PHASE-GATE DECISION-MAKING
n
UNSHACKLING EX-IM BANK
n
TALENT’S VANISHING ACT
ISSUE 5 / 2017
Innovation to Overhaul Projects and Processes
TECHNOLOGY’S HEAVY LOAD
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contents
Cover Story
10
24 LOGISTICS PERSPECTIVE
STOP AND THINK Better Decisions Built on Better Processes
32 TRADE NOTES
SCUTTLED DEALS, SOMBER SUPPLY CHAINS Debilitating Effects of Handcuffed U.S. Ex-Im Bank
10 TECHNOLOGY’S HEAVY LOAD Innovation to Overhaul Projects and Processes
32
50
42 ENERGY UPDATE
PERMANIA ROARS ON
Fueling Texas Oil Boom for Decades
50 REGIONAL VIEW
RECOVERY BEGINS
Preparedness, Teamwork Key to Post-Harvey Rebuilding
42
56 PROFILE
THE EXPERT’S EXPERT Evolution of a Project Logistician
ON THE COVER: Images via Shutterstock, Port Houston and Fluor, edited by Catherine Dorrough 4 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
RICKMERS-LINE
contents
94
62 BREAKBULK CARES
A VISION REALIZED
Workers’ Fund Takes the Strain
64 EXECUTIVE SUMMARY
BRAWN AND BRAINS Swan Song for Simple Multipurpose Vessel?
68 LOGISTICS PERSPECTIVE VANISHING ACT
Market Recovery Little Solace for Lost Talent
94 NO MOUNTAIN HIGH ENOUGH Challenges and Rewards of Bolivian Mega-contract
62
86
76 REGIONAL REVIEW
MILITARY MIGHT
Spending Up Under Thailand’s New Rulers
86 REGIONAL REVIEW
CORRIDORS OF ENERGY Projects Support Lighting Up of Africa
100
100 PROFILE
BIG BOYS CLUB
Harren Weighs Into Heavy Pack
Editorial 8 n Legal Spotlight 108 n Thought Leaders 112 n ABA’s Straightforward Approach 118 n Start-up Looks to Fill Talent Holes 122 BB Americas TechZone Preview 126 n BB Southeast Asia Recap 134 n Index 142 n Photo Contest Winner 152 n The Last Word 154 6 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
d ou Pr L GP N M be em in rS
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editorial
RESILIENCE
T
hese are trying times. Define your terms – economically, politically, socially, environmentally – and you find supporting evidence that the circumstances we face as a society are unprecedented. Each day’s news and events turn hyperbole into understatement. Within our industry, shipping veterans shake their heads as the project cargo trough-turned-chasm continues to stretch beyond each guardedly optimistic forecast that a market upturn is on the horizon. Hard-fought competition for what project work becomes available merely extends survival for the victor. Bids reflect slashed rates, costs cut to the bone and rising risks for the sake of securGary Burrows ing the business. It’s a harrowing climate that demands resilience, as well as industry acumen, to fight on. A trio of analyses in this issue focus on the carrier market. Long-needed adjustments are happening among competitors (“Brawn and Brains,” Susan Oatway of Drewry, page 64; “Capacity Concerns Linger,” Dirk Visser of Dynamar, page 112; and “Rough Road to Recovery,” Panos Patsadas, page 114). As of 2016, consolidations and insolvencies, along with increasing scrapping, is leading to some market improvement, and some anticipation it will continue. How much further bloodletting will occur among carriers and investors is a topic of debate. The three analyses differ in their calls for when a pronounced turnaround will come, but there are increasing signs that a recovery is coming, however subdued. If and when that recovery trickles in, the one certainty is that any plans to return to SOP are DOA. Patsadas, co-founder and managing director of UK-based Target Maritime 8 BREAKBULK MAGAZINE www.breakbulk.com
Transport, expects the MPV sector to “undergo much-needed structural change.” Throughout the industry, business models are undergoing revisions as survivors look for any competitive edge. Innovative business concepts and cutting-edge technologies may be just what is needed. In our cover story (“Technology’s Heavy Load,” page 12), Carly Fields guides Breakbulk through a wave of new innovation sweeping the breakbulk and project cargo business. With enough options in technologies and functionalities to require virtual reality glasses, there’s a temptation to dive right in – without necessarily seeing the bottom. Many of us recall the promise and enthusiasm of the dot-com boom and bust. The best minds of a generation unearthed brilliant opportunities and found eager investors – but failed to realize their dreams. Survivors found workable solutions, showed the resiliency to make informed decisions in terms of innovation, accepted risk and were able to learn, adapted and advanced beyond their mistakes and engaged with business partners to navigate disruptive change successfully. Innovation trends feature wonderful toys, but it’s going to be the same sort of approach that enables industry partners to confidently sail this next wave. Resiliency shapes the decision-making process as well. In a feature, Thomas Timlen explores an MIT Sloan study and offers new wrinkles to the stage-gate review process (“Stop and Think,” page 24). Rather than a “go/kill” action, MIT Sloan’s decision model uses a decision tree analysis that offers options and possibilities otherwise eliminated by the more common binary process. Herein, the decision-making process creates a resiliency that can allow success to be found within a project that might otherwise be doomed. Then there is the resiliency that can only be found in one’s core, in heart and soul, during the most heart-wrenching disasters. On an operational level, our coverage of the practical resurgence of Texas’ industry operations in Harvey’s aftermath (“Recovery Begins,” page 50), demonstrates the resiliency of business. But the strength and unfathomable spirit of people and communities as they not only persevere but thrive, is resiliency uncharted, and an inspiration that deserves our prayers, our support and our respect.
EDITORIAL DIRECTOR Gary G. Burrows / +1 904 535 5460 gburrows@breakbulk.com NEWS EDITOR Carly Fields cfields@breakbulk.com HEAD DESIGNER Catherine Dorrough DESIGNER Mark Clubb REPORTERS Paul Scott Abbott Jaya Prakash Kerry Dimmer Malcolm Ramsay Alan M. Field V.L. Srinivasan Lori Musser Thomas Timlen BREAKBULK EDITORIAL BOARD John Amos Amos Logistics
Ed Bastian
BBC Chartering
Murray Cooper
McDemott International Inc.
Dennis Devlin DB Schenker
John Hark
Bertling Project Logistics
Dennis Mottola Bechtel Corp.
William Moyersoen
ArcelorMittal Antwerp Logistics
Albert Pegg
Antwerp Port Authority
Dirk Visser
Dynamar D.V.
Grant Wattman
Agility Project Logistics
MANAGING DIRECTOR Alli McEntyre / +353 21 477 3808 amcentyre@breakbulk.com ACCOUNT MANAGER Robert Janusauskas / +353 21 477 3808 rjanusauskas@breakbulk.com SUBSCRIPTIONS To subscribe, email gburrows@breakbulk.com, or call from inside the U.S. +1 904 535 5460 between 8:00 am and 5:00 pm EST. You can also subscribe at www.breakbulk.com/subscribe. A publication of ITE Group plc Transport & Logistics business 105 Salisbury Road London NW6 6RG, UK.
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ISSUE 5 / 2017
INNOVATION TO OVERHAUL PROJECTS AND PROCESSES
TECHNOLOGY’S HEAVY LOAD BY CARLY FIELDS
eird and wonderful jargon, idioms and acronyms are the unforgiving prerequisites of involvement in and understanding of industrial sectors; the breakbulk and project cargo business is no exception. But a new wave of technology-based lingo is challenging those language barriers even further: innovation in today’s project cargo and breakbulk industry is defined by a collection of two-letter contractions: AI, ML, AR, VR and MR and involvement with one, two or all of these promises to shape growth potential in the sector. PwC predicts that artificial intelligence, or AI, will drive gross domestic product, or GDP, gains of US$15.7 trillion, and that global GDP will be 14 percent higher in 2030 as a result of AI. It described AI as the biggest commercial opportunity in today’s fast-changing economy. Gerard Verweij, global data and analytics leader at the multinational professional services company, warned that no sector or business is in any way immune from the impact of AI: “The impact on productivity alone could be competitively transformational and even disruptive. Businesses that fail to apply AI could quickly find themselves being undercut on turnaround times as well as costs and experience, and may lose a significant amount of their market share as a result.” And that’s just one of the technology innovations raining down on the project cargo industry. Bechtel applies its trademarked Engineered Logistics moniker to describe the collection of these various techbased tools and initiatives because it believes that the project cargo industry is no longer managing transportation in the traditional way. »
Credits: Images via Shutterstock, Highland Project Logistics, Manson Construction Co., Port of Galveston, Berard Transportation. Illustration by Catherine Dorrough. www.breakbulk.com BREAKBULK MAGAZINE 11
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cover story
TAKING TO THE SKIES Airship design and usability has moved on somewhat from the helium-filled blimps flying high over cities to promote tires and cameras. Today, industrial airships promise a payload of up to 3,000 tonnes and could soon become an alternative mode of transport for heavy-lift project cargoes. Add to that the fast-paced developments in the drone sector and project cargo movers might soon have some extra modes in their transportation arsenal. Graham Witton, managing director of air freight specialist Antonov Airlines, sees a future for airships and drones in last-mile delivery, especially in remote locations. Here, a heavy-lift cargo might be landed at a civilized airstrip with its final destination at the top of or at the other side of a mountain. “If that’s somewhere that you can’t get to with a plane, truck or train, that is where the drone or airship could come in, making that final delivery to an area that nothing else could reach. I personally think that in the future,” he said. Witton sees potential in commercial heavy-lift carriers cooperating with drone and airship operators to provide a through transportation service. While he said any immediate investment in development of either transportation mode is outside of Antonov’s current qualities and expertise, Witton did not rule out investment in the future. “I would not rule out our involvement in, say five years’ time – it depends how the market progresses. If it’s something we feel that we must do, we’ll will certainly think about it. To stay competitive, you need to keep your eye on the ball and find out what other people are developing,” he said. 14 BREAKBULK MAGAZINE
As an engineering company, we are blending industrial engineering methodology with expert knowledge to fundamentally change how we approach problems.” – Steve Spoljaric, Bechtel Oil, Gas, & Chemicals
“As an engineering company, we are blending industrial engineering methodology with expert knowledge to fundamentally change how we approach problems such as forecasting and predictability in shipping,” said Steve Spoljaric, procurement innovation team leader at Bechtel Oil, Gas, & Chemicals. Bechtel is particularly focused on augmented, mixed and virtual realities, or AR, MR and VR, especially when it comes to improving safety. All three offer the ability to visualize projects in advance of final engineering and long before fabrication starts, allowing EPCs to review plans with all stakeholders. “Using AR and VR to be more predictable removes contingency and reduces risk,” Spoljaric said, adding that the industry is only “scraping the surface of the potential of this technology.”
NO BOUNDARIES TO INNOVATION
The project cargo industry’s thirst to be more predictable is one of the main drivers of the development of innovative technologies. Spencer Askew, CEO of Teknowlogi, an AIdriven, cloud-based solution for the logistics industry, added that another driver for innovation in the logistics industry comes from companies’ requirements for on-demand data and better business process workflow management. Other drivers for innovation include the need for digital transformation and big data management, better
visibility, moves to automation, capacity constraints, dealing with an aging workforce, and succession planning. The quick march towards digitalization can also be attributed to customers’ more-demanding expectations of EPCs’ and forwarders’ technology, based on their experiences in their personal life with smart gadgets and widgets. Customers simply expect more digitally of their providers.
Anwar Siddiqui
Spencer Askew
Bahri Data
Teknowlogi
“Digitalization, data science and AI can bring an unparalleled level of innovation capabilities that can support this kind of transformation like has been done across many other industries,” said Anwar Siddiqui, Bahri Data president. For Bahri, advanced analytics and big data are particularly important in providing insight and foresight, and in meeting those increasing customer demands. “Any company that has an ISSUE 5 / 2017
cover story
Organizations should begin investigating technology solutions built on AI now so they can start taking advantage of the capabilities and benefits it has to offer.” –S pencer Askew, Teknowlogi
Credit: Shutterstock
edge due to data-driven decision capabilities and insights will naturally benefit more in the commodities markets, trading, operating and is better positioned to achieve excellent top and bottom-line performance compared to its peers,” Siddiqui said.
DEALING WITH TOO MUCH CHOICE
But with a surfeit of technology and providers out there, breakbulk and project cargo operators can be forgiven for indecision when it comes to ascertaining which potential innovation technologies to investigate, never mind select. Bechtel’s Spoljaric recommends that project cargo/breakbulk companies get involved in pilot projects to enjoy the crown of “early adopter.” Indeed, Bechtel created its Future Fund in 2016 to 16 BREAKBULK MAGAZINE www.breakbulk.com
stimulate innovation (“Predictably Innovative,” Breakbulk Issue 5 / 2016, page 26). It was specifically tasked with seeking out new, disruptive ideas from Bechtel’s colleagues, suppliers and customers. The US$60-million fund resources the exploration, prototyping and piloting of ideas that offer the potential to improve Bechtel’s quality, safety, effectiveness and efficiency. The Future Fund works on an idea matrix to evaluate what gets funded and what is delayed allowing for technology to evolve and mature. Some ideas may require technology that hasn’t been developed or remains untested, and in that situation Bechtel assesses how it can support the development of that technology, either through collaboration with other innovation partners or simply by waiting for that technology to
catch up before further developing its concepts for implementation. Breakbulk and project cargo companies should also look to work with companies that provide industryspecific logistics ML and AI, versus Steve Spoljaric those that just talk about it. “These Bechtel Oil, Gas & Chemicals organizations should begin investigating technology solutions built on AI now so they can start taking advantage of the capabilities and benefits it has to offer,” Teknowlogi’s Askew said. Biju Kewalram, vice president of ISSUE 5 / 2017
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operational transformation at global integrated logistics provider Agility, advised “escalating engagement” to make sense of the mass of choice of technology and solutions. Make a commitment to small pilot projects at the early stages of technology introduction to assess value and learn about the technology early, and then grow with the project as both the technology and the adoption evolve, he said.
INVESTMENT IN INNOVATION PROJECTS
Putting its money where its mouth is, Agility has committed to several innovation projects. Firstly, it has created a new technology venture to partner with start-ups and entrepreneurs that it believes have the potential to reshape the future of the industry. The idea is to look at new business models that Agility can help grow through its business and network. Secondly, it has invested in a company looking to revolutionize how road freight is booked in complex markets, pitched as an “Uber” for trucking. “We believe this business will be of interest to customers, shippers, transport suppliers and regulators in a number of emerging markets,” Grant Wattman, president and CEO, told Breakbulk. Thirdly, it has invested in solar technology that can be used for cooling warehouses. With the largest warehousing network in the Middle East, the appeal of the concept to Agility is obvious. Agility has also partnered with a company that has patented a revolutionary hybrid technology that reduces fuel consumption in existing trucking fleets by 30 percent. These savings are achieved by recycling otherwise wasted kinetic energy, and doing it through a simple, one-hour trailer retrofit. Wattman said: “Agility’s strategy is two-fold: transform the business we have today through technology, and anticipate new ways of doing business. In addition to believing these are exciting businesses in their own right – and ones that we can add value to by helping them help scale and enter new 18 BREAKBULK MAGAZINE www.breakbulk.com
DIGITAL DEFINITIONS AI – Artificial Intelligence
An area of computer science that emphasizes the creation of intelligent machines that work and react like humans.
ML – Machine Learning
An AI discipline geared toward the technological development of human knowledge. ML allows computers to handle new situations via analysis, self-training, observation and experience.
AR – Augmented Reality
A type of interactive, reality-based display environment that takes the capabilities of computer-generated display, sound, text and effects to enhance the user’s real-world experience. AR combines real and computer-based scenes and images to deliver a unified but enhanced view of the world.
VR – Virtual Reality
Refers to computer-generated environments or realities that are designed to simulate a person’s physical presence in a specific environment that is designed to feel real.
MR – Mixed Reality
A type of hybrid system that involves physical and virtual elements. Many experts describe MR as the sliding scale between a fully physical environment with no virtual elements, and a completely virtual environment.
IoT – Internet of Things
A computing concept that describes the idea of everyday physical objects being connected to the Internet and being able to identify themselves to other devices.
Big Data
Refers to a process that is used when traditional data mining and handling techniques cannot uncover the insights and meaning of the underlying data. Source: Techopedia.com
markets – we also believe that these partnerships are helping us build an eco-system for innovation in the company. Our technology ventures board, partnerships with academic institutions and venture capitalists, and portfolio companies, allow us to stay close to the most cutting-edge new ideas in our industry.”
OVERCOMING INGRAINED RELUCTANCE
But not everyone is as open to the new technology flooding into the sector. This is an industry long-criticized for its lack of collaboration and transparency, and its “closed shop” mentality. Can this state of mind ever be truly overcome? Agility’s Kewalram said it must and those with a “my data is too valuable to share” need a wake-up call. The dramatic disruption in supply chains to date has only been possible through collaboration at a data level between the participants in supply chains, he pointed out. “Trust – gaining and keeping it – has been an important part of this evolution,” he said. “Companies that put trust above proprietary data are able to deliver more responsive supply chains with lower costs.” Regardless of how valuable a company perceives its data to be, the reality is that data actually only becomes valuable in an interconnected world when it is shared and used for mutual advantage. “We emphasize and build trusting relationships to encourage data sharing, while at the same time pointing out that competitors willing to share data will gain advantage,” Kewalram said. Bechtel is also open to data sharing, particularly when it comes to safety, and takes a collaborative approach with service providers. “It is our intent to stay out in front of innovation – communicating our ideas, driving paradigm shifts. If we fail to collaborate, the ideas will be limited in their full potential,” Spoljaric said. Teknowlogi’s Askew agrees that transparency is lacking: “We continue to see companies try and leverage the lack of transparency as some sort of chess move – that never results in maximized business value or desired ISSUE 5 / 2017
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outcomes. Being ‘coy’ with business goals, strategy and data is not a healthy nor the most productive way to advance the organization.” Bahri’s Siddiqui said project cargo and breakbulk companies would do well to embrace the idea of co-petition, or cooperative competition, where companies come together to create something in an open-sourced environment, but compete in the way they serve and offer value to their customers. “Since the competition is about serving the customer and not about creating something that can be easily shared, co-creation not only helps companies drive growth, but it also moves the industry forward.”
FOLLOWING THE CLEVER MONEY Breakbulk asked interviewees to pinpoint the most valuable innovation that their company has embraced over the past year and what technology or innovation they are considering incorporating next. Steve Spoljaric, procurement innovation team leader at Bechtel Oil, Gas, & Chemicals: “Bechtel partnered with the University of Houston to develop a 5D simulation model of our module shipping programs that has the ability to scale to different module yards, schedules, routes, etc. We have started to use this model in all our estimates. Recently, we have advanced this model to be applied to the execution phase … a digital twin in the project cargo/breakbulk industry … to constantly reforecast and improve predictability.” Grant Wattman, president and CEO, Agility Project Logistics: “We are paying particular attention to
the massive spike in smart phone penetration and growing comfort with e-commerce in emerging markets. We believe that our customers, especially in the small and medium enterprise segment, will increasingly demand self-service capability and functionality online.” Spencer Askew, CEO of Teknowlogi: “We pioneered the Logistics Expert System and created Tai, the industry’s only patented and cloud-based machine learning and AI-based platform that can easily upgrade any system in the logistics industry to be more intelligent, current and scalable.” Anwar Siddiqui, president, Bahri Data: “We have actively embraced Big Data and the usage of data science in every aspect of Bahri’s operations. We have used these technologies to boost our top and bottom-line and operational efficiencies.”
20 BREAKBULK MAGAZINE www.breakbulk.com
Since the competition is about serving the customer ... co-creation not only helps companies drive growth, but it also moves the industry forward. – Anwar Siddiqui, Bahri Data
IMPORTANCE OF AI
Of the innovative technologies breaking new ground in the project cargo and logistics industry, Askew believes that AI will be the one to ultimately transform it, while machine learning, or ML, will also have an important role to play. “Project cargo and breakbulk companies should adopt and adapt to practical, industryspecific, logistics expert-based machine learning and artificial intelligence,” Askew said. “Focusing on a more intelligent logistics expert system is definitely the direction where the industry is headed.” ISSUE 5 / 2017
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Bechtel has been looking at ways to implement AI for some time, and has found that for the project cargo and breakbulk sector, using digital twin technology – a virtual model of a process, product or service – and incorporating AI can significantly improve planning and forecasting. Additionally, chat bots are starting to change how Bechtel looks for data and even how it does its work.
22 BREAKBULK MAGAZINE www.breakbulk.com
All this serves to prove that innovation, ultimately, means different things to different people in the breakbulk world. But definitions aside, the technology supporting innovation in whatever guise has the potential to propel the breakbulk and project cargo industry ahead at a stomach-churning speed. Companies need to embrace the co-petition mindset, learning from failures and sharing lessons learned. The rapid rate at which technology is advancing is already forcing a re-evaluation of everything from relationships to business models. And as prices drop, technology becomes easier to invest in and implement. Then, if your competitor
gets in on the act, you will need to keep up. Scalability of technology innovations could prove to be key, said Agility’s Kewalram. “It is not about one initiative or another, but about internalizing and making innovation a core advantage.” As a parting thought, Bechtel’s Spoljaric said he draws inspiration from Bechtel’s Chief Innovation Officer, David Wilson. Wilson gives feedback after pitching a new idea and takes the idea beyond what was originally thought possible, stretching it and getting multiple disciplines engaged to deliver something profound and innovative in the true sense of the word. Something we could all aspire to. Carly Fields has reported on the shipping industry for the past 17 years, covering bunkers and broking and much in between.
ISSUE 5 / 2017
Technology innovations capture the imagination and inspire futurethinking, but sometimes innovation can be developed at a more analogue level. One proposal being pitched by Agility hooks up to the development of logistics ecosystems, where project cargo stakeholders band together to improve visibility and awareness of the different stages of a project. One project might bring together an owner – or possibly more than one – engineering contractors, equipment and material suppliers, fabricators, manufacturers, services, and subcontractors, among many other stakeholders. Each will be impacted to some extent by the performance of another. This chain of operations calls for openness and transparency, so that understanding, alignment and trust can be nurtured, but that’s a tall order in an industry that struggles to get its head around the notion of sharing. Grant Wattman, Agility president and CEO, described breakbulk as “but one component in a mosaic of stakeholders operating in an interconnected
Credit: Shutterstock
INNOVATION FROM A DIFFERENT ANGLE
environment of the project scope.” Interdependency is in his eyes critical to the successful completion of a project. “This requires acknowledgement and acceptance of each stakeholders’ role, and that actions, inactions or changes have an impact beyond any unique activity. [It also requires] a willingness to behave in the interest of project success in a transparent, professional singleminded approach,” he said. While stakeholders might band together in a project, this is typically in silos that advocate individual objectives. While the logistics part of a project is undeniably
complex and to some extent an equal partner in the project development process and execution, it is seldom afforded a seat at the table and is instead split in to its subcomponents and parsed out. The tendency is to believe “our processes are superior to theirs,” but this behavior, Wattman said, must change. Taking the first step and acknowledging that breakbulk and project cargo stakeholders operate in the same project ecosystem will open opportunities for engagement in the selection and definition phase of the project, allowing value to be maximized for the lowest cost. BB
www.breakbulk.com BREAKBULK MAGAZINE 23
logistics perspective
STOP AND “I THINK
BY THOMAS TIMLEN
Better Decisions Built On Better Processes
n any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” Not everyone agrees completely with that old quote attributed to Theodore Roosevelt. Depending on the circumstances, doing nothing at times could be the best option. Still need more convincing? A study published this year by MIT Sloan titled Assessment of Back-up Plan, Delay, and Waiver Options at Project Gate Reviews would be a good place to start. While project gate reviews might be better known for their applicability to product and project development, there are potential benefits to be gleaned by shippers and carriers who decide to apply some of the lessons learned. MIT Sloan explains that most technical development projects go through a phase-gate process, with each gate serving as a decision point to either proceed to the next phase of the project or to cancel it. This process goes by several other names including phase review, stage gate, and toll gate. Regardless of the name used, the review represents an opportunity for managers to assess whether the product or system under development meets
Credit: Source images via Shutterstock; Illustration by Catherine Dorrough
24 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
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logistics perspective
BACKUP PLAN
GO WAIVER
GATE
WAIVER WITH RE-REVIEW
DELAY KILL
ONE NEEDS TO APPRECIATE THE IMPORTANCE OF BALANCING THE OFTENCOMPETING FACTORS OF COST, QUALITY AND TIME. IF ANY OF THESE THREE FACTORS IS OUT OF BALANCE IN SOME WAY, THEN THE ENTIRE PROJECT MAY WELL BE COMPROMISED.”
26 BREAKBULK MAGAZINE www.breakbulk.com
expectations and warrants additional investment. For a project already underway, the review provides an opportunity to decide whether to continue or cancel; a so-called “go/kill” moment. MIT Sloan School of Management Professor Steven Eppinger and his colleagues have presented a new decision model to better represent the reality of project gate options. Using decision tree analysis, they show how organizations can estimate risk and the probability of success beyond “go” and “no go” options to make better gate decisions. Eppinger explained: “The current literature doesn’t talk about these additional options. However, it Steven Eppinger is very common to MIT Sloan School of switch to a backup Management plan, delay, or grant a waiver for a project when work is incomplete or there are still issues to be resolved at the time of the gate decision. Our model provides a tool for managers to analyze and assess risk with these options rather than relying on gut instinct.” Going beyond the restrictions of a binary go/kill decision by adding the waiver, delay and backup plan options not only opens the possibility of keeping a doomed project alive, this can also result with a better project, as the opportunity to implement design improvements as part of a backup plan or during the delay period becomes available.
NEXT GATE Source: MIT Sloan School of Management
MANAGEMENT OF RISK
One practitioner offers insights on how the gate review process functions in practice. “One of the principal challenges of project management is the effective management of risk. With the issues of risk in mind, one needs to appreciate the importance of balancing the oftencompeting factors of cost, quality and time. If any of these three factors is out of balance in some way, then the entire project may well be compromised,” said George Wall, managing director of Asgard Project Solutions. “To the uninitiated, the MIT Sloan gate review process may be viewed as a hybrid between George Wall an inspection and Asgard Project test plan – a quality Solutions assurance engineer’s favorite tool – and the slightly more cerebral decision tree analysis, which may be more familiar in the C-suite with management consultants, rather than at the operational level.” According to Wall, the key advantage of implementing the gate review process is improved decision-making transparency, with the objective of enhancing efficiency and profitability. Bringing this a step closer to the transport sector, Wall clarifies that in practice in any gate review process, it is essential that the project in hand is split into a series of stages. The project may be the ISSUE 5 / 2017
commissioning of a new bulk carrier, the opening of a new route or perhaps modifications to existing facilities. “Stages that these projects are broken into may cover areas such as initial strategic review, detailed market analysis, order of cost calculations, followed by more detailed analysis and assessments until the final execution stage is reached,” Wall said.
CHECKING INTERNAL PROCESSES
Wall pointed out that teams applying phase gate reviews can also enhance internal approval processes. “From our experience of working with clients on phase gate analysis, the principal difficulty participants have is the need to justify the status of a project to senior management at various stages. Historically, it may have been possible to achieve sign-off from a project based on a ‘business case,’ with limited tracking and follow up. However, with the project gate review process there is a need for constant assessment and evaluation of the viability and performance of a project. Although this may result in a rise in blood pressure for some, it is certainly in the best interests of the project.” Initial reluctance to adopt a new decision-making tool can be countered by promoting its advantages. “By focusing on the best interests of the project, or the business, resistance to the gate reviews can be overcome and buy-in from the team members achieved,” Wall continued. “Initially, the team may view the project gate reviews as just more unnecessary administration imposed on them. However, when they are helped to understand that it is really about ensuring that the project is still fitting within what may be a highly dynamic environment, then the resistance starts to fall away and it is viewed as a tool with which to more effectively manage the multiple stages that a project will have to pass through.” For a sector facing difficult market conditions, every available tool that can enhance competitiveness and efficiency, reduce costs and protect profitability would not only be welcome, but critical.
‘STOP AND THINK’
In Asgard’s experience, the principal benefit of the gate review approach is that it imposes a “stop and think” moment at various stages of a project life cycle. Wall added that this may result with evaluation of externalities such as the current market environment, in other words looking at whether the number of vessels in the market has changed since the project started or a review of internal issues such as capital expenditure plans and financing costs. Summing up, Wall assessed the MIT Sloan study with a look at current practice: “If we are to be brutally honest, the work that MIT has done is more about highlighting how decision trees could be used in project gate reviews; after all decision trees themselves are nothing new and were presented, as we know them today, by [Ross] Quinlan in the 1970s. Notwithstanding, this process does result in a more rigorous tool providing enhanced decision making. In that sense it is a good thing and should be lauded.” Decision-making processes are, of course, ubiquitous and decision trees are used knowingly, or otherwise, by everyone everyday. The question is whether stakeholders in the project and heavy-lift sector are consciously utilizing the full benefits of such analysis, and if there are additional advantages to be gained from expanding the process to capture additional variables resulting with a more useful and accurate selection of options. Beginning at the conglomerate end of the breakbulk and project cargo company scale, one logistics professional described how an expanded gate review process could help to knock down silos between divisions within the company. Describing his logistics department’s involvement with gate reviews as “indirect,” he describes a one-way information flow in which information is provided for the review, however, there is no participation in the evaluation of options generated. This leaves the logistics team out of the loop, having to anticipate potential outcomes. In practice, the solution has been to
BETTER PROCESSES IN PRACTICE In the MIT Sloan study, the researchers demonstrated how their proposed gate decision analysis method worked with a case study at BP in Houston. The decision involved whether to move ahead with building a new pipeline inspection tool, which had not completed a required operational environment test at a preliminary engineering gate review. The options were to put the project on hold until the tool could pass the gate review, grant a waiver to continue working on the new design, or switch to the back-up plan of using existing tools. “We used our model to consider the costs and probability of success with each option. This analysis method clearly showed that the company stood to gain the highest payoff with the waiver decision,” said Steven Eppinger, professor at MIT Sloan School of Management. Eppinger added that the model has been applied in other industries, including in healthcare, where researchers worked with a medical device company to analyze a decision about a new auto-injector product that was not working in its current design. Using MIT Sloan’s analysis method, the company found that the development costs to implement any of several back-up plans were minimal compared with the potential payoff. In another example from the automotive industry, the team worked with a U.S. auto manufacturer on a decision about implementing a wireless device charging system in a new vehicle model. At gate review, the project did not meet performance expectations, so the company needed to decide whether to delay the vehicle launch to allow for the time needed to rework the wireless charging design, or launch the vehicle without the wireless charger. Looking at the probabilities of success as well as the costs, the company decided to launch the vehicle without the charger, and use the project learning for future vehicles. www.breakbulk.com BREAKBULK MAGAZINE 27
logistics perspective
SEGMENTING PROJECTS TO IMPROVE DECISIONS The MIT Sloan School of Management team saw many benefits to installing “stop and think” moments to breakbulk and project cargo projects. Speaking to Breakbulk, Assistant Professor Alison Olechowski said: “Gate review panels can consist of project managers, subject matter experts, senior management and external reviewers. Since using this model requires team members to individually assess confidence and to enumerate payoffs and costs, there is learning in making these estimates, and the assumptions behind them, explicit. “For the ship as a whole, the likely choice would be between go and no-go. However, what if the ship was to include a cutting-edge new piece of technology for navigation? And at a gate review before the cargo is at the pier, it was discovered that this technology was behind schedule at the supplier. In this case, the team does not simply have a choice to ship or not ship given the status of this one technology, but it would decide whether to include (grant a waiver to the supplier), wait for (delay the gate), or replace (switch to a backup plan) the new cutting-edge technology on this project. Our decision-tree model would help to compare these options in a logical way.” She continued that each project could establish its own stages and gates, with requirements to be met at each gate. Then as work progresses, progression would be made through the stages. For the transport sector, “risk such as changes in the market, rate changes, weather, etc. (or supplier rework, maintenance work delay, discovered safety hazard) may mean that the timing we initially planned is not attainable as we progress through the stages, and we reach a gate review where one or more requirement is not met. It is in these cases where this extended gate review model would be valuable.”
Regarding the benefits of comparing the costs involved for different options, Olechowski clarified the concept of “value” as used in the study. “We use the term ‘value’ in the model because it can broadly capture (and allow comparison of) schedule, quality and cost. For example, you might have a trade-off between including a higher-quality component in the project (leading to higher performance; lower maintenance cost, higher speed, in the long run) or shipping the cargo on time Alison (schedule value). Olechowski In our MIT Sloan School example from of Management the oil and gas industry, we saw that a cuttingedge maintenance component of the project was not ready at a gate review. The team had a choice between delaying the project to wait for this component to be fully tested (which would delay the first oil on the project and result in financial loss) or revert to a lower performing maintenance solution, which would require longer maintenance shutdown, with resulting deferred production (and income) from the project. The good news in this example was that the fact that the maintenance component was delayed was made at an early gate review, when the project had time to switch between options, and catch up before the project was complete,” she said. Olechowski confirmed that the research related to product development and project management will continue, with the prospect for providing additional insights that can be applied to a broad range of industries.
28 BREAKBULK MAGAZINE www.breakbulk.com
prepare two plans of action, expecting that one will be adequate to meet the needs of the eventual decision. Time wasted in preparing plans that are not needed could be avoided by including the logistics team in the evaluation of the options.
BENEFITS FOR BREAKBULK
Turning to situations involving smaller scale stakeholders, decisions are perhaps more straightforward, yet expanding on the factors under review can still improve the quality of the decision-making process. For the cargo owner transporting complete units that are ready for shipment and stockpiled in warehouses, the receipt of an order will trigger the “go” decision to book the transport with a minimal number of factors impacting the decision.
TIME WASTED IN PREPARING PLANS THAT ARE NOT NEEDED COULD BE AVOIDED BY INCLUDING THE LOGISTICS TEAM IN THE EVALUATION OF THE OPTIONS. However, more complex situations involving units under production will require more planning for the shipper. Factors include unit completion date, freight rates, availability of lorries, ships and planes. Booking the transport early may have a benefit of securing low transport costs, however, if the unit is not ready for shipment at the agreed time there could be contractual penalties involved. Booking too late may create other disadvantages such as running the risk that there are no available transport options at the desired time of shipment. “There are definitely advantages for a gate review process in heavy-lift ISSUE 5 / 2017
logistics perspective
cargoes,” Wall said, “particularly if the booking or the heavy-lift is contingent on the availability or completion of an asset, such as a drilling rig or a blowout preventer for a well. So either carrying out multiple gate reviews or a single one prior to the booking of the vessel is likely to save significant sums in demurrage costs; this is something that I have personal experience of. Let’s just say my client was very happy that they took my data during the review process rather than the forecast dates from the yard. It meant that the vessel arrived later, as construction was behind schedule, but it meant that all associated planning could be tailored accordingly, not just the bulk transport but also shipping all of the smaller items, which were sent by surface rather than the usual air freight, again more savings.”
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ENHANCING TRANSPARENCY
Wall also felt that enhanced gate reviews could expand shippers’ choices regarding the mode of transport. “This means that the shipper can entertain the use of ocean transport for items that may usually be air freighted, due to their higher level of confidence in the forecast dates and timelines. The enhanced transparency in the decision-making process and increased confidence is likely to be of benefit to the ship owner as well, as he will be able to plan his asset usage more effectively.” For carriers there are several potential advantages. For example, improved decision evaluation processes can put them in a better position when considering whether or not to accept proposals from shippers seeking to cancel or postpone the cargo transport. This would take into account factors such as opportunity costs, the impact on subsequent business, the positioning of assets, port congestion and other considerations. Carriers arranging multimodal transport could benefit from enhanced gate review as consignments move from one mode to the next. For example, in a rail, sea, road operation, if the sea transport is delayed, the extended gate review could be applied to the decision regarding how long to keep the final road transport equipment in place before redeployment, using the aforementioned factors. “Ultimately, what is least understood in these decisions is the probability of success,” Eppinger noted. “This method gives managers a straightforward way to analyze and assess their confidence that a project will move forward in multiple scenarios and make important decisions for their organizations.” In a challenging marketplace all stakeholders will surely welcome the exposure of undetected opportunities for success. The MIT Sloan model might even help Theodore Roosevelt fans understand that doing nothing can sometimes be the most profitable decision. BB
Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.
www.breakbulk.com BREAKBULK MAGAZINE 31
trade notes
BY LORI MUSSER
SCUTTLED DEALS, SOMBER SUPPLY CHAINS Debilitating Effect of Handcuffed U.S. Ex-Im Bank
I
n the two years since the lapse of its charter and reauthorization, the Export-Import Bank of the United States has been unable to operate at full capacity. This forced lending hiatus has thwarted U.S. businesses competing for global projects, and ultimately sent U.S. jobs to other countries with better access to financing. The powers that be have failed to install a full board, basically scuttling big export deals, including the global projects that comprise the heavy-lift, breakbulk and project cargo industries. When not bogged down by politics, the Export-Import Bank, or Ex-Im Bank, would be able to provide a variety of financing mechanisms, including working 32 BREAKBULK MAGAZINE www.breakbulk.com
capital guarantees and export credit insurance, to promote export sales of U.S. goods and services. Acting Ex-Im Bank Chairman Charles J. Hall said only two of the five positions on the board of directors are filled, preventing a quorum, and limiting the agency to financing new deals under US$10 million. To fill Ex-Im board positions, the Trump administration sent names of two former members of Congress to the Senate Banking Committee last May: Scott Garrett as chairman, and Spencer Bachus. The senate committee will eventually schedule a hearing, presumably after a full slate is nominated.
Ex-Im funding assisted this Brazilian project by FirmGreen, a renewable energy tech company. Regarding current projects in the pipeline, FirmGreen CEO Steven P. Wilburn testified before Congress: “We have been very patient working for well over two years trying to arrange finance through the U.S. Ex-Im Bank, which would be my preference.” Credit: FirmGreen
ISSUE 5 / 2017
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Charles J. Hall Acting Ex-Im Bank Chairman
“Personally, I hope the three additional names will be announced very shortly and sent up so the process will move along,” Hall told Breakbulk. That process may be slowed by timing – September is already a very busy legislative month with only 14 session days available. Hall conceded: “There are a lot of unknowns in all this.” The process may also be slowed by the choice of nominees. The Washington, D.C.-based National Association of Manufacturers is dead set against the Trump administration’s naming Garrett for Ex-Im chair. “Garrett’s confirmation would be a terrible trade deal for our country. His record of aggressively undermining the Ex-Im Bank is tantamount to a vicious trade war against American manufacturing workers.” Nevertheless, Trump has endorsed Ex-Im Bank. Who will end up in the catbird’s seat remains to be seen.
big bad ugly the
LOST AND BACKLOGGED DEALS
A lack of quorum means that deals above US$10 million needing export financing or guarantees have been delayed or lost, not just to large U.S.based multinationals, but to the entire U.S. supply chain. Regardless of preference or cost, the big engineering, procurement and contracting companies, or EPCs, have been forced to consider sourcing in other countries, secured by guarantees by export credit agencies, or ECAs, of those countries. Hall said the backlog of deals needing Ex-Im board approval stands at about US$30 billion. “There is a certain amount of churn in the pipeline. Roughly half of that amount is ready to be dealt with by the board within the first three months or so.” Trying to calculate the number of deals that aren’t just delayed but lost is much more difficult.
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The U.S. manufacturing-led Ex-Im Coalition provided examples of repercussions related to a lack of access to export credit: • Pennsylvania-produced Mack Trucks – unable to close two multimillion-dollar sales. • Nuclear Energy Institute – awards for construction of new plants in India, Vietnam and Mexico hinge on the availability of Ex-Im financing. • Boeing and Orbital ATK – lost satellite sales. • GE Power – moving 500 jobs from Texas, South Carolina and Maine to France, Hungary and China, to continue offering ECA financing. • Small Illinois-based fire equipment manufacturer W.S. Darley & Co. – has US$70 million in projects to sub-Saharan Africa and China on hold pending Ex-Im support. A hobbled American export credit agency, to be sure, is no small matter for
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U.S.-based business. Almost every one of the roughly 40 deals stuck at Ex-Im represent lost opportunities for countless supply chain companies that support the larger U.S. manufacturers and EPCs.
THE AUTHORIZATION PLUNGE
Capt. William G. Schubert is former administrator, U.S Maritime Administration, and current president at International Trade & Transportation, a Houston-based ECA finance and maritime transportation consultancy. He said the impact of the lack of quorum on U.S.-led and U.S.-guaranteed global projects is dire: “Essentially, there haven’t been any new deals since 2015.” Ex-Im Bank doesn’t just finance global capital projects, but that work, which has historically run at close to 25 percent of Ex-Im Bank’s total book of business, has disappeared, according to Schubert. “There are many cases where the company planned to use U.S. Ex-Im but had to switch sourcing to outside the U.S. This is happening every week. It is critical to have an ECA that is functioning above US$10 million – that amount is a non-starter,” Schubert said. “These projects can’t wait forever. There are offtake purchase agreements for example, for buyers of electricity or petrochemicals. If there is no U.S. Ex-Im Bank available, the EPCs will have to go to European, Asian or other banks. And when that happens, the entire supply chain goes with it,” he said. Capital projects rely on ECAs because their support is required in
“
the bid package. “As a large EPC with an international presence, you aren’t going to not bid, you are going to bid it through a foreign affiliate. And if you use a European or Asian ECA, then your supply chain has to go to those regions too,” Schubert said.
KEY EX-IM STATS
x
1000 Ex-Im Bank supported 52,000 private-sector U.S. jobs.
More than 90 percent of Ex-Im Bank’s transactions – more than 2,600 – directly supported U.S. small businesses.
Ex-Im Bank approved US$5 billion in total authorizations to support an estimated US$8 billion of U.S. export sales.
Since 2009, Ex-Im Bank has contributed nearly US$3.8 billion to U.S. taxpayers. Ex-Im Bank’s active default rate was 0.266 percent. Statistics effective for fiscal year ending Sept. 30, 2016, unless otherwise noted.
THERE ARE MANY CASES WHERE THE COMPANY PLANNED TO USE U.S. EX-IM BUT HAD TO SWITCH SOURCING TO OUTSIDE THE U.S. THIS IS HAPPENING EVERY WEEK.” –C apt. William G. Schubert, International Trade & Transportation
36 BREAKBULK MAGAZINE www.breakbulk.com
BUMPING OUT U.S. SUPPLY CHAINS
John Masterson is global head of Export Credit Agency finance and financial derivatives for energy EPC Chicago Bridge & Iron Co., or CB&I. He said: “Ex-Im has allowed our company to compete and win large global infrastructure projects. Each foreign competitor has its own export credit agency. Having our own helps level the playing field.” Because many of the bids that CB&I submits require export credit support at some level, he added that, “right now we are limited in what we can buy in the U.S. We are forced to consider goods and services in Europe and Asia. And they may cost more.” As an example, in compiling its multibillion-dollar ORPIC Liwa Plastics Project bid, CB&I initially looked at 15 percent to 35 percent U.S. supply chain content. However, “because Ex-Im Bank was down, we couldn’t consider using them in our bid,” Masterson said. “European ECAs were more than willing to pick up the slack.” He indicated a similar constraint with the Anadarko Petroleum Mozambique LNG project. Steven P. Wilburn is chairman and CEO of renewable energy technology company FirmGreen. The company’s first Ex-Im Bank transaction, approved in 2013, was the export of green technology for a US$49 million Gás Verde facility project that enables processing of landfill gas into methane and CO2. Wilburn said the Ex-Im Bank was critical to his clients in Brazil. In 2015, FirmGreen received an agreement to finance a US$57-million biogas project in the Philippines. Unfortunately, due to the lack of a quorum at Ex-Im Bank, as Wilburn later testified to Congress, “We lost that project to a company supported by the Korean ex-im bank.” “We now have US$220 million of projects in the Philippines held up due ISSUE 5 / 2017
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to a lack of a U.S. quorum. We are a small company on the world stage, but for the Brazil project we created 155 wellpaying, highly-skilled jobs in several U.S. states,” Wilburn said. To keep his doors open, “we are looking to source solar materials for the Philippines from countries that have export bank finance. We are negotiating with the Malaysian ex-im bank because we are out of time. We will have to use a Malaysian supply chain. We have been very patient working for well over two years trying to arrange finance through the U.S. Ex-Im Bank, which would be my preference.” And, working with the Malaysian ECA means FirmGreen has to set up infrastructure and jobs in Malaysia to take care of US$200 million in manufacturing.
An army or workers, many contracted from the U.S., serve on global projects. / Credit: CB&I
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38 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
Wilburn said: “We will continue to use the U.S. Ex-Im, but have opened up relationships with other countries and those jobs may not return.”
MOVING ‘AT THE SPEED OF BUSINESS’
There appears to be light at the end of the tunnel given the current Ex-Im Bank board nominations, and rampant rumors of more pending. And despite all the political gerrymandering, which has severely limited interim decision-making authority, the agency has persevered. To Ex-Im Bank’s credit, EPCs and exporters continue to be generous in their praise. Masterson said: “In my 10 years of experience working with them, these are super business-oriented people that move government at the speed of business. I have nothing but the utmost respect for their staff and look forward to them getting back to full business.”
Acting Chairman Hall said Ex-Im Bank hasn’t come to a standstill. The agency recognized that being hamstrung created a gap in international export finance, which has opened up incredible opportunity for foreign ECAs. Hall said that Ex-Im Bank will have to be bigger and better when it regains its full power. That’s good, because global projects continue to get bigger: “ECAs are becoming more important to our business,” Masterson said. “As a direct result of the financial crisis, commercial banks are no longer willing or able to work these larger projects. ECAs are filling the gap to underwrite them, with longer payback periods to be successful.” He said bid requirements often require an ECA guarantee of 50 percent to 60 percent of the financing. “They don’t care if it is the U.S. Ex-Im Bank, or Italy, Germany, the UK or China … they just want it to be financed through ECAs,” he added.
Hall said that in 2015 there were about 85 ECAs in the world. Now there are 96, and many of those have used the time to develop aggressive programs and policies. Since 2015, Ex-Im Bank has approved deals within its limited spending authorization and has continued to service approved projects and exports in progress. It has also worked to “line things up” so that new deals and progressive services can be rolled out quickly once the quorum is available. Hall said that processes have been automated and made more user friendly, and a new, highly anticipated medium-term business program is ready for approval.
TO GO ONE BETTER
Bringing U.S. Ex-Im Bank back up to speed will spur economic and export development. Hall said that it isn’t a question of if, but when. He has been conducting broad outreach to convey that
www.breakbulk.com BREAKBULK MAGAZINE 39
trade notes
message, and to encourage companies to stick with U.S. supply chains. Wilburn, acknowledging the importance of Ex-Im Bank’s outreach programs, said the continued rollout of those educational programs, especially as part of what he calls a core triad approach, which involves the Department of Commerce and the Small Business Administration, will be very valuable to emerging U.S. exporters. For existing exporters, CB&I’s Masterson said Ex-Im Bank’s flexibility will be vital going forward. Many of the other ECAs have introduced flexibility. He said: “They see the benefits that come to them as a direct result of Ex-Im not being open.” Hall has an additional concern: China. Although the entire ECA world has moved on quite aggressively over the last few years and that is a challenge, for him the bigger issue relates to China having become the world’s largest economy in terms of pur-
chasing power parity. The level to which the U.S. uses export finance to stimulate exports is going to be an important answer to the China challenge. “Our monetary and fiscal policy are very constrained. The one area where we are not constrained is in the area of official export finance … I would argue for the benefit of the U.S. economy and workers we need to focus on U.S. export finance,” he said.
CLEAR THE GANGWAY
Once the U.S. Ex-Im Bank is back running at full speed, the glut of ready but unapproved projects – another US$15 billion worth – will move through quickly, Hall said, followed shortly by another US$15 billion in near-ready projects. This could provide a stimulus effect on the U.S. economy. “US$15 billion is a lot of orders,” Wilburn pointed up. And while critics take aim at big businesses that benefit,
“the reality is that those large companies have supply chains that number in the hundreds or thousands of small manufacturers or service providers that benefit when a U.S. company gets the contract. The small companies have to be there for the big companies to meet the supply. The jobs created by all those companies combined is the real reason a fully functioning Ex-Im Bank is needed.” U.S. exporters don’t want to see Ex-Im go away. It would pull the rug out from under their competitiveness and send supply chain jobs out of the country. It comes down to a need for stability and an even break. They want to know their ECA will be there this year, next year, and a decade from now. Industry says the quorum can’t come soon enough. Based in the U.S., Lori Musser is a veteran shipping industry writer.
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40 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
CORNERSTONE SUPPORT FOR BUDDING EXPORTERS Jason Speer is president of Illinoisbased Quality Float Works, a 100-year-old family-owned company that exports 20 percent of its business. Speer wants to be sure that Export-Import Bank will be there for his business in the future. In an open letter to President Trump that appeared Aug. 22, on Crain’s ChicagoBusiness.com, Speer said Ex-Im Bank allows his company to use a line of credit to purchase raw materials in bulk upfront: “… it is imperative that small businesses like mine have access to a line of credit to sustain and grow operations. “While customers love our Made in America products, they will not prepay for metal float assemblies … No private bank will finance orders like these; small companies do not have easy access to
SKIDDING
RIGGING
loans, which is exactly the scenario for which the bank was created.” The National Association of Manufacturers, or NAM, agrees. It has made joint statements with the U.S. Chamber of Commerce, such as this one on the heels of the annual Ex-Im Bank summit: “Ex-Im Bank is a critical tool for ensuring manufacturers in the United States remain competitive in an already tough global economy. Right now, our global competitors are supporting their exporters with aggressive export credit financing at a rate of 20 to 1 compared to the United States.” Many exporters in the U.S. are “stuck in neutral,” unable to get their products to customers overseas. NAM and the U.S. Chamber of Commerce also called on Congress. In September 2016, they asked for action
“SMALL COMPANIES DO NOT HAVE EASY ACCESS TO LOANS, WHICH IS EXACTLY THE SCENARIO FOR WHICH THE BANK WAS CREATED.” to restore the bank’s full operations and act on all transactions immediately, using the “Continuing Resolution” route. In response to the failure of that effort, NAM President and CEO Jay Timmons said: “At a time when we continue to see lackluster growth in our economy and our foreign competitors making investments that support their companies, this inaction is appalling and nonsense. Why would we give up any chance to secure more goodpaying jobs here in America?” BB
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energy update
42 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
PERMANIA ROARS ON Fueling Texas Oil Boom for Decades BY PAUL SCOTT ABBOTT
F
rom U.S. Silica’s frac sand plant springing up in West Texas to new dock, rail and storage facilities being built at Port Corpus Christi on the Gulf Coast, the frenzied phenomenon dubbed Permania is roaring on. And, with record resources available for tapping, the shale oil boom of the Lone Star State is anticipated to continue having wide-ranging, long-term impacts on industry and transportation. “The Permian Basin will be a very prolific basin for many decades to come,” said Walter Guidroz, program coordinator for the U.S. Geological Survey, or USGS, Energy Resources Program. “It is really hydraulic fracturing, combined with directional drilling, that has made these resources technically recoverable.” USGS studies fully support Guidroz’s view. A recent USGS assessment pinpointed a shale-rich area in West Texas – known as the Wolfcamp formation of the Midland portion of the Permian Basin – that contains an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas and 1.6 billion barrels of natural gas liquids. This estimate of continuous oil resources that are technically recoverable yet still undiscovered is nearly three times larger than that of the prior
On the Gulf Coast, Port Corpus Christi bustles with activity related to Texas oil and gas production, including from Permian Basin and Eagle Ford shale plays. Credit: Port Corpus Christi
www.breakbulk.com BREAKBULK MAGAZINE 43
energy update
The Wolfcamp portion of the Midland Basin in West Texas’ Permian Basin contains an estimated mean of 20 billion barrels of oil and equally impressive volumes of natural gas.
Lubbock
TEXAS
NEW MEXICO
Credit: U.S. Department of Interior National Park Service
Hobbs
Central Ba
Abilene
sin Plat form
elsewhere in the U.S. is President Donald Trump’s seeking of repeal of regulations on hydraulic fracking put in place during the Obama administration. Among companies tapping into Texas resources is San Antonio, Texasbased midstream player Howard Energy Partners, which already has more than 500 miles of pipelines in place and, through its Maverick Terminals Corpus LLC subsidiary, in July signed a 30-year agreement with Port Corpus Christi calling for design, construction and operation of a rail terminal and petroleum and petroleum products storage facility on 41 leased acres.
Midland
San Angelo
Val Verde Basin
0 0
25 25
50 Miles
Horseshoe atoll Midland Basin Wolfcamp A Continuous Oil AU Midland Basin Wolfcamp B Upper Continuous Oil AU Midland Basin Wolfcamp B Lower Continuous Oil AU Midland Basin Wolfcamp C Continuous Oil AU Midland Basin Wolfcamp D Continuous Oil AU Midland Basin Northern Wolfcamp Continuous Oil AU Permian Basin Province (part) County boundary
record assessment, made by USGS in 2013 in the Bakken-Three Forks area of the Dakotas and Montana, according the Guidroz.
VAST POTENTIAL EYED
“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” Guidroz said. “It cements the legacy of this part of the Permian Basin as being one of the most prolific areas for oil and gas in the United States.” Guidroz emphasized that the assessment should not be termed as a 44 BREAKBULK MAGAZINE www.breakbulk.com
OKLAHOMA
NEW MEXICO
50 Kilometers
Area of study
MEXICO
TEXAS
Gulf of Mexico
discovery – as many prominent media outlets have erringly called it – but rather a geology-based estimate of volumes beneath the surface, with it remaining up to industry to determine the economics of extraction in relation to market conditions. As of late 2016, more than 3,000 hydraulically fractured horizontal wells had already been drilled and completed in the Midland Basin’s Wolfcamp section, augmenting traditional vertical wells, according to USGS. Activity has been buoyed by strengthening oil prices that make shale profitable again, while a political factor that may clear the way for a whole lot more extraction in West Texas and
CORPUS CHRISTI HUB
As part of the deal, Port Corpus Christi is designing and building a new oil dock, Oil Dock 20, which is to initially help satisfy burgeoning Mexican transportation fuel demands by rail. After Howard Energy Partners connects the facility with its proposed Dos Aguilas pipeline to Monterey, Mexico, volumes should get a significant boost, while the new dock, with ability to handle Suezmax tankers, targets Walter Guidroz crude exports. U.S. Geological Survey John LaRue, Port Corpus Christi’s longtime executive director, said of the Maverick Terminals agreement: “It represents a new line of business for us. It’s a good deal all the way. It’s good for us. It’s good for Maverick. It’s good for the United States, in that it’s new exports, which is what we should be doing. And it’s also good for Mexico.” ISSUE 5 / 2017
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cover story
Loading a module at Port Corpus Christi. Credit: Jay Phagan via Wikimedia Commons
Billed as the Energy Port of the Americas, Port Corpus Christi has benefitted as much as any port from the fracking-spurred Texas oil and gas boom, not only by quickly assuming No. 1 U.S. ranking in crude exports following the lifting at the end of 2015 of a 40-year federal ban on U.S. crude exports, but also with the attraction of a broad spectrum of global industrial investments. “It’s really going fantastic,” LaRue said of the crude exports, which now measure more than 320,000 barrels on a typical day. That compares with 340,000 outbound barrels for the entire year of 2011, when, per U.S. regulations, all such volumes moved domestically.
INDUSTRY ATTRACTIONS
Meanwhile, Port Corpus Christi has become a magnet for businesses throughout the world seeking to capitalize on the abundant nearby 46 BREAKBULK MAGAZINE www.breakbulk.com
energy resources, including from the Permian Basin and the stillcloser Eagle Ford shale play, not only for moving energy products but also taking advantage of abundant supplies of affordable John LaRue natural gas used in manufacturing Port Corpus Christi processes. Houston-based Cheniere Energy is building a US$20 billion natural gas and LNG export facility – the largest single privately financed construction project ever in the U.S. – with operations to begin by 2019. When all five production trains are in full operation, the Cheniere facility is to annually move 22 million
tons of LNG to contracted global customers from Europe to Asia by way of as many as 400 ship calls a year. Other huge investments at Port Corpus Christi include: • The US$1 billion-plus seamless steel pipe plant of TPCO America Corp., a unit of China-based Tianjin Pipe (Group) Corp.; • The world’s largest integrated plant for production of purified terephthalic acid, or PTA, and polyethylene terephthalate, or PET, resins, being brought online this year by M&G Resins, a unit of Luxembourg-based M&G Chemicals, which is part of Italy-based Mossi Ghisolfi Group; and • The US$800 million, 475-acre plant of the voestalpine Texas LLC subsidiary of Austria-based voestalpine AG, which began producing hot-briquetted iron, or HBI, in September 2016. ISSUE 5 / 2017
Metro Ports’ vast range of cargohandling expertise and professional staff provides our clients with quality stevedoring and terminal operations. Whatever your cargo, from autos to wind turbines, contact us.
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energy update
U.S. Geological Survey scientists drill a research core near Waco, Texas, as part of an assessment to estimate undiscovered, recoverable oil and gas resources. / Credit: U.S. Geological Survey
FRAC SAND IN DEMAND
Of course, with all the fracking activity, demand has risen to an all-time high for frac sand, a crush-resistant mineral commodity used as a proppant in the hydraulic fracturing process. Companies such as Marylandbased U.S. Silica are assertively looking to cash in with swift development of mine and plant facilities. In the heart of the Permian Basin, about 500 miles northwest of Corpus Christi, U.S. Silica looks to have online by yearend a US$225 million mine and plant on a 3,200acre site in Crane County, Texas, that company officials say contains more than 30 years of reserves of fine-grade sand with ideal qualities for fracking. “Our focus is serving our customers,” said Bryan Shinn, president and CEO of U.S. Silica. “Those customers told us 48 BREAKBULK MAGAZINE www.breakbulk.com
clearly that they want more local sand supply in the Permian to support future well completions. Their willingness to negotiate long-term supply agreements for this new capacity and to potentially commit their own capital to the project demonstrates the confidence they have in U.S. Silica and the tightness of the frac sand market now and in the future.” The very speed with which the Crane County project is moving is indicative of the need to fulfill frac sand demand: U.S. Silica announced the project in June and looks to begin initial production by December. Michael Lawson, U.S. Silica’s vice president of investor relations and corporate communications, said the company has been able to advance so aggressively thanks to having done much preconstruction work and then garnering requisite labor thanks to the
relatively long building season afforded by Texas and being “one of the first movers in the marketplace.” While Lawson said he does not see additional opportunities for engineering, procurement and construction companies related to the Crane County project, which is being carried out by Minneapolis-based Barr Engineering, he does anticipate transportation-related demands to require fulfilling for decades. To supplement conventional pneumatic trucks, U.S. Silica has bought a proppant logistics system from Houstonbased SandBox Logistics that aims to eliminate delivery bottlenecks while reducing health and safety risks related to silica dust. Proprietary SandBox containers are loaded by forklift onto a single cradle that delivers frac sand directly to the blender hopper, eliminating transloading steps and resulting in smoother delivery and less dust in the air. The record-setting, yet-to-be-tapped resources of the Wolfcamp formation are by no means the only volumes of newly defined oil and gas awaiting potential extraction. Also within the Midland Basin of the Permian Basin province of West Texas, overlying the Wolfcamp shale, the Spraberry formation contains undiscovered estimated mean resources of 4.2 billion barrels of oil, 3.1 trillion cubic feet of gas and 311 million barrels of natural gas liquids, according to a USGS assessment released in May. Also along the U.S. Gulf Coast but extending beyond Texas are the Bossier and Haynesville formations, running from the Texas-Mexico border northeastward to the Florida Panhandle, with primary current production areas in East Texas and North Louisiana, but also encompassing portions of Arkansas, Mississippi and Alabama. The USGS assessment of the BossierHaynesville formations, released in April, shows estimated means of 4 billion barrels of oil, 304.4 trillion cubic feet of natural gas and 1.9 billion barrels of gas liquids. That continuous natural gas assessment is nearly 20 times that for Wolfcamp and represents the largest of its kind ever revealed by a USGS evaluation. BB A professional journalist for nearly 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.
ISSUE 5 / 2017
If it’s big and heavy, the Port of Lake Charles makes easy work of it. Huge industrial plant components and oversize equipment arrive regularly at the Port by ship for transport to sites throughout the United States. And overdimensional cargo manufactured in the U.S. is loaded aboard vessels at the Port of Lake Charles to ship out to world destinations. The cargo-handling capabilities of the Port of Lake Charles and its strategic mid-Gulf location make it an easy choice for the region’s inbound and outbound project cargo.
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regional view
RECOVERY BEGINS Preparedness, Teamwork Key to Post-Harvey Rebuilding BY PAUL SCOTT ABBOTT
50 BREAKBULK MAGAZINE www.breakbulk.com
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ort Houston and other key entities of the Texas energy industry and supply chain are proving that preparedness and collaboration are essential to recovery from even the worst of disasters. While long-term impacts remain difficult to gauge, a storm named Harvey already is being called the most devastating U.S. natural catastrophe after inundating the nation’s fourth-most-populous city and No. 1 American foreign tonnage port with more than 50 inches of rain – a typical year’s worth – in just four late August days. Despite the record flooding and displacement of as many as 1 million people, the deadly storm caused little if any damage to infrastructure at Port Houston and other major maritime gateways of the Lone Star State, with most operations resuming within a week or so of Hurricane Harvey’s initial U.S. mainland landfall. ISSUE 5 / 2017
Coming ashore just north of Corpus Christi on Aug. 26, Harvey subsequently, as a stalled tropical storm, caused unprecedented flooding in and around Houston and eastward toward additional Texas energy and petrochemical centers near the Louisiana line.
PORT HOUSTON READY
“It all starts with having a good plan and being prepared,” Roger Guenther, Port Houston’s executive director, said in a Sept. 14 interview with Breakbulk. “Not just at Port Houston but throughout our industry, we have people who are committed and always ready to react and respond.”
Although the port, along with the 150 industries not owned by the port that line the Houston Ship Channel, was readied to take a direct hurricane hit, it did not, and Port Houston facilities received “minimal impact,” according to Guenther. He said an admirable job was done in terms of the top priority of ensuring safety and welfare of people working in and around the port, although about 100 of Port Houston’s 600-plus employees suffered flooded homes and other direct impacts of varying degrees. Many of those victims have received loans and other assistance from a longstanding port fund to
OPPOSITE PAGE: Airmen from the Kentucky
Air National Guard’s 123rd Special Tactics Squadron prepare to deploy Aug. 27 from the Kentucky ANG base in Louisville, Ky. for Texas, to assist with rescue and recovery efforts in the wake of Hurricane Harvey. / Credit: U.S. Air National Guard/Staff Sgt. Joshua Horton THIS PAGE, CLOCKWISE FROM LEFT:
Satellite imagery from NASA shows the brutal force of Harvey over Texas. / Credit: NASA; Port Houston employees unload containers of relief supplies received by truck from the Georgia Ports Authority in the wake of Harvey. / Credit: Port Houston; A U.S. Navy MH-60S Sea Hawk helicopter departs the Hurricane Harvey relief staging area in Beaumont, Texas, Sept. 3. / Credit: DoD/Sipa USA/Newscom
www.breakbulk.com BREAKBULK MAGAZINE 51
regional view
Standing water on the grounds of Motiva’s refinery in Port Arthur, Texas. Motiva, the most productive refinery in the U.S., shut down for nearly two weeks due to Hurricane Harvey. / Credit: Julie Dermansky/ZUMA Press/Newscom
which employees had donated sick leave and vacation time money. Port Houston Chairwoman Janiece Longoria put it this way: “Our quick return to serving ship channel industry and Port Houston customers was made possible by the extraordinary teamwork of many stakeholders, including our own Port Houston staff, stevedores, the trucking community, ocean carriers, Houston Pilots, tugs, line handlers, vessel agents, the U.S. Coast Guard, Port Coordination Team, Customs and Border Protection and many others in the maritime industry who pulled together 24/7 since the storm to make this happen for the good of our region. On behalf of Port Houston, thank you all for your extraordinary dedication and help.” 52 BREAKBULK MAGAZINE www.breakbulk.com
SHIP CHANNEL IMPEDED
Guenther said the biggest impact to the port was largely unseen, as water runoff from Buffalo Bayou and other watersheds generated substantial current and created debris impediments, precluding ship activity along much of the 52-mile-long Houston Ship Channel. In an announcement that some Port Houston terminals would reopen for business Sept. 1, a week after Harvey made initial landfall, Guenther said, “We are restarting this economic engine again to power the region, state and nation.” International Longshoremen’s Association gangs toiled at Houston terminals throughout the weekend, including on Labor Day – traditionally an off day for union workers.
Industry brethren from throughout the nation pitching in included the Georgia Ports Authority, which sent four containers filled with relief supplies. “While the port is back up and running – and that’s a good thing because the people need to work, the longshoremen need to work, the truckers need to work, and it’s critical to our community and our nation to try to return to normal – we don’t want to lose sight of personal recovery,” Guenther said. “It’s going to be lengthy for people to get their houses together. It’s a long process. We don’t ever want to forget that the recovery effort for our employees and all people in our community is going to take awhile.” ISSUE 5 / 2017
REFINERIES CLOSED
Harvey led to temporary closures of more than a dozen Texas refineries, as well as numerous related facilities, including most U.S. polyethylene resin production capacity. More than two weeks after Harvey’s initial landfall, about half of that resin-making capacity remained at reduced operating rates or was still entirely out of service. That left manufacturers of a wide range of consumer and industrial products dependent upon such materials facing supply shortages. A Sept. 13 report from BBVA Research USA said Harvey led to the shutting down, at least temporarily, of 19 percent of oil production and 18 percent of natural gas production in the Gulf of Mexico, with the storm impacting energy industry hubs from Corpus Christi to Houston to the Beaumont-Port Arthur area. AccuWeather estimated Harvey’s economic toll at about US$190 billion, representing a full 1 percent of U.S. gross domestic product, with other preliminary approximations ranging from US$70 billion to US$200 billion. The higher estimates would make Harvey the costliest natural disaster in U.S. history in dollar terms, in addition to it causing more than 80 confirmed deaths. A Sept. 15 report from the U.S. Federal Reserve said the nation’s industrial production fell 0.9 percent in August – its biggest month-over-month drop in more than eight years – and attributed more than 80 percent of the decline to storm impacts that “temporarily curtailed drilling, servicing and extraction activity for oil and natural gas.” The most serious incident at a petrochemical facility was reported at the plant of industrial chemical manufacturer Arkema in Crosby, about 30 miles northeast of Houston, where an explosion occurred as Harvey-caused power outages shut off cooling systems relied upon to keep toxic chemicals stable. The U.S. Environmental Protection Agency has launched an inquiry.
HURRICANE IRMA EXTENDS STORM IMPACTS TO FLORIDA As the Texas Gulf Coast continued its recovery from Hurricane Harvey, a second devastating storm wrought havoc upon Florida and other parts of the U.S. Southeast. Just 15 days after Harvey first struck the Texas coast, Hurricane Irma made initial U.S. mainland landfall the morning of Sept. 10 in the Florida Keys and later that day a second landfall in Southwest Florida, about 180 miles south of Tampa. Irma annihilated the sparsely populated Florida Keys and precipitated unparalleled evacuations of millions of Florida residents and tourists, while extended power outages were experienced as far inland as the Appalachian Foothills in North Georgia. AccuWeather estimated Irma damage at about US$100 billion, with some projections indicating losses may be partially offset by economic activity associated with post-storm rebuilding. Irma resulted in closures of multiple days at Florida ports and, farther north, shorter operational suspensions at the Georgia Ports Authority’s Port of Savannah and Port of Brunswick and the South Carolina Ports Authority’s Port of Charleston and Inland Port Greer.
Also, by a week after Irma’s Florida landfalls, Florida East Coast Railway and Norfolk Southern Railway announced service restorations in Florida and Georgia, albeit with lingering delays, metering of cargo and/or reduced train speeds. CSX continued to struggle with delays, just as it had prior to the storm. Other supply chain impacts of Irma have included higher truck rates, and the Federal Motor Carrier Safety Administration issued a regional emergency declaration for seven Southeast states, as well as hard-hit Puerto Rico and the U.S. Virgin Islands. In the wake of Irma, fuel shortages in the Southeast spurred the U.S. Department of Homeland Security to enact and subsequently extend a temporary federal waiver of the Jones Act, thus allowing non-American-flagged vessels, led by those of Phillips 66, to move petroleum cargoes between U.S. ports, joining an armada of dozens of U.S.-flagged Jones Act tankers in meeting demands for gasoline, diesel and jet fuels in hurricaneimpacted areas. The DHS action has spurred rejuvenation of efforts to seek permanent revocation of the 97-year-old federal statute.
A Jones Act vessel carrying 120,000 barrels of fuel to resupply Florida gas stations berths Sept. 13 at Port Manatee, three days after Hurricane Irma struck the Tampa Bay area. / Credit: Port Manatee
www.breakbulk.com BREAKBULK MAGAZINE 53
regional view
COAST GUARD ENGAGED
INFRASTRUCTURE REBOUNDS
Less than a week after Harvey devastated the Houston area, the Texas Department of Transportation reported that more than 90 percent of roads that had been closed due to flooding had reopened. But trucking rates spiked as the price of diesel experienced its biggest one-week increase in six and a half years. Rail operations of BNSF, Union Pacific and Kansas City Southern took a hit as well, with significant reroutings and delays, although some trains and facilities were being operated at normal levels within seven to 10 days of Harvey’s initial landfall. As navigation channels began to reopen to ship traffic, shoaling due to silt and debris limited drafts of vessels able to get to some Texas ports, such as that of Beaumont, where ExxonMobil shifted to supplying a refinery via pipelines as opposed to tankers. At nearby Port Arthur, Motiva’s refinery, the nation’s largest, saw all units shut down for nearly two weeks due to floodwaters and lack of adequate crude supply. A Sept. 14 report from the U.S. Army Corps of Engineers had this to say about the Port of Beaumont: “Every day the fourth-largest port in America – in terms of tonnage handled – is shuttered, millions of dollars are lost in economic value to the region and the nation. Accord54 BREAKBULK MAGAZINE www.breakbulk.com
ing to estimates from Sabine-Neches Navigation District officials, the Port of Beaumont, a major exporter of the nation’s petroleum products, has lost more than US$1 billion in revenue over a 14-day period since Hurricane Harvey hit the area.” Col. Lars Zetterstrom, commander of the Corps of Engineers’ Galveston District, added: “We’ve never seen this amount of active survey vessels or dredgers working in the Texas navigation channels at one time.”
U.S. Coast Guard aids-to-navigation crewmembers prepare a wooden pole piling to help mark the Houston Ship Channel. / Credit: U.S. Coast Guard
U.S. Coast Guard activities – in addition to rescuing more than 11,000 Texans and more than 1,300 pets – have included restoration of navigational aids along ship channels throughout Texas so that vessels could safely pass at all hours of day and night. Efforts to completely clear channels and restore full navigability are anticipated to take months. According to Coast Guard reports, more than 20,000 Floodwaters at the barrels of oil and facilities of Motiva, other chemicals Kinder Morgan and plus more than 25 Chevron Phillips million cubic feet Chemical along the Neches River in Port of natural gas were Arthur, Texas. spilled at Texas sites in Harvey’s wake. Credit: U.S. Coast That included nearly Guard 11,000 barrels of unleaded gasoline from a Magellan Midstream Partners facility along the Houston Ship Channel. Meanwhile, Cheniere Energy’s Sabine Pass LNG terminal, on the Louisiana side of the Sabine River Navigational Channel, immediately across from Texas, continued production operations throughout the storm. Cheniere also reported that early assessments by the Houston-based energy company and its engineering, procurement and construction partner, Bechtel Corp., of the Corpus Christi building site for a US$20 billion liquefaction and export facility “showed only minor cosmetic impacts” at what is the largest single privately financed construction project ever in the U.S. Like hundreds of industry entities, Cheniere has made a significant donation to relief efforts – US$1 million to the American Red Cross in Cheniere’s case. The Bechtel Group Foundation announced a $500,000 bestowal to the Red Cross and a campaign to match donations to relief efforts made by colleagues throughout the world. Indeed, the companies engaged in the generous outpouring of support – from financial contributions to provision of free services and countless volunteer hours – are far too plentiful to enumerate. BB A professional journalist for nearly 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.
ISSUE 5 / 2017
profile
Evolution of a Project Logistician
THE EXPERT’S EXPERT BY JANET NODAR
A
fter spending almost 40 years in the business, Greg Gowans has seen significant evolution in the nature of industrial project logistics. A well-known and highly respected member of Houston’s project community, Gowans is a member and past chairman of the Exporters Competitive Maritime Council. He has served Breakbulk as an advisor, instructor, speaker and moderator for many years. Gowans was introduced to the international project transport business when he left Sault Ste. Marie, Canada, where he grew up and 56 BREAKBULK MAGAZINE www.breakbulk.com
worked at integrated steel manufacturer Algoma Steel Co. in multiple logistics roles, including managing the company’s 5 million ton-per-year raw material marine program. Gowans left Algoma to join Babcock & Wilcox, or B&W, in Ontario, Canada. There he joined Grant Wattman, another familiar figure in Houston’s project transport logistics community, and also a fellow Canadian, at the utility and industrial boiler manufacturer. This was Gowans’ first exposure to the project market. Soon he was traveling internationally in his new calling. In the late 1980s, B&W’s primary market for utility boilers was Southeast Asia, where the company built field-erected coal-fired boilers and ISSUE 5 / 2017
CREATING VALUE AT EVERY POINT OF TRANSFER
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large industrial boilers, typically on remote sites, as part of power generation projects for government entities. They manufactured in Canada, India, China and Turkey. Gowans quickly set aside some early assumptions. “I didn’t appreciate the local skill sets in these countries. I thought of them as developing, but we’d hire locals and discover that they were very proficient. It was not just a jungle out there. Our business partners spoke English, were educated, and managed their business very well.” One complex Indonesian project, in particular, provided Gowans with an education in barging, transshipment and transloading. Gowans also learned some painful lessons about customs clearance. “It was less about following the rules than about negotiating the outcome” in many of these countries, he said. “There would be the formal system in place – and then there was the way things were actually done. I learned about how that could be manipulated for or against importers, and it was painful.” This aspect of logistics has changed dramatically given today’s compliance culture. During his last five years at B&W, Gowans served as the logistics coordinator and instructor; vetting, training and overseeing coordination procedures, as the company created joint ventures with local companies in Turkey, India and China. His responsibilities took different forms with each venture.
Geared reaction steam turbine / Credit: Alstom
MEETING OF MODELS
When he began in the industry there were basically two logistics models, the European and the American, Gowans said. In the European model, the freight forwarder managed the risk of transport, generally on a lump-sum basis. “The seller was interested in getting the work done and not sophisticated regarding the costs. It was: ‘Here’s my project: here’s what I know and as much of the schedule as I know. You move the stuff from source to destination. Give me a price for that,’ “ Gowans said. Forwarders
GOWANS QUICKLY SET ASIDE SOME EARLY ASSUMPTIONS. “I DIDN’T APPRECIATE THE LOCAL SKILL SETS IN THESE COUNTRIES.... IT WAS NOT JUST A JUNGLE OUT THERE.” “The last five years at B&W, I spent lots of time with these investments and with these foreign partners that also made boilers and so on. I’m proud of that,” Gowans said. He matured in the project transport industry during a formative period, just as the export boom of the late 1980s and early 1990s fueled U.S. and global growth and changed transport logistics forever. 58 BREAKBULK MAGAZINE www.breakbulk.com
managed all service provider contracts, would back-charge if they’d contracted intelligently enough, and could make lots of money off the risks they took. Meanwhile, from the 1940s to the 1980s the U.S. was a closed market, manufacturing for itself and rarely shipping internationally. U.S. manufacturing companies had their own traffic departments and transport staff and managed their own transport contracts, shipping
within the U.S. When the Americans moved internationally, they were inexperienced, but they kept these transport groups and learned fast. These two models, the American and the European, really collided when the export boom to Asia ramped up in the early 2000s. Suddenly, owners were engaged in international transport decisions. Ocean carriers began contracting directly with owners. Oversight might go to a forwarder, but there was more direct engagement on all sides, Gowans said. Building larger – another trend – required more international sourcing, particularly to low-cost countries. This also became standard, but required far more logistics coordination than had previously been necessary. After a decade with B&W, Gowans moved to ABB, where he was responsible for all international transport for ABB operations in the U.S. When ABB sold their industrial and boiler business to Alstom, Gowans moved with the sale. Logistics management was becoming increasingly important, because “logistics was growing as a percentage of cost of goods sold. It could be 10, 12 or even 15 percent. Our margins were only 6 or 7 percent, so if the company failed to perform in its logistics, the company could lose money on the entire project. We reorganized and moved toward a supply management model.” ISSUE 5 / 2017
Celebrating 20 years of excellence Founded back in 1997, we set out to build the world’s highest performing global project carrier which serves any port for any cargo. Today, 20 years later, we are proud and pleased that this mission continues to make us the carrier of choice to project customers all over the world. We like to thank all for supporting us in the past 20 years and we look forward to serving you in the future, delivering you the unparalleled service of a global market leader. www.bbc-chartering.com
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profile
Turbine hall / Credit: Alstom
At Alstom, Gowans was responsible for procurement expediting on all projects. He also took on quality assurance and control, previously an “orphaned” service. “We created a much more dynamic organization. I’m pleased with that part of my career. I took on a responsibility and expanded and redefined logistics, incorporating transport logistics, expediting and procurement quality,” Gowans said. He then led global quality during his final three years at Alstom, reporting directly to the president of the division. In 2009 Gowans went to CB&I, moving to Houston and the energy business, and five years later he joined CH2MHill. CB&I designs and builds refineries and energy processing facilities, including large vessels and storage tanks, and performs its own construction, Gowans said. CH2MHill is a consulting engineering company that prefers cost-plus work. B&W and Alstom are manufacturers and EPCs, with work delivered and erected.
MOVE TO THE ENERGY BUSINESS
With CB&I, Gowans found himself in the energy business, rather than the power-generating business. Power projects include large boilers or similar pieces and often many hundreds of thousands of related items, he said. In contrast, an energy contract might consist of one very large column or tower to be transported. These large pieces might go into refineries, or LNG and petrochemical plants. 60 BREAKBULK MAGAZINE www.breakbulk.com
“These require technical knowledge to move, transport and erect, but there are not that many of them, even in a large refinery,” he said. “They sit on the ground and are self-supporting.” In contrast, power-generating boilers are hung “like a jacket on a coat hanger” within a massive supporting structure of steel. The boiler expands down and contracts back up as it heats and cools. In the power business, “hundreds of thousands of pieces of equipment are erected at the field, so inventory management is critical. It’s the ‘balance-of-plant;’ all the bric-a-brac and rigmarole that’s required. Power projects may not have the massive pieces of equipment that energy projects do, but the materials management challenges are as great or greater,” Gowans said. “It’s a different focal point for the logistics. It’s the bid and completion of engineering, the acquisition of pieces and parts. The elements may not be as large, but they are as critical as the huge pieces.” These differing logistics niches require different mentalities, Gowans said. Massive towers and columns take more transport planning, while for original equipment manufacturers such as B&W, ABB and Alstom that build pieces for and erect new power generation plants, it’s all about logistics planning. Industrial project logistics transport continues to evolve today, particularly in the way materials are handled. “Pure logistics companies (i.e. pure freight forwarders) are becoming ancillary, or even
LNG project / Credit: CB&I
interchangeable,” Gowans said. “Many are moving into asset owning. If they are not directly providing services themselves, they are losing market share.” Gowans sees this trend as essentially a risk management strategy for the end user or owner. Service providers should have some skin in the game, that is be physically responsible for at least some of the activities they perform, such as providing warehousing or transport as opposed to purchasing it from other companies. “It simplifies and consolidates the supply chain,” he said. Logistics companies without assets are just not considered as strongly invested in the business, in his opinion. Meanwhile, carriers are investing in transport modes beyond their ships’ cranes; land transport providers are taking responsibility for ocean transport; owners are developing their own materials management systems, customs clearance teams or in-house brokerages. “The segmentation of the market is gone,” Gowans said. “It’s all becoming commingled.” A purchaser can buy all of these services from one company if he chooses to, and that company could come from a cross-section of segments – a forwarder with assets, a pure forwarder, a carrier, or a land transport provider. After 40 years in the industry, Gowans continues to be fascinated by the project logistics industry. There’s always something new to learn, to teach, or to speak about; there’s always something challenging to move. BB ISSUE 5 / 2017
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CONNECTIONS RUN DEEP In New Orleans, we’re known for letting the good times roll. But to our customers, our capabilities are as world-class as our food and music. The Port of New Orleans is America’s most intermodal port. We connect you to major inland markets and Canada via 14,500 miles of waterways, all six Class-I railways, and a growing number of ocean carrier services, and barge and truck lines. The Clarence Henry Truckway, a dedicated two-lane roadway on Port property, makes fast transit times even faster. The Port also offers on-dock rail and ship-to-barge services. You can count on use to exceed your cargo handling expectations — and you’ll love our Big Easy hospitality.
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breakbulk cares
A VISION REALIZED Workers’ Fund Takes the Strain
J
erry Nagel’s 46-year shipping career began alongside his father on the New Orleans waterfront and concluded with Rickmers Linie, where he served as president and CEO from 2004 to 2011, and chairman until mid-2012. Throughout his career he was active in the development of maritime professionals from high school to professional recruitment, training, and beyond. Whatever the task at hand, his credo was always “say what you can do, then do what you say.” In 2011, Nagel (pictured below) was the recipient of the Eighth Annual Breakbulk Lifetime Leadership and Achievement Award. During his acceptance speech, he announced that he would spearhead the formation of a fund to assist members of the transportation industry from all sectors, modes and functions when hardships occur. It was
Credit: Marko Stampehl
62 BREAKBULK MAGAZINE www.breakbulk.com
during the process of qualifying for a lung transplant that Nagel came to fully understand the serious financial and emotional hardships that people without adequate insurance and other resources face when dealing with catastrophic illnesses. Nagel’s promise was realized with the formation of the Maritime Workers Emergency Medical Fund, a Texas 501(c) (3) organization committed to providing the workers of the Texas Gulf Coast with an organization to apply for assistance during times of personal medical crisis. Nagel lost his battle with pulmonary disease during a final lung transplant in 2012, but his legacy still lives on through the fund. “My late husband Jerry truly loved the shipping industry, and his whole career was built around it – he welcomed the challenges as the industry grew and changed and he felt that the industry helped him personally to discover, develop and nurture whatever innate talents he possessed,” said Linda Nagel. “Jerry loved and appreciated the friendships he developed over decades of service, and he had the philosophy that you cannot separate the people from the companies they represent – it’s the people that make the industry work and the people who give purpose and meaning to the job. “It was with this thought in mind that Jerry had a dream for the formation of this fund. It was his colleagues who picked up on the idea, committed to it, nurtured it and developed it into what it is today. Little did we know nor suspect that we would be the first recipients of the fund’s generosity,” Linda continued. “I am delighted that the fund is still in place and that people in the industry are still benefitting from the generosity of its contributors. I am thankful that Jerry’s colleagues are still committed to his
dream. I am so proud to be a part of this very worthy and valuable program that keeps on giving.” Today, the organization is led by president, Stephen Garifalos (BNSF) and seven board members: Ernest Bezdek, Port of Beaumont; Jeffrey Hakala, Ceres Stevedoring (retired); Clay Woodgate, Scafom-Rux; Leah Martinez, Intermarine LLC; Ed Bastian, BBC Chartering; Alan Robb, ILA; and Niels Lynsgo, (retired). The organization is based in Houston and depends on grants, corporate funding and online donations to award maritime families in need. In addition to these forms of fundraising, the organization holds an annual shrimp boil in the spring and a golf tournament in the fall. “I believe in what the fund represents – I also believe that we are just in our infancy as far as the impact we will have on people’s lives in the future,” said Bastian, a board member and global sales director of BBC Chartering. “I have had direct contact with two of our recent beneficiaries, and while the monetary support we provide is certainly appreciated and welcomed, what matters more is that someone cares, someone is sharing their pain, and that someone is willing to ease their anxiety about how to make ends meet when bills are piling up. “Most times the treatments our beneficiaries are enduring are extreme, they don’t need any more worries and sleepless nights wondering how they are going to get through their illnesses monetarily – the fund has impacted my own life and given me hope,” Bastian said. Applicants can submit for assistance through the fund’s website. Upon receiving applications, the board reviews and awards funds to individuals battling a catastrophic illness or suffering major injuries from an accident. The applicaISSUE 5 / 2017
ABOVE: Maritime Workers Emergency Medical
Fund board members (from left) Stephen Garifalos, BNSF (President); Leah Martinez, Intermarine LLC (board member); and Ed Bastian, BBC Chartering (board member). RIGHT: The annual MWEMF Shrimp Boil
brings supporters together. Credit: MWEMF
tion process is straightforward, so the potential beneficiaries should find it easy to complete. All of the applications are reviewed and voted on by the members of the board. “The maritime industry is like no other; it has lasted for centuries – longer than most countries and certainly longer than most companies. We have had many ups and downs, but we are a global fraternity and we will continue to support each other,” Bastian said. BB If you would like to contribute to the organization and/or get involved there are a number of options. The organization offers corporate memberships at $10,000 per year. At this level you are given Admiral sponsorship for both the Seafood Boil and Golf Tournament with special recognition through the organization’s website and promotional correspondence. There are also Commander, Captain, Commodore, and Admiral-level sponsorships for both the Seafood Boil and Golf Tournaments. To learn more about the organization, become a corporate member and/or donate, please visit: http://maritimemedicalfund.org/.
Life can be such an uphill battle. Therefore, when you encounter a group who helps make the climb easier, you can do nothing but feel endless appreciation. My original diagnosis of breast cancer was in 2009. I was blessed enough to go into remission in 2010. This year, I came out of remission and to make things more complicated, the cancer spread. So many thoughts went across my mind, but the biggest was how I would navigate
through this. The Maritime Workers Emergency Medical Fund was a blessing. The process was easy and the response from the organization was quick. I appreciated the group’s efforts. This group’s support helped me alleviate some financial stress, thereby putting the focus on bettering my health. My children and I are grateful to know that funds such as this are available to help those who need it at the right time.”
– Judith Okani Brown, West Gulf Maritime Association www.breakbulk.com BREAKBULK MAGAZINE 63
executive summary
BRAWN AND BRAINS Swan Song For Simple Multipurpose Vessel? BY SUSAN OATWAY
significantly over the last quarter of the year. On the other hand, the progression of vessels to the demolition beaches has been steady. Some 38 vessels amounting to almost a half-million deadweight tonnes have been sold so far in 2017. It is not too preposterous to assume we will see more sold before the year end, meaning that the year-end demolition figure will not only be higher than the number of vessels delivered, but also an improvement on last year’s numbers. Over the last five years the number of project carriers being delivered compared with the simpler vessels has increased to an average 72 percent of all newbuilding deliveries. That means that the percentage of the fleet with heavy-lift capability is growing. There are almost 900 vessels, amounting to
A
first run through the numbers for the breakbulk sector ahead of Drewry’s third quarter Multipurpose Shipping Market Review and Forecaster report suggests that any recovery in the market is still some way off. The fleet continues to contract, at least for the simple multipurpose vessel, or MPV, types, but there is still a lot of older tonnage and the overcapacity situation is some way from being resolved. With no newbuilding activity since February of this year, it seems unlikely that the 145,000 deadweight tonnes ordered so far will increase
PREMIUM PROJECT CARRIERS DOMINATE
EFFECTIVE FLEET VS. EFFECTIVE DEMAND Cargo demand is still there. 40 38 36 34 32 30 28 26 24 22 20
2015
2016
2017
2018
Effective fleet (million deadweight tonnes)
2019
2020
Cargo tonnes per effective dwt
Source: Drewry Maritime Research
Pure MPVs are in short supply.
3,000
2,500
2,000
1,500
1,000
500
0
<’85 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 Multipurpose (no gear)
Multipurpose
Heavy-lift cargo vessel
Project carrier
Premium project carrier
Note: MPV fleet age profile by vessel type, Jan. 1, 2017 in 1,000 deadweight tonnes / Source: Drewry Maritime Research
64 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
A PORT AS BIG AS TEXAS They say everything’s bigger in Texas and as the largest breakbulk port in North America, offering over 20,000 feet of docking space and capacity to accommodate cargo of 1,000 pounds per square foot, Port Houston is ready to accommodate all types of bigger-than-life cargo. The 52 general cargo and heavy-lift City Docks have put Houston at the pinnacle of industry rankings for steel and project cargo. It’s true everything is bigger in Texas... Better too. Call or visit us online to learn more about Port Houston, The International Port of Texas.
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executive summary
13.2 million dwt, in the fleet with a lift of more than 100 tonnes. This represents 31 percent in number terms and almost 45 percent in deadweight-tonnes terms. Within this project carrier fleet, Drewry defines the premium ships as those with a lift capacity of more than 250 tonnes. There are 336 of these, amounting to almost 5.6 million dwt. That represents almost 20 percent of the fleet in deadweight-tonnes terms and 10 percent in number terms. But it is also the youngest sector of the fleet with an average age of just nine years, compared with 21 years for the simple MPV sector and 16 years for the fleet overall. The future is clearly seen to be in the heavy-lift sector.
CONSOLIDATION NO REAL HELP
The summer has been full of news of consolidation with Rickmers-Line and SAL taken over (by Zeaborn and Harren & Partner, respectively), producing two considerable players in the sector with fleets of more than 30 vessels each. The weak project cargo market, in particular, has played a part in the consolidation of these companies. However, while consolidation might aid the bottom line for the annual financial report, it does not help the market unless the older vessels are demolished. On the demand side of the market the International Monetary Fund kept
THE RENEWABLES SECTOR IS REPORTING SOME SIGNIFICANT INCREASES IN ANNUAL INSTALLED WIND CAPACITY FOR 2017, WITH A GROWTH RATE OF 8.8 PERCENT. ALTHOUGH THIS GROWTH IS LIKELY TO SLOW IN 2018 – IT IS STILL VERY POSITIVE. 66 BREAKBULK MAGAZINE www.breakbulk.com
MPV FLEET DEVELOPMENT
Demolitions outweigh deliveries.
1,500
20,000
1,000
16,000
500
12,000
0
8,000
-500
4,000
-1,000
2015
2016
2017
2018
Left Axis: ‘000 Deadweight Tonnes
2019
2020
0
Right Axis: Number of Ships
MPV excluding project carrier deliveries
MPV excluding PC demolitions
MPV excluding PC fleet
Project carriers including HL deliveries
Heavy-lift demolitions
PC including HL fleet
Source: Drewry Maritime Research
expectations for global gross domestic product steady over the summer at 3.5 percent for 2017 (up from 3.4 percent in 2016) and 3.6 percent in 2018. There is a clear expectation for a slow but firm recovery for global growth. Equally, a look at the global sector Purchasing Manager’s Index shows recovery in August from a dip in July. Although most of the sectors reporting strong growth have little impact on the breakbulk sector, there was recovery in general industrials, construction materials and metals and mining. Added to this is the positive effect on the whole sector of global improvement. This improved optimism for global trade has had a positive effect on expectations for 2017 and 2018. Dry cargo growth is expected to witness year-on-year growth of just below 3 percent for 2017 and slightly above 3 percent for 2018. Within this figure, the expectation is that pure bulk cargo will be up about 2.6 percent for both years and general cargo almost 3 percent in 2017 and nearly 4 percent in 2018.
CARGO DEMAND PICTURE
While the overall trade figures are positive for this sector, what of the actual cargoes that are to be carried? As I write this, yet another hurricane follows the destructive path that Harvey and Irma have already cut. It is too early to guess
at the long-term impact this season will have on the Caribbean and U.S. Gulf, but clearly there has been a negative impact on the steel trade into and out of the Gulf. The hope is that this will be a short-term effect and the inevitable call for rebuilding will produce positive trade volumes for this area. Meanwhile, the renewables sector is reporting some significant increases in annual installed wind capacity for 2017, with a growth rate of 8.8 percent. Although this growth is likely to slow in 2018 – it is still very positive. In particular, China’s offshore wind industry is hoping to finally fulfil its potential as favorable government-backed pricing and increased investment should see development increase. Overall, Drewry’s view on the next 12 to 18 months remains cautiously positive. This sector has some way to go before freight rates show significant improvement, but the firmer demand and shrinking fleet, coupled with improvements in the competing sectors, should turn the sector in time. BB Susan Oatway is an associate at Drewry Shipping Consultants. This article is taken from Drewry’s Multipurpose Shipping Market Review and Forecaster third quarter report.
ISSUE 5 / 2017
HEAVY LIFT LEADERS.
logistics perspective
BY THOMAS TIMLEN
VANISHING ACT B
ankruptcies, piracy, crew abandonment, criminalization of seafarers and market malaise. The prevalence of these topics hardly makes careers in shipping look attractive, whether at sea or ashore. For decades, operators have been familiar with the challenges of recruitment in good times and bad. Prior to the crash of 2008, concerns focused primarily on the availability of qualified seafarers needed to man everexpanding fleets in all sectors. Studies were conducted to determine whether the future workforce would be adequate to meet the demand of the transport industry. Of these studies, the most prominent was initiated in 1990 by the shipping association BIMCO and the International Chamber of Shipping, or ICS, with updates subsequently published every five years.
68 BREAKBULK MAGAZINE www.breakbulk.com
But after the crash, much changed. With massive layups, anxieties shifted from the operators seeking manpower to seafarers and maritime professionals placed out of work and seeking employment. The oversupply of vessels that ultimately wrought havoc on the market left the industry an oversupply of manpower and many maritime professionals unable to secure work migrated out to other industries. When the most recent BIMCO/ICS manpower update was released in 2016, ICS Secretary General Peter Hinchliffe noted that there could be further trouble ahead. “Without continuing efforts to promote careers at sea and improve levels of recruitment and retention, the report suggested it could not be guaranteed that there would be an abundant supply of seafarers in the future,” he warned, notably at a time without rapid fleet growth.
ISSUE 5 / 2017
Credit: Shutterstock
Market Recovery Little Solace for Lost Talent
Reroute Your Thinking™
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logistics perspective
LACK OF SEAFARERS FORECAST
logistics manager who preferred to remain anonymous confirmed to Breakbulk that the main problem today is the lack of available job opportunities due to the current market conditions and lack of capital projects. Therefore, it is extremely hard to break into the industry, and those currently employed face career stagnation, having a hard time progressing through the ranks. This has resulted in a swathe of people who want to enter the industry but are unable, while others leave looking for greener pastures. It is also difficult to fill some positions. People want to work for strong, stable companies and managers that they trust and have confidence in. There are also many experienced candidates in the industry seeking new positions, which creates challenges for less experienced candidates straight out of college or new to the industry.
Where does this leave the breakbulk, project and heavy-lift sectors in terms of the availability of qualified staff? The BIMCO/ICS study is macro in nature, focusing on tankers, dry cargo ships, ferries, passenger ships and supply vessels, and while data from the breakbulk, project and heavy-lift sectors is neither collected nor analyzed, it will likely not escape the forecast dearth of seafarers evident in other sectors. Examination of market forecasts specific to MPVs could shed light on seafarer demands in the breakbulk and project cargo sector, and in that regard Drewry Maritime Research’s forecast of better times to come might exacerbate any seafarer shortages. Drewry’s Associate Analyst Susan Oatway told Breakbulk that the consultant expects MPV demand growth of
SEAFARER SHORTFALL
Crew deficit set to increase to 2025. Shortage: -147,500
1,000,000
900,000
Shortage: -92,000 Shortage: -16,500
800,000 Supply Demand 700,000
2015
2020
2025
Source: BIMCO/ICS Manpower Report
between 2 percent and 3 percent per year for the medium term. Although the future for MPVs is less rosy beyond 2021, Drewry also noted the efforts of owners taking significant decisions to build higher specification vessels with bigger lift capacity, to give them an advantage in the appalling market. All things considered, these factors combined could eventually lead to freight rate rises gathering momentum after 2018, Oatway said. As the market improves, so too will the need to fill new job vacancies, both onshore and offshore. An American 70 BREAKBULK MAGAZINE www.breakbulk.com
RETENTION OVER RECRUITMENT
In light of recruitment challenges, John Hark, Bertling Logistics Inc.’s regional director for North America and COO for South America, considered retention of valued staff a key priority. “With the downturn in business and subsequent layoffs, companies have done their best to hold onto their most valuable employees. The industry has started to see poaching between companies, as firms try to lure away competitors’ staff to fill their current and future needs. This is not always an easy nor cheap
John Hark
Teik Poh Goh
Bertling Logistics Inc.
Global Maritime Talent Pte. Ltd.
task. That being said, the cuts have been deep enough at many firms to include experienced and loyal employees. Unfortunately for our industry, some of these employees have left the project and breakbulk sector for other areas of logistics execution. So ultimately, it is not easy to fill open positions with top-notch candidates,” Hark said. Turning from the office to the ships, Teik Poh Goh, managing director at Global Maritime Talent Pte Ltd., felt that filling positions on MPVs and specialist ships was less of a challenge. “For seagoing positions, there are enough qualified sea staff available to sail on breakbulk and specialized project cargo ships. Seagoing officers are generally trained to sail on a variety of ships, hence they are generally adaptable to different ship types. In any case, those without the requisite experience can easily be crosstrained.” In Goh’s eyes, the challenge is staffing the office. “Where shore staff are concerned, different challenges are involved. To begin with, the overall number of breakbulk or MPVs that are deployed around the world are relatively few compared to container ships, bulk carriers or tankers. Hence, the pool of shore staff with the requisite commercial or operations background is thus limited.” Added to which, sourcing staff with commercial knowledge can be another headache: “While operations folks, especially those drawn from ex-deck officers, have the ability to adapt to different ship types and can thus take on shore-based operations roles, the same cannot be said for commercial shore staff,” Goh ISSUE 5 / 2017
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logistics perspective
explained. “The commercial roles tend to revolve around specific trade routes or cargo types, and thus customers of these ship types tend to be deployed on specific or niche routes. Hence a commercial staff poached from another breakbulk company, unless he or she is a close competitor on a similar trade route, will generally have to very quickly relearn new cargo opportunities and therefore customers.” This then leads to further poaching, which will continue unless breakbulk operators are prepared to “grow their own timber,” Goh said. “For those that do, some lead time for them to grow into effective managers is inevitable. However, it will probably be a better strategy over the mid- to longer term. For those prepared to buy the talent, and hopefully the customers, they will have to pay top dollar with no guarantee of success as often times, these folks will have to grapple with different customers or cargo types unless the talent is drawn from direct competitors.”
STEALING FROM WITHIN
Poaching not only results with the loss of key employees, but it negates all the investment made in that person’s training and skills development as well as their knowledge of the market and/or operational familiarity. “We have seen and heard of firms losing staff to other sectors of the logistics industry such as downstream refining/chemicals, general logistics and warehousing,” Hark said. The “last mile” logistics industry is also a draw for young talent today. For Goh, poaching activities vary depending on the type of staff sought. “Where the more senior and experienced folks are concerned, they tend to be lost to similarly situated carriers/competitors, if at all. There’s also a greater ‘stickiness’ due to their being valued for their expertise and/or better retention tools at play. “The junior roles,” Goh continued, “including entry-level positions, are probably at greater risk especially if these folks either don’t enjoy what they do or feel that the opportunities aren’t there for upward mobility. However, from my own experience there is a good pool of interested folks vying for and keen to join breakbulk 72 BREAKBULK MAGAZINE www.breakbulk.com
THE PROVERBIAL CAN HAS BEEN KICKED DOWN THE ROAD FOR YEARS, AND NOW WE SEE MORE AND MORE OF THESE EXPERTS RETIRING WITHOUT A SUFFICIENT BACKFILL BENCH OF SUCCESSORS.” – John Hark, Bertling Logistics Inc.
shipping companies at the entry level. These, however, have been turned away due to perhaps a lack of visibility of available roles and opportunities more than due to a lack of interest.” Given that trend, it is unsurprising that there’s a growing skills gap between the very experienced personnel at senior levels and juniors not yet ready or able to take over more senior roles. “This is further exacerbated when hiring at junior or mid-levels is curtailed during market downturns,” Goh said. That said, there can sometimes be an oversupply of candidates for particular roles, especially for non-specialized roles ashore. Clerical and entry-level candidates are not in short supply, and historically these roles have not been difficult to fill. However, the challenge with these entry-level positions continues to be the ability to hold onto the staff and being able to move the motivated individuals upward in the organizations to more complex and managerial positions, thereby keeping the organizational pipeline filled with suitable and trained personnel, Goh added.
TECHNICAL EXPERTISE GAP
Filling technical positions can also be difficult. There is a growing gap in the technical positions around heavylift operations and oversize cargo
movement, Hark noted. “The proverbial can has been kicked down the road for years, and now we see more and more of these experts retiring without a sufficient backfill bench of successors.” Schools that have pushed general logistics and distribution learning in combination with high technology have produced students that are a big draw to firms like Amazon and even medical industry-related supply chain positions. Better training at sea could be part of the solution, Goh said. “In my view, technical and operations folks are less of an issue. However, there has to be a commitment towards bringing in qualified deck officers, including those without shore experience and provide them with on-the-job training. These are trainable roles.” The industry needs to move past thinking that the technical knowledge and expertise required to handle specialist ships are beyond the capability of most individuals. Goh said, this business isn’t rocket science: “We have seasoned mariners who operate sophisticated cable-laying ships and specialized sub-sea vessels that are arguably more exacting to operate than other ship types, including breakbulk vessels.” Filling senior management and executive level positions is made harder by a generation gap in the shipping industry. Further, not enough knowledge transfer nor opportunities have been available to the next generation of leaders, points out one senior logistics executive. As the market stabilizes with forecasts of moderate improvement, this may be the right time for stakeholders in the breakbulk, project and heavy-lift sector to take stock of its efforts to attract and retain a qualified workforce. A collective initiative to address training needs and the promotion of careers in this niche market could help to ensure sustainable growth for the benefit of all. Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.
ISSUE 5 / 2017
Container-on-barge services at the Port of Greater Baton Rouge are providing area petrochemical industries with an efficient option to move products. Operated by SEACOR, the first leg of the service transports empty containers by barge into the Port where they are loaded with products from nearby industries. The second leg of the service transports the loaded containers, via the Mississippi River, to the Port of New Orleans where they are loaded on container ships for export. Benefits of container-on-barge shipping include: • Increased efficiency of logistics chain by eliminating congestion on both ends of the surface transportation system • Improving port throughput by reducing dwell time • Accommodating industry’s 24/7 production schedules • Ability to load 15% more cargo than truck transportation • Alleviating traffic congestion on surface highways
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logistics perspective
Recognizing the need to promote careers at sea, as these eventually provide the skills needed ashore, companies, together with international and national shipping organizations have conducted many related initiatives. Singapore has set a benchmark with its joint Singapore Maritime Foundation and Singapore Shipping Association initiative, which has partnered with educational institutions and the industry to highlight the opportunities that the maritime industry offers. “Singapore is seeing the fruits of its efforts, yet is aware that this must be maintained to ensure that there is a continuous supply of talent to sustain maritime Singapore’s growth into the future,” Global Maritime Talent’s Teik Poh Goh said. However, in the U.S., Bertling’s John Hark noted that the various maritime academies have historically lacked focus on the breakbulk and project sectors. “As regards their deck officers and engineer programs, they still seem to be primarily focused on tankers, container ships, and recently to a lesser extent the offshore oil industry vessel needs,” he said. Meanwhile, shore-side maritime academy logistics degrees – such as those available from Texas A&M Galveston’s Bachelor of Science and master’s degrees in Maritime Administration – also continue to lack specific focus on the breakbulk and project industry.
“Our segment is certainly a niche part of the logistics industry, and therefore we do need to be realistic about how much specific attention will be given to our interesting part of logistics at these schools,” Hark said. “That being said, we can drive curriculum in project logistics at the schools.” Recent initiatives from various firms and trade groups have already had a positive effect, and schools are always open to guest speakers. Plus, advisory board positions are also available to those interested in making a difference. “It is up to us to bring young people along and also proactively guide the various educational institutions in our regions,” Hark said. “Kevin Spacey has a great quote that I like to use; ‘If you have been successful in your chosen profession, it is your obligation to send the elevator back down.’ ”
BREAKBULK NOT THE FOCUS
Convincing maritime academies to expand their programs to cover breakbulk, project and heavy-lift cargoes, however, may be difficult, as those academies are facing pressure to enhance training on regulatory issues like the STCW convention above all else. Goh saw this as one of many factors that place pressures on maritime academies. “Maritime academies around the world have their hands
74 BREAKBULK MAGAZINE www.breakbulk.com
full trying to balance training needs mandated by STCW requirements; meeting career aspirations of the trainees and satisfying specific ship owner requirements, which frankly cannot be met in their entirety.” To that end, there may be advantages from borrowing tactics from aviation training, Goh continued. Aviation training schools train cadet pilots on a specific aircraft type to obtain their flying license. Once completed, graduates then go through conversion courses and are trained by the airlines themselves on the specific aircraft that they operate. “No pilot training academy in the world can churn out pilots able to fly every available aircraft type from the word go,” Goh said. “Airlines take on this shared responsibility to develop these cadets to fly their own specific aircraft types.” From Goh’s experience working with ship owners over the years, be it containers, tankers or general cargo ships, he has seen that many deploy and train cadets on different ship types. “In some cases, cadets are crosstrained between different ship types as well to increase their ease of deployment regardless of the ship type,” he explains. “In my view, ship owners should not delegate this responsibility to maritime academies or third-party ship managers.” BB
ISSUE 5 / 2017
Credit: Shutterstock
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MILITARY MIGHT
A Young Thai Army soldier stands guard in a wooden shelter outside Bangkok’s Grand Palace in October 2014, five months after the country’s most recent military coup. Credit: lazyllama / Shutterstock.com
Spending Up Under Thailand’s New Rulers BY JAYA PRAKASH
I
n the days following the military takeover in Thailand in 2014, the ruling junta unveiled a major spending program. Thai democracy may be weak, but the infusion of new projects may, rightly or wrongly, redeem the very military officers who suspended democracy in the name of expediency. While the ousting of the democratically elected former Prime Minister Yingluck Shinawatra in 2014 – now a fugitive from the law – potentially threatened to cap
76 BREAKBULK MAGAZINE www.breakbulk.com
hard-won economic gains, the kingdom has demonstrated remarkable resilience even without noticeably functioning democratic institutions. Nor have sporadic acts of terror and a weak drainage system, resulting in massive floods and deaths this year, dented confidence in the resilience of the country. The World Bank forecasts Thailand’s economic growth to rise 3.2 percent in 2017 amid all the upheaval that had at times threatened to tear the nation apart. » ISSUE 5 / 2017
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Bangkok construction site of Skytrain red line from Bang Sue to Rangsit. Credit: PongMoji / Shutterstock.com
BLAME IT ON THE TOURISTS
But there is a caveat. To remain competitive, Thailand needs to embark on extensive reform of the economy to lay down a future for the country in areas such as infrastructure and advanced manufacturing, Kobsak Pootrakool, vice minister for the Office of the Prime Minister, noted in the World Bank report. “And remaining competitive” was the catchphrase lying behind the colossal drive to pump some US$25 billion into the nation’s economy in a drive to spruce up the country, rejig and revive the economy and in the process, remove congestions and bottlenecks that have long dogged the nation, and gnawed at the nation’s gross domestic product, or GDP. 80 BREAKBULK MAGAZINE www.breakbulk.com
TO REMAIN COMPETITIVE, THAILAND NEEDS TO EMBARK ON EXTENSIVE REFORM OF THE ECONOMY TO LAY DOWN A FUTURE FOR THE COUNTRY. –K obsak Pootrakool, Office of the Prime Minister
Thailand’s increasing popularity as a tourist destination has played a surprising role in pushing more investment into infrastructure. During the first four months of 2017, Thailand was visited by 12 million tourists, generating more than 800 billion baht (US$24 billion). Tourist revenue of that scale is of course welcomed with outstretched hands, but that scale of tourism has also exposed the creaking infrastructure of Thailand. That has led to a necessary blueprint for the massive renovation of airports and seaports, and the development of better overall connectivity within and out of the kingdom. “It is not about productivity, but about economic growth and connectivity,” Ruth Banomyong, director, Centre for Logistics Research Thammasat Business School at Thammasat University, told Breakbulk. “With its strategic geopolitical position and significance as the secondlargest economy in the Association of Southeast Asian Nations, or ASEAN, Thailand does play a commensurate role promoting regional cooperation and integration,” added the Asian Development Bank, or ABD. It also noted that Asia may be on the cusp of a major infrastructure development push over the next 10 years amounting to more than US$1 trillion. But mystery remains – unfortunate for project cargo and breakbulk operators keen to get a foothold in this massive Thai infrastructure spending program. The country’s government public relations department simply stated: “The transport sector will facilitate connectivity to, within, and around Thailand and its neighboring countries.” Thailand, the agency says, is in the process of developing its transport infrastructure and by doing so, aims to become Southeast Asia’s aviation hub – an accolade which now belongs to Singapore and one which Thailand has long had in its sights. ISSUE 5 / 2017
regional review
THAI GDP GROWTH EXPECTED
Real GDP growth at market prices in percent. 4.0% 3.0% 2.0%
» Estimates
Projections »
2016
2017
1.0% 0%
2014
2015
2018
2019
Source: World Bank
ALL ABOUT CONNECTIVITY
Academic Kriengsak Chareonwongsak was able to shed some light on the plans. “Even though there are many projects in the government’s plan, the priority projects would be double-track railway projects. The government is now focusing on restructuring the Thai transportation system by accelerating the expansion and improvement of the railway network in order to correct the country’s lopsided dependence on road transportation.” A cursory look at statistics from the nation’s Ministry of Transport website reveals why rail transport is a national concern. The country has just 3,763 kilo-
meters of single-rail track in a landmass nearly equal to Britain, while double and triple tracks cover only 280 kilometers. By comparison, Great Britain has 16,209 kilometers. Further, with population increases and rising commerce on the back of ASEAN connectivity giving yet another potential shot in the arm, it is becoming that much more essential to add doubletrack railways. It would also offer the promise of lowering transport costs, which at the prices posited in 2013 stood at 7.4 percent of total GDP costs. The national Holy Grail to develop the country will mean raising the quality
of overland travel to connect Thailand with its neighbors in the Greater Mekong Subregion, especially Laos, Cambodia, and Myanmar. These drivers lie at the root of what Chareongwongsak described as Thailand’s “in-principle” agreement to approve some 36 large-scale infrastructure projects for 2017, worth 895.8 billion baht (US$25.2 billion). The government also has 10 infrastructure projects out of a total 20 infrastructure projects worth 1.4 trillion baht (about US$30billion) planned for fiscal 2016, which have yet to start. Those delayed projects will start in 2017. By embarking on delayed and envisioned projects the plan is, firstly, to capitalize on Thailand’s tourism potential. Then, Bangkok will begin allocating and assigning designated and strategic locations within the country to cater to the multitudes of air and sea travelers the country aims to entice. Also within the ambit of infrastructure renewal are grandiose plans at snagging “various world-renowned tourist attractions in neighboring countries, which are all within three to four hours flying time, similar to European countries,” the country’s PR agency said.
TOP SEVEN: A SELECTION OF THAILAND’S ANNOUNCED INFRASTRUCTURE PROJECTS TOP SEVEN
DESCRIPTION
STRUCTURE
VALUE
REMARKS
Motorways
Linking (i) Ayutthaya’s Bang Pa-in district with Nakhon Ratchasima province and (ii) Nonthaburi’s Bang Yai district with Kanchanaburi
Public-Private THB 140 billion Partnership to operate and maintain the motorways
Purple Line
Bangkok city railway between the PPP scheme THB 131 billion Kanchanaphisek Outer Ring Road and Tao Pun
Planned by Ministry of Transport
Orange Line
Between Bangkok’s eastern and PPP scheme THB 196 billion western sections
Planned by Ministry of Transport
Phuket Line
Connecting Phuket airport and PPP scheme THB 39.4 billion Chalong Circle
Planned by Ministry of Transport
Bids are expected to be completed within 2017
Motorways Linking Nakhon Pathom and Cha-am in Phetchaburi
THB 39.4 billion
High-speed railway Bangkok-Chiang Mai
Mainly government-to- government with China
Investment budget under study
High-speed railway
Mainly G2G with China
THB 152 billion
Bangkok-Rayong high-speed railway
Source: Pugnatorius Ltd, https://pugnatorius.com/infrastructure/ 82 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
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AIR AND ROAD TRANSPORT
And Thailand is not just banking on rail and sea transport ancillaries. Building up aviation transport, added Juthaporn Rerngronasa, acting governor of the Tourism Authority of Thailand, is just as crucial. The main gateway at Suvarnabhumi International Airport is expected to see passenger arrivals rise exponentially before 2020, while Don Muang International Airport is slated for redevelopment along with Phuket International Airport. Road transportation improvements are also being targeted. Thailand has one of the worst records in the world for safety. According to the World Health Organization’s Global Status Report on Road Safety, Thailand was ranked third in the world for road accidents. The World Bank estimates the annual cost of accidents to be up to 232,000 million baht. Fatalities accounted for 5.3 million baht, while disability injuries were at 6.2 million baht. A master plan has been devised to “bring about unity of the national transport and traffic policy,” according to the Transport Ministry, and that will include improvements in road infra84 BREAKBULK MAGAZINE www.breakbulk.com
structure and safety. Four-lane road networks are planned to access key economic Credit: PongMoji / nodes, as are new Shutterstock.com motorways and expressways and plans to develop road facilities for trucks. Another focus of the plan is on developing the inter-city rail network that is hoisting up public transport access within Bangkok. Not to be forgotten in the grand scheme of things are Thailand’s seaports. Plans are underway to build facilities at opposite ends of the Gulf of Thailand and the Andaman Sea. Bangkok construction site of Skytrain red line from Bang Sue to Rangsit.
COUNTING THE COST
According to the Public Debt Management Office, 52 percent of the total investment of these infrastructure undertakings will come from government and state-owned enterprise borrowings. Breakbulk understands that the projects will be financed through US$455
million in borrowings with the rest from the government budget, public-private partnerships, or PPPs, and an infrastructure fund. “For investments in the form of PPPs, there are now many foreign investors interested in investing in Thailand’s infrastructure, especially investors from Hong Kong who recently came to talk with the Minister of Finance in Thailand about this issue,” Chareonwongsak said. To support more foreign investment, Thai law has been liberalized, according to Chareonwongsak. Amendments to the Private Investments in State Undertakings Act have shortened the joint investment period between Thai nationals and foreign investors under PPPs. Such developments hammer home the Thai government’s desire to recast the country; project cargo and breakbulk operators would do well to keep a weather eye on its progress. BB Jaya Prakash is a Singapore-based maritime analyst with wide-ranging knowledge on Asia.
ISSUE 5 / 2017
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BY KERRY DIMMER
CORRIDORS OF ENERGY Projects Support Lighting up of Africa
T
and medium-sized enterprises in the country spend Nigerian Naira500-1000 (US1.4-2.8 cents) daily on fuel, with as much as 85 percent of micro and small businesses reliant on generators for power. Ghana, in 2015, experienced 159 days without power. Ghanaians call it Dumsor, translating into “off and on,” which typifies the persistent, irregular and unpredictable power outages experienced. On the other hand, Cote d’Ivoire, a power supplier to neighboring Ghana (which is indebted to Cote d’Ivoire for some US$60 million worth of electricity), long ago saw the value of allowing private firms to operate in the sector.
Credit: Shutterstock
he rhetoric about electrifying Africa is finally being actioned into tangible and achievable goals. In West Africa, where some 180 million people do not have access to electricity, an abundance of natural resources is driving a somewhat large portfolio of renewable energy projects. The clean energy wave rippling across West Africa is underscored by reinvigorated interest from the African Development Bank, or AfDB, and the Africa Progress Panel, or APP, in ensuring the continent addresses its energy crisis, for crisis it is. Take Nigeria for example. A recent survey by NOIPolls revealed that 61 percent of small
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ISSUE 5 / 2017
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This resulted in it not only being able to meet its own growing energy needs, but in giving it optimism to being able to double its 2013 installed capacity by 2020, and even outsource a bigger portion of its generation.
LIGHTING UP AFRICA
Such foresight addresses some of the issues raised by organizations like APP, which has over the past three years been promoting the lighting up of Africa. The publication of its Lights, Power, Action: Electrifying Africa report this year provides feedback on its Power, People, Planet: Seizing Africa’s Energy and Climate Opportunities, which was issued in 2015. The latter report was motivated by the need to find the links between energy, climate and development in Africa. It highlighted the opportunities that African leaders could employ in making a transition to a low-carbon, renewable energy future, and was hailed across the continent for its recommendations and its blueprint advice. However, it was felt that more in-depth policy-relevant information and insights are needed THIS PAGE: in order to not just Chinese-built Soubre build on the politihydroelectric power cal momentum station near the city the first report of Soubre in Cote motivated, but also d’Ivoire. to enhance initiatives that are in the Credit: Xinhua News pipeline, as well Agency/Newscom
88 BREAKBULK MAGAZINE www.breakbulk.com
as in support of the AfDB’s New Deal on Energy for Africa. This is a described as a “transformative partnership to light up and power Africa” by the bank. The New Deal on Energy for Africa comprises five interrelated and mutually reinforcing principles: • Aspirations to solve energy challenges on the continent. • Establishment of a Transformative Partnership on Energy for Africa. • The how-to in terms of raising local and international capital for the sector. • Support that must be provided to governments in terms of policy and regulation, and governance. • Increasing AfDB investments in climate financing and energy. It is reports like this and APP’s that are kick-starting energy projects in the continent. But, what are the ultimate goals of such organizations? Kofi Annan, APP chairman, and former SecretaryGeneral of the United Nations, said Africa needs to meet a double energy imperative to increase the scale and pace of electrification, and it is only through meeting Africa’s energy needs that economic growth will be realized to its full potential. “It’s a huge task but its also an exceptional opportunity,” he said.
CALL TO ARMS
Entrepreneurs and investors are being called upon to get Africa’s power grids back on track, provide off-grid solutions, and introduce mini-grids. Simple to say, but much harder to
achieve, and unless legal, financial and technical frameworks are in place, the 620 million Africans who are impacted by a lack of electricity will continue to experience challenges despite project initiation. The call to governments by both APP and AfDB for an acute focus on energy is not an appeal, it is an imperative particularly for cross-border power trade. “Africa is rich in energy resources, but they are not all evenly distributed,” Annan said. “To unlock Africa’s energy potential for all Africans, governments must cooperate to ensure regional power trade thrives.” With some 52 percent of the West African population having no access to electricity, the launch earlier this year of the West Africa Clean Energy Corridor, or WACEC, is going to be a catalyst in preparing to meet a collective nations’ goal for 2030 of getting “clean” power to 88 percent of the population. At the African Utility Week Conference in May, experts and panelists agreed that hydro offered the best potential, followed by solar, wind and biomass. Hydro is, however, a very expensive option, explaining why there is a preference for wind and solar farms, especially when addressing “the need is now” scenario. Jansénio Delgado, renewable energy expert at the Centre for Renewable Energy and Energy Efficiency, for the Economic Community of West African States, or ECOWAS, called on utilities and electrical companies in the region to adapt to renewable energy as a next phase of power generation. He also addressed cost factors: “The time is coming that renewables will really be a competitive source of energy.” ISSUE 5 / 2017
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DRIVING ENERGY DEVELOPMENTS
Senegal is one of the nations that is driving WACEC development, given its abundance of natural resources, so it is not surprising that government has a plan to produce at least 30 percent of its energy from renewables. Another corridor in the region, the West Africa Power Transmission Corridor, a 2,000-kilometer coastal line connecting to an existing Ghana-Nigeria line, will have capacity of 1 gigawatt. However, it will take some four years in implementation with only three of the 13 related projects active. In an anticipated second phase, an additional 2,500-kilometer inland route will take the total capacity up to 2 gigawatts. Regional nations involved in the project are Guinea, Guinea Bissau, Gambia, Sierra Leone, Liberia, Cote d’Ivoire
Worldwide heavy lift & project cargo logistics via
and Ghana, but the project also impacts Niger, Togo, Benin and obviously, Nigeria. With just Guinea’s hydropower and Ghana’s thermal potential, all ECOWAS countries will benefit. The ports and logistics suppliers in the region are undoubtedly an asset in support of renewable energy projects. Transporting equipment components for energy projects can be complicated and requires some understanding of the fragility and size of components, in the case of wind-powered projects, of turbines, generators, nacelles and blades. Given that regional projects involve a number of countries, transportation requires strict coordination from suppliers, through the value chain of project managers, freight forwarders and the local authorities. This poses a problem. In the case of West Africa, the expertise needed to transport energy farm components is
Bilbao PORT OF
lacking, so sourcing such businesses with experience is somewhat of a challenge. However, freight forwarders, shippers and port authorities are showing a willingness to acquire those skills. What the local agents have in their favor is exactly that: they are local, so have a comprehensive understanding of the infrastructure and protocols that would be involved.
GHANA PROJECTS
Doing business in Africa is known to be a challenge given a lack of quality infrastructure, particularly those that impact on related logistics services. Overall though, as nations develop, so too do the skills and professionalism of organizations that serve the international communities that are doing business in the region. Two Ghanaian companies are a case in point. Where they are not already
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ISSUE 5 / 2017
involved in the energy mix of projects, they are preparing to be. While both Climate Shipping & Trading and BluChip Logistics agree that financial resources are a challenge, there is optimism that the energy projects in the region will realize an increase and interest in the services they provide. Climate Shipping & Trading is already involved with one energy project through its client, Ghana Gas Co. The Atuabo Gas Processing Plant, which is part of the Western Corridor Gas Infrastructure Development Project, comprises the construction of a 111-kilometer transmission pipeline, which addresses the energy deficiency by contributing some 500 megawatts to the energy mix. Ras Afful Davis, president of Climate Shipping & Trading, confirmed the company will also be involved in the proposed Diesel Oil and LPG Storage Tank Farm facility that is to be established at Komenda in the Central Region of Ghana. “We have, over the past 16 years, established our business as one of the leading sea and air freight import/export professionals in the maritime, mining and energy sectors for the region,” Davis said. “Our breakbulk transport capacity is up to a million tons of specialized equipment, which positions us favorably both locally and internationally. And with our existing and new crop of highly qualified employees, we believe we are well able to meet customers’ discerning needs and expectations.” Eunice Osei, COO of BluChip Logistics Ltd., was also optimistic for the future. “Energy drives our lives, as individuals and businesses, and for our nation,” she told Breakbulk. “Being able to secure some of the renewable energy projects in the region will be a real boost to our freight forwarding capabilities, and will also speed up delivery of services through the technologies we will be able to access.” The services that BluChip is promoting to the energy sector include customs clearance, transport of equipment, and storage for all tonnages of breakbulk. “We will do whatever is required to handle whatever tonnages are needed,” Osei said. “Where we don’t have skills,
we will acquire those. It is also important to remain as an employer of local talent, with the ability to increase employment opportunities through our productivity and revenue increases.”
Kerry Dimmer is an award-winning freelance journalist, focused on African business affairs.
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25-01-17 www.breakbulk.com BREAKBULK MAGAZINE 91 13:34
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PROJECTS OF INTEREST North Africa Transmission
PROGRAMME FOR INFRASTRUCTURE DEVELOPMENT IN AFRICA (PIDA) Priority Action Plan (PAP) 2020
Nigeria-Algeria Gas Pipeline
2040
Sudan-Ethiopia Pipeline
Gourbassi
Millennium Dam 5,250 MW
Sambagalou 64 MW
Gibe III Dam 1,870 MW
Fomi 88 MW
Gibe IV Dam 1,479 MW
Kaleta II 117 MW
7 9
8
3
5 6
4
1 2
Rusumo Falls 61 MW
Bumbuna 3 Dam 350 MW Soubré 300 MW
West Africa Power Transmission Corridor
1 GHANA: the world’s fourth-largest solar Photovoltaic, or PV, power plant, and Africa’s biggest, is the Nzema project. It is within easy reach of the deepwater Takoradi port.
BENIN / 3 NIGER / 4 NIGERIA: The European Union’s Africa Renewable Energy Initiative is aiding with the funding of a 25-megawatt solar plant in Benin, one in Niger of 30 megawatts; and another of 100 megawatts in Nigeria (Bauchi Solar Project). Benin has also positioned itself for private-sector investment in its power sector.
Ruzizi IV Dam 210 MW
Lom Pangar Dam 120 MW
Ruzizi III Dam 145 MW
Memve Ele Dam 200 MW
Tanzania-Kenya Pipeline Stiegler’s Gorge Dam 2,100 MW
Optimal Development of ING 43,200 MW
North-South Transmission Corridor
Central Africa Transmission Corridor
Cahora Bassa Dam 1,245 MW Mphamda-Nkuwa 1,500 MW
2
4 NIGERIA: Last year, Nigerian Bulk Electricity Trading signed purchase agreements with more than 10 companies interested in developing 975 megawatts of solar power capacity. While the much anticipated Lekki deep sea port is being developed, Lagos still presents as the best alternative. 5 BURKINA FASO: In support of this country’s Electricity Sector Support Project, the World Bank has recently approved US$80 million credit. This will open up the sector for new projects, particularly solar.
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Lesotho HWP Phase II Hydropower Component 1,200 MW
6 LIBERIA: The government is welcoming private sector prospects for solar, hydro, biomass and wind energy projects as well as transmission and distribution lines for Monrovia. 7 MAURITANIA: Being commissioned is the construction of a 1.3-megawatt solar PV plant together with a 5-megawatt thermal plant close to the town of Kiffa. The development of a solar-diesel hybrid rural electrification project has recently been funded by India. The capital city Nouakchott is home to the country’s deepwater port, and is also the site of a renewable wind farm, more of which are to be developed.
South AfricaMozambique Pipeline
Batoka Gorge 1,600 MW
8 SENEGAL: Lekela Power has acquired the rights to co-develop and invest in a 158-megawatt wind project in Senegal, the Taiba Ndiaye. Dakar provides deepwater port facilities. 9 CAPE VERDE: Project Cabeólica on this island state is already delivering commercial-scale wind power. Project closures in September this year, related to electricity generation, include the extensions of Palmarejo Power Plant in Praia, and of Lazareto Power Plant in Mindelo. BB
ISSUE 5 / 2017
Experienced. Professional. Expert.
case study
NO MOUNTAIN HIGH ENOUGH Challenges and Rewards of Bolivian Mega-contract BY ALAN M. FIELD
94 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
I
n a massive intercontinental effort that began last May, two Siemens-made gas turbines, each weighing 85 tons, were boarded onto a heavy load carrier in the Inner Harbor of Norrköping, Sweden – a Baltic Sea port equipped with a 350-tonne heavy-lift crane for loading and discharging transformers, turbines and other special cargo. From there, the turbines traveled some 14,000 kilometers, or 8,500 miles, across the Atlantic Ocean and Caribbean to the Pacific port city of Arica in the desert of northern Chile. Next, the turbines were loaded onto trucks that ascended the snow-peaked Andes mountains; an 1,800-kilometer (1,118 mile) route that proceeded over winding, treacherous roads overlooking peaks as high as 4,680 meters (15,350 feet) above sea level, before descending to their destination – the 628-meter (2,060-foot) high Termoelectrica del Sur thermal power plant operated by Bolivia’s stateowned utility Ende Andina SAM, just north of Bolivia’s border with Argentina. In total, Siemens will supply 14 industrial gas turbines, 11 steam turbines, 22 heat recovery steam generators and further power plant equipment to three
power plants in Bolivia. Termoelectrica del Sur thermal power plant will be equipped with an additional four SGT800 gas turbines, four SST-400 steam turbines and eight heat recovery steam generators. Termoelectrica de Warnes in the eastern Bolivian province of Santa Cruz, will be expanded by four SGT800 gas turbines, four SST-400 steam turbines and eight heat-recovery steam generators. For Termoelectrica Entre Rios power plant located in Cochabamba, 220 kilometers southeast of the capital La Paz, Siemens will supply six SGT-800 gas turbines, three SST-400 steam turbines and six heat-recovery steam generators.
FEASIBILITY ANALYSIS
Managing such projects is an ongoing challenge even for experienced project cargo specialists. In an interview with Breakbulk, Wilhelm Deubet, director of industrial projects at Geodis’ freight forwarding unit in Germany, explained: “We have carefully conducted feasibility analysis ahead of the project to survey and optimize transportation, including about 50 possible bypasses to overcome infrastructure challenges for the transport of the equipment. If the height of the cargo is too high, or if a bridge is not strong
enough, we have to ensure that such hurdles can be enforced for the transport phase. This requires very transparent and solid relationships with local administrations, in order to get all required permits for transporting heavy lift equipment.” At each step, crewmembers calculate if bridges and roads are capable of carrying the tonnage. “If any adjustments are needed, or also in case of any damages, we reinstate the roads and other infrastructure the same way they were before,” even if it means to manage repairs on the spot, Deubet said. Geodis was the global supply chain operator and project logistics specialist working on the project. According to Thomas Grestenberger, head of procurement at Siemens Industrial Power Plant Solutions, or IPPS, in Vienna, there are three sorts of initiatives. “We are expanding existing power plants, increasing their efficiency, and building new ones.” He explained that Bolivia will “save a lot of natural gas” as a result of the more efficient, “combined cycle” design of the three plants, which are more efficient than conventional open-cycle power plants. He added that the environment of the country will benefit as a result of the more efficient design.
RIGHT: The first gas turbines were loaded onto a heavy load carrier in Norrköping, Sweden. OPPOSITE: The turbines
crossed the Andes at a height of 4,680 meters. The rough terrain and extreme weather conditions were the main challenges for the overland transports.
Credit: Siemens Industrial Power Plant Solutions
www.breakbulk.com BREAKBULK MAGAZINE 95
regional review
lowest-income countries in the region. Grestenberger said: “Bolivia wants to make power to sell electricity to Argentina – from the Del Sur plant – if they have more power than they need.” Whether that happens will depend not only on the completion of the various initiatives, but also on how much demand for electricity exists as Bolivia’s long-lagging industrial sector expands its appetite for energy. One of Bolivia’s endemic weaknesses has been the absence of any border on the Pacific since 1879, when Bolivia lost the Chaco War with Chile. Nowadays, Bolivia’s location at the geographic center of South America could become one of its strengths, as vast improvements in transportation and logistics make it possible to construct and operate power plants that generate electricity from locations that were inaccessible.
RIGHT SEQUENCE OF MOVES
MILESTONE FOR SIEMENS
While the logistical challenges are great, so is the potential payoff. In all, the three expansions will increase the installed power generating capacity of Bolivia’s National Interconnected System by 66 percent, while providing a more reliable energy supply for the local population. For giant Siemens, the Bolivian projects are also significant. “Our team in Vienna is a very new unit at Siemens’ power and gas business; just a few years old,” Grestenberger said. “We have done several projects but this is the first megacontract for this unit.” The project is large in scope, encompassing three different regions in which each of the three projects has a different supply chain. It is also significant that Siemens signed the project with the Bolivian government directly to bring reliable power at an economic rate, he said. Various pieces of equipment will reach various Bolivian locations over 96 BREAKBULK MAGAZINE www.breakbulk.com
land and sea, not just from their place of manufacture in Germany, but also from SweCredit: Siemens den, China, Italy, Industrial Power Indonesia, Vietnam Plant Solutions and neighboring Brazil. Most of the equipment used in the power plants will be made by Siemens. The gas turbines and the equipment for them are coming to Bolivia from Sweden and Germany; the steam turbines will come from Brazil; and the heat-recovery steam generator will come from China. To complicate matters further, some equipment will be made by Siemens plants in Sweden and Brazil, while others will be designed and engineered by Siemens but manufactured in China. At this point in the operation, it’s not clear whether the projects will also boost the exports of Bolivia, one of the The turbines crossed the Andes on the overland portion of the route.
Despite such transport infrastructure improvements, the Siemens project still faced logistical challenges. At the time of writing, ships carrying turbines and heat recovery steam generators for the Termoelectrica del Sur project – the first of the three – had arrived in two South American ports, and were about to transport the equipment some 1,800 kilometers to the first of the three different sites. “We have to handle [each of the projects] a bit differently,” explained Marcus Koerber, head of transport logistics at Siemens IPPS. “The locations are hundreds of kilometers apart from each other. We have more than 400 special transport [vehicles]. The [power plant] sites vary from sea level to an altitude of 4,680 meters, in four different climatic zones within South America. “We also have to deliver equipment, which is not that easy to transport onwards. We have to make the right sequence [of moves and procedures] and have the right equipment in place [at the right time]. We have to make sure that the drivers reach the sites, and then come back in time to deliver the next shipments.” As these interviews were taking place, the just-in-time choreography of various pieces in the daily puzzle of logistics was starting to fit together within the ChilISSUE 5 / 2017
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MOTHER NATURE’S WORK The Siemens and Geodis team working on the Bolivian power plant mega-contract had the usual logistical and planning issues to consider. But, added to the mix, they also had to deal with the whims of the weather. “We monitor the weather conditions on the mountain passes,” Geodis’ Wilhelm Deubet said. “Whatever is happening between zero meters altitude and 4,800 meters needs to be followed in real time via the Internet, so that we can forecast what is happening along the route. In our case, we anticipate quite heavy winds during the operation. Other challenges come from high swells at three Chilean ports – Arica, Antofagasta and Iquique – and ice and snow on the Paso de Jama, which is very unusual for this time of the year.” He added: “With heavy rains and floods, you may have rocks already blocking passage, so you need to have service cars, which drive ahead, and communicate [about such barriers]. You may also have a vanished bridge and bypasses. So, we need to forecast how much equipment we need and how to maintain the equipment over 1,800 kilometers.” Adding to the weather challenges, time was of the essence in transporting the equipment to its destinations, given the high operational expenses. Deubet said: “One of most pressing things is time; this project must be completed within time. We can’t compromise, but
every day we face and manage conditions that can cause delays.” Consequently, the team were constantly reviewing contingency plans and producing alternative plans that could be deployed in the event of bad weather or other surprises along the way. “We need to be flexible and very conscious about time,” Deubet continued. Therefore, having experts on the ground who are able to monitor operations has proved invaluable to the project. Another challenge is the effective management of communications. To coordinate with various far-flung partners, Thomas Grestenberger, head of procurement at Siemens Industrial Power Plant Solutions, said the team communicated over secure private networks, providing the various stakeholders around the world with frequent status updates. Depending on the urgency of the data, some information was updated on either a daily or even an hour-by-hour basis, he said. And while it is not easy to get from Vienna, Austria, to Bolivia, the project management team was frequently there, having meetings, when necessary, in Arica, Chile and in Vienna, where Siemens managed its role from its offices. Grestenberger added that its surveyors on the ground and Geodis’ own technical staff totaled about 100 staff members in more than 70 trucks, working on the project.
ean port of Arica. An 85-ton turbine was about to be loaded onto one of the multiple-axle platforms that was Credit: Siemens coming into that Industrial Power port. Eventually, Plant Solutions explained Koerber, “we [will] also need to plan the delivery of the equipment so that we don’t have dead time and cargo sitting on the ground. We have all sorts of people on the ground, with security there, insurance, the engineers. And this requires daily coordination.” Geodis’ Deubet added that the Port of Arica operates 24 hours a day, and those who use the port would do well to understand how much work goes on there. On one day, he said that a second shift was loading over-dimensional cargo on low-loaders, while 140 pieces of general cargo were being loaded in parallel. In addition, 34 land vehicles were being loaded in Arica. “These are containers, general cargo, and 13 over-dimensional pieces. That’s one operation,” Deubet said. “The big operation will also happen: the five big ‘heavies’ – three generators – of 74 tons each; two turbines of 84 tons each – they have separate loading methods. They have permits on-hand, and insurance documents – with an estimated time of departure of next week.” BB Chile’s Arica Port, where the turbines were discharged and loaded onto a truck.
International correspondent Alan M. Field has reported on trade, logistics and related technologies from North America, Latin America and East Asia over two decades.
98 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
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profile
BIG BOYS CLUB Harren Weighs Into Heavy Pack BY MALCOLM RAMSAY
ABOVE: SAL Svenja in Teeside, England. Credit: Harren & Partner
W
ith the rate of consolidation in the breakbulk sector running at an all-time high, it can seem as if a new merger or acquisition is announced every week. However, even with this rapid rate of change the news of Harren & Partner’s takeover of SAL Heavy Lift in July stood out as one of significance for the super heavy-lift segment. Bremen-based Harren & Partner announced plans to take over SAL’s fleet of 15 heavy-lift vessels and worldwide network of offices and agencies in 25 countries, adding to a portfolio that already includes breakbulk
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shipping line Combi Lift and a diverse fleet of heavy-lift ships and specialized semi-submersible dock ships. “With this coming together of the two companies, SAL is now the dominant player in the 900-plus-tonne lift capacity segment with 12 vessels above 900 tonnes and 21 vessels in total. This establishes SAL with an even stronger presence in the business of technical marine projects, while at the same time still allowing SAL to trade competitively in the breakbulk spot market,” Martin Harren, managing director of Harren & Partner Group, told Breakbulk. The acquisition is expected to complete ISSUE 5 / 2017
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SAL Heavy Lift will take over the management of the Combi Dock III. Credit: Harren & Partner
later this year, pending necessary regulatory approval, and will see Harren purchase SAL from Japanese shipping line “K” Line for an undisclosed sum. Once complete, the deal will see SAL controlled once again by a familyowned company, as it was until late 2014 when it was sold to “K” Line by the Heinrich/Rolner family.
JOB SHAKE-UP
Given the difficult operating conditions and depressed freight rates in recent years, key drivers for consolidation across the sector have been the need to shed jobs and to reduce payroll costs. With utilization rates still low, the number of ships sailing on routes under ballast has meant many operators have cut staff counts dramatically. But for Harren the acquisition of SAL represents an opportunity to hire new skilled staff and expand its payroll
rather than just making layoffs. “Within the group’s main bases, Hamburg and Bremen, there will be no compulsory layoffs,” Harren said. “In fact, we are actually looking for professional and skilled people in a number of positions. But there will be the need for some minor reorganization in one or two of our overseas offices.” The group plans to continue to develop SAL’s footprint in the upper segments as it aims to lead the industry in “pricing discipline, value creation and quality standards,” while it develops its fleet in the lower segment to better facilitate client expectations. To achieve this integrated vision for growth, the group is planning to focus on verticals that will deliver end-to-end expertise for clients engaged in breakbulk projects. “We think that there is an oppor-
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Martin Harren Harren & Partner Group
ISSUE 5 / 2017
Eastern Car Liner (Americas) As Agents of Eastern Car Liner (ECL) Ltd.
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tunity to look at our business model through the prism of vertical strings rather than horizontal ones,” Harren said. “There are opportunities within the verticals which we believe can develop into new businesses and/or bring advantages to our current business.” With this approach in mind, the combined group aims to improve its market share for transport and engineering services “right across the marine landscape. We believe that this acquisition will ensure that both SAL and Harren & Partner are very well-positioned for the future … we believe this will add strength to SAL and bring with it some much needed pricing discipline,” Harren added. Justin Archard SAL Heavy Lift
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SLOW AND STEADY GROWTH With extensive investment in its fleet and workforce the Harren Group
ISSUE 5 / 2017
is betting on a return to strength in the market, and is already eyeing a return to stronger fundamentals as early as the end of this year. “The good news is that the market looks to have seen the bottom. But it is also likely that the bottom will remain in view for a while – perhaps for the remainder of 2017,” said Justin Archard, corporate director commercial at SAL Heavy Lift. “In 2018, we expect to see slow and moderate improvements to freight rates driven principally by industrial projects that are slowly being revived.” But Dirk Visser, director of research consultancy Dynamar, is less optimistic. He sees the macro forecast as uncertain due to sustained low prices in the oil sector. And while new mega-projects in offshore wind and other industries
Cis4435_CSAL_Ad_Breakbulk_124x178_p.indd 1
promise some demand growth, Visser predicted a delay until the end of 2018 for a rebound. Although he conceded that improvements in containers and dry bulk mean that breakbulk cargoes may become less attractive to those outside sectors and that prospects will improve for backhaul bulk parcels for breakbulk operators. “With volumes less of a problem, breakbulk carriers can hope for a recovery of freight rates and a noticeable improvement by the end of next year,” Visser said. Whether freight rates rebound as early as the start of next year or stay flat until 2019, Harren remains positive that an uptick in utilization will help support its bottom line in the nearer term. “With so much residual capacity available, utilization factors will improve
“
THE GOOD NEWS IS THAT THE MARKET LOOKS TO HAVE SEEN THE BOTTOM. BUT IT IS ALSO LIKELY THAT THE BOTTOM WILL REMAIN IN VIEW FOR A WHILE.” – J ustin Archard, SAL Heavy Lift
2016-01-15 2:43:55 PM
www.breakbulk.com BREAKBULK MAGAZINE 105
profile
before freight rates do, which in itself is a better outlook as poor freight rates have also been accompanied by smaller parcel sizes which has exacerbated the problem,” Archard said.
BIG FOUR TIGHTEN RANKS
This latest consolidation will create a combined group encompassing 26 heavylift vessels, dock ships and offshore construction vessels and is expected to tighten the grip of the big four operators in the sector, making entry for new players even tougher. “The heavy load sector in which SAL operated consists of only four operators: BigLift, Hansa Heavy Lift, Jumbo and SAL. Considering the current market, we do not expect other companies to invest in the required tonnage to join this little club any time soon,” Visser said.
Visser added that following the SAL acquisition the only merger left in this sector “would most likely be between Hansa and Jumbo.” However, both companies have diversified options outside of this specialist niche, so there may not be much appetite for a marriage. It its most recent breakbulk fleet classification, Dynamar ranked Harren’s children SAL and Combi Lift seventh and 10th, respectively, by deadweight capacity among the leading heavy-load specialists. SAL represented 169,000 in total deadweight capacity, while Combi Lift was listed with 66,000 dwt capacity. Given the scale of the combined group, Harren is keen to identify costsaving strategies that will allow SAL “to spread the costs of some functions throughout the Harren & Partner
Group,” while maintaining the team and core expertise of SAL. “SAL is one of the world leaders in high-quality engineered heavy-lift and breakbulk shipping. But to maintain this quality they have an organization that is too heavy for their size which is expensive,” said SAL Heavy Lift’s Archard. To counter this, Harren will focus on lowering SAL’s operating costs through economies of scale for administration and collective back-office activities. “So much of what every shipping company does is the same, so it makes sense to share those functions,” Archard said. Based in the UK, Malcolm Ramsay has a background in business analysis and technology writing, with an emphasis on transportation and ports.
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ISSUE 5 / 2017
Founded by Capt. Peter Harren in 1989, Harren & Partner is based in Bremen, Germany, and employs about 330 people ashore and about 2,300 regular crewmembers. Its total managed fleet includes 70 vessels, comprising tankers, container feeders, heavy-lift vessels, bulk carriers, dock ships and offshore vessels. Following the merger, SAL Heavy Lift will continue to operate as a separate brand from its headquarters in Hamburg and will also take over management of Harren’s CL 900/Type 116 vessels as well as the Combi Dock I and III. BB
Harren & Partner headquarters. Credit: Harren & Partner
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www.breakbulk.com BREAKBULK MAGAZINE 107
legal spotlight
2.
Then, the entire flat rack holding the stator, drill press and trunnion was loaded by an International Longshoreman Workers Union, or ILWU, crew hired using two shoreside yard cranes and placed on a Transport International Pool, or TIP, street step deck chassis leased by JSC for the purpose of moving the cargo from place of rest in the container yard to the place of loading under the ships gear or “hook.”
3.
Credit: Shutterstock
BUMP IN THE NIGHT A Lift That Proved Too Heavy
BY GREG BOROSSAY
Editor’s Note: This issue introduces Legal Spotlight, a new semi-regular feature covering industry legal case law, with lessons learned.
THE SCENE: The parties were: 1. A local stevedore
2. A small U.S. Pacific Northwest port 3. A container operator near the port 4. T he local ILWU night shift gang. There was light rain with an early fall storm approaching. What could possibly go wrong?
108 BREAKBULK MAGAZINE www.breakbulk.com
THE FACTS: 1.
A stator – an expensive piece of mining equipment built in Canada by General Electric and valued at US$1 million at the time of the incident – along with two other pieces were loaded and lashed onto a single 40-footequivalent-unit flat rack. Using standard maritime chains and binders, flat rack GAEU750946-0 was loaded with three pieces. The weights of the various pieces on this single 40-foot flat rack were: Crated stator: Crated drill press: Crated trunnion: 40-foot flat rack:
43,000 pounds 3,000 pounds 11,800 pounds 10,500 pounds
Total weight :
68,300 pounds
It is noteworthy that the crated stator was much wider than the flat rack on which it was placed. Further, although the stator is a heavy circular piece of machinery with a hollow center area, there were no lifting marks or center of gravity information on the crate to guide ILWU dockworkers on the proper handling of the piece.
4.
The flat rack as placed on the leased chassis was coming into contact with the wheels of the chassis, preventing the wheels from turning. ILWU dock-handling crew used a forklift to relieve the weight of the load from the tires of the chassis in order to move the cargo under the ships gear. The forklift together with the yard tractor/hustler were moving the cargo for loading when at the point of the last turn towards the vessel, the load crossed the crane rail on the dock and fell to the ground, damaging the stator.
WHO WAS RESPONSIBLE? The court found that the stevedore was mainly responsible, with liability also extending to the off-dock depot, the port and the shipper due to lack of marks and numbers. Here are the reasons for the court’s decision: • F ailure to advise the port of the high dollar value of the stator shipments. • C hoosing to load three pieces onto a single flat rack on a pre-lashed basis to reduce the number of slots ISSUE 5 / 2017
legal spotlight
THE SAFEST METHOD FOR LOADING A HIGH-VALUE BREAKBULK PIECE OF CARGO WITH THE CHARACTERISTICS OF THE STATOR IS DIRECT LOADING FROM THE TRUCKER’S STREET LEGAL LOWBOY TRAILER TO FLAT RACK EQUIPMENT PRE-POSITIONED ON THE VESSEL. used on the vessel, rather than to load the cargo direct to vessel as true breakbulk cargo. • Lack of markings showing lift points, the lack of visual access into the crate to view the stator and the lack of center of gravity indications on the external crate. • Deciding to lease a TIP step-deck chassis without adequate carrying capacity to handle the 68,300pound load. • D eciding to use a forklift to permit movement of the cargo by lifting the load at the centerline of the flat rack. • Lack of proper markings indicating lifting points and center of gravity information on the exterior of the crate holding the stator contributed to the incident. Had the proper markings been in view the night of the incident, the ILWU would have refused to handle, move or load the cargo because they would have felt that the load was unsafe as positioned on the chassis. • T he use of a single 40-foot flat rack for loading multiple crated breakbulk pieces is not the safest or most desirable method to handle this type of heavy cargo. While this type of loading is typical in the industry for multiple pieces that when crated fall within the dimensions of the 40-foot flat rack, this type of loading is not recommended for heavy over-width and over-height pieces loaded with high value cargo destined for long ocean voyages on the north Pacific. 110 BREAKBULK MAGAZINE www.breakbulk.com
ALTERNATIVE SAFE LOADING OPTIONS: Safer loading options should have been considered, such as direct loading from street legal lowboy trailer. The safest method for loading a high-value breakbulk piece of cargo with the characteristics of the stator is direct loading from the trucker’s street legal lowboy trailer to flat rack equipment pre-positioned on the vessel. This method of loading removes the need for leasing of additional yard equipment and minimizes handling of the piece until it is safely stowed in position on the vessel. This method of loadGreg Borossay ing requires a high degree of Attorney At Law coordination between trucker, vessel operator and shipper, so it is not often used in the trade. It is usually used for solar turbines, observatory lenses and large yachts. Another safer method would have been the use of a heavy-duty lowboy or Mafi trailer from the ground to ship to load breakbulk. This method involves use of a shore-side crane to load the cargo onto heavy duty yard equipment that is then moved to the hook for loading breakbulk to the vessel using ship’s gear or a gantry crane. The second stator that loaded safely was loaded in this manner.
LESSONS LEARNED: 1: The shipper must advise the value of the cargo to all parties in the transportation chain well in advance. 2: T he shipper and manufacturer must place legible and highly visible marks and numbers on the outside crating of valuable pieces due to potential for loading at night in poor weather conditions. 3: Shippers should buy liability insurance for the full value of the cargo. This cargo was only covered at US$250,000 but valued at more than US$1 million. 4: Shippers should hire a competent local surveyor to monitor and be present on the site during the entire loading process. 5: Shippers should use qualified vendors who specialize in breakbulk separate from container operations. 6: Loading should be done in the best conditions, during daylight whenever possible. 7: Shippers should not try to save money by cutting corners on lashing and binding. 8: They should be a more active participant in the loading of valuable cargo. BB Greg Borossay is an attorney at law, specializing in admiralty and transportation. He has his own private practice and until recently was the general manager, trade and cargo development, at the Port of Portland’s Marine Division. He can be contacted on gborossay@gmail.com, +1 949 633 9158.
ISSUE 5 / 2017
䔀一䜀䤀一䔀䔀刀䔀䐀 䠀䔀䄀嘀夀 䰀䤀䘀吀䤀一䜀Ⰰ 刀䤀䜀䜀䤀一䜀 ☀ 吀刀䄀一匀倀伀刀吀 伀昀昀猀栀漀爀攀 ☀ 䴀愀爀椀渀攀 倀攀琀爀漀挀栀攀洀椀挀愀氀 倀漀眀攀爀 䌀椀瘀椀氀 嘀椀猀椀琀 唀猀 愀琀 䈀爀攀愀欀戀甀氀欀 䄀洀攀爀椀挀愀猀 䈀漀漀琀栀 ⌀㠀㌀㘀 愀渀搀 刀攀最椀猀琀攀爀 琀漀 圀椀渀 愀渀 䄀洀愀稀漀渀 䔀挀栀漀 匀栀漀眀
眀眀眀⸀戀甀爀欀栀愀氀琀攀爀⸀渀攀琀 㠀 ⴀ㜀㐀㠀ⴀ㤀㤀㔀
thought leaders
CAPACITY CONCERNS LINGER Asset Consolidation Still Urgently Needed
U
nlike container cargoes, breakbulk goods can satisfy the senses: they can be seen and felt. But they will need to work out how to satisfy psyches as well, and deliver a large dose of optimism to bring figures back into the black before the end of the year. True, 2017 will likely not be as dreadful as the neardisastrous 2016, and there is certainly more hope and expectation of a recovery; who are we to spoil that BY DIRK VISSER joy? After all, the fact is that there has been a marked improvement in some cargo segments. For example: • Scrapping rates are rising, which should encourage the sending of superfluous ships to the torch and help fight overcapacity. • Bulk is doing better, albeit slightly, which should dim bulk operators’ interest in breakbulk business. • Container demand and associated rates are definitely better, which should reduce container carriers’ interest in carrying – and operationally disrupting – project cargoes. • Energy companies seem to be adapting to low oil prices and investing again; the same goes for mining and liquefied natural gas, or LNG. • India’s economy continues to strongly grow, and the massive LNG projects in Siberia are stepping up production. The horrible trading environment in 2016 prompted a year of unbridled consolidation between operators and non-operating owners/managers. It also prompted bankruptcies. There were 15 112 BREAKBULK MAGAZINE www.breakbulk.com
consolidation “events” in 2016: four failures, four takeovers, five joint ventures, one cessation and one otherwise. Given the slight improvement in the market in 2017, we could have confidentially reduced the number of expected consolidation events to nine by the end of this year. Yet, by the end of August, we had already seen 13: one failure, three takeovers, seven joint ventures, and two cessations. If nothing else, this proves that operators, non-operating owners and project forwarders have heard the message loud and clear that consolidation is needed. We have said repeatedly that the industry must consolidate to survive and to come out of the current breakbulk/heavy-lift/project crunch leaner and meaner than before. But this also goes for their fleets, where overcapacity still needs to be addressed. This is a must as the competition remains, despite the glimmers of hope mentioned above. Container ship operators will continue to go after project cargoes to fill the ample space on their ever-larger ships, now pushing 22,000 20-foot equivalent units. Also, the mega car carriers with their heavy-duty ramps and reinforced and higher decks are here to stay as a competitor to the breakbulk and project segment. Their presence is further guaranteed by the reduction of their core car transportation business. As I write this, we are two-thirds of the way through the year. We have four months to really up the pace on addressing ship overcapacity. Companies listened and consolidated their physical presence; now they need to concentrate on asset reduction to really win this cargo war. BB Dirk Visser is senior shipping consultant at Netherlands-based Dynamar, providing transport and shipping information and consultancy services for the marine, energy and financial sectors.
NOTABLE 2017 CONSOLIDATION EVENTS THROUGH AUGUST
January: Danish Blue Water and Bremer Reederei E&B combine their transport and logistics services to focus on offshore and offshore wind energy through Blue Water BREB. February: Zeaborn acquires Rickmers-
Linie, including NPC Projects and MCC Marine, from the troubled Rickmers Group. This is later complemented with the acquisition of six (of the total nine) superflex MPVs.
March: Ocean 7 Projects and Ikonship merge MPV fleets.
April: Non-operating Leonhardt
& Blumberg and Buss Shipping combine their mutual fleets of 52 ships into Leonhardt & Blumberg Shipmanagement GmbH & Co KG.
May: AAL and Peter Döhle put a stop
to their AAL & Peter Döhle Alliance joint breakbulk/heavy-lift services; the September 2016 merged chartering operations of Thorco Projects and United Heavy Lift appear to remain divided.
July: Harren & Partner officially acquires SAL Heavy Lift from “K” Line.
ISSUE 5 / 2017
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thought leaders
ROUGH ROAD TO RECOVERY
T
he last two years have seen radical changes in the multipurpose heavy-lift sector, with consolidation undoubtedly being one of the dominant trends. But, contrary to common belief, the problems in the segment are more structural than monetary. This raises plenty of questions on what the segment might look like in a year from now. As a niche sector, the MPV market cannot and should not be assessed like other dry cargo markets, using generic and generalized shipping forecasts. Topics high on the agenda for dry bulk carrier operators, such as carbon emissions or BY PANOS PATSADAS alternative sources of finance, are not the hot-button issues for MPVs. Instead, critical fleet mass, investor commitment, and a revision of the business model are the issues that will be much more crucial in shaping the future of the MPV sector. Oversupply remains a problem, thus a significant recovery in freight rates appears unlikely for 2018, apart from super heavy-lifts. Consolidation will narrow the number of global MPV players by one-third from about 20 currently operating. While the price of oil remains in the US$50s per barrel, new projects are unlikely to commence, so everything will come down to who can book forward at the prevailing market levels. Therefore, consolidation will need to remain a dominant trend throughout the remainder of 2017 and 2018. Only carriers with the critical mass needed to operate globally will be able to claim market share. At a time when MPV carriers are finding it difficult to break even at going rates, another imminent threat to the sector is the consolidation of the container lines taking place. The container market is becoming oligopolistic and profit margins per 20-foot equivalent unit are barely visible, which prompted the original diversion into the project cargo market. 114 BREAKBULK MAGAZINE www.breakbulk.com
Besides Grimaldi, which has traditionally been a project cargo contender on certain trade lanes, CMA CGM and Maersk have formed project divisions competing on heavy and out-of-gauge cargoes. Not only do they offer a competitive alternative, but they also provide the much-sought after service of fixed transit time. So, as long as a unit, sometimes as heavy as 400 tonnes, can be loaded or pushed onto a trailer, container lines will continue to try and claim a piece of the pie. Finance will also be a topic of much discussion in 2018, but not centered around how to attract new sources. Instead discussions will focus on staunching the outflow of existing capital. While German banks are trying to dump their MPV portfolios, investors having backed the KG model are also looking for an exit route, Rickmers Group being a prime example. This suggests that the current model is failing under the present market conditions. Indeed, part of the consolidation already experienced in the MPV sector is nothing more than a futile attempt by the banks to try to avoid writing a loss through the assignment of the management of vessels to big players, who can reap the benefits of networks and economies of scale. Unfortunately, the complexity of the MPV market has so far deterred private equity from entering the sector – with the notable exception of Hansa Heavy Lift’s Oaktree Capital Management backers. The more simplistic and comprehensible asset play model of the dry bulk segment has proved far more attractive to external investors. All this leads me to predict that 2018 will see the MPV sector undergo much-needed structural change. Investors, with no direct relation to shipping, will continue to exit the sector, leading to the collapse of a few carriers and leaving the remaining ones to battle it out for market share. After the financing fog clears, we should find the sector in a healthier state in 2019, along with signs of recovery and new investment possibilities. BB Panos Patsadas is co-founder and managing director of UK-based Target Maritime Transport, a niche project and heavy-lift cargo brokerage.
ISSUE 5 / 2017
Credit: HHL
No MPV Upturn Without Structural Change
Roll-on / Roll-off Specialist for Project Transports of Heavy and Bulky Cargo
FIRST CLASS IN PROJECTS
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NO NASTY SURPRISES
V
essel charters carry certain liabilities that are clearly outlined in the charter agreement, and once all parties agree to the terms, the charter may begin … or should it? There are other liabilities not listed in the agreement that pose a risk to the charter party of which they may not be aware. Fortunately, a Charterers Legal Liability Policy is available to protect the interest of the charter party and cover a multitude of risks. Often, when chartering a vessel, the greatest concern is the assurance of a specified time frame and the safety of the cargo. The charter BY LA DONNA LOGAN agreement may create a false sense of security over the move, however, many factors are present that are out of anyone’s control. In addition, it is recommended to consult with your insurance broker to verify the charter agreement does not cause a conflict of interest or void your current insurance coverages. We can utilize the example of a charter that was thought to be designed impeccably until the unexpected occurred. Company ABC chartered a vessel to move their equipment to their client, Company XYZ. A vessel with specific characteristics to properly handle the cargo was selected. The time frame worked in accordance with the production schedule at the destination. Coordination of the pre-carriage and on-carriage portion was in line and ready to be implemented. Stevedores on the load and discharge side were vetted and put into place and surveyors were on hand for each critical portion of the move. 116 BREAKBULK MAGAZINE www.breakbulk.com
Weather conditions were adequate and the move commenced. The cargo moved to the vessel and was properly loaded, lashed and secured. Export clearance was completed and the vessel departed. Less than 24 hours after sailing, the vessel collided with another and there was significant damage to the hull. The vessel was towed to a nearby terminal for assessment and repairs. Fortunately, the cargo received no damage, however, that was not the case for the vessel. The charter party assumed the carrier’s insurance would cover for such incidents, however, per the terms of the charter agreement, the charterer was responsible for the costs of repairs to the hull as well as the financial loss incurred from the vessel being unable to trade during its time in dry dock for the repairs. This incident is one example of many that could occur where the charter party has exposure.
AVOIDING COSTLY SURPRISES
Without a Charterers Legal Liability Policy in place, a charter party is responsible for situations they cannot predict nor prevent, and without contracts between the various charter party members, all parties are at risk for these exposures. Is this a mandatory coverage when chartering? Surprisingly no, very few charter vessels require proof of coverage by the charter party, therefore it is highly recommended to avoid costly circumstances that may occur. Coverages under a Charterers Legal Liability Policy may include defense, expenses, hull, and protection and indemnity, or P&I. We will use the above example to explain how the coverages could be utilized. For defense, the collision would most likely result in legal proceedings, therefore, the defense clause could possibly cover claims and disputes as well as recovery costs.
Various items fall under expenses. Due to the collision, the charter party will likely face fines due to marine pollution from oil/bunkers entering the ship channel. While we are discussing bunkers, bunker removal and/or replacement fees may occur. If measures to prevent further damage to the vessel, cargo and/ or environment are not taken, the charter party may be subject to suit and labor expenses. Regarding hull cover, damage to the hull as well as demurrage would potentially factor into the scenario due to the collision. Remember, the charter party is responsible for both the cargo and the vessel. Finally, we look at the likely P&I exposures. Loss or damage to property, collision, wreck removal and towage are items that would all apply in this case. There could also be potential injury and/ or loss of life to crewmembers. If bunkers leaked into the ship channel, pollution would be added to the list of blame. Last, but surely not least, general average could be declared, which may perhaps prolong the entire event to an extremely uncomfortable time frame and increase the overall cost exponentially. The charter agreement typically places all liability onto the charter party. Proper legal counsel is advised prior to signing as well as discussing the benefits of a Charterer’s Legal Liability Policy. When considering the significance of coverage provided within the policy, it is difficult to comprehend how a charter process can move forward without it. This step is just as important as finding the right vessel and taking all measures possible to protect the cargo. BB La Donna Logan is account manager at Roanoke, an insurance group specializing in cover for transportation intermediaries, customs brokers and supply chain risks.
ISSUE 4 / 2017
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Shippers: Don’t Rely Solely on Charter Agreements
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Visit www.breakbulk.com/bbme2018 for details.
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ABA Network Applies Straightforward Approach BY ALAN M. FIELD
118 BREAKBULK MAGAZINE www.breakbulk.com
W
Credit: Shutterstock
ALL IN THE FAMILY
hen Breakbulk asked industry stalwart Albert Pegg to explain the strategy behind his new network for breakbulk and project cargo shippers, he said simplicity was the key. “If solutions aren’t pretty straightforward and customer friendly, they won’t stand the test of time,” said Pegg, director of the Atlas Breakbulk Alliance. With more than 45 years of shipping experience under his belt, Pegg firmly believes the focus of Atlas Breakbulk Alliance, or ABA, on providing network-specific bankable bills of lading makes it unique among project cargo forwarder networks. Before launching ABA, Pegg was a senior advisor for more than seven years to the Antwerp Port Authority as well as their breakbulk and project cargo business development manager. Before that he was the Antwerp-based managing director of West African liner agency, ASECO & Safmarine Belgium; and headed Safmarine MPV liner services. He has also been a board member of numerous shipping and logistics companies and umbrella organizations such as the Antwerp Shipping Federation, Seagha and Portilog. Now in the network world, Pegg explained his role with ABA: “Although I am a freight forwarder, I will offer you a fullfledged ocean bill of lading, or B/L, for your project cargo or your breakbulk cargo. And if you need to go to the bank with this B/L, it is fully accepted. And it has the same
ISSUE 5 / 2017
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kind of clauses as any other carrier. I see quite a lot of bills of lading from other non-vessel operators that are – if you look at the details – not the same as the ocean bill of lading.” Pegg added: “The advantage of working with someone who has a network like ours is that it is a family-owned network – where a freight forwarder who is a member works with another freight forwarder who is a member on the other side of the ocean who is also family owned.” Pegg explained that, in the case of Atlas Breakbulk, when something goes wrong, “there is always a ‘pater familias’ – the head of the family – on one side who will find the head of the family on the other side, and tell him, ‘We’ve got to find a solution.’ The solution comes first, and afterwards we will sort it out. The difference is clear when they work with one another. They have been introduced to all the other members with annual meetings and interim meetings, which we will have now in Houston.”
FAMILY AFFAIR
Indeed, most of the 60-65 members in Atlas Breakbulk are family-owned. Although they serve more than 200 ports, some of those family-owned firms are quite large, such as Grupo Schandy in Uruguay and Orchid Shipping, part of the Parekh Group in India. As managing director, Pegg plays a key role in approving new members to ABA. “When I accept a member to our network, the one thing I look for is: what kind of values do those family-owned companies have? Most of the time, I see that they are pretty much the same: very much customer-oriented, very agile. They want to give the customer a good experience while working with them, because that kind of customer intimacy is one of the few things that set them apart from the big corporations.
“
as a kind of portal to provide the freight rates to the Federal Maritime Commission [in the U.S.], and the manifest to Customs. All that can be done through our website,” Pegg said.
A DIFFERENT MARKET
Albert Pegg Atlas Breakbulk Alliance
“The way I vet [new members] has to do with the trust they can bring to the other members. The fact that they are knowledgeable; and have the necessary, unique selling points in their area. The local knowledge, the contacts; everything that you need to professionally handle a project. And on top of that, the financial strength.” Members of ABA access the site through a secure log-in and by the end of 2017, a secure customer relationship management system will connect all members. In practice, this will allow one member with a project sourcing from four or five different countries to make all arrangements, manage the sources, and assign a number to the project on the system. That information will then sit within a case number on ABA’s system. Other services provided include FMC, Canada Border Protection, Japanese customs, and e-B/L. “We are acting
WHEN I ACCEPT A MEMBER TO OUR NETWORK, THE ONE THING I LOOK FOR IS: WHAT KIND OF VALUES DO THOSE FAMILY-OWNED COMPANIES HAVE?” – Albert Pegg, Atlas Breakbulk Alliance
120 BREAKBULK MAGAZINE www.breakbulk.com
Creating a new network for breakbulk and project cargo is not without its challenges, Pegg admitted, describing it as a “totally different ballgame” from containerized cargo. Added to which, the global financial crisis and the resulting decline in global commodity prices has forced companies to take a fresh look at how they’re doing their job. “Look at all the layoffs that have taken place in Houston because of the [drop in the] price of oil and in gold and copper. Practically every kind of mining has been hit big time. Nowadays, a project will not bring you the return that you would have got when oil was at US$100 per barrel, and gold and copper were at their highs,” he said. As a result, the operating environment is much more difficult and breakbulk operators need to be innovative: “You have to come up with the most effective way of getting cargo from A to B. Not only that, but prices for precarriage, storage and everything else are more cutthroat,” Pegg said. That’s why he believes his personalized touch will continue to expand the appeal of ABA. “I’ve been in the industry for 46 years. I’ve got a lot of friends in the industry. I use my network to make sure that a member that comes on board not only has the right details on paper, but can be trusted because when they say they’re going to pay on Tuesday, they’ll pay on Tuesday.” All the profits of ABA will be reinvested in developing tools and programs that support the goals of the network’s members. “Our tools and programs are unique,” Pegg said in conclusion, “and our values and code of ethics are bulletproof.” BB International news correspondent Alan M. Field has reported on trade, logistics and related technologies from numerous countries in North America, Latin America and East Asia (Japan, Taiwan and Korea) over the past two decades.
ISSUE 5 / 2017
intermediaries
TAKING THE STRAIN Start-up Looks to Fill Talent Holes BY V.L. SRINIVASAN
M
anaging project cargo logistics is by no means the same today as it used to be. Companies involved in such operations across the world have had to become more customer-centric, innovative and efficient. Logistics management companies give further definition to project cargo movements by sharing expertise with their partners in different countries, introducing information technology and experimenting with digitalization, such as blockchain. All this has served to shift project freight and logistics from traditional freight forwarding to complete management of all transport and logistics activities. While traditional project freight forwarding takes care of project logistics, it does not address requests for quotation, or RFQ, processes and negotiations. Nor does it adequately address shippers’ demands of reducing the project cost and staying on schedule. Amsterdam-based XELLZ aims to redress the balance. By taking care of the complete process – from RFQ processes, negotiations, contract design and evaluation, project scheduling and planning to project execution and project closing – XELLZ claims that it can not only control the entire project, but it is also able to keep costs down while maintaining quality. In essence, XELLZ has created a method and matching online information technology approach, designed from the shipper’s perspective with in-house integration into the transport and logistics and supply chain process. 122 BREAKBULK MAGAZINE www.breakbulk.com
Peter H.J. Bouwhuis XELLZ
Peter H.J. Bouwhuis, president and CEO of XELLZ, said his new company promises operational excellence in the project logistics industry. XELLZ’s methods have closed projects within budget and schedule with an average saving of 25 percent on the project logistics cost, he said. He noted that, traditionally, project teams spend a great deal of time designing and planning projects from a logistics standpoint, administering and negotiating the pricing and project execution with the project forwarders. “This takes time, people and money, but we take care of gathering of information, pre-planning of the project deliveries, the RFQ design, contract design and negotiation with carriers, cost tracking and management as well as cost savings and avoidance programs and remain 100 percent transparent throughout the process,” he said.
By taking care of the complete processes – from RFQ processes, negotiations, contract design and evaluation, project scheduling and planning to project execution and project closing – XELLZ claims that it can not only control the entire project, but it is also able to keep costs down and quality up.
ISSUE 5 / 2017
THE MOST EXPERIENCED HANDS AT BULK AND BREAKBULK SHIPPING Did you know bulk and breakbulk shipping accounts for two thirds of all activity at the Port of Montreal? We’ve built an international reputation for bulk shipping expertise thanks to our high-capacity cranes – the two most powerful on the St. Lawrence –, our efficient platform with on-dock rail links, and our strategic location close to key US and Canadian markets. It’s why you can trust us to do the heavy lifting on all your shipments. See why we’re the breakbulk shipping experts at port-montreal.com/why-montreal
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MAJOR DEVELOPMENTS
Bouwhuis said that the advent of the “sharing economy” can improve project logistics management during the project lifecycle to reduce costs – if the right people are brought into the project for its lifecycle. Here, XELLZ leans on its good relationships and agreements with its network of companies. “This understanding allows us to draw expertise from these companies, which is needed for a project,” Bouwhuis said. “This network of companies is also being trained and the personnel are fully capable of working on our system. Sharing expertise this way will allow us to also keep costs in control, which is important in the project business.” Regarding use of IT, Bouwhuis said it is obvious that every breakbulk company must make use of it to stay in touch with and continuously improve and develop the business. Yet, while
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the advances made in technology look promising, too many project cargo and breakbulk companies are not keeping pace with changes, and are not making the financial investments that are necessary. Bouwhuis noted that this dawdling could lead to greater consolidation in the industry. For its part, XELLZ has worked on several mobile applications that will link directly to its online system, promising to make the entire operation in the field much easier to manage and monitor, while at the same time removing duplicate activities. “We have applications for truck drivers that transport freight for the projects; for ocean carriers that ship freight across the seas; and for terminal handling, yard marshalling and others to make the flow of activities controllable and instantly available online,” Bouwhuis said.
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HACKERS ON THE PROWL
Bouwhuis acknowledged the risk of increased cyber issues with more applications and greater connectivity. This threat was hammered home by the NotPetya attack on Maersk’s IT systems, which crippled its network for days. Companies need to be on high alert and ensure constant updates are being made to the main systems, he said, pointing out that employees in breakbulk and project cargoes should have moved on from Windows 2000 by now. From a security standpoint, this should be unacceptable and it is, in his view, only a matter of time before a security breach occurs. “Keeping all systems up to date means the latest virus and malware attacks are taken care of,” Bouwhuis said. “This does not mean that companies are completely immune to any attack, but it does rule out a lot of them.” Staff should also be trained to detect malware and virus-sensitive
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124 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
communication. Part of the challenge is to change the way people communicate and share information to make it less sensitive to outside intrusions, he said. However, billions of dollars of investments are still needed to bring the industry up to speed with new digital technologies, which means that only large project cargo companies can afford to keep pace. But that’s not an excuse for disinterest: “One thing is sure, no investment means that companies are losing out on future business as customers are almost demanding us to have it,” Bouwhuis said.
TRANSPARENCY IN PROJECT PLANNING
Detailing XELLZ’s activities, he claimed that its model is unique, offering full transparency across projects at the best cost and services level. As companies work to reduce their head count without losing the expertise and know-how in
Our model is pretty unique. That doesn’t mean we are the only ones out there working on project logistics, but we set ourselves apart from others.” – Peter Bouwhuis, XELLZ
project logistics, XELLZ is bringing back the same with its online project logistics management technology. “Our model is pretty unique. That doesn’t mean we are the only ones out there working on project logistics, but we set ourselves apart from others by working from within the customer and very close with the project team,” he said. Bouwhuis believes that XELLZ could
help fill the gap left by the loss of talent and expertise in a project cargo company. While it will never replace people, he hoped it will be accepted as a critical tool in project planning and execution. He certainly has the courage of his convictions: the company plans to open 80 offices around the world by the end of 2020 and is ready to take on any project. “We can help companies with their project logistics even when their own logistics departments are gone and or teams are limited in size. With a minimum of 25 percent saving in project logistics cost we are ready to offer our services and ready for the future,” he said. BB V L Srinivasan is a senior journalist covering finance, infrastructure, energy, shipping, transportation, IT, environment and political and regional developments in India and the Gulf Cooperation Council region.
1525 Chase Ave, Elk Grove Village, IL 60007 847-979-8177 dgsales@bcpdgm.com
BCP SOLUTIONS, INC.
Corrective Action For Non-Compliant Shipments Dangerous Goods Documentation Creation Dry Ice Delivery And Re-Icing Off-Site Packing At Customer Facilities On-Hand Reports Product Security Ocean Container Loading And Stripping (Standard Containers, Automobiles, Drums) Custom Heat-Treated Pallets & Crates Fulfillment And Distribution Services Airport Transfer Arrangements 24-Hour Emergency Contact Number Blocking And Bracing
TAKING THE DANGER OUT OF DANGEROUS GOODS! www.breakbulk.com BREAKBULK MAGAZINE 125
PREVIEW
HALL A, BOOTH 242
SPONSORED BY:
IN COOPERATION WITH:
americas techzone
AGENDA HALL A, BOOTH 242
TECHTALKS
DEMOS
WEDNESDAY, OCT. 18
WEDNESDAY, OCT. 18
11:30 AM – 12:20 PM: JADE LOGISTICS
10:30 AM – 10:50 AM & 4:00 PM – 4:20 PM: AGILITY PROJECT LOGISTICS
Recording activities in real time on the terminal is crucial to speeding up operations, keeping on target and maintaining accurate cargo status. Jade Logistics offers a new suite of web mobile apps that takes the TOS out of the office and into the work points. The intuitive web apps can be used in vehicles or hand-held devices around the terminal. LEARN MORE: P. 128
The “eye in the sky” offers valuable, and previously unavailable perspectives on operations that can transform processes and procedures—doing things safer, faster and with increased ROI. Agility will discuss how it has piloted drone technologies for remote observation of vessel loading operations, site security enforcement, equipment inspection, hazard identification, laydown yard site management and employee training.
1:00 PM – 2:00 PM: SPOTSEE Identify damage in your operations in real-time with world case damage detection technology on an IoT global network. SpotSee, parent company to ShockWatch, launches SpotBot, an impact recorder connected to the cloud that spots damage and sees it in real time.
2:00 PM – 2:50 PM: XL LIFTS If you are like most companies, you probably use a system of clipboards, static forms, and manual processes for equipment maintenance. These methods put a company at risk for data entry errors; lost paperwork; or even worst, inspections that just don’t get done. See how progressive companies are using the Heavy Equipment Checklist solution, the industry’s first equipment maintenance, safety inspection and OSHA compliance software powered by MYMIC Training Technologies, to modernize their equipment maintenance operations. LEARN MORE: P. 132
3:00 PM – 3:50 PM: MAGNI TELESCOPIC HANDLERS World leader, Magni Telescopic Handlers will introduce its HTH line of heavy-lift, fixed boom telehandlers at Breakbulk Americas. The HTH line is extremely versatile and offers seven machines capable of handling loads from 22,000 lbs. to 99,000 lbs.—the heaviest of any machine available—and with lift heights from 31 to 46 feet. Exceptionally well suited for moving cargo, the Magni HTH offers outstanding power and maneuverability. Magni HTH machines are an alternative to using large capacity forklifts and straddle carriers. They can carry out heavy lifting applications to allow for greater flexibility and cost savings.
THURSDAY, OCT. 19 10:30 AM – 10:50 AM & 1:00 PM – 1:20 PM: AGILITY PROJECT LOGISTICS See above.
ONGOING THROUGHOUT EVENT: JADE LOGISTICS Try out Jade’s new terminal velocity apps to understand how they can streamline your terminal’s operations.
UNIVERSITY OF HOUSTON COLLEGE OF TECHNOLOGY Robot in the Plant Module Transport Simulation Physical, Cyber and Infrastructure Security Drones in the Field Six Sigma and Supply Chain Information Sharing in Action Gamify Training with Augmented and Virtual Reality LEARN MORE: P. 129
www.breakbulk.com BREAKBULK MAGAZINE 127
americas techzone Delphine Ducaruge
NEW APPS TO BE UNVEILED AT BREAKBULK AMERICAS A conversation with Delphine Ducaruge, Product Manager, Jade Logistics, sponsor of TechZone Americas
THE IMPORTANCE OF REAL-TIME
There are people in the field who are doing a whole bunch of things like stuffing and unstuffing a container, taking cargo onto a truck and checking to make sure it hasn’t arrived damaged, or getting cargo off a ship. All these events that happen every day don’t get recorded in real time. Our apps give the ability to people in the terminal to record this information as soon as it happens. That means that terminal and yard managers can act on those events as soon as they happen and track company KPIs over time. Nothing gets missed.
HOW DOES IT WORK?
When you have a truck and you want to put a number of pieces of cargo on it, you can open the app and it will give you a list of everything that is to go on the truck. You can go down the list and select “damage” or “no damage” for each piece. Once the checklist has been completed, you say “I’m finished” and the truck can now go. We’ve done a lot of work around checklists. Damage is just one example. The customer can include checking for dust or insects and anything else that is important. All of this information goes into the system and then a checklist can be made for different operations such as for cargo coming off a ship and later arriving at the yard and when cargo is moved from one warehouse to another. 128 BREAKBULK MAGAZINE www.breakbulk.com
ARE THEY EASY TO CONFIGURE?
Very easy—no coding skills required. The configuration piece resides on the desktop. We have 20 apps that we are working on. We have apps for people in the yard—people walking around receiving cargo, putting cargo on trucks—these are our handheld apps. We also have handheld apps for rail and ships. Most of these are in use now. We developed another suite of apps that are vehicle-mounted apps for forklifts and straddles. We’re still working on the vehicle apps and we are going to finish them for Breakbulk Americas. We’ll bring tablets so people can try them.
MAJOR BENEFITS
Unlike old hardware, with our apps you can use accessible and affordable devices like an iPad or Windows tablet for as little as $300. Because you record activities like discharging a ship, you can act right away if there’s a problem. Without this type of technology, you can’t do something about the problem because you can’t see the problem. So if you can act, your bottom line is going to be better. Learn more about Jade’s Terminal Velocity apps in the TechZone. Hear the TechTalk on Wednesday, Oct. 18 at 11:30 am, and go hands-on during demo day, Thursday, Oct. 19.
ISSUE 5 / 2017
americas techzone
MICROSOFT HOLOLENS: COMMERCIAL CUSTOMERS ARE TRANSFORMING THEIR BUSINESSES Experience it for yourself at Breakbulk Americas in the TechZone with the graduate students from University of Houston, College of Technology. And see how Bechtel is using HoloLens at the “Technology Innovation in the Project Cargo Industry” session led by Stephen “Spo” Spoljaric, Logistics Manager/ Procurement Innovation Leader, Bechtel Oil, Gas, & Chemicals in the Conference Suite, 2:00 pm – 3:30 pm on Thursday, Oct. 19. Spoljaric will be joined by Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global Corporate & Specialty, ARC Marine Risk Consulting Representative, John Nixon, Sr. Director: Energy & Utilities, DF PL – Industries, Siemens, and Nikola Hagleitner, CEO Industrial Projects, DHL Global Forwarding.
www.breakbulk.com BREAKBULK MAGAZINE 129
americas techzone
We are running an Industry Innovation Partnership to focus on applied research, i.e. R&D, with our industry partners. This partnership provides cost-effective way to engage a multidisciplinary research team in R&D that can generate bottom line savings for our industry partners.
Liang-Chieh (Victor) Cheng
We listen to the industry to identify where improvement is needed or problems lie. In the exploration stage, the research team will refine the problem, brainstorm ideas and select a solution. With a selected solution, the team will proceed with the prototype development to demonstrate the feasibility as well as the potential return-on-investment, or ROI. The industry partner will determine the fundability of the solution based on the prototype and ROI.
NEW DIRECTION FOR UNIVERSITY OF HOUSTON’S COLLEGE OF TECHNOLOGY A conversation with Dr. Liang-Chieh (Victor) Cheng, Ph.D., Associate Professor, Department of Construction Management, and Dr. Lingguang Song, Interim Chair, Construction Management
THE COLLEGE OF TECHNOLOGY IS UNDERTAKING A BROAD RANGE OF APPLIED RESEARCH PROJECTS IN TRANSPORTATION AND LOGISTICS. HOW DO YOU DEVELOP YOUR RESEARCH PROJECTS? There are multiple ways for University of Houston researchers to generate research ideas: 1. Faculty, collaborators, and students very diligently study the state of art and the state of practice and identify gaps in literature and real-world practices for innovations;
Dr. Lingguang Song
2. Agencies and corporations identify complex problems in operations and/or technological systems and reach out to UH researchers for solutions; 3. Funding agencies announce grant opportunities and solicit innovations in basic and applied research as well as practices.
130 BREAKBULK MAGAZINE www.breakbulk.com
SOME PEOPLE WORRY ABOUT TECHNOLOGY REPLACING WORKERS — WHAT ARE YOUR THOUGHTS ON THIS? Historically, advances in technologies have transformed the labor markets. This is not a new phenomenon. Consider the Industrial Revolution in the past, and the more recent e-commerce, Uber, social media, etc. Each technology disrupts the conventional lifestyle—causing stores to shut down, eroding the taxi business, and perhaps the need for long distance telephone service. All have come with job loss. There is always a human factor in technology. We believe in human-centered technology where the technology is designed to truly assist human workers, making them more productive and safer. New jobs, however, will be created. Specifically, new technologies require new infrastructures, new hardware and software systems and new practices that will need human interfaces. Communities and schools need to develop a continued learning ability to be adaptive to the clock speed of disruptive innovations. The UH College of Technology faculty has strived to develop new courses, learning modules, certificate programs, and more that will equip students and communities to be prepared for the next-generation technologies, principles, and practices. ISSUE 5 / 2017
Graduate students from the University of Houston’s College of Technology will demonstrate their projects all day, Wednesday, Oct. 18 in the TechZone at Breakbulk Americas. To learn more about the College of Technology, visit www.breakbulk. com/americastech-zone/uhcot
Of the projects your team will be demonstrating at Breakbulk Americas, what is the potential impact of each on the industry? Which are disruptors and why? AR/VR APPLICATIONS:
The UH research team focuses on transforming paper-based safety training into an immersive gamebased safety training. The developed safety training program puts the trainees into a virtual environment where they need to identify potential safety hazards around them and respond accordingly. DISRUPTION: Augmented Reality (AR) and Virtual Reality (VR) have the potential to transform how we operate, communicate, and train.
ROBOTICS AND REAL-TIME SENSING:
There is always a human factor in technology. We believe in human-centered technology where the technology is designed to truly assist human workers, making them more productive and safer.
Real-time location tracking, autonomous robotic navigation and mapping for material handling, real-time respirable dust monitoring, etc. DISRUPTION: Robotics and real-time sensing replaces the conventional intermittent monitoring with continuous monitoring of complex operational environments using sensors and mobile robots.
MODULAR SIMULATION:
Utilizing state-of-the-art simulation and optimization techniques, the UH team has designed large-scale transportation and logistics systems for our industry partners. The solutions were enabled by GIS visualization and animation to find optimal inventory, freight, and supply chain solutions. DISRUPTION: The simulation framework and tools overcome the challenges due to tremendous complexities and uncertainties of global project logistics and produce visualization for planning.
CYBER-PHYSICAL SECURITY:
The Intelligent Monitoring and Alarm System (IMAS) developed by the UH researchers creates intelligent algorithms which can be embedded in the existing camera network or integrated into a new surveillance system to identify potential perpetrators in moving or static states.
DISRUPTION: The cyberphysical security system will reduce the human limitations of fatigue, distractions, or errors which cause security risks.
DRONE:
Unmanned aerial vehicles, or UAV, are pushing the boundaries to more efficiently collect data from the regulated air space. DISRUPTION: The drone applications bring activities happening off the ground and from a different perspective. UAV is transforming the construction and related industries.
SIX-SIGMA:
The Design for Six Sigma, or DFSS. methodology was utilized within a marine transportation organization’s supply chain to create a process for effectively and efficiently sharing information about inland tank barge equipment between supply chain members. DISRUPTION: Six-Sigma provides holistic quality management for the sectors in the breakbulk supply chain.
Bechtel and UH College of Technology mixer. / Credit: UH CoT www.breakbulk.com BREAKBULK MAGAZINE 131
americas techzone
NEW EQUIPMENT MAINTENANCE SOFTWARE FOR COMPLIANCE AND SAFETY Q+A With Mike Marzahl, President, XL Lifts
Q
You will be talking about improving equipment maintenance programs and achieving regulatory compliance at TechZone Americas. Will you compare traditional tools with the tech-based ones you are recommending? What’s wrong with clipboards?!
A
Until now, companies have had no other choice but to use manual processes such as clipboards for safety inspections and managing their maintenance programs. But now, thanks to technology such as the Heavy Equipment Checklist, the use of clipboards is no longer the only option.
A
Beyond having the proper electronic paper trail to meet regulatory compliance mandated by regulatory bodies such as OSHA or U.S. Coast Guard, one client attributes the software to helping them discover a cracked rim on a forklift that, had it gone unnoticed, could have ended in disaster. Checklists come direct from manufacturers to ensure the right safety-related components are being inspected.
Q
In addition to preventing accidents, what other benefits are available to companies that adapt the new tools?
There are several problems with clipboards. Here are just a few: they are inefficient, there is no accountability, they are error-prone, and can get lost. In addition, managers have very little insight into their overall field operations, so managing their maintenance programs efficiently with clipboards is nearly impossible. This new software not only prevents problems with misfiled or misplaced binders or illegible notes, but also allows managers to make smarter decisions, such as when to repair, or determine when it’s time to replace a piece of equipment.
Q
Can you give us an example of a situation gone wrong that could have likely been prevented with new tools?
132 BREAKBULK MAGAZINE www.breakbulk.com
Credit: XL Lifts ISSUE 5 / 2017
americas techzone
Once it is launched, the software is very intuitive. With just a few taps, crews can easily complete safety inspections. Out here there are no ordinary moves
A
The top benefits of the software include the ability to:
1. Create a stellar maintenance program through insight into the inspection history of all equipment. For example, if a piece of equipment is continually out of service or requiring an inordinate amount of maintenance, a manager can investigate to find out why. 2. Achieve regulatory compliance faster than ever. Instead of filling out a clipboard form, and then perhaps inputting that information into an electronic form, inspections are done in just a few minutes direct in the smart device app. They are then stored in the cloud and backed up on a regular basis. In addition, inspections are immediately available to managers so if OSHA or the USCG need critical inspection information, managers can provide it instantly. 3. Reduce risks of legal fees and noncompliance penalties. Meeting OSHA or USCG compliance is akin to a tax audit. You are often guilty, until proven innocent. In the unfortunate case of an accident, providing proper inspection and maintenance records is crucial to proving that heavy equipment has been properly inspected and maintained. 4. Keep employees safe through more visibility into equipment in need of maintenance. The cracked forklift rim example given above is just one of the many ways the software is helping companies keep their heavy equipment operators safe.
Q A
Is this an easy transition to make? How should a company make the move?
The transition is super simple. Employees just need to have basic knowledge of smart apps. Once it is launched, the software is very intuitive. With just a few taps, crews can easily complete safety inspections. They use a smartphone or tablet camera to scan the customized bar code sticker, launch the manufacturer’s recommended inspection form and tap away.
The world’s largest EPC and energy companies count on Agility to solve complex logistics challenges needing deep subject matter knowledge and expertise anywhere in the world. An emerging markets leader with global reach, Agility delivers customer focused solutions across a broad spectrum of industries under the toughest conditions. Discover how we can keep you connected with the same logistics efficiency.
Logistics to connect your world
Daily, weekly and monthly forms are dynamically generated depending on the status of the equipment. Once inspections are done, reports are instantly accessible from any computer, smart phone or tablet. Reports can be sorted, viewed and exported by date, passed, failed or needs inspection. Getting started is made easy with a try before you buy program, in which companies can use the software for free on one piece of equipment. They can sign up at http:// xlliftsinc.com/maintenance. The signup process literally takes just a few minutes. If they like the software, they can add more pieces of equipment, or cancel and have absolutely no further obligation.
Agility Project Logistics Headquarters 15600 Morales Road | Houston, TX | 70732 T +1.713.452.3500 | F +1.713.452.3501 projects@agility.com
www.agility.com/projects
Hear more about XL Lifts’ innovations at its TechTalk on Wednesday, Oct. 18.
www.breakbulk.com BREAKBULK MAGAZINE 133
4-6 SEPTEMBER 2017 | KUALA LUMPUR, MALAYSIA
EVENT RECAP
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ISSUE 5 / 2017
Port Of Pascagoula On the Mississippi Gulf Coast
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CLEARING THE PLAYING FIELD Outsiders Continue to Push Carriers
M
ultipurpose vessel operators continue to fight to stay afloat, facing an onslaught from outside and within. A panel of carrier executives, all based in Singapore, tried to make sense of the current environment, while navigating a way forward during a session at Breakbulk Southeast Asia in Kuala Lumpur, Malaysia. Henrik T Pedersen, COO, BBC Chartering Singapore, who served as the session’s moderator, noted the recent spate of mergers and acquisitions – along with bankruptcies – has been necessary to remove capacity from the market and narrow competition, especially with a lack of scrapping of capacity. However, he also asked panelists about the uncertainty such volatility brings to shippers and reputable carriers trying to confidently operate in the weak market. Senthil Nayagam, chartering manager, Ahlers, stressed that cargo owners must do their due diligence, and not just on the financial status of a company. “It’s very difficult to find out a carrier’s real financial status just from its financial reports alone,” he said. “You also have to have a backup plan.” Namir Khanbabi, managing director, tramp and projects division of AAL, said any reputable carrier should be able to stand up to such scrutiny. “We are used to it, with the oil and gas sector and EPC companies always going through a rigorous vetting system,” he said. “You present your financials and periodically review your own systems to make sure the work you do is commensurate with what you’re trying to advertise. You see more of that coming and I don’t think that’s bad.” While there are those companies on both sides of the equation that are will-
ing to do their due diligence, there are those shippers that will be tempted by a cheap offer that doesn’t promise the quality of service necessary, just as there are carriers that will offer whatever rate just to add revenue, Khanbabi said. “They’ll evaluate risk of something going wrong, or they’ll look at the bottom line. Unfortunately, more often than not, it’s the bottom line,” he added. Beyond competition among MPVs, carriers also face continued infiltration from bulk, container and roll-on, roll-off carriers. “The past few years, the dry bulk and container markets have been very soft,” said Kristian Korsvik, Singapore representative, Mitsui O.S.K. Kinkai. “Now it looks quite promising for the dry bulk market next year. Hopefully that will firm up and they’ll stay away from the breakbulk market.” Container lines have effectively cut out a lot of capacity, which is nudging rates upward. “In some areas, there’s a long waiting list for booking … they will also have less interest in pursuing project cargoes,” Korsvik added.
Falk Puetz, regional chartering manager, projects/oil and gas/marine logistics for Kuehne + Nagel (Asia Pacific), agreed that promising trends among bulk, container and ro-ro might draw them back to their conventional markets, but noted they’ve also “developed a feel” for project cargo. “You’re seeing all new bulkers being built with ‘tween decks; you’re seeing ro-ro ships which have a ramp capacity of 350 tons. Which car weighs 350 tons?” Puetz said. He also noted that beyond carriers, MPVs are also facing freight forwarders and other outsiders who simply charter a vessel and act as carrier. “We don’t want as a company to face someone just fixing cargo,” Puetz said. “In the end, while the market is down and rates are down, the expectations are rising. There cannot be any mess-up in a fixture because a client won’t come back.” “It takes years and years to build up a reputation, and only one bad fixture to leave you walking on thin ice,” Pedersen agreed. BB
(From left) Falk Puetz, Kuehne + Nagel (Asia Pacific); Kristian Korsvik, Mitsui O.S.K. Kinkai; Namir Khanbabi, AAL; Senthil Nayagam, Ahlers; and moderator Henrik T. Pedersen, BBC Chartering Singapore.
From Conference Session “Stormy Seas: Rivals, Regulations and Risk” 136 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
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SHIPPERS SEEK CONNECTIONS Carrier Services Lag ASEAN’s Growth
D
espite significant growth among Association of Southeast Asian Nations countries, the ASEAN region still faces significant challenges in securing and maintaining services for its manufacturers and engineering, procurement and construction service companies. While the ASEAN region is a comparatively burgeoning region for the project industry, compared to the overall global downturn, its nations are still served largely on a transshipment basis, and its cargo owners must entice carriers to consistently serve the market. “The Asia-Pacific is a complex geography. By default, ASEAN nations are really connected to the rest of the world through transshipment. That’s something we have to deal with all of the time,” said Pravin Rajakrishna, general manager, Asia Pacific transportation operations, Caterpillar, speaking at a shippers’ panel during Breakbulk Southeast Asia in Kuala Lumpur, Malaysia. Caterpillar has a decades-old history in the ASEAN region, Rajakrishna said. The manufacturer has a network of dealers in all 10 ASEAN countries, and manufacturing facilities in the region as well. There are also 200 component and after-market suppliers in the region, “servicing not just in Asia but around the world.” With the global downturn, carriers have reduced their services and sailing frequencies and consolidated services, which for Caterpillar “means longer lead times to get to customers,” he said. Antonio C. Jataas, lead logistics coordinator, procurement department, JGC Philippines Inc., acknowledged the region’s “challenging infrastructure, which would benefit from government
investment, though little can be done to compensate for a network of islands. “With the downturn, it’s challenging for service providers at the same time as EPCs to negotiate,” he added. Colin MacIsaac, global sales director, F.H. Bertling Logistics, who moderated the panel, said it’s a “difficult argument to make that the carriers are really supporting the ASEAN region. “If there’s no cargo, there’s no carrier,” responded Peter Bouwhuis, president and CEO, XELLZ, and a former executive with ABB. “What we do see is carriers trying to find ways of including this region. That’s a good development. “I know it’s going to delay some of the cargo, but it’s going to give so much more access to the other regions where we can really establish more growth,” he added. For Caterpillar, Rajakrishna sees parallel development of intra-ASEAN networks and between the region and international markets. “I’m seeing that with the growth and development in the ASEAN, there is clearly a part for carriers developing their networks. At the same time, we find machine sourcing changing from Europe to Asia,” he said. “We’re building more machines in Asia than we ever did before. And our machines are bigger. When I see that, I also see an improvement in networks from the U.S. and Europe to Asia as well.” MacIsaac acknowledged the balancing act the region faces to maintain costs through negotiation on rates and
services, while also providing the security of services from carriers. “The rates are obviously keeping carriers and logistics service providers from making the investments needed.” Jataas said his company, which focuses on oil and gas, will trade volumes from other existing projects worldwide to provide competitive rates within the ASEAN region. “We try, as a company, to do less squeezing,” Rajakrishna said of Caterpillar. “If anything, we want to derive the most value out of any partner we’re working with. So we do leverage a global procurement and global spend, that is definitely part of our processes. “But I think predictability and reliability to customer, and meeting customer demand is important to us as well … making sure we’re able to deliver our machines timely and reliably to our customers makes a big difference.” “If rates would be stable, if rates would be fair, service providers would come in and we’d have more choices,” Bouwhuis said. “Carriers are looking at all sorts of ways to get their rates more attractive for themselves … as well as their customers. And it’s understandable because everyone needs to save money at the moment. Peter Bouwhuis, of “But you have XELLZ, responds to look at the cost to a question while aspect. It’s the end Pravin Rajakrishna bill that’s imporof Caterpillar, and tant, not the price Antonio C. Jataas, in the middle,” he JGC Philippines Inc., listen. added. BB
From Conference Session “Shipper’s Panel: Solving ASEAN’s Logistics Challenges” 138 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
Crane, Heavy Hauling and Rigging Services
We are conveniently located throughout the Northeast United States www.baycrane.com
RUNNING ON EMPTY Project Industry Seeks Operating Edge From Conference Session “Capital Project Outlook: Project Pipeline and Trends”
T
he project industry continues to run at a deficit in talent, compensation and return on mega-projects investment, trends that are unsustainable, said Rolando Gächter, regional director, Independent Project Analysis Asia-Pacific. Project owners are also failing to get the proper bang for their buck, further impacting partners up and down the indus-
140 BREAKBULK MAGAZINE www.breakbulk.com
Rolando Gächter, regional director, Independent Project Analysis Asia Pacific, gives the keynote address at Breakbulk Southeast Asia.
trial project supply chain, said Gächter during his keynote address at Breakbulk Southeast Asia in Kuala Lumpur, Malaysia. The average project loses 22 percent of the net present value, or NPV, at project authorization, he said. That means that only about 78 percent of the project’s actual value is delivered, with impacts coming from lower-than-anticipated sales (10 percent), cost and schedule overruns (7 percent) and asset technical problems (5 percent). Gächter reminded the audience that the years following the global financial crisis in 2008 have been the most uncertain for capital investment since the
ISSUE 5 / 2017
1930s. Companies have cut back drastically on capital spending since 2013. The number of completed projects valued at more than US$10 million in 2016 was the smallest since the 1990s. And the number of multibillion-dollar megaprojects sanctioned since 2008 is a fraction of the number of prior years, he said. Many megaprojects being executed are “in trouble in too many cases,” Gächter said, while those projects that are being completed tend to be smaller and more routine in scale. Beyond the project owners and engineering, procurement and construction companies, the rest of the project industry has been forced to respond through cutting costs, including talent, creating a dearth of mid-career professionals. While project owners and EPCs are demanding greater predictability from their vendors during these difficult times, project contractors, including those in transportation and logistics, are compensating for this lower skills environment by building extra costs into estimates to protect against problems, Gächter explained. With that extra buffer, projects are underrunning costs, but it’s not keeping them from running late, he noted. “The right processes and practices are known, but the skilled and experienced people necessary to make them work are now gone or greatly reduced,” he said. Recent project teams have had less experienced construction managers and engineering leads, which leads to deficient scope development work. Deliverables complete but are of low quality. And despite overestimating costs, contractors are submitting bids at a loss, just to secure the business. “Engineers and contractors report to us they are now taking work below their fully burdened cost; this is obviously not sustainable,” Gächter said. It’s akin to picking your poison, of “going bankrupt ‘tomorrow’ versus ‘today.’ ” While some firming of oil prices is anticipated over the next 18 months, it will not be enough to return oil and gas exploration and production to its heyday, he said. “E&P is now a low-margin industry,” Gächter said. To survive at a US$55per-barrel environment, he said project owners need to consider longer, steadier production with lower capital cost of production profiles; focus on cost-
of-goods sold in designing facilities; consider total cost of ownership, not just barrel volume; building fit-for-purpose and aiming for simple and reliable, rather than bigger and best. “The challenge for the projects community is to be genuinely innovative
when thinking about the future, including learning from other low-margin industries,” like chemicals, he said. BB IPA is a capital projects benchmarking, research and consulting organization.
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bb index
INDEX Breakbulk cargo is an eclectic mix, encompassing forest products, steel, pressure vessels, windmill blades, rolling stock and out-of-gauge items. With this in mind, BREAKBULK INDEX data ranges from steel production to details of planned capital projects.
The global nature of today’s breakbulk and heavylift sectors requires transportation professionals to be on top of economic trends worldwide, which calls for inclusion of focused macro-economic data on prices and events that affect EPCs, the breakbulk community and the multipurpose fleet.
EUROPEAN FREIGHT FORWARDING INDEX The index, based on European forwarders’ actual and expected freight volumes, rose to 63 in July from 61 in June, and further growth is anticipated in the coming two months. 100 90 80
Actual
Forecast
70 60 50 40 30 20 10 0
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S 2012
2013
2014
2015
2016
2017
Source: Danske Market Equities, www.danskebank.dk
142 BREAKBULK MAGAZINE www.breakbulk.com
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Relationships Not Robots. You cannot automate intuition. Machine learning will never take the place of the knowledge and competence we’ve accumulated overseeing every aspect of cargo logistics for over 30 years. We ship port-to-port but our business will always be person-to-person. That’s the RTM difference. • High & Heavy Equipment • Mining Machinery • Oil & Gas • Power Generation
• Military & Defense • Automotive • Helicopters • TBMs
BREAKBULK
HIGH & HEAVY
FCL
SM
RT MLINES. co m • 800. 847. SH IP
MILITARY
PROJECT
RO/RO
bb index
ECONOMY, LATIN AMERICA GDP FORECAST
Economists report that Latin America’s overall GDP growth dipped to -0.7 percent in 2016 but is expected to rebound in 2017 and beyond. 8% 6% 4% 2% 0%
-2%
2016
-4%
2017*
-6%
2018*
PE RU
PA RA GU AY
PA NA MA
NIC AR AG UA
UR UG UA Y VE NE ZU EL A LA T. A ME RIC A
*Forecast
ME XIC O
CO LO MB IA CO STA RIC A DO M. RE PU B. EC UA DO R EL SA LVA DO R GU AT EM AL A HO ND UR AS
CH ILE
BR AZ IL
BO LIV IA
-18.6%
AR GE NT INA
-8%
INFLATION FORECAST
Latin American inflation rates remain relatively under control, with the exception of Argentina and Venezuela and to a lesser extent Uruguay, which balloon the region’s overall rates up into the double digits.
812.3% 550.8%
40%
924.8%
36% 32% 28%
2016
24%
2017*
20%
2018*
16% 12% 8% 4%
UR UG UA Y VE NE ZU EL A LA T. A ME RIC A
*Forecast
PE RU
PA RA GU AY
PA NA MA
NIC AR AG UA
ME XIC O
CO LO MB IA CO STA RIC A DO M. RE PU B. EC UA DO R EL SA LVA DO R GU AT EM AL A HO ND UR AS
CH ILE
BR AZ IL
BO LIV IA
AR GE NT INA
0%
CURRENT ACCOUNT FORECAST
VE NE ZU EL A LA T. A ME RIC A
UR UG UA Y
PA RA GU AY PE RU
NIC AR AG UA PA NA MA
CO LO MB IA CO STA RIC A DO M. RE PU B. EC UA DO R EL SA LVA DO R GU AT EM AL A HO ND UR AS ME XIC O
CH ILE
BR AZ IL
AR GE NT INA BO LIV IA
Current account balances are the difference between a given nation’s imported and exported goods, services and transfers and are an indicator of foreign trade trends.
0
-10
-20 2016 2017* -30
*Forecast, in US$billions
2018* -97.5 -92.3 -111.3
Source: Consensus Economics, www.consensuseconomics.com
144 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
We Think Outside the Box Breakbulk cargo isn’t typical, and neither is the Port of San Diego.
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bb index
PROJECTS SUPPLY CHAIN STRATEGIC 100 GLOBAL PROJECTS – TOP 50
CG-LA Infrastructure’s projects list represents US$558 billion in total project value across 71 countries and 10 sectors.
#
COUNTRY
PROJECT NAME
1 Malaysia/ Kuala Lumpur-Singapore Singapore High-Speed Rail 2 China
PROJECT SPONSOR
STAGE
SECTOR
VALUE*
Land Public Transport Commission Planning High-Speed Rail (Malaysia) & Land Transport Authority (Singapore)
$11,000
Third Runway at Hong Kong Airport Authority Hong Kong Planning Airports International Airport
$8,000
3 Australia Western Sydney Airport
Department of Infrastructure and Feasibility Study Airports Regional Development
$4,000
4 Singapore Tuas Terminal – Phase 1
The Maritime and Port Authority of Singapore
Procurement
Ports & Logistics
$1,800
5
Chuo Shinkansen Maglev
Central Japan Railway Co. (JR Central)
Pre-Construction
High-Speed Rail
$37,500
6 China
Shanghai-Chengdu High-Speed Rail
China’s National Development Feasibility Study High-Speed Rail and Reform Commission (NDRC)
$18,450
7 U.S.
Hudson Tunnels – Gateway Project
Amtrak
Planning
Rail – Heavy
$20,000
8
Grand Paris Express – Line 15
Société du Grand Paris
Planning
Urban Mass Transit
Japan
France
$6,000
9 UK
HS2 High-Speed Rail – Department for Transport Procurement High-Speed Rail Phase 1
10 Malaysia
Kuala Lumpur MRT Line 2 Land Public Transport Commission Tendering Urban Mass Transit (Sungai Tendering Buloh- (SPAD) Serdang-Putrajaya)
$6,500
11 Indonesia
East-West Line Mass Rapid Transit
Jakarta Mass Rapid Transit
Planning
Urban Mass Transit
$1,700
12
Colombia
Bogota Metro – Phase 2
Financiera de Desarrollo Nacional (FDN)
Tendering
Urban Mass Transit
$6,900
13
UK
$2,700
Crossrail 2
Network Rail & Transport for London
Planning
High-Speed Rail
14 India
Western Dedicated Freight Corridor
Freight Corridor Corporation of India Ltd.
Tendering
Rail – Heavy
15 USA
LAX Landside Access Los Angeles World Airports Planning Airports Modernization Program (DBFOM)
$30,000
$635 $5,000
16 Argentina/ Agua Negra Binational Tunnel Chile
Entidad Binacional Túnel Agua Negra (EBITAN)
Design
Highways & Bridges
$1,370
17
Ministry of Public Works
Pre-Construction
Highways & Bridges
$27,700
18 Australia Melbourne Metro Rail PPP
Melbourne Metro Rail Authority (MMRA)
Tendering
Urban Mass Transit
$11,000
19
Lima Metro Lines 4
Metro de Lima
Feasibility Study
Urban Mass Transit
$5,000
20 UK
Hinkley Point C Nuclear Power Station
EDF Energy/China General Nuclear Planning Corp./China National Nuclear Corp.
Energy Generation (Nuclear)
$25,000
21 Philippines
Light Rail Transit (LRT) Line 4 PPP
Department of Transportation and Communications
Planning
Urban Mass Transit
$1,065
22
Cross Island Line (CRL)
Land Transport Authority
Planning
Urban Mass Transit
$21,000
23 Mexico
Mexico City New International Airport
Aeropuertos y Servicios Auxiliares
Planning
Airports
$9,100
24 Italy/Albania/ Greece
Trans Adriatic Pipeline
Trans Adriatic Pipeline AG
Pre-Construction
Energy - Oil & Gas
$2,000
Indonesia
Peru
Singapore
Trans-Sumatra Toll Road
25 Georgia Anaklia Port
Ministry of Economy and Sustainable Tendering Ports & Logistics Development of Georgia
26 Oman
Oman National Railway
Oman Rail Network Development
Feasibility Study
Rail – Heavy
$1,000 $15,600
*In US$ millions 146 BREAKBULK MAGAZINE www.breakbulk.com
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bb index
PROJECTS SUPPLY CHAIN STRATEGIC 100 GLOBAL PROJECTS – TOP 50 (continued) #
COUNTRY
PROJECT NAME
PROJECT SPONSOR
STAGE
SECTOR
27 India New Delhi Smart City Municipal Council of New Delhi (NDMC) Planning
Urban Master Planning
28
Uruguay
Rocha Deepwater Port
Ministry of Transport & Public Works
Design
Ports & Logistics
29
Cameroon
Edea-Kribi-Lolabe Railway
Ministry of Transport
Feasibility
Study Rail – Heavy
VALUE* $200 $1,200 $13,000
30 Namibia/ Trans-Kalahari Railway Botswana
Ministry of Transport & Communications Feasibility Study Rail – Heavy (Botswana) & Ministry of Works, Transport & Communication (Namibia)
$6,500
31 Philippines North-South Railway
Department of Transportation and Communications
Tendering
Rail – Heavy
$3,720
32 France
Canal Seine-Nord Europe Project
Voies navigables de France
Design
Ports & Logistics
$21,600
33 Panama
New Container Terminal at Corozal
Panama Canal Authority
Design
Ports & Logistics
$800
34 South Africa
Moloto Rail Corridor Development
National Department of Transport
Feasibility Study
Rail – Heavy
$2,360
35 Denmark/ Germany
Fehmarnbelt Tunnel
Femern A/S
Pre-Construction
Highways & Bridges
$7,000
Ministry of Investments and Tendering Highways & Bridges Development & European Bank for Reconstruction and Development
$680
37 Colombia
Bucaramanga-Pamplona National Infrastructure Agency (ANI) Tendering – Highways & Bridges & Pamplona- Cucuta Joint Q2 2016 Highway Concessions
$661
38 Brazil
Bioceanic Railway Corridor: Sapezal-Port Velho
Ministry of Planning, Budgeting, Planning Rail – Heavy and Management
39
Almirante Miguel Grau Port
National Port Authority
36 Kazakhstan Almaty Ring Road PPP
Peru
$3,800
Feasibility Study
Ports & Logistics
40 Panama Panama NG Power LNG Group Panama, SA.
Planning (Financing)
Energy – Oil & Gas
$1,200
41
$970
Canada
42 Georgia
Finch Light Rail
Province of Ontario and Metrolinx
Planning
Urban Mass Transit
East-West Highway E-60 – Rikoti Tunnel East Portal Section
Ministry of Regional Development and Infrastructure of Georgia & World Bank
Procurement Planning
Highways & Bridges Airports
43 China Second Airport at Chengdu
Capital Airports Holding Co., Sichuan Development and Reform Commission
44
Rwanda Transport Development Agency
Rwanda/ Burundi/ Tanzania
$600
Dar es Salaam-Rwanda- Burundi Railway
Tendering
$210 $11,000
Rail – Heavy
$7,600
Highways & Bridges
$1,000
45 Cambodia
Phnom Penh-Sihanoukville Ministry of Public Works and Transport Feasibility Study Highway Corridor & Asian Development Bank Improvements
46 Kenya
Standard Gauge Railway Kenya Railway Corp. Feasibility Study Rail – Heavy (SGR) - Nairobi-Malaba/ Kisumu
$2,250
47
Puerto San Antonio Expansion
Empresa Portuaria San Antonio
Planning
Ports & Logistics
$2,800
E39 Rogfast Undersea Road Tunnel
Norwegian National Roads Administration
Design
Highways & Bridges
$1,870
49 Taiwan Taoyuan Airport Third Terminal
Taoyuan International Airport Corp. (TIAC)
Tendering
Airports
$2,340
50 India
High Speel Rail corp. of India Ltd. & JICA
Design
High-Speed Rail
Chile
48 Norway
Mumbai-Ahmedabad High Speed Corridor
$15,000
*In US$ millions Source: Strategic 100 Projects, 2016 Global Infrastructure Report, ninth edition, CG-LA Infrastructure. 148 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
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bb index
TIME CHARTER RATES TOEPFER TRANSPORT MULTIPURPOSE SHIPPING TIME CHARTER INDEX
The index is based on a 12,500 deadweight-ton MPP/HL “F-Type” vessel for a six to 12-month time charter, and represents the monthly assessment from operators, owners and brokers.
TIME CHARTER RATE PER DAY
$7,250 $7,000 $6,750 $6,500 $6,250 $6,000 $5,750
Sep
Oct
Nov
Dec
2016
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
2017
Source: Toepfer Transport, www.toepfer-transport.com
150 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 5 / 2017
stay on top of business with breakbulk media. N THER SOU
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L STIL CTS OJE n PR
ER POW YDRO n H
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/ 2017
E3 SUPPLY CHAIN ISSU SECURITY n APPALACHIAN PETROCHEMICALS n BOOSTER FOR PROJECT CARGO
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I N D UST RY DIRECTORY
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POWERALIVE STAYING SOURCE OUTLOOK |
2017
Consolidation May Boost Recovery Prospects
SOUTHERN EUROPE’S WIND MOVES n PROJECTS STILL TAKING OFF n HYDROPOWER AND THE GLORY
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TRADE AND TRIBULATIONS Populism Yet Another Project Cargo Rebuff
Oil-powered Politics Won’t Deny Renewables
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the last word
BETWEEN STORMS
H
Credit: Keith Necaise Photography
“The magnitude of a disaster can be defined by the ability of the supply chain to respond and react ... Every disaster is a little different.” –K athy Fulton American Logistics Aid Network
urricane Harvey flooded the Houston-area homes of thousands, destroyed infrastructure, and killed dozens of people in South Texas. Downtown Houston’s George R. Brown Convention Center, where we will hold Breakbulk Americas, served as a shelter for as many as 11,000 people. Along with many other emergency responders, the American Logistics Aid Network, or ALAN, kicked into action as the storms took hold, coordinating delivery of and information on resources, from cots and warehouse space to portable medical clinics and damage assessment drones. ALAN is a supply chain industry “labor of love” that grew out of Hurricane Katrina, a storm defined by logistics challenges, said Executive Director Kathy Fulton. Soon afterward, a group of logisticians met up at a Council of Supply Chain Management Professionals event and decided they would apply their expertise to support humanitarian activities. “The magnitude of a disaster can be defined by the ability of the supply chain to respond and react,” Fulton said. “Every disaster is a little different. The needs that arise in a flooding response are different from hurricane, fire or earthquake responses. The only common factor is that you need to get supplies to the area affected.” After disaster strikes, ALAN mobilizes supply chains for non-profit emergency management organizations on the ground – those running shelters and mobile kitchens, gutting and mucking out ruined buildings, cleaning and rebuilding. “We work in good supply chain fashion. We look for definite pull signals from non-profits that we can amplify,” Fulton said, providing specific, asked-for items and services, ideally for no cost, although this is not always possible. Requests and
154 BREAKBULK MAGAZINE www.breakbulk.com
responses are coordinated via ALAN’s web portal. Essentially, ALAN’s work is matching need to supplier – and finding a path to connect the two. They are not first responders themselves. “The resources in the disaster area are already constrained and should be reserved for survivors or first responders. I would rather be away and have the capability to coordinate from afar,” Fulton said. To that end, she noted, would-be helpers should understand that sending unsolicited physical donations – like second-hand clothes and stuffed animals, or even apparently useful items like bottled water and cleaning supplies – can divert strained supply chains and create storage and sorting problems just when relief agencies need to focus on response and recovery. “I wish people understood the challenges behind loading a truck and driving it to a disaster area,” Fulton added. “Those individual, uncoordinated activities, while they are well-intentioned and feel good, put a real strain on the disaster response. I love the passion, and the compassion, but I also recognize what happens on the other end. People fill up their trucks and drive into the afflicted area – and then they realize that the police still have a perimeter set up, for example, or that they don’t know who to coordinate with. It’s ‘how do I get in, where do I start?’” Disasters lay bare the weaknesses and strengths of a region, its people, and its resources. In the worst cases, supply chains may be decimated. As anyone in a hurricane-prone region knows, disaster recovery has a long tail. It can take years to rebuild from storms like Harvey, Irma, Maria, Katrina. Alongside other relief agencies, ALAN will be working in Houston, Florida and the Caribbean for a long time. To learn more about ALAN, to request help, to donate, or to volunteer visit www.ALANaid.org. Janet Nodar Content Director
ISSUE 5 / 2017