yet-to-be-determined impact on the specialist vessel sector of the market. Many of these vessels are aging, and the conversion cost to handle new fuels may justify accelerated and possibly premature scrapping.

This could create a shortage of tonnage and not only cause a spike in rates, but may actually delay project execution.” BB

ISSUE 2 / 2020

CONVERSATION

Be in the Moment

Concentration is an Undervalued Virtue

BY MARGARET VAUGHAN

will also learn much from what they aren’t saying through their body language. There is much to be learned from the unspoken and the speaker’s physical presentation. Are their arms folded and legs crossed? This indicates that the speaker is closed to the discussion.

Are they making eye contact? Are their eyes shifting to the left (lying or inventing) or are they shifting to the right (recalling). If we’re so intent on trying to be smarter, more insightful, more intuitive than the person with whom we are speaking, it means we are focusing on ourselves and not on them, so we miss important parts of the discussion. We are not really listening.

The Greek philosopher Epictetus said: “We have two ears and one mouth so that we can listen twice as much as we speak.”

With some people this lack of focus shows in their anticipating what the speaker is going to say and finishing their sentences for them rather than waiting for them to complete their thoughts. This is both disrespectful and invariably wrong. You are not a mind-reader so you have no idea what the speaker is going to say. It also tends to annoy the other person which is not really the object of discussion and it puts up barriers.

So be in the moment; focus, concentrate, listen with your ears and your eyes … and don’t piss me off. For the record, my father was a court reporter. 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.

10 BREAKBULK MAGAZINE

www.breakbulk.com

ISSUE 2 / 2020

CREDIT: SHUTTERSTOCK

I

f you’ve ever been in a courtroom or watched a courtroom drama on TV or in the movies, you will have seen one member of the court whose job it is to capture everything spoken and transcribe it into written form in order to produce the official transcripts of the proceedings. This is the court reporter or stenographer.

One of the most important qualifications for this position is the ability to listen, to focus completely on what is being said, to concentrate only on the immediate proceedings: to be in the now. This is harder than it would seem. How many of us have been in meetings where our minds start to wander, where we get side-tracked and start thinking tangentially, where we jump ahead or behind or alongside the topic that is being discussed, where we miss important information because we lost focus on what was being said at that moment? How many people took meeting notes that were incomplete? I know from personal experience that I’ve missed whole sections of meetings because I was thinking of other things that, while they may have been important, were not necessarily germane to the subject at hand. I was not focused on the now. And hopefully I was not the one taking the official meeting minutes.

When you give yourself over to listening, completely and wholly, when you focus on the speaker, completely and wholly, you will not only hear all of what they have to say, you

Need for Logistics Evaluation Performance Management Should Not Be Left to Chance

“Y

ou cannot improve what you are not measuring” and “what gets measured gets done” are just two of several mantras heard in the performance management arena. In the recent past, companies have placed limited focus on logistics – especially in ‘traditional’ industries such as oil and gas, mining, and power and renewables.

But the growing complexity of global supply chains, the rising overall total logistics costs and the need to swiftly adapt to customer, economic or technology-based changes has called for increased visibility of the performance of logistics across the entire supply chain, to allow for analysis and optimization.

There is now a recognized need to move toward a sustainable continuous improvement mindset of logistics operations. Therefore, organizations need to develop, review or realign their logistics performance management framework, or PMF. Companies which have in place a fitfor-purpose logistics PMF can benefit from improvements in costs, services delivery and health, safety, security and environment, or HSSE, practices. Having visibility of logistics performances allows companies to preempt emerging issues and create appropriate corrective actions. Analysis of PMF results allows companies to identify key improvement areas and develop relevant optimization initiatives.

Through PMFs, logistics performances can be made visible to all key stakeholders in the process covering strategic, tactical and operational levels with the relevant metrics.

The information obtained from a logistics PMF is pivotal to ensure effective collaboration through the entire process with suppliers, internal parties and end-customers. This in turn allows all parties to improve their processes, systems and ability to provide better service quality, reduced costs and improved visibility.

A logistics PMF can be used as a tool to compare a company’s own performances via internal and/or external benchmarking, clearly showing the logistics performance gaps to best-

in-class. The analysis assists management in leveraging best industry practices and setting realistic performance targets. The added value of the internal communication of logistics performances enables all employees to understand their impact on the company’s performance and leads to higher productivity and drives better results due to a more motivated staff.

THE REALITY

However, truth be told, the reality in most companies with logistics operations is very different from this description. In many companies, a logistics PMF does not exist or has not been clearly defined or is not used to understand the actual logistics performances and/or to drive improvements. Others have too many key performance indicators, generally with no clear or unique definition and not connected with the overall business goals. Others still suffer from low data quality, often because data capture and reporting is undertaken with a high degree of manual effort with low automation and limited leveraging of available technologies.

Other signs of weakness include: • Unclear ownership of the metrics with limited visibility of logistics performances to senior management.

• A lack of a consistent process and tools for integrating data from various sources.

• Inability to analyze the data to gain valuable insights.

• No sharing of data for performance analysis and collaborative improvement across the end-to-end process.

If any of these scenarios fit with your company, it is time to review your logistics PMF. BB

BY PAOLO BARBIERI

Paolo Barbieri is operations director for 4D Supply Chain Consulting, a unit of deugro group.

4D can help to develop, review and improve logistics PMFs to improve the transparency, efficiency and cost-effectiveness of companies’ logistics operations covering costs, HSSE and services elements.

www.breakbulk.com BREAKBULK MAGAZINE 11

COVER STORY

GOODBYE TO RISK? Lump Sum Contracts Losing Devotees

12 BREAKBULK MAGAZINE www.breakbulk.com

laming not-fit-for-purpose lump sum contracts, rumor has it that some traditional engineering, procurement and construction companies are moving away from EPC work.

Instead, advisory services are being offered up as EPCs take a cold, hard look at where their futures lie.

While some EPCs are outrightly spurning lump sum bids, others are negotiating modified fixed-price contracts, or simply adopting a more rigorous bid oversight strategy.

Along the project cargo supply chain, response to the trend is mixed. Forwarders are happy to be out of the risk management business that is part and parcel of fixed-price contracts, while carriers may be less pleased.

Having the flexibility to optimize fleet utilization in a lump sum scenario can be a windfall.

EPCs use all sorts of contracts – unit price, cost plus, target cost and fixed price – with variations on each theme so that virtually every contract is unique. However, “they have traditionally favored lump sum contracts,” said Tim Walsh, a Norton Rose Fulbright partner in St. Louis who focuses on energy sector transactional and dispute work.

In a lump sum contract, most risks migrate to the contractor, and away from the owner.

For that reason, they have been the darlings of governments and mega project owners.

The contractor benefits too, with flexibility to innovate and finish early, and with a greater potential margin for profit than in a costreimbursable contract. “With the greater risk, comes the greater reward,” Walsh said.

While the use of lump sum deals has been widespread, industry developments have moderated their appeal. “We are seeing more creative, cost-reimbursable clauses being worked into the contracts. In a very tight market, I definitely see EPCs wanting to take less risk,” Walsh said to Breakbulk.

ISSUE 2 / 2020

ILLUSTRATION: MARK CLUBB.

BY LORI MUSSER

AN UNLUCKY STREAK

Upsized projects, cyclicality, labor shortages and weather all challenge EPC performance on fixed-price contracts.

Weather events are particularly harmful to construction projects, and an extraordinary series of hurricanes has made a mark on Gulf of Mexico projects since 2000. Also, projects have gotten bigger; even a minor problem on a billion-dollar development can erode an EPC’s cash flow, as can currency fluctuations, which have been particularly volatile since 2007. And, with bigger projects come longer timelines.

Walsh said that when the project market tightened after the global economic downturn, EPCs faced difficult decisions. Some had to cut staff.

Many had to take on more risk to win awards. New risks emerged, such as a labor shortage in the Gulf caused by the outflow of skilled workers and an associated spike in costs when new projects began again, and unprecedented international trade and tariff issues that increased the cost of materials. “Repercussions from contracts negotiated before these risks became realities that are still being felt,” Walsh said.

Lessons were learned. “The newer EPC contracts deal with these possibilities,” Walsh said, and while that can give contractors some relief, the question remains of who takes the risk.

“New contract clauses can substantially change the owner’s risk profile, along with the price of the commodity they are trying to move at the end of a project.”

HIGH-PROFILE EXITS

In the last two years, some leading EPCs have renounced lump sum contracts. Last July, SNC-Lavalin announced it would leave “lump-sum turnkey,” or LSTK, contracting in favor of more high-performing pursuits. That decision followed the firm’s pullout from several lump sum projects for which they were shortlisted, including Montreal’s LaFontaine Tunnel.

In a statement of clarification, the firm said they would consider bidding “if the contracting model changes to one with better risk profile than LSTK” or becoming a subcontractor with limited risks.

In September, SNC-Lavalin confirmed: “Our new strategic direction is well into the execution phase, we are completing those LSTK contracts already started and carefully managing the associated delivery and risks, and we have not taken any new work, and ceased all bidding, in these large construction scopes.”

Skanska, a multinational EPC based in Sweden, identified “restoring profitability and reducing risk within construction” as a priority in its annual report, adding that in the U.S. it would stop bidding for both mega design-build public-private partnership projects and engineer-procure-construct projects in the power sector. As of Jan. 1, 2019, it declared that infrastructure development was no longer one of its business stream.

It has since revised its bid strategy, advising that special focus is being placed on “improving construction project execution,” starting with a stricter bid strategy.

EPCs that undertake massive projects must focus on cash flow or face the consequences. Evan Armstrong, president of 3PL consulting firm Armstrong & Associates, said to Breakbulk: “It all has to do with how well the project scope is defined. If all of the project steps are planned and accounted for with some type of buffer built into the profit margin, they are fine. Scope creep can be a killer and turn a project upside down quickly.”

Although many other factors were at play, lump sum contract issues undoubtedly influenced restructuring decisions at Fluor and McDermott International.

At McDermott, President and CEO David Dickson reported a massive cash flow problem in 2019. In January 2020, McDermott filed for Chapter 11 protection. Dickson said many

Tim Walsh

Utsav Mathur

Norton Rose Fulbright

Norton Rose Fulbright

of McDermott’s balance sheet woes stemmed from “focus projects” that came with the CB&I merger of 2018.

He called the bid on the Cameron LNG in Louisiana a “miss” (see related story, page 26).

For Fluor, a record drop in stock prices followed its second quarter 2019 earnings report. Chief Financial Officer Michael Steuert said on Fluor’s earnings call that cash flow problems stemmed from “troubled projects.”

SUPPLY CHAIN IMPACTS

Utsav Mathur is a shipping, offshore energy, and global disputes lawyer based in Norton Rose Fulbright’s Houston office. He said the impact of EPC contracts permeates the supply chain. “If the project owner secures a flat fee, the EPC will try to push a similar structure downstream. They will go to forwarders, logistics providers and the carriers themselves and secure the lowest flat, capped, or limited fee www.breakbulk.com BREAKBULK MAGAZINE 13

COVER STORY

EPC Skanska has stopped bidding for mega design-build public-private partnership projects and engineer-procure-construct projects in the power sector in the U.S. CREDIT: SHUTTERSTOCK.

TIME FOR STANDARDIZED CONTRACTS? With project contracts growing in size and complexity, shipping and forwarding participants have raised “a call to action” to create a standardized industry contract, writes Gary Burrows.

“It’s no longer about the small print,” said Beata Bac, global category manager projects, inbound and international logistics. “It’s about making the message concise, it’s about simplification of the message carried by the contract so that everyone understands what’s in the contract for them in terms of reward and risk.”

Bac complained that, “from contracts I’ve seen, probably 70 percent to 80 percent talk about taxes and finances, whereas 20 percent talk about logistics.”

With support lacking for standard operating processes among project stakeholders, there are ever-growing escalations and unnecessary risk assessments because parties simply don’t know who’s responsible for what, she said.

Bac called for an industry think-tank, or for an organization like the International Chamber of Commerce, with its Incoterms, or BIMCO, to facilitate honing a contract that balances reward and risk among players and that is industry driven and not simply shipper driven.

“A contract should be liberating me and my company from fear, along with all the other companies that participate towards delivery of the contract,” she added.

Paolo Minetti, global logistics, transport and customs director for Alstom, gave the example of a contract that the French transport giant handles.

The summary alone weighed in at about 250 pages.

14 BREAKBULK MAGAZINE www.breakbulk.com

“This is not the contract,” noted Andrei Kharchenko, manager of risk, claims and litigation, BBC Chartering.

“The contract itself runs to probably 500 to 800 pages. It will involve multiple parties. It requires 100 man hours to evaluate the full risk and to see how it’s actually executed.”

It’s not necessarily the size that matters, said Michael Giling, global business development manager, capital projects, GEODIS. “It’s more the content inside of the contract. We see a number of contracts coming up, especially in the last six to 12 months, whereby some sections of the contract are not relevant to the freight forwarding contract as well.”

Contracts will often include manufacturing sections that aren’t relevant to forwarders. “So we already have to make a number of legal exceptions to the contract because there are a lot of items that are not even applicable to us when executing the contract.

The larger and more complex contracts have become, the more risk exposure is heaped upon the freight forwarder, Giling noted. “You have long fixed rates in your contract schedule. You have long payment terms in your contract, so that inherently it puts a lot more pressure on your cash flow and cash flow exposure as a company.“ These contracts are putting liabilities on forwarders that can’t be passed on or shared with subcontractors. Further, Giling noted that these contracts increase exposure on health, safety and environment compliance. “That’s a non-negotiable for our clients and for us,” he added.

contract of affreightment structure to give some protection vis-à-vis the flat structure they have upstream.”

EPCs under flat fee structures often take on a lot of risk. “They are usually challenged to pass it on to ocean carriers who are reluctant to give up the protections offered

by COGSA, Hague-Visby and other cargo liability regimes. But, when the EPC engages a freight forwarder, the EPC is often able to contractually pass on significant transportation risk, including full value cargo liability, to the forwarder,” Mathur said. This leads to limited upside for the forwarder with significant liability and no ability to pass liability downstream to carriers. “Providers working with large EPCs on large contracts have become risk managers.”

While big EPC contracts provide an important market opportunity for logistics firms, they can bring trouble too. One concern is safety.

Mathur said: “In one case, we had an EPC who made a decision late in the project to switch out a supplier of marine services [based on price considerations]. A casualty followed and several hundred million dollars of project cargo was lost. Even if the EPC’s decision to change providers wasn’t a breach of contract or breach of the standard of care, it created a lot of issues in the litigation that followed.”

On a more positive note, a lump sum carriage contract may be of great benefit to a carrier with access to a large owned or chartered fleet with varying degrees of utilization and the ability to optimize cargo movements. “Although there is the risk of inefficient movements, there is also potential to find efficiencies and maximize net earnings,” Mathur said.

Walsh said, in a lump sum contract, cargo (or project) owners truly give up control. “The owner has very limited visibility on carriers selected, price, or ability to control, other than what they negotiate in the contract, such as general safety guidelines and vetting policies.”

ISSUE 2 / 2020

COVER STORY

“Providers working with large EPCs on large contracts have become risk managers.”

– Utsav Mathur, Norton Rose Fulbright

SNC-Lavalin pulled out of the procurement processes for Montreal’s Louis-Hippolyte Lafontaine tunnel rebuild.

CREDIT: SHUTTERSTOCK.

Lump sum contracts anywhere along the supply chain offer incentives to reduce costs. Mathur said: “While every party involved in a large capital project will acknowledge that cost reduction should never compromise safety, the history of litigation suggests that cost-cutting can lead to incidents.”

FUTURE PROOFING EPCS

Once a contractor realizes they have a risk issue because of price and cost overruns, there is a disincentive to get the project under control. This then snowballs and problems deepen.

“Contractors fail; they get in too deep,” Walsh said.

The nature of the contract itself can discourage resolution, but, Walsh said, EPC contracts have already started to incorporate clauses into lump sum contracts to deal with emerging issues. “So the fix is already here. The fortune of those companies with legacy contracts should improve. Even five years ago, EPC contract parties did not contemplate the types of cost escalations that have been experienced related to tariffs and other international change regimes.

They do now.”

While the problems of lump sum contracts “are not insurmountable,” according to Mathur, vigilance is needed. “Every time there is a down-

turn, we can’t allow price to become the sole governing factor – safety should always remain the top priority.”

Over the long term, EPCs have been able to manage lump sum projects successfully, but growing project risk and aggressive bidding has created countless problems. The time for change is here.

New types of contracts, new clauses and new approaches to bidding may offer relief not just to EPCs, but to project owners, carriers and project logistics providers all along the supply chain. BB Based in the U.S., Lori Musser is a veteran shipping industry writer. www.breakbulk.com BREAKBULK MAGAZINE 15

ENVIRONMENT

BY CARLY FIELDS

VOICE OF TRUTH quick Google search of online carbon calculators in shipping gives the illusion that the logistics industry is on top of the job of estimating the greenhouse gas discharge of, if not every cargo, at least every ship.

Shipping lines OOCL and Hamburg Süd, logistics specialist DHL, global forwarder Kuehne + Nagel, and air freight specialist Cargolux are just a few of the companies with tendrils in the heavy-lift world that offer online carbon calculators. Add those offered by third-party sites and there is little excuse for shippers not to be able to calculate the transport-related emissions of their cargoes.

16 BREAKBULK MAGAZINE www.breakbulk.com

But ask some probing questions – as Breakbulk did – and what’s out there is at best disjointed and at worst, inaccurate and incomparable. Simple miscalculations in distances for sea freight moves coupled with a lack of standardized reporting on how to accurately calculate emissions mean that shippers cannot rely on a great many of the currently available carbon calculators.

Of the myriad methods for calculating carbon emissions, some are regionally focused, some are ship type focused, but none are completely comparable. Never mind apples with apples, today it’s akin to comparing fruit with animals.

What’s lacking is one voice of truth on carbon emissions. The Global Logistics Emissions Council, or GLEC, Framework, a global method for calculation and reporting of logistics emisTristan Smith sions, is making a valiant attempt UCL Energy Institute to address that.

Tristan Smith, energy and shipping lecturer at UCL’s Energy Institute, recommends the ISSUE 2 / 2020

CREDIT: SHUTTERSTOCK.

A

Mixed Messages of Carbon Emission Calculators

GLEC Framework as the closest shipping has to a “coherent and fair” approach to carbon accountancy.

“We think that carbon accountancy should be mandated, but also that they need to be coherent and fair,” Smith said. “Getting all the different components to work together to make sure that a common global set of accountancy methods are agreed is the major headache.”

MEETING INDUSTRY DEMANDS

Suzanne Greene, program manager of the Sustainable Supply Chains initiative at the MIT Center for Transportation & Logistics and joint architect of the Framework, said she was inspired to create the Framework by comments from industry and governments complaining that the shipping sector does not have one harmonized method for carbon accounting that

can be applied to compare emissions data evenly and equally from shippers, carriers and logistics service providers across all modes of transport.

“That was kind of the charge that we heard from lots of different stakeholders,” Greene said to Breakbulk.

MIT worked with global non-profit organization Smart Freight Centre to collaboratively write the Framework over three years.

“There were so many different things that were already out there that we needed to bring together under one umbrella and try to make them consistent and then make everybody happy,” Greene said.

The first version of the GLEC Framework came out in 2016, and the take-up was encouraging. Designed to be adaptive to the changing environment, the Framework was revised in line with outputs and user comments in July 2019.

One of the biggest challenges that Greene and the Smart Freight Centre team faced was making the Framework usable without requiring a physics degree. “Nobody likes the equations,” she said. “So, I worked really hard on this trying to make it easier to read. It should be relatively simple and be able to be understood by regular people.”

CONTAINER FOCUS

But while the framework is robust, it’s predicated on the container market, and the right data needs to be available and inputted to get the most accurate results. “It is only as good as what you can put in. If companies want to be very specific, then they need better data.”

For the container-shipping sector, Greene has a good dataset to pull from. The Clean Cargo Working Group collects industry data to create Project cargo carriers need be ready to supply carbon data at a per-move level.

CREDIT: JUMBO.

www.breakbulk.com BREAKBULK MAGAZINE 17

ENVIRONMENT

CARBON CHALLENGES AND OPPORTUNITIES AHEAD Greenhouse gas emissions are categorized into three groups or “scopes” by the most widely used international accounting tool, the Greenhouse Gas (GHG) Protocol.

Scope 1 covers direct emissions from owned or controlled sources.

Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.

It’s this last scope that poses the biggest challenge to breakbulk and heavy-lift companies in UCL’s Tristan

Smith’s eyes. “We think Scope 3 is going to become a much bigger thing in 2020+ as corporations increasingly take responsibility for their supply chain carbon emissions.” He cites three reasons for this: • For many companies Scope 3 logistics emissions might be cheaper and/or easier to reduce than Scope 1.

• There is general ratcheting of pressure from consumers, but also from shareholders, to ensure management of all emissions, not just Scope 1.

• There is evidence that there is an early adopter business case for zero emissions transport (or at least net-

a robust data set for that ship type.

Clean Cargo represents about 80 percent of global container cargo capacity and lays claim to being the leading buyer-supplier forum for sustainability in the cargo-shipping industry.

But not every sector is as good at providing full datasets. Mirroring the Clean Cargo initiative in other sectors, including heavy-lift and multipurpose, would help improve the accuracy of carbon calculations, Greene said.

“The more companies that do this,

the easier it gets, and the greater the improvement in resolution.” A mandate to report shipping data, even if it was voluntary, would be a huge step in the right direction.

Smart Freight Centre in coordination with UCL and MIT is developing bulk-shipping sector data for the GLEC Framework. Work here is at an early stage and the program coordinator explained to Breakbulk that it was too early to be able to feedback on the differences that the team have found Shipping emissions data is criticized for being too high level. / CREDIT:SHUTTERSTOCK.

zero) in increasing parts of the supply chain.

While responsibilities for achieving Scope 3 requirements might be blurred, Smith sees a clear business opportunity for the breakbulk industry in offering the ability to do carbon accountancy, as well as advising on how to achieve lower carbon supply chains, in order to win business.

“We have already seen this in container transport, for example K&N’s move to supply tools with differentiated (by ship) carbon accountancy for corporates planning logistics operations,” Smith said.

between the two sectors. Smith said that the aim is to have this next phase ready before the year is out. The International Standardization Organization is also developing ISO/AWI 14083, Carbon Footprint of Transport Operations – Requirements and Guidelines for Quantification, which is in the very early stages of development.

One thing that makes shipping emissions hard to calculate is that data can often be very high level. For example, operators might be able to give the annual fuel efficiency for an entire fleet, but really it is needed on a per-ship level.

Another problem is that shippers don’t ask for the level of detail on carbon calculations that they should.

They also do not question the validity of carbon calculations when they are produced. “If I was a shipper, I’d want to see exactly what method was used for carbon calculations,” Greene said.

But the ultimate driver for accurate per-load carbon calculations in future will be the consumer. “At the moment the door is open and as soon as consumers start saying, ‘We want to know that information’, it will come out. It’s coming, it’s just a matter of how long the industry can put it off for.” BB Carly Fields has reported on the shipping industry for the past 20 years, covering bunkers and broking and much in between.

18 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2020

| FMT | FALLine | Fednav Direct |

A WORLD OF

EXPERIENCE MONTREAL | ANTWERP | HAMBURG RIO DE JANEIRO | SINGAPORE | TOKYO

EMERGING MARKETS

BY HELEN CAMPBELL

AN AIRBORNE ARK Animals: The Ultimate Project Cargo

T

ransporting live animals is an emotive topic that can elicit some strong opinions but, like humans, animals sometimes just need to move from one place to another. For the carrier, being entrusted with a live animal means being entrusted with a project cargo like no other.

Live animals have been transported by air since the 1930s. These days,

20 BREAKBULK MAGAZINE www.breakbulk.com

the reasons for the transportation are almost invariably linked to conservation and breeding programs, specialist medical care needs and release from captivity into the wild or a sanctuary. By air is universally considered to be the most humane mode of moving a live animal, as travel times are minimized compared with road, rail or sea. It is fairly commonplace for a cargo hold to be hosting any number of live animals, ranging from a rare insect or a dog or horse, to a lion, a hippo or a whale.

All cargoes are precious, but the

cargo being live and, in many cases, rare and/or endangered, raises the stakes considerably and the welfare of these very precious cargoes is always at the top of the agenda. And prioritized right alongside that is the safety and integrity of the aircraft and its systems.

Conversations with transporters make it clear that it’s a very fine balancing act, marrying up the commercial desire to fill blank freight space with the absolute need to put welfare of any animal first and not risk the operational integrity of the plane or the safety of the crew in any way.

ISSUE 2 / 2020

Transportation of live animals accounts for about 1 percent of Cargolux’s total tonnage carried, said Christian Theis, global product manager for Luxembourg-based Cargolux’s CV Alive, its specialized animal transportation service. / CREDIT: CARGOLUX.

www.breakbulk.com BREAKBULK MAGAZINE 21

EMERGING MARKETS

Top: Cargolux says horses represent a substantial proportion of the live animals it carries (2,700 in 2019 alone).

CREDIT: CARGOLUX. Middle: Cargolux transported beluga whales Little Grey and Little White from China to a marine sanctuary in Iceland in 2019.

CREDIT: CARGOLUX. Bottom: Manatees Miles and Matthew flew, accompanied by two zoo staff members, via DHL from Cincinnati to Orlando. / CREDIT: DHL.

CONSIDERING ETHICS

Then there are also the ethics questions to consider. Depending on the context of origin and destination, the reason for the transportation and the stakeholders involved in a proposed live animal transportation operation – one lion or one beluga whale may not be the same as another lion or beluga whale – carriers have to look closely to decide whether or not to accept the job.

“The transportation of live animals accounts for about 1 percent of our total tonnage carried,” said Christian Theis, global product manager for Luxembourg-based Cargolux’s CV Alive, its specialized animal transportation service. “We have a lot of internal procedures, and we carry out checks on the shipper and where an animal is going.

We are a member of United for Wildlife and, like a lot of airlines, have signed the pledge to help stop illegal animal trade. The reason for the transportation is important to us, and we have no issue with saying no to a request.”

The airline industry started investigating the means of ensuring animal welfare during air transportation in the mid-1960s. Following consultation with animal experts, shippers, trade organizations, governmental agencies, and member airlines, the International Air Transport Association, or IATA, established a permanent Live Animals Board, or LAB, to develop criteria applicable to the acceptance, handling, loading and transport of live animals.

These were first published as the Live Animals Regulations, or LAR, in 1969; LAR was voluntary to begin with and became mandatory for IATA members in 1974. This evolved to become the Live Animals and Perishables Board, or LAPB, a dedicated group of 12 airline members whose responsibility is to set the standards for the transportation of live animals contained in the LAR. 22 BREAKBULK MAGAZINE www.breakbulk.com

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Membership Available in Selective Markets!

Application: info@gpln.net / www.gpln.net

EMERGING MARKETS

One carrier that contributes to the LAPB is Lufthansa.

“Lufthansa Cargo transports animals every day,” said Marco Klapper, product manager live animals. “About 30 percent of Marco Klapper those are large live animals, most Lufthansa Cargo of them horses.

Most of them are flown from Europe to Asia and North America, as well as from North and South America to Europe. We transport approximately 150 zoo animals per year. In recent years [we have had] rhinos, okapis, tigers, even an elephant and, more recently, two panda bears as our guests.

“We do our utmost to ensure flight safety and the wellbeing of our animal passengers. For the transportation of large live animals, excellent preparation is needed, and we only work together with forwarders specialized in shipping live animals. All our transports fully comply with the strict requirements of the IATA Live Animals Regulation and the Convention on International Trade in Endangered Species at all times. In addition, we draw on our many years of experience to ensure optimal transport for the animal. For example, to help ensure a comfortable journey, a large (zoo) animal normally gets used to its transport crates weeks before the travel date.”

PLANNING EVERY DETAIL

While the proportion of a project cargo carrier’s tonnage consisting of live animals is generally going to be low, the nature of the cargo makes it one of the most planning-intensive.

Cargolux says a substantial proportion of the live animals it carries are horses (the company carried 2,700 in 2019 alone) but, now and again, something more unusual pops up. The company is looking forward to hearing news later this year of Little Grey and Little White, the two beluga whales that it transported safely from China to Iceland in 2019 when they were being moved from captivity into a marine sanctuary.

24 BREAKBULK MAGAZINE www.breakbulk.com

To help ensure a comfortable journey, a large (zoo) animal normally gets used to its transport crates weeks before the travel date.

CREDIT: LUFTHANSA CARGO.

Working very closely with the SEALIFE Trust, CargoLux transported the whales more than 6,000 miles on a 12-hour flight, with the mammals carried in custom-made slings designed to their exact physical requirements and which were housed in tailored containers in the cargo hold. Marine mammals such as whales and dolphins require water tanks, of course, and the possibility of leaks or worse, while the serious situations that could arise in the event of an escape by other types of animal are obvious.

“There is no compromise on safety,” Cargolux’s Theis said.

“Weight-shifting of the water can be a potential danger, as can a spill of water which could damage the avionics of the aircraft. Containers must match the regulatory requirements and, when we are planning a shipment, everything goes through a stringent acceptance checklist.”

Often the distances involved are considerably shorter than this example, but the care required is no less extreme. In October 2019, DHL flew two rescued manatees from Cincinnati, Ohio, to Orlando, Florida, as part of the U.S. Fish and Wildlife Service’s Manatee Rescue and

Rehabilitation Partnership. The goal of the program, with which DHL has worked for several years, is to release the animals back into the wild as soon as they reach the required weight.

As well as the issue of water for marine mammals like whales and manatees, temperature control, humidity and airflow of the hold are vital elements in safe transport of all live animals. Depending on the requirements of the other cargoes – both those that are live and those that are not – segregation in the hold is a key consideration for the carrier in determining loading and unloading and the location of each cargo in the hold.

“We need to plan our whole hold very carefully whenever we have live cargoes, and need to be able to segregate where needed,” said Cargolux’s Marc Roveri, head global customer services, and also the current vice chair of the LAPB. “For example, if we are carrying something that requires dry ice, I would not put a horse next to it. We have a clear segregation table and if we can’t take two things together, the animal travels first. Overall, animals are always placed so that they are loaded last and unloaded first.”

ISSUE 2 / 2020

EMERGING MARKETS

Regulations governing live animal transportation are already closely monitored and the LAR is updated annually. There is always room for improvement, right down to minor tweaks to the rules governing dog crates for specific breeds. “Sometimes it can be easier to deal with shipping a rhino than shipping a dog,” said one carrier’s representative.

SHIPPER’S RESPONSIBILITIES Whatever the animal, Andrea Gruber, IATA head of special cargo, stresses the absolute criticality of communication and the responsibility of the shipper to provide all necessary information and documentation pertaining to the live animal shipment.

“Collaboration and communication can always be improved, especially at the critical point of handover between the supply chain stakeholders,” Gruber said. “We also stress the assurance of animal welfare

at any stage of the journey and that the animal is assessed as in a healthy condition and fit for transport by the appropriate experts, that the equipment is suitable for the species and transport containers are in compliance with the LAR. “In addition, adequate facilities and holding areas including environmental temperature control must be guaranteed. All operations must meet flight safety requirements and challenges, especially in the case of marine mammals and containers holding water. In addition, there must be assurance that transport containers are properly secured at all times.”

While IATA member carriers must comply with the LAR, they can and do also stipulate their own limitations on what they will carry, as long as their own rules are at least as stringent as the LAR itself. Lufthansa, for example, does not carry whales or dolphins because of its own risk assessments for

flight safety and animal wellbeing, and the need for water tanks.

“In the field of endangered animals, we only accept class 1 species for transportation from zoo to zoo, which are a member of the zoo organizations WAZA or EAZA,” Klapper said. “This is in order to ensure that the organization of the whole transport is well prepared from the zoo of origin to the zoo at the final destination.”

The one live animal that will not be found being moved around by air is the giraffe. They are transported while they are still babies, should a need arise, but not once they are adults. As the representative of one carrier quipped; “There is no sunroof on a plane!” BB Helen Campbell is a freelance journalist based in London who has specialized in energy, environment, sustainability and technology for over 20 years.

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www.breakbulk.com BREAKBULK MAGAZINE 25

EXECUTIVE SUMMARY

BELEAGUERED BALANCE SHEET

A Dissection of McDermott International’s Restructuring chase of CB&I in 2018 brought with it opportunities, synergy-related savings and pecuniary economies. The company’s project backlog was and continues to be quite stellar – at the end of the third quarter of 2019 it was US$20.1 billion and growing.

Only a year ago, on a Feb. 25, 2019 call with analysts, McDermott President and CEO David Dickson was optimistic: “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 market that we believe will allow our company to grow.”

That optimism still prevailed when Dickson said to Breakbulk in May 2019: “Our savings from CPI pro-

BY LORI MUSSER

O

n Jan. 21, McDermott International, one of the world’s largest engineering, procurement and construction companies, filed for Chapter 11 protection in Houston and announced a financial restructuring.

It was a pre-packaged approach, with prior support from two-thirds of the company’s creditors, according to the firm’s media release on the filing.

The plan brings US$2.8 billion in operating cash and eliminates half (more than US$4.6 billion) of the company’s debt, via equitizing most of its funded debt.

How did this come about? The purchase of CB&I was the tinder.

McDermott’s massive US$6 billion pur-

The EPC’s Share Price has Taken a Battering US$

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ceeded 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 David Dickson US$475 million of annualized cost McDermott synergies.”

CASH FLOW CRUNCH

But his optimism was misplaced.

McDermott’s stock price fell in late 2018, and again in the second half of 2019. Despite regular announcements for new contracts and progress on current ones, the company’s stock price was on a downward trajectory. Then there was an unsolicited approach to buy Lummus Technology, McDermott’s shining star and reliable cash flow generator.

In October, the company announced a US$1.7 billion financing agreement with lenders, essentially a tranched bridge loan, which Dickson said signaled confidence in McDermott’s underlying business.

But Dickson also said: “We continue working with [lendors] to achieve a long-term balance sheet solution …”

Then McDermott chose to miss a Nov. 1, 2019 debt payment on senior notes.

In early November 2019, as McDermott’s CFO walked out the door, a third-quarter net loss of US$1.9 billion on revenue of US$2.1 billion walked in.

By comparison, in 2018, the company ISSUE 2 / 2020

CEO David Dickson described the Cameron LNG project as a “serious bid miss from the onset.”

CREDIT: SEMPRA.

reported third quarter net income of US$2 million on revenue of US$2.3 billion.

The company attributed the loss primarily to US$1.5 billion in noncash charges “related to impairments of goodwill and intangible assets and US$256 million of changes in project gross profit on specified projects,” which boiled down to having acquired assets that were not expected to generate the cash flows previously anticipated, heavy debt from the acquisition of CB&I, and a tough cash flow situation.

In the same third-quarter loss report, McDermott cited “unfavorable changes in cost estimates” for EPC work on its Gulf Cameron and Freeport liquefied natural gas, or LNG, projects, among others. Dickson described the bright spots in the company’s future as a “continued strong backlog, with several significant customer project awards, including the Ichthys Phase 2a Gas Field Development Project in Australia … as well as a large LNG tank project on the U.S. Gulf Coast. We also achieved solid operating results in our MENA, Asia-Pacific, Europe, Africa, Russia and Caspian, and Technology segments.”

However, the true albatross round McDermott’s neck was that its capital structure continued to be “pressured by certain legacy CB&I projects,” according to Dickson.

BUTTRESSING THE BALANCE SHEET

With no single panacea for its beleaguered balance sheet, in late January McDermott outlined a sixpronged restructuring plan: • Robust debtor-in-possession, or

DIP, financing facility of US$2.81 billion.

• All operations continue in normal course.

• Customer projects continue uninterrupted on a global basis.

• Employee wages and benefits to be paid in normal course.

• Suppliers to be paid in full.

• Court confirmation of plan expected within two months of Jan. 21 filing.

Proceeds from the sale of Lummus Technology are expected to repay the DIP financing. After restructuring, McDermott anticipates US$500 million in debt and US$2.4 billion in secured letter of credit commitments.

“With the majority support of our lenders, we will emerge a stronger, more competitive company with a capital structure that matches and supports the strength of our operating business,” according to the firm’s investor outreach page.

McDermott provided reassurance to suppliers in a Jan. 21, 2020 letter that said: “Importantly, we expect that all suppliers will continue to receive payments and be paid in full.” That includes suppliers all along the supply chain.

Analysts speculated that vendor concerns about section 547 preference claims may be partly to blame for escalated problems. Chapter 11’s Section 547 deals with demand letters for partial repayment of money paid to vendors and creditors in the 90-day run-up to bankruptcy filing. If vendors were switching to cash on demand credit terms, it may have fueled the cash crunch, according to WYCO Researcher on financial content service Seeking Alpha.

THE FOCUS PROJECT PROBLEM

During the Feb. 19, 2019 investor call, Dickson was optimistic, but did point out, since the merger with CB&I in 2018, “the market’s view of the underlying rationale of the transaction has understandably been colored by the charges we have taken on focus projects,” which were impacted by increased labor costs and hurricanes, among other factors.

For the Cameron LNG project, Dickson said: “I’ve said before, many of the difficulties that have been experienced along the way are attributable to the fact that this was a serious bid miss from the onset.

“We knew that these projects were going to be challenging when we made the decision to pursue the transaction, and while the magnitude of the financial impact has been greater than we anticipated, we also believe[d] then and have since confirmed: firstly, that CB&I’s problems were limited to those projects; secondly, that the rest of the portfolio is sound; and, thirdly, that under our management the mistakes made when these projects were bid will not be repeated,” Dickson said.

Fixed-price contracting with small margins on massive developments may be a big part of the problem. Nevertheless, given a US$20.1 billion backlog and a revenue opportunity pipeline that weighed in at US$89.1 billion in November, and a plan to address debt and cash flow issues, McDermott may soon see the tail end of problems largely triggered by the CB&I combination, and be back on track for growth. BB Based in the U.S., Lori Musser is a veteran shipping industry writer. www.breakbulk.com BREAKBULK MAGAZINE 27

ENERGY UPDATE

EASTERN AIRSTREAM Asia Prepares for Exponential Offshore Wind Growth

O

ffshore wind is blowing up a storm with a surge in financing taking capacity investment in 2019 to almost US$30 billion in the AsiaPacific region, up 19 percent on 2018.

This was US$2 billion more than the previous record year of 2016, helped along by a flurry of projects reaching financial close in the fourth quarter, including the US$2 billion 376-megawatt Formosa II Miaoli project offshore Taiwan and the US$1.5 billion 500 MW Fuzhou Changle C installation in the East China Sea. Indeed, offshore wind is enjoying real tailwinds in Asia, where a combination of favorable policies and falling costs are driving investment. Analysts at Fitch Solutions see substantial growth potential over the next 10 years, with the project pipeline strengthening in multiple markets across Asia, while the team at global natural resources consultancy Wood Mackenzie predict Asia-Pacific’s offshore wind capacity will rise 20-fold to 43 gigawatts by 2027. The International Renewable Energy Agency, taking an even longer-term view, believes that Asia could account for more than 60 percent of all installed 28 BREAKBULK MAGAZINE www.breakbulk.com

offshore wind capacity by 2050.

This kind of energy transition doesn’t come cheap, however.

The bullish longterm forecasts of the International Renewable Energy Agency require a significant scaling in Robert Liew investment, from Wood Mackenzie the current level to US$100 billion by 2050.

Should it materialize, this would be good news for the health of humans and the planet. The region’s energy demand growth is expected to grow 60 percent between now and 2040 – and that’s going to mean burning a lot more coal, gas and oil. Increased investment in offshore wind could help displace some of those fossil fuels.

According to Australia’s Institute for Energy Economics and Financial Analysis, or IEEFA, the greater Asian countries of China, Japan, Taiwan, India, South Korea, Vietnam, the Philippines and Indonesia could together account of 100 GW of offshore wind

BY AMY MCLELLAN

power capacity by 2035, which, if achieved, would have the effect of replacing the equivalent of 300 million to 350 million tonnes of thermal coal annually or 35 percent of the current global seaborne trade.

It helps that offshore wind is starting to look more price competitive, although there is still a long way to go before it can stand on its own without government support.

“Future offshore wind prices are projected to be competitive with traditional thermal prices by 2025,” said Robert Liew, Wood Mackenzie senior analyst. “This should attract investments in offshore wind, though Asia-Pacific is still playing catch-up with Europe as it is still in the process of establishing a dedicated infrastructure to support large scale offshore growth.”

BUILDING INFRASTRUCTURE CAPACITY

All new industries, particularly those offshore, take time to establish effective supply chains and maritime support networks. Already analysts are warning of capacity bottlenecks when it comes to accessing the specialist ISSUE 2 / 2020

Left: Ørsted inaugurated its Formosa 1 offshore wind farm in Taiwan in November 2019. It was the first offshore wind farm built by Ørsted in Asia-Pacific.

CREDIT: SHUTTERSTOCK.

vessels, cranes and jack-ups required for these huge projects, particularly in those countries with strict cabotage laws, such as Japan. Investment is being made in local manufacturing and supply chain businesses to build local solutions, but this will take time.

The good news, according to Wood Mac’s Liew, is that once such support systems are in place, the experience in Europe suggests that growth in Asia will then be “exponential.”

Until then, it means there are huge opportunities for European contractors with the right fleet, heavy-lift equipment and experience to deliver on these complex and demanding jobs in Asia.

“It’s about having the know-how,” said Laurens Govers, manager of commerce shipping at Dutch heavy-lift specialist Jumbo, which has worked on two big wind farm projects offshore Taiwan.

“It’s having the specialist equipment to handle these very heavy-lifts, the knowhow to come up with innovative and flexible solutions that save the client time and money, knowing colleagues who can support us on these big projects and understanding the local and geopolitical issues.”

“The outlook for the next five to seven years is pretty strong,” he added.

As has been seen in Europe, however, policymakers can’t resist tinkering with market mechanisms, creating uncertainty for investors.

Feed-in tariff, or FiT, programs that ensure power purchases and priority grid connections have helped fuel growth in some markets, such as the Philippines, Thailand and Vietnam.

However, it is not unknown for FiT regimes to be changed with little warning or replaced with auctions.

Auctions can help drive prices lower, although some commentators worry they could lead to a race to the bottom that could prove unsustainable.

Transition pieces were shipped for Jan De Nul Group from Laem Chabang to Taichung, where they will form part of Taiwan’s Formosa 1 Phase 2 Offshore Wind Farm. CREDIT: JUMBO.

Changing tariffs or new local content requirements can also see developers hustle to beat deadlines or, worse, put the brakes on until they have more clarity. Taiwan’s highly promising offshore wind market experienced a serious wobble in 2018 when the government announced a cut in feedin-tariff cuts, prompting such an angry response from developers – Danish developer Ørsted suspended work on its slate of projects in protest – that the government was forced to compromise.

Meanwhile, China saw a surge in offshore wind investment in 2019, as developers raced to greenlight projects ahead of a planned cut in electricity prices for offshore wind projects.

“Offshore wind developers in China brought forward 15 projects to beat a scheduled expiry of that country’s feedin tariff,” explained Tom Harries, head of wind research at Bloomberg New Energy Finance.

CHINA: LEADING THE WAY

Another round of subsidy cuts will be put in place from 2022 as tenders are brought in. While this phasing in of China’s new offshore wind regime may lead to uneven pacing as developers charge to complete projects within tariff windows, the general direction of travel is clear, with Wood Mac expecting 40.4 GW of offshore wind capacity to be

grid-connected through 2028. Turbine manufacturer Goldwind and China’s Three Gorges Group have been powering ahead with a hugely ambitious project off Jiangsu Province in the East China Sea, where a range of projects is expected to deliver green energy to coastal communities. Indeed, according to Fitch, the country should smash its own national growth target of 5 GW by 2020 with the cumulative 2020 provincial-level targets in Jiangsu (3.5 GW), Fujian (2 GW) and Guangdong (2 GW) already exceeding the national target.

Taiwan, meanwhile, is one of the biggest offshore wind markets in the Asia-Pacific region, and could have as much as 8.7 GW of offshore wind capacity by 2027. The government not only has an ambitious target for renewable energy to account for 26 percent of its total power mix by 2030, but it is also pledging to close its nuclear plant by 2025 and the plan is for offshore wind projects to fill 5 GW of capacity. So far, despite the odd wobble, the country is making good progress with more than 7.8 GW of offshore wind capacity in the project pipeline. Projects underway include Ørsted’s 900 MW Changua 1 and 2a and 128 MW Formosa projects (the latter is Taiwan’s first commercial-scale offshore wind project) and wpd’s 640 MW Yunlin development. www.breakbulk.com BREAKBULK MAGAZINE 29

ENERGY UPDATE Left: These transition pieces were the heaviest, tallest and the largest diameter that Jumbo had ever shipped. / CREDIT: JUMBO.

Taiwan’s burgeoning offshore wind market has created real opportunities for the European contractors, which have built up so much expertise supporting wind farms in their local markets.

Jumbo, for example, has worked on the 640 MW Yunlin and 128 MW Formosa projects, giving it real insight into what it takes to succeed in this market.

The company is bidding on three more projects and expects to see Ben Backwell more activity in this fast-growing Global Wind Energy market.

Council 30 BREAKBULK MAGAZINE www.breakbulk.com

WIDESPREAD POCKETS OF GROWTH

With limited land space for onshore wind, South Korea’s large coastal zones are seen as a good way to meet the country’s ambitious renewables growth targets. Norway-based Equinor has formed a consortium with Korea National Oil Corp. and Korea East West Power to look at building a 200 MW floating offshore wind facility, which, if realized, would be the world’s largest floating windfarm when it comes online in 2024.

Vietnam was an early leader in offshore wind in the region; its 100 MW Bac Lieu near-shore wind farm has been in operation since 2016. “The country’s 3,000-kilometer coastline has some of the best resources for both onshore and offshore wind,” according to Ben

Backwell, CEO of the Global Wind Energy Council.

Unlike other countries in the region, its government has actually increased FiT rates, which will act as a stimulus for further investment. Already the UK’s Enterprize Energy is working on the 3.4 GW Ke Ga project valued at US$9 billion, which will be developed in 600 MW phases. Enterprize Energy Chair Ian Hatton said Ke Ga will have the highest local content of any offshore wind farm, providing not just energy, but also a “major contribution to Vietnam’s economy, sustaining existing employment in fabrication yards and creating new, long-term employment opportunities in operations and maintenance.”

In Japan, Wood Mac analysts predict installed capacity will surge 62-fold to 4 GW by 2028 after its parliament last year approved legislation to pave the way for its first offshore wind tenders.

Companies are already lining up to play their part in this new industry. Toronto’s Northland Power, for example, has signed a 50/50 joint venture with Shizen Energy to form Chiba Offshore Wind Inc. to develop early-stage offshore wind development opportunities with combined capacity of 600 MW in Chiba Prefecture, Japan.

Meanwhile European contractors are forming alliances to support the emerging offshore wind energy sector.

Sweden’s Northern Offshore Group and Tokyo’s NYK Line have agreed to cooperate on building capacity for Japan’s fledgling offshore wind industry. The memorandum of understanding mainly concerns the building and operating of crew transfer vessels. NYK has also teamed up with Van Oord to jointly own and operate offshore wind installation vessels under the Japanese flag.

Dutch heavy-lift specialist Jumbo is also bidding on projects here in what looks set to be another very promising destination for offshore wind contractors. 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.

ISSUE 2 / 2020

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FORWARDING CORRAL

BY LORI MUSSER

DSV’s Panalpina Takeover Precursor to More Acquisitions?

I

n the highly fragmented thirdparty logistics industry, a merger of two giants is typically a step toward lower transportation cost, and improved asset utilization, productivity and efficiency across all logistics operations.

Industry observers predict these very gains following the integration of DSV A/S and Panalpina Welttransport Holding AG. As the two companies carry out their plans, cargo owners, including those in the breakbulk and project cargo industries, may prove to be the chief beneficiaries.

David Kerstens, equity analyst with Jefferies LLC said, in his Big is Beautiful & Accretive equity research, August 2019: “DSV is the best-in-class freight forwarder, with the highest yields in air and sea freight, resulting in a fiscal year 2018 EBIT margin of 10 percent, double the industry average.” The company is also highly profitable in road freight and contract solutions.

“With the DKK 35 billion takeover of Panalpina, DSV has become the world’s fourth-largest freight forwarder, with top-three positions in air, sea and road freight,” Kerstens wrote.

The merger is expected to drive scale economies and synergies. “We are projecting EBIT growth accelerates from 12 percent per annum historically to 18 percent per annum going

32 BREAKBULK MAGAZINE www.breakbulk.com

forward,” Kerstens said. That is 50 percent higher than the sector’s average.

Kerstens indicated that the transaction’s settlement price, with a high multiple of estimated earnings, reflected Panalpina’s relatively low profitability and substantial synergy potential.

“The preliminary synergy target of DKK 2.2 billion lifts Panalpina’s profitability to DSV’s current levels

by FY22E,” which accelerates EBIT growth, Kerstens said.

STEADILY INTEGRATING

Flemming Ole Nielsen, executive vice president of investor relations for DSV Panalpina, described the unification to Breakbulk: “We are combining the two global networks of DSV and Panalpina, which means that this integration touches 90 countries, the global headquarters and back-office functions. The target is of course to create a larger and stronger organization while preserving the value of both.”

Nielsen explained that the integration was moving forward as planned, integrating country by country. At the time of writing, the combined company had already onboarded the largest Panalpina countries of the U.S.,

ISSUE 2 / 2020

DSV Panalpina has adopted Panalpina’s Panprojects Carrier to oversee multimodal heavy-lift moves from fabrication to installation sites under a single contract. / CREDIT: PANALPINA

China and Germany, as well as a number of smaller countries. As at January 2020, more than half of the Panalpina business had been moved to DSV’s systems. Onboarding, in the DSV vernacular, includes consolidating offices where the two networks overlap, and, importantly, operating on one IT platform.

Nielsen continued: “We expect that most of the integration will be completed during 2020, and this means that by 2021 we expect to achieve the full impact of the synergies.”

DSV had, it seems, had its eye on Panalpina for many years, with Nielsen describing it as “the best match for DSV,” and offering growth potential. As a result of the combination, the new company has a significantly increased presence in the Americas and Asia-Pacific, and has strengthened its verticals to include automotive, industrial, technology, consumer retail and fashion, healthcare, chemicals, oil and gas.

Evan Armstrong, president of supply chain consultancy Armstrong & Associates, believes that Panalpina will benefit greatly from DSV’s systems and culture. “The networks fit together,” he says. “They have a lot more capabilities together than they had individually.”

NEW VALUE PROPOSITION

DSV Panalpina has increased its scale, service potential and buying power with carriers.

Panalpina brought additional expertise and talent to the table, and DSV brought new service offerings for Panalpina customers, including its comprehensive road freight network and global contract logistics services.

After the priorities are tackled, there will likely be more service improvements, largely predicated on DSV’s digital platform.

“From a contracting standpoint, DSV Panalpina has more buying clout with carriers and that should translate to more capacity for customers,” Armstrong said. “Service should improve.

Pricing could improve, but having more capacity is the more important part.”

For the volume-based container trades, that new buying power may concern carriers. For the oil and gas industry and other industrial sectors with out-of-gauge cargo, a 3PL’s buying power may be helpful, but its expertise in end-to-end movement of special cargoes is vital. DSV Panalpina’s newly upsized worldwide network may even facilitate diversification of project sourcing.

The consolidation of operations, administrations, warehouses and logistics facilities will eliminate redundancy within some markets, potentially making way for increased capacity in growth and emerging markets, according to Armstrong.

Both 3PLs have successful project solutions arms. Where DSV cites strengths in renewable energy, government logistics to conflict areas, industrial project logistics and ship and air charters, Panalpina touts global coverage for oil and gas, but also in the mining, industrial and renewables sectors.

Armstrong noted: “The combined entity with almost 3 million 20-footequivalent units of ocean freight and 1.7 million tonnes of air freight has very good project logistics capabilities and experience with large oil and gas shippers such as Chevron, Exxon and others. Its systems backbone of GNTS and CargoWise provides for good international transportation management, shipment visibility, and exception management.”

Two years ago, Panalpina launched Panprojects Carrier to oversee multimodal heavy-lift moves from fabrication to installation sites under a single contract.

Already adopted by the new DSV Panalpina, the idea of a no-hassle movement has great appeal. Best possible contractual clarity coupled with a single point of contact should greatly reduce commercial, technical and contractual risks, especially if responsibilities are clearly stipulated for each leg of the transport and for associated services.

Project cargo owners will watch closely to see if, as the integration continues, the Panprojects group will www.breakbulk.com BREAKBULK MAGAZINE 33

INTERMEDIARIES

A SACMI Imola PH 7500 hydraulic press being unloaded from a multi-axle low-bed trailer in Brazil. / CREDIT: PANALPINA.

enhance its services and global multipurpose/heavy-lift carrier network, said to be 2,300 vessels strong. Overland carrier relationships are expected to strengthen too, on the basis of DSV’s leadership in the market, especially in Europe.

SYNERGIES SUPPORT FINANCIAL STRENGTH

Nielsen told Breakbulk that in freight forwarding, size matters: “The more shipments you control, the more bargaining power you have, the better the rates/conditions you can secure with the transport suppliers (road, air, sea and rail) which you’re then able to offer to the customers.

“With previous transactions … we have demonstrated that we can lift the profitability of the acquired company to DSV’s levels. And maybe even above historical levels as scale benefits kicks in. This is the business case for both DSV’s and Panalpina’s shareholders in a nutshell: we can achieve more together.”

Nevertheless, in a fiercely competitive environment, “Success requires good old-fashioned hard work, meticulously preparing tender proposals and repeatedly meeting with customers – and delivering on spec and on time. We’re prepared to put in the hard work,” he said.

Thomas Cullen, analyst at Londonbased Transport Intelligence, said that any suppositions about the new company’s prospects have to be based on its experience: “Previous acquisitions have been spectacularly successful for DSV. Presumably they will be able to drive forward Panalpina’s forwarding operations just as effectively as they have done at UTi and others. Bearing in mind that Panalpina’s market positioning was reasonably good, this suggests they will have a significant impact on the market.”

However, as with any big merger this is a big and complicated task, which must be executed as quickly as possible to avoid building insecurity in the organization and to maintain service levels towards customers. There are also legal considerations related 34 BREAKBULK MAGAZINE www.breakbulk.com

NEXT ON THE PURCHASING WISH LIST Known for a level of control that had led to some of the highest margins in the industry, DSV’s integration efforts appear to, not unexpectedly, be going so well that industry experts have already moved on to speculate as to who’s next. DSV has grown through mergers and acquisitions and will undoubtedly continue to do so.

DSV’s history would indicate another company in DSV’s current markets. “They seemed to hint that road freight may be of interest,” Transport Intelligence’s Thomas Cullen speculated. “It might be suggested that DSV could have the option of building on its existing ‘emerging market’ presence from UTi to enter some new geographies. If not China – which might be problematic – then Southeast Asia, India, Central Asia or the Middle East.”

Evan Armstrong, of supply chain consultancy Armstrong & Associates, remarked that acquisition is part of every top 50 global 3PL’s growth strategy and definitely part of DSV Panalpina’s. “This is a huge deal,” he said. “They have to get this integrated then might look at more tuck-in acquisitions for certain geographical coverage.” He also suggested new geographies, and, “likely sectors for

future acquisition are pharmaceuticals, motor vehicles, high-tech business. DSV has been playing it quite safe with verticals so far,” he noted.

Integration challenges come in a variety of shapes and sizes and ultimately, the market and customers will decide if it was successful. Cullen raises concerns on mergers and acquisitions as the industry doesn’t like to see representatives jumping from company to company.

Flemming Ole Nielsen, of DSV Panalpina, acknowledges that there are always calculated risks in mergers and acquisitions. “Before entering into negotiations, you analyze the target carefully, and this process is repeated during the due diligence period, if your bid is successful. Nevertheless, you never know exactly what you’ve acquired until the deal closes and you gain full access to the target’s information and data.” DSV’s vast experience in integrating other companies of a certain size, and successful track record, helps, but, Nielsen added, it’s always a risk.

“Therefore, the area we focus most on right now is [potential] loss of Panalpina customers,” Nielsen said to Breakbulk.

to the merger that impact timing and negotiations.

Asked if there is an end in sight to the merger and acquisition trend that has swept across transportation sectors, Nielsen replied, “presumably not.” In his eyes, bigger is often better when it comes to freight forwarding, as consolidation makes a lot of sense in this very fragmented and competitive

market. However, he makes it clear that the Panalpina integration currently has the team’s full focus and emphatically states that they are “not thinking about the next transaction” … for now. BB Based in the U.S., Lori Musser is a veteran shipping industry writer.

ISSUE 2 / 2020

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TECHNOLOGY

B

ig data and transportation technology have enhanced almost every aspect of the supply chain, so finding a safe and efficient routing to move an overweight transformer a few hundred miles inland should be easy, shouldn’t it?

Sensors, data collectors and other advanced technology are inexpensive and readily available to incorporate into bridge and roadway structures. In existing applications, infrastructure owners and developers have realized benefits ranging from lower costs of construction to earlier resumption of use after a disaster to justified deferral of repairs.

So far, however, the use of sensor technology is so rare that cargo shippers haven’t benefited in any meaningful way.

For the heavy-haul and project forwarding industry, a future when they could tap into a cloud-connected database and quickly calculate the most efficient routing, best axle configuration, and safest timing for their load 36 BREAKBULK MAGAZINE www.breakbulk.com

might seem like a dreamland. Given enough time, this utopia may well become a reality, but patience will be needed.

The thing is, according to Kumar Allady, CEO of Florida-based Smart Structures, the new technology is not just incremental, it is disruptive, and disruptive technology is slower to be adopted.

Smart Structures advocates embedding technology in infrastructure, in a cradle-to-grave approach. Allady said to Breakbulk: “Embedded data collectors can impact infrastructure planning, design, construction and O&M positively, but the construction element bears the burden of cost. For a bridge or infrastructure owner with a holistic approach, this may not be an issue because the bottom line will improve. But, for each stage in project development there will be disruption and a redistribution of costs, workload and savings.” Allady said the savings from using his patented technology

BY LORI MUSSER

throughout a project’s life cycle are measurable, with a return on investment that exceeded 3:1 in a recent piling application.

The American Association of State Highway and Transportation Officials’ Technology Implementation Group, or TIG, reports that embedded data collectors, or EDCs, are now in use by transportation agencies in Virginia, Minnesota, Florida and North Carolina in the U.S. TIG even has a team designated to help “deliver the benefits of EDC.”

ACTIONABLE BRIDGE DATA

Peter Vanderzee is CEO of Georgiabased LifeSpan Technologies. The company delivers “objective, actionable information so that bridge owners can safely derive the lowest life-cycle cost from their assets.” Sensors installed anytime during a bridge or other structure’s life cycle can provide condition assessment solutions to support difficult decisions involving structural ISSUE 2 / 2020

CREDIT: SHUTTERSTOCK / MARK CLUBB.

STRUCTURE LOAD UTOPIA

Infrastructure Sensors Hold Promise for Heavy Hauls

maintenance-repair-replacement, rather than relying solely on subjective visualinspection data.

Steven Todd, vice president of the Specialized Carriers & Rigging Association, commented to Breakbulk that sensors attached to exterior steel or concrete surfaces on bridges have proven to be highly valuable, particularly in safely extending the useful life of bridges.

“Data captured will help owners understand actual condition, lower the risks of ownership, and allow load restrictions to be removed,” he said. Todd has been advised by industry that there is a 75 percent probability of restrictions being removed after a load test with sensors.

When asked about other uses of sensors, Todd described accelerometersensor technology for specialized carriers: “It has been embedded with cargo to track vibrations and displacements of the shipment, allowing the shipper to verify nothing deleterious happens.”

Mike Steenhoek, executive director of the Soy Transportation Coalition, advocates that bridge load testing should be technology-based rather than performed by subjective visual assessment. He said better decisions would be made so bridges would be less likely to be unnecessarily load posted, and infrastructure funds could be better directed where truly needed.

However, while sensors have proven beneficial, most U.S. state transport departments have not yet considered their usefulness in helping to set load limits or helping to optimize routing for heavy hauls or other permitted movements. Further, the fragmentation of road and bridge ownership and maintenance in the U.S. makes the introduction of sensor technology more difficult. Last-mile deliveries, especially for project cargo, often cross smaller and load-restricted bridges owned by localities with limited budgets, points out Vanderzee.

Sensors are available, the data (on vibrations, temperature, corrosion, ice, strength, strain, and so on), can be collected and analyzed, and the results can be incorporated into automatic permit routing software, but that is still in the future.

WORLD OF SENSOR-ENHANCED OPPORTUNITIES Drew Roberts, senior project manager of specialized transport for deugro (USA) Inc., compares the move of a superload today with a move in the sensor-heavy world of the future.

“When it comes to moving overweight loads through North America, and particularly superloads, a lot of what we do relies on working with the local permitting authorities and chosen heavy hauler to find the correct equipment and routing to get our client’s cargo safely to their customer.

“The most time-consuming and important part of every shipment is, of course, the planning. The vast majority of planning a superload move is more often than not the process of working with the various state and county authorities to find an accepted route. At times this can be a straightforward process, but many other times we may end up with a list of 30-plus bridges that we have to hire a third-party engineer to analyze. This can be a time-consuming and expensive process which often leads to reroutes and additional, alternative bridges needing to be analyzed.

“Compounding this issue further is the continually degrading infrastructure, which can cause last year’s approved route to become obsolete without warning. There are many other considerations to be made, such as the possible need to inspect a structure before, during, and after a superload crosses.

“With the advent of sensors, it is our hope that there would be an opportunity to greatly reduce the time and resources spent in permitting cargo, especially superloads. If these

sensors enable the state and county authorities to quickly ascertain current structure health, and plan structure rehabilitation more efficiently, this would be a great start.

Drew Roberts “One would think that if these deugro embedded sensors are also being utilized in new construction, the structure drawings might be stored digitally and available more readily. Currently, some state/ county offices require our engineer to obtain the physical drawings in person, and recreate the structures within their software to run the actual analysis.

Additionally, sensors able to advise of icing conditions at time of shipment could possibly help prevent being delayed along a route, unable to cross a bridge with a full assembly of escorts, police and utility companies on the clock.

“The technology is certainly exciting and may end up proving useful in ways we haven’t considered. And while this technology may not be applicable anytime soon to the current 600,000plus bridges in the U.S., it would seem that it could one day become the industry standard for all new civil structures being built. Time will tell, but it is only a matter of time before technology further permeates the infrastructure of the U.S.”

www.breakbulk.com BREAKBULK MAGAZINE 37

TECHNOLOGY

A DAILY STRUGGLE

Sensors could drastically improve route planning. / CREDIT: CREDIT: SMART STRUCTURES.

We Think Outside the Box

In the out-of-gauge world, obtaining bridge data to access routings is a daily struggle. Diana Davila, project director, UTC Overseas Inc., said if sensor technology were eventually instituted nationwide to assist with route planning and permitting, it would be a dream come true.

“Every day we hear of issues with equipment hitting bridges. Having live data would be awesome,” said Davila, adding a real-time information feed into truckers’ mapping devices would greatly help safety.

For route planning and budgeting, cloud-connected sensors could reduce time and manpower used in acquiring data. Once a contract is awarded and data re-evaluated, there would be similar savings. At the permitting stage, if transport departments had accurate information and technology to reconfirm information quickly, permit turnaround time would improve.

At the transportation stage, with accurate information, transit times could be minimized. “Sometimes, extra-long routes are given for transit due to outdated or unconfirmed data of a bridge or another infrastructure,” Davila said.

Some types of information that would be useful for heavy hauls, Davila noted, might include bridge clearances over land or water (height by lane, and by bridge span segment, and overall), weight capacity of the bridge, and type of bridge. She expressed concern, however, that potential for sensor technology, though possibly very valuable for her industry, will be limited by regional and state transport departments’ acceptance of the data as accurate. And, as with other critical data sources, there could be liability issues related to costs and damages if information proves inaccurate.

The use of sensors would likely increase with more education about

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ISSUE 2 / 2020

TECHNOLOGY

the benefits of judiciously using the technology, benefits which include safely deferring major repairs or replacements, assigning proper load ratings, enhancing safety, and more.

Once convinced that the benefits are real, a long-term program could be implemented that would “resolve most bridge issues across a state,” Vanderzee noted. However, one possible challenge would be trying to explain to the public that prior bridge-condition and weight-limit assessments were subjective, highly variable, and overly conservative.

But the more widely understood the benefits, the more likely a moneysaving, safety enhancing technology will be deployed. The infrastructure sensor industry concurs their technology can enhance transportation safety, improve supply chain competitiveness, reduce pollution, and help prioritize infrastructure refurbishment and replacement.

While sensor technology is proven it’s still early days on deployment.

CREDIT: SMART STRUCTURES.

Smart Structures’ Allady summarizes that, although it is still early days, the technology is proven, and its predictive powers are already bringing benefits. There is great promise that, once adopted more widely, infrastructure life-cycle monitoring will provide the kind of information needed to

determine safe bridge load limits along a routing, helping forwarders and truckers calculate how to configure their loads and direct their cargo efficiently. BB Based in the U.S., Lori Musser is a veteran shipping industry writer.

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www.breakbulk.com BREAKBULK MAGAZINE 39

REGIONAL REVIEW

SOFT REVOLUTION IN THE ANDES

BY SIMON WEST

Political Upheaval Spells Uncertainty for Industrialization

Inbolpack transported heavy breakbulk pieces for the Bulo Bulo fertilizer plant in central Cochabamba Department.

CREDIT: INBOLPACK.

T

he inauguration in September 2017 of Bolivia’s US$1 billion Bulo Bulo fertilizer plant in central Cochabamba Department was, at first blush, the start of a new era of petrochemical development in the Andean nation.

The world-scale, export-oriented facility, with its capacity to produce 2,100 tonnes per day of urea and 1,200 tonnes per day of ammonia, was “the most important project in Bolivia’s history,” then-hydrocarbons minister Luis Alberto Sanchez told journalists, one that would “transform agriculture, the economy and the concept of industrialization.”

Four years earlier, the government had unveiled a multibillion-dollar plan to industrialize its natural gas reserves through an ambitious petrochemical construction program.

State-controlled oil company Yacimientos Petroliferos Fiscales Bolivianos, or YPFB, alongside its industrial division, Empresa Bolivia de 40 BREAKBULK MAGAZINE www.breakbulk.com

Industrializacion de Hidrocarburos, or EBIH, were charged with building more than a dozen plants for polyethylene, polystyrene, aromatics, methanol and other petrochemical production.

A US$700 million liquids separation plant in southern Tarija Department would provide many of those projects with ethane, propane and butane feedstock, filtered from natural gas supplies heading to Brazil and Argentina.

The plans were a showpiece of former President Evo Morales’s bold socialist agenda; proof that an oil and gas sector that he had nationalized shortly after coming to power in 2006 could succeed where decades of neoliberal policies had failed.

Fast forward to late 2019, however, and a chain of domestic political events that culminated in Morales’s forced resignation and exile after almost 14 years in power has threatened to derail gas industrialization and related project cargo work.

CHANGE OF GUARD

Morales, a leftist icon in Latin America, was ousted by conservative opponents in what some have dubbed a soft revolution following his disputed fourth-term re-election victory in October that sparked countrywide protests.

The result of the election, which was marred by irregularities, according to a report by the Organization of American States, or OAS, was overturned by the Senate in November, and a new interim government led by conservative former Sen. Jeanine Anez will oversee a rerun of the vote scheduled for May. Morales, who claimed he was a victim of a military coup, is barred from running for president again, and is living in exile in Argentina.

Experts claim the former leader’s impressive economic and social gains were overshadowed by an authoritarian streak, apparent in the way he ran for a fourth term in defiance of constitutional limits.

ISSUE 2 / 2020

“His biggest mistake was the referendum in 2016 to change the constitution and force through his candidacy (for a fourth term), and then creating new rules that impeded his political opponents,” said Marcelo Arequipa, a political analyst based in Bolivia’s capital city, La Paz. Powerful rivals, such as ex-President Carlos Mesa, who ran against Morales in October’s election and has indicated he would stand again in May, have pledged to rethink the petrochemical plans if given the chance, citing fatal flaws.

Others have accused the government of misleading the public.

Wilman Cardozo, an assemblyman in Gran Chaco, the proposed site in southern Bolivia of a US$2 billion propylene and polypropylene plant, told journalists that gas industrialization was a ploy designed to garner votes for Morales.

“The previous administration had, as they say, a political propaganda,” Alvaro Rios, Bolivia’s hydrocarbons minister from 2003 to 2004 and senior partner at energy consultancy firm Gas Energy Latin America, told Breakbulk.

SHADOW OVER INDUSTRIALIZATION

But doubts about the viability of industrializing Bolivia’s natural gas had surfaced well before Morales’s downfall.

Of all the major proposals put forward in 2013, none have progressed past the technical studies stage; the Bulo Bulo plant remains Bolivia’s only up-and-running world-scale petrochemical achievement.

Detractors point to three key reasons for the failure: YPFB’s lack of financial clout amid lower commodity prices, ill-defined markets and commercialization strategies and, crucially, dwindling natural gas reserves and production.

According to Jorge O. Buhler-Vidal, director of Polyolefins Consulting, a newly installed YPFB administration is reviewing its reserves mainly to ensure the country is able to continue shipping gas to Brazil and Argentina.

“Unfortunately for Bolivia, both

neighboring countries have developed other sources of natural gas, such as lower cost LNG (liquefied natural gas) imports and, for Argentina, the newly developed Vaca Muerta fields. Therefore their needs for Bolivian gas are not as critical as they used to be,” BuhlerVidal said.

The annulment in December of a public tender to carry out the frontend engineering design for the Gran Chaco polypropylene facility is the latest petrochemical setback, with YPFB claiming the proposals it received had failed to meet bidding requirements.

Construction plans had been scrapped altogether in early 2018 after authorities said further studies were required to analyze new technologies and potential markets, only for a new tender to be launched in August last year.

A YPFB spokesperson was unable to update Breakbulk on the future of the plant.

“I firmly believe these projects are going to get sidelined, they are just not going to get done,” Rios said. “Any new activity undertaken by YPFB is going to focus on consolidating existing projects and generating enough raw material, as this is a major problem for these types of plants. For now, it’s a pipedream to talk about additional petrochemicals in Bolivia.”

Even the Bulo Bulo plant, built by South Korea’s Samsung Engineering, has suffered feedstock shortages and

technical issues that have forced several unplanned shutdowns since it came online. The facility is operating at just 30 percent to 40 percent of its installed capacity.

“Commercial engineering has to be carried out to bring the plant closer to its design capacity so it can generate sufficient resources, cover operating costs and recover capital. I think the plant has been poorly managed by YPFB,” Rios said.

BENEFITTING FROM REGIONAL DELAYS

Despite the hurdles, delays in getting rival petrochemical projects off the ground in neighboring countries provide a spark of hope for Bolivia.

Impressive feedstock developments in Argentina and Brazil have yet to translate into any significant downstream expansion, while Peru’s plans to build a regional petrochemical hub were derailed three years ago after the government annulled a contract with Brazilian conglomerate Odebrecht to build a US$5 billion pipeline that would provide proposed plants in the south of the country with natural gas feedstock.

According to Buhler-Vidal, amid competition from U.S. and Asian firms, only one regional complex for polyethylene and polypropylene production would be necessary to supply Bolivia and South America’s Pacific coast.

“The potential markets are therefore still available,” he said.

Political upheaval in Bolivia has created a temporary demand lull for project cargo transport across all industrial sectors. / CREDIT: INBOLPACK.

www.breakbulk.com BREAKBULK MAGAZINE 41

REGIONAL REVIEW

Power generation and agribusiness have surpassed the oil industry as the key sectors for project cargo, an Inbolpack executive said.

CREDIT: INBOLPACK.

with exceptionally large weights and dimensions, operations are complicated.”

The landlocked country also has to rely on Pacific Coast ports such as Arica and Iquique in Chile and Ilo and Matarani in Peru for exit and entry of cargo, although for some projects, such as Bulo Bulo, heavy components are transported by barge up the Parana River from Uruguay to small ports on the border of Brazil and Bolivia.

YPFB is reviewing its reserves mainly to ensure Bolivia is able to continue shipping gas to Brazil and Argentina.

CREDIT: YPFB.

FOOT OFF THE GAS

While petrochemical expansion stalls, other industrial sectors in Bolivia are strong enough to pick up the slack for breakbulk movers, despite a slowing economy that is expected to grow this year by 3.8 percent compared with 3.9 percent last year and 4.2 percent in 2018.

Luis Vacaflores, head of special projects and logistics at Inbolpack, a Bolivia-based company that transported heavy breakbulk pieces for the Bulo Bulo plant, said power generation and agribusiness have surpassed the oil industry as the key sectors for project cargo.

The buildout of Bolivia’s energy sector, in particular, has been a boon for logistics companies, although the fate of the Morales administration’s US$27 billion investment plan to boost generating capacity to 6 gigawatts by 2025 remains unclear.

42 BREAKBULK MAGAZINE www.breakbulk.com

Some 30 hydroelectric, wind, solar, combined cycle, biomass and geothermic construction projects are under study in Bolivia, according to state-owned electricity company Empresa Nacional de Electricidad, or ENDE. The previous government also invested heavily in transport infrastructure, although the logistical challenges of shifting cargo to remote corners of Bolivia persist.

“Obviously international design and construction standards were met when the country’s roads were built, but what was not taken into consideration was a future in which there was the possibility of industrialization and consequently the movement of factories and power plants and other equipment,” Vacaflores said.

“When it comes to transporting special equipment and components

For now, though, the political upheaval in Bolivia has created a temporary demand lull for project cargo transport across all industrial sectors.

Evert Schipper, a Bolivia-based executive at Dutch firm SDW Shipping, the leading shipping line to the west coast of South America, said that 2014 to 2018 were “good years” for breakbulk and project cargo.

“It fell down a little bit in 2019,” said Schipper, whose company transports about 2,000 units of used trucks and machinery each year from Europe to Bolivia.

“Right now you can see that also there are no new tenders. A temporary president is just leading the country to new elections, so I think all the projects that were already being executed are being executed, but all the rest have been put on hold.

“But the country is in development, everything is going up, and I am optimistic.” BB Colombia-based Simon West is freelance journalist specializing in energy and biofuels news and market movements in the Americas.

ISSUE 2 / 2020

INSURANCE

BACK CONTROL

Getting to the Root of Breakbulk Cargo Claims

R

outine insurance claims for alleged shortages in breakbulk cargoes of bagged rice, flour and sugar in West Africa show the need for charterers to take a more active role in showing that shipments are accurately tallied.

Les Rice is an ex-mariner turned consultant to protection and indemnity clubs and cargo insurers. He investigates insurance claims that have been made against carriers and, in major cases, serves as an expert court witness.

Rice has investigated 268 major claims on bagged rice in the last 36 years. Major cases that he has worked on include a claim on a bagged rice cargo for US$42 million in Benin in 2008 and a claim for US$22 million in Liberia in 2015. As he was interviewed for this article, he had several 44 BREAKBULK MAGAZINE www.breakbulk.com

files on his desk relating to recent claims on bagged rice in excess of US$1 million, all relating to cargoes shipped from Asia to West Africa.

The basic problem, he said, is that receivers, shipowners and/or charterers are all carrying out their own separate tallies of shipment quantities. These tallies, he argues, are mostly incompetently made and unreliable. On-the-ground investigation shows that bags are usually not even counted, while damage to bags through moisture or chemicals is also not properly measured, he said.

“The whole point of a tally is that the bags are counted,” but rates for doing the work are so poor that there is no incentive to do it properly, he said. Tally figures are often decided before a ship is unloaded, and at some West African ports there is coercion to undercount the cargo. Agents and insurance company representatives, he said, get a slice of the pie when

customs services impose a levy for shortage. He has surveyors openly asking: “Where is my customs fine?”

John Dalby, who founded Maritime Risk Management in 1986 and is based in Sierra Leone, is an expert in loss control and fraud prevention in oil and dry bulk cargoes. He argues that “there is an accepted degree of loss” that is usually resolved “in a gentlemanly way.” Dalby sees a problem in the use of ‘allegedly’ independent surveyors by underwriters, who build in a percentage for loss in transit – this loss can be deliberate, or the result of inexperienced tallying, he said.

FALSE ECONOMY

Marine insurance provider Skuld gives the example of a cargo of bagged rice shipped from Ko Sichang, Thailand, to Abidjan, Ivory Coast. A shortage of 8,922 bags was recorded on completion of discharge, leading ISSUE 2 / 2020

CREDIT: SHUTTERSTOCK.

BY DAVID WHITEHOUSE

INSURANCE

to an insurance claim of US$437,500.

The local agent responsible for payment of the fine to customs demanded a guarantee for his costs before allowing the vessel to leave. No pre-loading survey had been conducted, so the owners were unable to prove the quantity or condition of the rice which had been loaded. They therefore had no grounds to defend the shortage claim.

The claims that end up being paid by insurers are “essentially a discount of the sale price,” Rice said. “Insurance has been used as a way of getting a discount. Some people see insurers as an ATM machine.”

Many insurers, he argues, take the path of least resistance by making a counteroffer to get the claim down. If they can show that the claim has been reduced, it’s an easy way of appearing to have performed well in a “tick-box claims culture.”

“Insurers try to keep the costs down,” he said. “The cheapest option is to go to a guy who doesn’t even go to the ship.”

Rice argues that coordination between all parties is needed to ensure consistency. In 2019, he was able to achieve that for a major rice trading company shipping rice to West Africa.

He drew up a protocol under which tallies were agreed on a hold-by-hold basis, with discrepancies being discussed and reconciled. He was able to implement the protocol despite “huge resistance” by refusing to allow the ship to unload until the cargo inventory had been agreed by the receiver.

“It’s doable, but there has to be the will,” he said. “It all comes down to cooperation.” The charterer has to be the driving force which brings that cooperation about.

TAKING BACK CONTROL

Philip Norwood, senior underwriting executive at The Lloyd’s Market Association in London, gave a cautious welcome to Rice’s idea. West Africa, he said, is not the only region where the problem arises. Tallies for shipments to Japan can vary widely.

A shipmaster should be doing his own checks rather than relying on others, and shared tallies “would be an extra precaution,” he said. The proposal would enable discrepancies to be localized and show that they had occurred at destination. “It pins down the point 46 BREAKBULK MAGAZINE www.breakbulk.com

STEPS TOWARDS GREATER PROTECTION There are a number of practical steps that can be taken to reduce damage and loss to rice cargoes and to reduce the chances of insurance claims. These are outlined by the UK P&I Club in the 2018 version of its Carefully to Carry guide.

Wet damage accounts for more than one-third of rice cargo claims and nearly half the associated costs, the guide says, with handling damages making up one-fifth of the claims. The ship’s master and chief officer should ensure the cargo is tested for moisture content. The maximum moisture level for rice to be shipped is 14.5 percent – anything above shows a high risk of damage. Skuld cautions against mixing low- and high-moisture content rice, as this can be damaging during transport as the damp rice is likely to affect the dry rice. Proper ventilation is especially important on voyages to West Africa, Skuld said, as day and night air temperatures will differ substantially.

Proper precautions are needed in the hold before loading. If there is any sign of previous insect or rodent infestation, holds should be sealed and fumigated, or sprayed with insecticide or rodent repellent, the UK P&I Club said. Rust and scale should be removed, and paint and

of the problem. Anything that aims at certainty would avoid a number of losses.”

However, agreeing on the inventory wouldn’t eliminate all risk, Norwood said – particularly in the hands of customs services who, on the ground, enjoy “a degree of omnipotence.” That’s an obstacle that isn’t going away. According to P&I Club Correspondents Budd Group, Senegalese customs in 2019 started appointing their own surveyors to check the quantities of cargo and levy fines. This simply reflects a strict interpretation of the Senegalese Customs Code, Budd Group said. The group even gives a case where an excess of cargo discharged resulted in a fine.

Budd Group advises denying customs boarding before the tally declaration has been completed and checked and

lime wash can be applied to avoid contact of the scaled ship side with the bagged rice. Thorough ventilation is needed after cleaning agents are used.

Most rice cargoes are fumigated after loading to kill insects. But for the charterer, this is usually done “only because it is required in the sales contract.” Some shippers are tempted to ask a fumigator for a full certificate while only applying a cursory dose, the P&I club said.

Fumigation needs to be carried out thoroughly and with proper safeguards as some substances that kill insects can also kill people.

Cargo shortage is identified by the guide as one of the costliest types of claim. Vietnam is seen by Skuld as a problem origin in terms of poor check tallies and unqualified surveyors. It said that it “might sometimes be useful” to utilize qualified third-party surveyors to record the condition of the ship, cargo and conduct of the operations. The crew should regularly monitor and ensure that surveyors are performing their tasks. A tally surveyor should be positioned at each cargo hold to record the quantity of bags loaded and to liaise with tally clerks. It is here, according to Rice, that the system is breaking down.

to delay lowering the gangplank if necessary.

The receivers, Rice said, are the key to ending customs omnipotence.

Insurers in London and New York, who face pressure from brokers to settle the claims, have to learn to manage the system, Rice argued. In West Africa, “the cargo receivers control what happens on the ground.

“Insurers are driving the claims by paying out” on the basis of “toilet paper reports,” Rice said. He can only recall ever seeing one western lawyer in a West African port in the last 15 years. “They rely on local firms and accept everything at face value.” BB David Whitehouse, a freelance journalist in Paris, is business and finance editor at The Africa Report.

ISSUE 2 / 2020

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FROM BREAKBULK.COM

UAE Gas Discovery ‘Hugely Significant’ Abu Dhabi National Oil Co., or ADNOC, and Dubai Supply Authority, or DUSUP, have signed an agreement to explore and develop the shallow gas resources between Saih Al Sidirah and Jebel Ali. The “Jebel Ali Project” follows the discovery of 80 trillion cubic feet of natural gas near Jebel Ali in the United Arab Emirates. The huge find, on the border between Abu Dhabi and Dubai, has already been ranked as the largest global gas discovery in more than a decade.

The discovery is likely to play a pivotal role in shaping the country’s gas market, according to analyst firm Wood Mackenzie.

“The find ranks as the largest global gas discovery since Galkynysh (South Iolotan) ... The Turkmen field was discovered in 2005,” said Liam Yates, Wood Mackenzie Middle East upstream analyst.

With shallower reserves than some of Abu Dhabi’s existing sour gas resources, the project is

HH Sheikh Ahmed bin Saeed Al Maktoum, director-general of DUSUP, and Sultan Ahmed Al Jaber, UAE minister of state and CEO of ADNOC, sign the agreement in the presence of HH Sheikh Mohammad bid Rashid Al Maktoum, crown prince of Dubai, and HH Sheikh Mohammad bin Zayed Al Nahyan, crown prince of Abu Dhabi. / CREDIT: ADNOC

expected to deliver much lower development costs and potentially reach production much sooner.

ADNOC and DUSUP will deploy capital, technology, and expertise

to develop and produce shallow gas resources and conduct further exploration in a bid to evaluate more volumes and secure development costs. BB

ADNOC Signs KBR for Ghasha Projects Industrial contractor KBR has signed a “major” services agreement with Abu Dhabi National Oil Co., or ADNOC, for work on the Ghasha Concession.

The scope of work includes management of successful engineering, procurement and construction

contractors for Packages A & B of the Dalma Gas Development Project, Packages 1-5 of the Hail & Ghasha Development Project, Hail & Ghasha Islands Project as well as the Deep Gas Project.

The project management consultancy services contract is expected

to be performed over four years with option to extend for a further two more years.

As the state-owned oil company of the UAE, ADNOC controls some of the largest oil and gas reserves in the world and is ranked as one of the largest oil companies by production. BB

Al-Bader Transports Beira Panels Freight forwarder Al-Bader Shipping has delivered a cargo of steel panels from Kuwait to Mozambique.

A total of 500 outsized panels were transported from Shuwaikh port in Kuwait, weighing 581 tonnes. The goods were delivered to Beira Port, Mozambique, within

48 BREAKBULK MAGAZINE www.breakbulk.com

a tight timeframe of 14 days. “The team’s work began with physical inspection of the cargo, processing the customs clearance with all necessary permissions and EX-Works, which included transportation, loading, cargo survey and double handling at port, loading it onto a

chartered BBC vessel California,” Vipin Rajan, services manager at AlBader, explained.

Based in Kuwait, Al Bader is a member of the Project Cargo Network, which connects breakbulk handlers in more than 100 countries. BB ISSUE 2 / 2020

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FROM BREAKBULK.COM

DP World Poised for Senegal Project DP World has confirmed that it is close to sealing agreements on the construction of a new port and economic zone in Dakar, the capital of Senegal.

In posts on Twitter, the Group Chairman and CEO of DP World, Sultan Ahmed bin Sulayem, said that he had met and spoken with the president of Senegal, Macky Sall, about the ports operator’s role in the development of the port.

According to the UAE’s state-run WAM news agency, the project is designed to transform Dakar into a major logistics hub and gateway to west and northwest Africa. Sultan bin Sulayem added that the economic zone in Dakar will serve as a “great aggregator of cargo.”

DP World has designed a master

plan for the development of Port de Futur as a multipurpose port, including economic and logistics zones adjacent to the new Blaise Diagne International Airport in Senegal.

The news builds on the growing trading relationship between the two countries. According to UAE Ministry of Economy figures, the volume of trade exchanged between the UAE and Senegal between 2011-2018 amounted to AED15.2 billion. Nonoil foreign trade during the first half of 2019 amounted to about AED1.25 billion, with a growth rate of about 4.8 percent compared with the same period in 2018. Non-oil exports from the UAE to Senegal during the first half of 2019 were about AED174 million, up more than 27 percent compared with the first half of 2018. BB

HH Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, receives Macky Sall, President of Senegal. / CREDIT: WAM

Samsung Scoops Hawiyah Unayzah Contract National energy company Saudi Aramco has selected Korean contractor Samsung Engineering for the development of a gas reservoir storage project in Saudi Arabia.

The firms signed a US$1.85 billion deal for the Hawiyah Unayzah Gas Reservoir Storage, or HUGRS, project, located 260 kilometers east of the capital Riyadh.

Scope for work on the ambitious

HUGRS project involves construction of a gas injection facility equipped with booster compressors, capable of processing 1,500 million standard cubic feet of gas per day.

The development of the HUGRS facility is part of a push by Saudi Arabia to develop its domestic downstream infrastructure, which is supporting a raft of breakbulk activity across the country.

One of the largest oil firms in the world, Saudi Aramco, under the Kingdom’s 2030 Vision program, has plans for a three-phase energy and industrialization hub at Salman Energy Park which will act as a locus for breakbulk activity and manufacturing.

Last year, Saudi Aramco made its much-awaited stock market debut. BB

Dubai-based project forwarder Fleet Line Shipping, or FLS, has handled six drilling machines in Jebel Ali. Each machine measured 11.5 x 6 x 4 meters and weighed 55 tons with each tower measuring 25 meters long and weighing 25 tons.

The cargo arrived as breakbulk moves on three container ships and was then transported to the project site some 200 kilometers away from the port. BB 50 BREAKBULK MAGAZINE www.breakbulk.com

CREDIT: FLS

FLS Moves Drilling Units

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INSURANCE

HIDDEN EXPOSURE

BY LARS GUSTAFSON

Worrying Lack of Coverage for Cyber Risks

52 BREAKBULK MAGAZINE www.breakbulk.com

port operators would account for half of all related losses, while businesses affected along the supply chain would account for 21 percent of losses, and logistics and cargo-handling companies would make up 16 percent of losses. Business interruption costs would account for 60 percent of all losses.

Because so many IT systems used in the logistics industry are connected to the Internet, such an attack also would trigger a domino effect impacting business operations in the downstream transportation, aviation, aerospace, manufacturing and retail sectors. Businesses in Asia would feel the most impact, with losses estimated as high as US$27 billion, followed

by Europe, which would likely take a US$623 million economic hit, and North America, where losses would amount to US$266 million, the report found.

Despite this huge exposure affecting so many different components of global shipping and other related

industries, the report estimated that 92 percent of economic costs stemming from such widespread IT system disruption would be uninsured, creating a gap of US$101 billion should an extreme cyberattack like that depicted in the report occur.

AWARENESS OF WIDER RISKS

Companies that transport cargo are using more Internet-connected technology today than ever before to track cargo shipments, transfer connections, storage and just-in-time deliveries, making them especially vulnerable to the cyberattack scenario depicted in the Lloyd’s-Cambridge report. But there are many other threats lurking in cyber space that can potentially take down the breakbulk and project cargo market, including: • Ransomware/extortion attacks in which cyber criminals download malicious code in IT systems to seize control of them and then demand payment to release them.

ISSUE 2 / 2020

CREDIT: SHUTTERSTOCK.

S

hipping operations are more exposed to cyber risks than many other businesses because of their increased reliance on technology and the global interconnectivity of the maritime supply chain.

In fact, just one cyberattack on the major Asia-Pacific ports could trigger US$110 billion in economic losses – equivalent to nearly half the cost of all the natural catastrophes that occurred worldwide in 2018, according to a recent report published by insurer Lloyd’s of London. The study, conducted by the University of Cambridge Centre for Risk Studies in partnership with Lloyd’s, was based on a potential attack scenario involving a software virus scrambling cargo database logs at 15 major ports in Japan, Malaysia, Singapore, South Korea and China.

According to the report, which was conducted on behalf of the Cyber Risk Management (CyRiM) project, a research initiative led by Singapore’s Nanyang Technological University’s Insurance Risk and Finance Centre,

• Social engineering where cyber criminals masquerade as company officers and order payments or fund transfers to offshore accounts that they control.

• Phishing attacks in which cybercriminals hack into IT systems and recover logins and passwords, enabling them to access and drain bank accounts.

• Denial-of-service attacks where robotic hackers bombard IT systems with so many requests for information that it causes them to crash.

While breakbulk businesses can take precautions to shield their operations from cyberattacks, such as installing firewalls and anti-virus software, they have little or no control over how well their business partners are protected. Cybercriminals can access IT systems through many portals other than the front door. In the business world, that translates into a multitude of vendors, suppliers and other partners whose level of cybersecurity may be well below that of your company.

Cyber insurance can help breakbulk businesses survive should they fall victim to either a direct or indirect cyberattack. It provides both first-party and third-party coverage, compensating breakbulk businesses for such losses as: • Lost income and expenses incurred because of network disruption or inability to access a computer system due to cyberattack.

• Additional storage costs if cargo cannot be delivered due to a cyberattack.

• Expenses and payments (including ransom) to a third party to avert potential damage.

• Costs associated with replacement of a computer system impacted by security compromise.

• Cost of audits by a Qualified Security Assessor to certify Payment Card Industry, or PCI, compliance following a security breach.

• Cost of PCI Assessments levied in the wake of a breach involving credit cardholder information.

Cyber policies also cover breach response costs including:

COUNTDOWN TO CYBER READINESS The countdown is on for heavy-lift and multipurpose ships to be ready for the International Maritime Organization’s cyber risk management ruling.

The IMO’s Maritime Safety Committee has adopted Resolution MSC.428(98) - Maritime Cyber Risk Management in Safety Management Systems, which encourages flag state administrations to ensure that cyber risks are appropriately addressed in existing safety management systems no later than the first annual verification of the company’s Document of Compliance after Jan. 1, 2021.

The guidelines provide high-level recommendations on maritime cyber risk management to safeguard shipping from current and emerging cyber threats and vulnerabilities, and include functional elements that support effective cyber risk management. The recommendations can be incorporated

into existing risk management processes and are complementary to the safety and security management practices already established by IMO. In readiness for the deadline, classification society Bureau Veritas, or BV, has introduced a Cyber Managed class notation. Paillette Palaiologou, vice president for the Hellenic Black Sea & Adriatic Zone at Bureau Veritas, explained that the Cyber Managed notation provides “a holistic yet pragmatic response to cyber threats,” reflecting industry needs and cyber security best practice.

Launched in Nov. 2019, the Cyber Managed notation was co-developed

by BV and external marine security experts as part of joint technical working groups organized by the society.

BV expects that more than 100 ships will be operating under its Cyber Managed notation by the end of the year.

• Hiring a crisis public relations consultant to mitigate reputational damage.

• IT forensics experts to isolate and contain a cyberattack.

• Customer notification, credit monitoring and other costs to meet other legal requirements.

• The cost of regulatory investigations and fines levied for violations of privacy laws.

• The cost of defending any lawsuits filed by affected businesses or individuals seeking to recover damages.

Even if your company has the best IT security in place, you can still be

hacked. Many businesses erroneously think that their property, liability, crime or Directors & Officers coverage would respond in the event of a cyberattack. But those other business insurance policies either exclude cyber risk or provide very limited coverage for this exposure. Purchasing cyber insurance is essential to ensuring business resiliency in the aftermath of a cyberattack. BB Lars Gustafson is managing director of Gallagher’s Marine practice, www.ajg.com. www.breakbulk.com BREAKBULK MAGAZINE 53

BACK PAGE CORRUPTION PERCEPTIONS INDEX 2016-2019

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

COUNTRY

2019

1 New Zealand 87 1 Denmark 87 3 Finland 86 4 Switzerland 85 4 Singapore 85 4 Sweden 85 7 Norway 84 8 Netherlands 82 9 Luxembourg 80 9 Germany 80 11 Iceland 78 12 Canada 77 12 United Kingdom 77 12 Australia 77 12 Austria 77 16 Hong Kong 76 17 Belgium 75 18 Ireland 74 18 Estonia 74 20 Japan 73 21 UAE 71 21 Uruguay 71 23 USA 69 23 France 69 25 Bhutan 68 26 Chile 67 27 Seychelles 66 28 Taiwan 65 29 Bahamas 64 30 Barbados 62 30 Portugal 62 30 Qatar 62 30 Spain 62 34 Botswana 61 35 Brunei Darussalam 60 35 Israel 60 35 Slovenia 60 35 Lithuania 60 39 St Vincent & Grenadines 59 39 Korea, South 59 41 Poland 58 41 Cyprus 58 41 Cabo Verde 58 44 Costa Rica 56 44 Latvia 56 44 Czech Republic 56 44 Georgia 56 48 Dominica 55 48 Saint Lucia 55 50 Malta 54 51 Rwanda 53 51 Grenada 53 51 Italy 53 51 Saudi Arabia 53 51 Malaysia 53 56 Namibia 52 56 Mauritius 52 56 Oman 52 59 Slovakia 50 60 Jordan 48

CPI SCORES 2018 2017 2016 87 88 85 85 85 85 84 82 81 80 76 81 80 77 76 76 75 73 73 73 70 70 71 72 68 67 66 63 65 68 64 62 58 61 63 61 60 59 58 57 60 59 57 56 58 59 58 57 55 54 56 52 52 49 47 53 51 52 50 49

89 88 85 85 84 84 85 82 82 81 77 82 82 77 75 77 75 74 71 73 71 70 75 70 67 67 60 63 65 68 63 63 57 61 62 62 61 59 58 54 60 57 55 59 58 57 56 57 55 56 55 52 50 49 47 51 50 44 50 48

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

#

COUNTRY

2019

60 Greece 48 60 Cuba 48 63 Croatia 47 64 Sao Tome & Principe 46 64 Vanuatu 46 66 Montenegro 45 66 Senegal 45 66 Belarus 45 66 Argentina 45 70 Romania 44 70 Hungary 44 70 South Africa 44 70 Suriname 44 74 Jamaica 43 74 Bulgaria 43 74 Tunisia 43 77 Solomon Islands 42 77 Bahrain 42 77 Armenia 42 80 China 41 80 Morocco 41 80 Ghana 41 80 India 41 80 Benin 41 85 Burkina Faso 40 85 Lesotho 40 85 Trinidad & Tobago 40 85 Kuwait 40 85 Guyana 40 85 Indonesia 40 91 Serbia 39 91 Turkey 39 93 Sri Lanka 38 93 Timor-Leste 38 93 Ecuador 38 96 Colombia 37 96 Tanzania 37 96 Ethiopia 37 96 Vietnam 37 96 Gambia 37 101 Kosovo 36 101 Bosnia & Herzegovina 36 101 Panama 36 101 Thailand 36 101 Peru 36 106 Albania 35 106 Brazil 35 106 Mongolia 35 106 Cote d’Ivoire 35 106 North Macedonia 35 106 Algeria 35 106 Egypt 35 113 Eswatini 34 113 Zambia 34 113 Philippines 34 113 El Salvador 34 113 Kazakhstan 34 113 Nepal 34 119 Sierra Leone 33 120 Niger 32

CPI SCORES 2018 2017 2016 45 47 48 46 46 45 45 44 40 47 46 43 43 44 42 43 44 36 35 39 43 41 41 40 41 41 41 41 37 38 39 41 38 35 34 36 36 34 33 37 37 38 37 36 35 36 35 37 35 37 35 35 38 35 36 35 31 31 30 34

48 44 47 47 49 49 46 46 43 n/a 46 45 45 45 44 40 39 36 48 48 45 48 43 45 41 45 44 39 43 41 42 41 39 42 36 43 35 33 41 40 40 37 40 43 40 40 39 36 42 42 42 39 41 35 39 41 38 34 37 37 41 42 40 41 38 36 38 35 32 31 37 37 36 32 35 34 35 33 30 26 39 36 38 39 37 38 37 35 37 35 38 39 37 40 36 38 36 34 35 37 33 34 32 34 39 n/a 37 38 34 35 33 36 31 29 31 29 30 30 33 35

#

COUNTRY

2019

120 Pakistan 32 120 Moldova 32 123 Bolivia 31 123 Gabon 31 123 Malawi 31 126 Djibouti 30 126 Azerbaijan 30 126 Ukraine 30 126 Kyrgyzstan 30 130 Maldives 29 130 Togo 29 130 Mali 29 130 Myanmar 29 130 Laos 29 130 Mexico 29 130 Guinea 29 137 Liberia 28 137 Dominican Republic 28 137 Paraguay 28 137 Papua New Guinea 28 137 Russia 28 137 Lebanon 28 137 Kenya 28 137 Mauritania 28 137 Uganda 28 146 Iran 26 146 Honduras 26 146 Guatemala 26 146 Bangladesh 26 146 Nigeria 26 146 Mozambique 26 146 Angola 26 153 Comoros 25 153 Cameroon 25 153 Central African Rep 25 153 Uzbekistan 25 153 Tajikistan 25 158 Madagascar 24 158 Zimbabwe 24 160 Eritrea 23 161 Nicaragua 22 162 Cambodia 20 162 Chad 20 162 Iraq 20 165 Burundi 19 165 Congo 19 165 Turkmenistan 19 168 Haiti 18 168 Dem.Rep. of the Congo 18 168 Libya 18 168 Guinea Bissau 18 172 Korea, North 17 173 Venezuela 16 173 Equatorial Guinea 16 173 Sudan 16 173 Afghanistan 16 177 Yemen 15 178 Syria 13 179 South Sudan 12 180 Somalia 9

CPI SCORES 2018 2017 2016 33 33 29 31 32 31 25 32 29 31 30 32 29 29 28 28 32 30 29 28 28 28 27 27 26 28 29 27 26 27 23 19 27 25 26 23 25 25 22 24 25 20 19 18 17 19 20 20 20 17 16 14 18 16 16 16 14 13 13 10

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

32 30 33 35 31 30 30 29 28 36 32 32 28 30 30 27 37 31 30 28 29 28 26 27 25 29 30 28 26 28 27 18 24 26 20 21 25 26 22 18 26 21 20 17 20 20 22 20 21 14 16 12 17 n/a 14 15 14 13 11 10

Source: Transparency International, the 2019 Corruption Perception Index, www.transparency.org/cpi2019.

54 BREAKBULK MAGAZINE www.breakbulk.com

ISSUE 2 / 2020

the world is waiting for you

Where the Networking Never Stops And New Project Business Is Made Ask about the Breakbulk Global Event Partners program Exceptional promotional opportunities for exhibitors at three or more events UPCOMING EVENTS

26-28 May 2020 | Bremen

29 Sept-01 Oct 2020 | Houston

3-4 August 2020 | Shanghai

9-10 February 2021 | Dubai

www.breakbulk.com

The safe global transport of heavy lift project cargo demands a level of professionalism in people - commercial, chartering, operations engineering and crew - that is hard to achieve and harder to sustain.

Since 1995, the world's most dynamic industries have trusted AAL to deliver just that.

aal@aalshipping.com I www.aalshipping.com