ISSUE 3 / 2018
THE PUBLICATION FOR THE INDUSTRIAL PROJECT SUPPLY CHAIN INDUSTRY
IN THIS ISSUE:
US TARIFFS SHAKE UP STEEL SECTOR BREXIT MEANS BREXIT, BUT WHAT DOES THAT MEAN? NAFTA TALKS PLAGUED BY VAGUE FEARS
ANNUAL ENERGY ANALYSIS
PEAK INTO THE FUTURE Serving the Changing Global Energy Mix
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IN THIS ISSUE
FEATURES Cover Story
36
20
60
20 PEAK INTO THE FUTURE
Serving the Changing Global Energy Mix
30 ENERGY UPDATE
44 SPECIAL REPORT: TRADE WINDS
Reality Check for Electric Vehicles Aspirations
But Who’s Ready for the Challenge?
LIMITED BATTERY LIFE
36 TRADE NOTES
US TARIFFS SHAKE UP STEEL SECTOR Trump’s Action Protectionism or Political Play?
THOUGHT LEADERS
12 C all to Arms: Supporting the Wind Industry Safety Drive
12
BREXIT MEANS BREXIT
REFASHIONING NAFTA
Negotiations Characterized by Vague Fears, Slow Progress
60 AIR
HEADWINDS BATTER AIR FREIGHT
Capacity Crunch Sets Back Project Cargo Shipments
16
14 Target 2020: Shift in Middle East Project Logistics 16 Germany’s Roadblock: Infrastructure Investment Long Overdue 18 Risking Business: Trump’s Tariff Threats Have Predicted Results COVER IMAGE VIA SHUTTERSTOCK
4 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
IN THIS ISSUE
DEPARTMENTS 8
EDITORIAL
74
CHARGING UP
10 INTRODUCTIONS
SUPPORTING COMMUNITY SPIRIT
Welcome from Breakbulk Portfolio Director Nick Davison
66
TRADE NOTES
IGNORANCE IS NOT BLISS
Added Bite for Anti-Corruption Efforts
74
CASE STUDY
REWARDS OF EMISSIONS RALLY
Project Cargo Upside From International Sulfur Legislation
82
88
82
REGIONAL REVIEW
BELIEF IN BELIZE
Advancing Infrastructure in a ‘Go-Slow’ Culture
88
REGIONAL REVIEW
LOST IN LIBYA 110
114
Still Many Hurdles to Overcome
110
EVENT RECAP
114
PHOTO CONTEST
BREAKBULK CHINA 2018 WATERWORLD WINNERS
93 ADVERTISER CONTENT: BREAKBULK EUROPE 2018 PORT STARS 6 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
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EDITORIAL
CHARGED UP We’ve put a lot of energy into this issue of Breakbulk! After all, it’s our annual energy update issue, with a range of coverage looking at conventional and renewable energies. We start with our cover story, our annual energy update, based on forecasts from analysts and major energy companies, and across conventional and renewable energies. In “Peak into the Future,” (page 20), writer Nicholas Newman notes the transition from the fear of “peak oil,” a time when oil would run out or become prohibitively expensive; to the anticipation of Gary Burrows peak demand, when demand for oil and gas will flatten or even decline, due to increasing use of renewable energies and energy efficiency measures. But big oil is not going away – and the U.S. continues to grow as a major producer and net exporter of energy. By 2040 the world’s energy will be its most diversified ever, with oil, gas, coal and non-fossil fuels each expected to provide a quarter of total energy. Much of that belief is tied to development of the electric vehicle, a subject that financial and strategic consultants Ed Osterwald and Salman Nissan of Osterwald Rathbone & Partners, attempt to demystify. In “Limited Battery Life,” (page 30), the two question Europe’s ambitious goal of a 60 percent cut in vehicle emissions by 2050 through the deployment of 200 million EVs. Osterwald and Nissan also cooperated with Breakbulk on a webinar covering their findings. The session is an excellent companion piece to the magazine content, and is available on demand for free at www.breakbulk.com/breakbulk-sessions Development in renewables is keenly felt in Europe, where Breakbulk will 8 BREAKBULK MAGAZINE www.breakbulk.com
hold its largest annual event, (in Bremen, Germany, May 29-31). According to Newman’s cover story, Europe’s installed capacity rose from 13 gigawatts in 2000, to 85 gigawatts in 2010, and to 169 gigawatts in 2017, of which a startling 153 gigawatts is onshore. In a Thought Leader piece (“Call to Arms,” page 12), David Collett issues a call to action regarding transport and erection of onshore wind turbines. The president of the European Association for Abnormal Road Transport and Mobile Cranes, or ESTA, seeks to engage utilities and developers in the organization’s safety efforts. In another case of energy transitioning, a commentary by AECOM’s Jason Trenchfield (“Target 2020,” page 14), looks at the Middle East’s shift from oildependency to a diversified commercial/ industrial growth plan.
ANALYZING TRADE
Our energies this issue were also poured into exploring trade deals, particularly those that result at least partly from recent protectionist and nationalistic trends: • Amy McLellan monitors the potential drumbeats of trade wars, in the combative fallout from President Trump’s imposition of tariffs on steel and aluminum imports (“U.S. Tariffs Shake Up Steel Sector,” page 36). • Events Content Director Janet Nodar wonders how anyone would think the steel and aluminum tariffs would be a good idea (“Risking Business,” page 18). • Writer Stephen Spark, in “Brexit Means Brexit” (page 45), reads the tea leaves as to the UK’s departure from the European Union and its impact on breakbulk and project cargo. • For all of Trump’s saber-rattling about Mexico and the North American Free Trade Agreement during the 2016 election, Lori Musser finds little traction in negotiating a new NAFTA (“Refashioning NAFTA,” page 54). Finally, within our own transition, we introduce Nick Davison, new portfolio director of Breakbulk Media & Events (“Supporting Community Spirit,” page 10).
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 Nicholas Newman Kerry Dimmer Stephen Spark Mike King Thomas Timlen Amy McLellan Andrew Willis Lori Musser
BREAKBULK EDITORIAL BOARD John Amos Amos Logistics
Ed Bastian BBC Chartering Murray Cooper McDermott International Inc. Dennis Devlin DB Schenker John Hark Bertling Project Logistics Dennis Mottola Bechtel Corp. William Moyersoen ArcelorMittal Antwerp Logistics Albert Pegg Atlas Breakbulk Alliance Dirk Visser Dynamar D.V. Grant Wattman Agility Project Logistics
PORTFOLIO DIRECTOR
Nick Davison Nick.Davison@ite-exhibitions.com
ACCOUNT MANAGER
Robert Janusauskas / +353 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.
ISSUE 3 / 2018
INTRODUCTIONS
SUPPORTING COMMUNITY SPIRIT
NICK DAVISON BREAKBULK PORTFOLIO DIRECTOR
MY AIM IS TO OFFER OUR COMMUNITY AN EVEN STRONGER PLATFORM FOR DEVELOPMENT AND GROWTH BY ENSURING EACH EVENT HAS ITS OWN UNIQUE SIGNATURE AND DELIVERS FOR OUR EXHIBITORS AND DELEGATES LOCALLY, REGIONALLY AND GLOBALLY.”
29-31 May 2018 Bremen, Germany
I was delighted to be given the opportunity to take over the reins of Breakbulk Events and Media at the end of January. From my research I already knew it was a fantastic brand, with a strong reputation within the industry. Luckily, I was able to see that in action very quickly, as both our Middle East and China events ran within my first two months with the business. It was clear to see that our events offer a unique platform for networking and business development, supported by the consistent industry intelligence offered by the magazine. My aim is to build upon this to offer our community an even stronger platform for development and growth by ensuring each event has its own unique signature and delivers for our exhibitors and delegates locally, regionally and globally. I join Breakbulk with nearly 20 years of events and media experience, most of which has been spent running large-scale events in the UK. Most recently I was responsible for the UK’s largest trade exhibition, Spring Fair, which operated in the retail market. Delighting customers and offering the best possible event experience have always been key drivers for me at the events I run and Breakbulk will be no different. My initial impressions have been that the Breakbulk team has a
October 2-4, 2018 Houston, US
10 BREAKBULK MAGAZINE www.breakbulk.com
strong connection to the industry we serve. I am keen for us to continue these relationships and look at ways that we can further help our customers to meet the challenges and opportunities ahead, whatever the topic and wherever in the world. And what an exciting time to join! We have Breakbulk Europe’s first show in Bremen, an Americas event in October that is in great shape (and may offer a few new surprises), a Middle East event that is moving to Dubai (which has been met with a very positive response) and a China event that will be revamped to attract a wider Asian audience. We will evolve and deliver these events in our usual expert way to ensure they remain the first date circled on your calendar. In addition, if you do not already, I would urge you to consider attending more than one. Each event has its own unique benefits and will certainly add value to your business, whether through exhibiting or attendance. I would like to thank all those that I have met or spoken to in my short time with the business. Your words of wisdom and support have been very much appreciated. I am always available to listen to thoughts and ideas on how we can improve and would urge you to share yours with me. I am excited about the future and am delighted to be part of your industry. See you in Bremen!
11-12 February 2019 Dubai, UAE
20-21 March 2019 Shanghai, China
ISSUE 3 / 2018
THOUGHT LEADERS
CALL TO ARMS
SUPPORTING THE WIND INDUSTRY SAFETY DRIVE
C
BY DAVID COLLETT COLLETT GROUP ESTA
THE SAFETY RISKS OF TRANSPORTING AND ERECTING EVER-LARGER WIND TURBINES NEED TO BE ADDRESSED EARLIER, RATHER THAN LATER.”
oncerns about safety during the transport and erection of onshore wind turbines are growing, and with the arrival of new, larger turbines, those concerns have become more pressing than ever. There have already been far too many accidents and near misses and without urgent action. The European Association for Abnormal Road Transport and Mobile Cranes, or ESTA, fears the situation will get worse still. At the root, problems are often triggered by understandable pressure to complete a job as quickly and cheaply as possible. Sometimes this has resulted in work being carried out in poor weather and without proper regard for the ground conditions. The wind sector’s growth has been a phenomenon of recent years. In Europe, total installed capacity rose from 13 gigawatts in 2000, to 85 gigawatts in 2010, and to 169 gigawatts in 2017, of which a startling 153 gigawatts is onshore. But the truth is that too often the industry’s on-site project management practices have lagged behind its technological and business development. ESTA is working urgently with the crane and turbine manufacturers to improve this state of affairs – but utilities and developers need to be involved to help deliver change. By the summer, ESTA hopes to produce best practice guidelines that can be incorporated into future project and product documentation. We want this to be promoted by trade associations, health and safety authorities, insurance bodies and site design agents. This best practice document will be backed by more detailed technical guidance such as the FEM 5.016 Guideline – Safety Issues in Wind Turbine Installation and Transportation (EN – 2017).
CREDIT: COLLETT GROUP
12 BREAKBULK MAGAZINE www.breakbulk.com
COMMUNICATION IS VITAL
Progress was discussed at ESTA’s last Experts Summit in Hamburg in March, the most recent of a series of meetings designed to agree upon new guidelines for the safe erection and transport of onshore wind turbines, and to improve communication and project planning along the supply chain. Discussions are being led by ESTA and crane manufacturers represented by FEM – the association of lifting equipment manufacturers in the EU – along with VDMA Power Systems, the part of the German Engineering Federation whose members include the major turbine manufacturers. The point about this work is to preempt future problems. With turbines increasing in size and being used in more remote locations, we need to be proactive. We can’t wait for safety to deteriorate. The one weakness of our work to date is that utilities and developers – not all, but most – have been missing from the discussions. They are the ultimate paymasters and have a massive impact on safety. Greater involvement from utilities and developers with their expert crane and transport suppliers would benefit all of us, improving efficiency and safety onsite. We are making great progress, but we could achieve much more, and more quickly, if they were fully engaged with us in this process. Indeed, more effective cooperation, consultation and the early involvement of all firms in a project’s supply chain is a philosophy that benefits not just the onshore wind sector, but many industries who use the heavy transport and lifting services and expertise of ESTA’s members. We can help to boost productivity, make the delivery of projects more efficient and improve safety, saving lives and reducing serious injuries. But to achieve this we need the support of clients and developers with the will to change. BB David Collett is managing director of Collett Group and president of ESTA, the European Association for Abnormal Road Transport and Mobile Cranes. Formed in 1976, ESTA represents national trade associations and has members in 18 countries. ISSUE 3 / 2018
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THOUGHT LEADERS
TARGET 2020
SHIFT IN MIDDLE EAST PROJECT LOGISTICS
I
BY JASON TRENCHFIELD AECOM
’ve been working in the United Arab Emirates and Qatar for almost a decade and have witnessed first-hand how quickly things change in the Middle East. Long gone are the oil-dependency days, at least in terms of national strategic growth. Masterplans setting out goals through to 2020 and 2030 have shifted from increased commercial developments to increased industrial projects across the Gulf Cooperation Council, or GCC, which has led the logistics industry to alter its mode and methods for moving goods and materials from country to country, and from sector to sector. Whether an increase in air freight or the construction of a new port, there is evident demand to shift materials at greater speeds. For those of us in the logistics planning and transport consulting industry, we’ve waited for this moment for some time. Imports and exports have slowed slightly based on container throughput, but this has been countered by an increase in the development of manufacturing, which has in turn boosted the national supply chain. There is also greater demand to create more multimodal transportation of freight to meet the demand led by e-commerce, which has picked up pace with more than 100,000 items being delivered per day in the UAE, attracting global companies like Amazon to invest heavily in the Middle East. The UAE is also poised for the arrival of the World Expo in 2020, which will bring with it a mass of global innovators and investors to Dubai.
experienced growth in demand for materials. But perhaps the greatest driver of change in the region is Saudi Arabia. New developments in all sectors in Saudi Arabia are expected to change the shape of the Middle East for the next 20 years. These will require breakbulk and project cargo demand on a scale never before seen in this region. The introduction and revitalization of rail, as one example, will take bulk shipments to a new level and create new logistics/economic cities across the GCC that will drive the economy in ways that had not been previously visualized. These are exciting times for those in the logistics, industrial and transportation industry in the Middle East region. The next steps will be the tangible introduction of technology – watch this space. BB Jason Trenchfield is AECOM freight and logistics leader within the its UAE Transport Group. He has more than 20 years’ experience of formulating operation and supply chain strategies for commercial designs, construction and material logistics strategies, and design and commissioning for specialist buildings such as airports, rail and ports.
DEADLINES SET
PHOTO: Construction in
Dubai’s growing Business Bay in December 2017. CREDIT: MEHDI PHOTOS / SHUTTERSTOCK.COM
This 2020 target has essentially created a gateway for development to be completed within a limited and immovable time frame, which has given wings to the supply chain as it distributes commodities in and around the country. Developers in Dubai have increased their timescales to good avail, and the logistics industry has acted accordingly. But with other changes in terms of more industrial-led projects – such as renewable energy – and providing greater sustainability projects, the region’s logistics infrastructure is reaching its limits. Qatar, host of the 2022 World Cup, has also
14 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
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THOUGHT LEADERS
GERMANY’S ROADBLOCK INFRASTRUCTURE INVESTMENT LONG OVERDUE
A
BY CARSTEN WENDT WWL
PHOTO: Dump trucks sit alongside a road in Berlin, ready for road construction. CREDIT: DIZFOTO / SHUTTERSTOCK
s an ocean carrier, WWL not only cares about what happens at sea, but also about the pre-and on-carriage of customers’ cargo. One of our main concerns is the accessibility of ports, which is becoming an increasing threat for the industry. In Europe we face the biggest problems in one of our most important countries. The road infrastructure in Germany is leading to increasing challenges for the machine and project industry. Due to the federal state system, individual transport permissions need to be issued separately for each federal state the cargo will pass through. Whereas in neighboring countries like Belgium or the Netherlands the processing time for such a permission is fairly quick, in Germany, manufacturers and transport companies might have to wait up to six weeks. Since lead times depend on the number of applications in the queue for each individual state, it is difficult to plan ahead. Clearly this puts a lot of pressure on the transport chain, making last-minute moves to the port almost impossible. Once transport permissions have been granted, the dilapidated infrastructure of highways and bridges creates another hurdle for German exporters. Over the past decades, the German government has not invested in the renewal and reinforcement of new and existing roads and bridges. Consequently, the maximum weight capacity of many bridges has been restricted over recent years to extend the life cycle of such structures until a repair or replacement can be done. Ultimately, this means that transport companies are forced to take detours to ports, sometimes up to 50 percent longer in comparison with the shortest route. This in turn leads to longer transit times and higher costs.
TOO LITTLE, TOO LATE
The German government has already reacted to these problems, increasing its yearly investments in the national road infrastructure to €7 billion per year. But what has been neglected for many years cannot be fixed overnight, especially as construction resources are limited. As a result, shippers are looking for alternatives wherever possible. While the main production areas in Southern Germany are well connected by rail and inland waterways to German seaports, these options are also not without restrictions, both legally and physically. Consequently, shipping via Dutch or Belgian ports, where road weight limitations are higher, and permissions are issued much faster, has become a ready solution in many cases. These shifts compound great concerns that the limitations of local infrastructure will threaten the competitiveness of the German machine and project industry in the global marketplace. German engineering and products have an excellent reputation around the world. Creating a stable environment and good infrastructure should be of the utmost importance for the German government to ensure a successful future of its machining industry. BB Carsten Wendt is general manager and head of sales of high and heavy and breakbulk at WWL’s area office in Germany.
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THOUGHT LEADERS
RISKING BUSINESS
P
BY JANET NODAR BREAKBULK CONTENT DIRECTOR
For more on the tariffs, see “US Tariffs Shake Up Steel Sector” on page 36.
Above credit: Keith Necaise Photography
resident Trump’s recent statements regarding broad steel and aluminum import tariffs imply that the U.S. steel industry, and related jobs, will benefit from trade protection. What is the evidence for this? An elaborate mesh of trade laws already directs the flow of the global steel trade. The U.S.-Brazil steel trade, for example, is constrained by extensive anti-dumping and countervailing rules and has been moribund for more than a year, according to Peter Svensson, senior vice president with Clipper Group. Clipper operates an important steel service on the Europe-U.S. trade lane. Svensson said that they saw a number of cancellations on long products “instantaneously” on this service when the Trump tariff announcement came out in March. However, clients started booking again when the grace period was declared, and volumes held steady through mid-April. The U.S. produces about 70 percent of all steel used domestically, a percentage that has been increasing since 2010. Most steel manufacturing jobs that have been lost disappeared due to consolidation and innovation, not foreign competition. Imports supplied roughly 18 percent of the U.S. steel needs in 2017, according to The EconoFact Network. Ricky Kunz, chief commercial officer with the Port of Houston Authority, said that steel imports at the port actually increased during the first quarter of 2018, up 11 percent over the first quarter of 2017, due to a strong regional oil and gas sector. U.S. industry jobs using steel or steel inputs vastly outnumber steel production jobs. Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, writes that there are only 140,000 workers in the U.S. steel-producing industry, while there are anywhere from 5.4 million to 12 million working in steel-consuming industries such as aerospace, heavy equipment, oil and gas, construction and auto manufacturing. Tariffs designed to protect steel manufacturers from imports are likely to trigger instability and risk in this much larger steelconsuming sector. The more discreet steel tariffs imposed by the Bush administration in 2002 led to lost jobs, to companies sourcing scarce steel products overseas, and to
18 BREAKBULK MAGAZINE www.breakbulk.com
steel-using companies relocating overseas altogether. Thanks to the Trump tariff grace period, “we have not seen the worst-case scenario that we took into account initially,” said Robert Drew, global logistics manager with Tata International, the core trading company of global conglomerate Tata. Tata International is primarily focused on breakbulk steel. However, “it has impacted our business in that any uncertainty in the markets produces a reluctance to move forward with things that otherwise would be routine.” Trump cited Section 232 of a 1962 trade regulation, which allows import restrictions to protect national security, as a rationale for his proposed tariffs. Is U.S. national security genuinely at risk because we import steel? Total U.S. military requirements for steel and aluminum sop up only about 3 percent of U.S. production, according to the Department of Defense, which recently sent a memo to that effect to the Commerce Department. Meanwhile, the military and the defense and aerospace industries have told national news sources that they are concerned about the effect indiscriminate tariffs will have on complex trade relationships with long-time allies, about a potential degeneration in our ability to build coalitions in the face of actual military threats, and about U.S. economic security. Some observers theorize that Trump is playing a game of “cosmic Jenga” – threatening steel tariffs in order to leverage Chinese cooperation over LNG contracts, or intellectual property rights, or perhaps commodity imports. But, why not address those issues directly? How does this help? “It’s frustrating that this comes at a time when the economic climate is such that there should be a lot of opportunity,” Tata’s Drew said. “These are cyclical situations, and when it’s your inning, you should be able to take full advantage of the situation ... This obviously doesn’t provide you with the cushion you need to deal with the inevitable changing of the cycle.” Every negative effect of Trump’s tariff threats, including the trade wars they are likely to trigger if enacted, has been thoroughly predicted. There are no surprises here. There is only the riddle of why anyone would think this is a good idea. BB ISSUE 3 / 2018
CREATING VALUE AT EVERY POINT OF TRANSFER
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COVER STORY
PEAK INTO THE FUTURE Serving the Changing Global Energy Mix BY NICHOLAS NEWMAN
T
he transition from the fossil fuel age to a low-carbon environment is well underway and gathering speed under the combined forces of increasingly stringent environmental regulations and technological innovations. In response, oil majors and countries are diversifying into gas as a bridging fuel and renewable energy. As early as the late 2020s industry experts led by Dieter Helm, professor at New College Oxford, expect the onset of peak demand for oil and gas. In parallel, the pattern of global energy demand is in transition, as increasing demand comes from developing countries, especially India, China, Africa and Southeast Asia.
GLOBAL ENERGY MIX TRANSITION
Yet, despite the rapid growth in renewable energy in recent years, fossil fuels continue to dominate. Today’s global primary energy mix is made up of oil at 33 percent, coal at 28 percent, natural gas at 24 percent and nuclear power at 5 percent. Wind, solar, geothermal and biomass account for slightly more than 3 percent, but the addition of hydropower boosts renewables’ share to 10 percent, according to the BP Statistical Review 2017. The BP Energy Outlook 2018 forecasts a rise in global energy consumption of one-third by 2040, with industrial demand accounting for half of the increase. In contrast, transport demand is expected to slow as electric cars become mass-market products. Renewable energy could satisfy as much as 40 percent of the increase in primary energy demand by 2040. However, according to current global forecasts, natural gas will be the fastest-growing fossil fuel at 1.3 percent a year, while demand for coal will continue to flatline due to tougher environmental regulations. In 2040, the world would have the most diversified fuel mix ever, with oil, gas, coal and non-fossil fuels each projected to supply a quarter of the world’s energy. Nearly 70 percent of the increase in primary energy will be used in power generation. Current U.S. Energy Information Agency, or EIA, forecasts suggest that electricity generation capacity will increase from 25 trillion kilowatt-hours, or kWh, in 2016 to 34 trillion kWh in 2040, in response to rising population, urbanization and increased prosperity. Africa, Latin America and Asia will be the main beneficiaries. In the developed world, the trend is for an increasing connection of power grids to each other in order to create national and even international markets like the North American and European power grids. The power sector will be a major beneficiary of the transition towards wind, solar, hydro and biomass energy. Renewables’ share of total power generation is expected to rise at the expense of coal, from 7 percent today to about 25 percent by 2040. But while coal’s
CREDIT: SHUTTERSTOCK
www.breakbulk.com BREAKBULK MAGAZINE 21
Load-in of 66-meter rotor blades at Germany’s Mukran Port in 2017. The blades were bound for the Wikinger II offshore wind park. CREDIT: BREMER LLOYD LOGISTICS GMBH & CO. KG
depending upon when electric cars become mass market products. Certainly, the governments of Britain, France and Norway have mandated an end to petroleum and diesel driven vehicles by the 2040s. Nevertheless, there will still be a demand for fossil fuels from the aviation sector, the petrochemical industry making products such as fertilizers, chemicals and plastics, and the power sector. Total world oil output has increased from about 90.13 million barrels a day in 2013 to about 98.93 million barrels a day in early 2018, and could rise to around 102.51 million barrels a day by the end of 2019, according to this year’s EIA forecast. But oil major Exxon predicts that world oil consumption will drop to just 78 million barrels per day by 2040 or 25 percent below current world oil output largely due to electric car adoption.
US SUCCESS STORY
share could decline from 40 percent to 30 percent at the same time, it will continue to dominate global power generation due to its widespread availability and price. The share of gas will stay at about 20 percent, according to BP, and oil will contribute some 24 percent. In sum, fossil fuels will continue to dominate the power sector.
HOW DEMAND IS CHANGING
In Europe and North America, demand for electricity peaked in 2007 as a result of the widespread adoption of energy efficiency measures in buildings, more efficient appliances and adoption of smart technologies including Internet of Things, blockchain and cloud computing. In contrast, rapid economic development, urbanization and growing prosperity in developing countries will drive demand for power for many years to come. For instance, China’s power generation capacity is projected to rise from 1,625 gigawatts in 2016 to 3,188 gigawatts by 2040, according to the IEA’s World Energy Outlook 2017, while India’s electricity demand is forecast to double over the coming decade from 1,423 terawatt hours, according to Australia’s Institute of Energy Finance Studies’ forecasts. Until very recently, energy companies feared the prospect of peak oil – a time when the oil would run out or become prohibitively expensive. Now market sentiment favors peak demand, a time when demand for oil and gas will slow or perhaps even decline due to strong competition from renewables in the power sector and energy efficiency measures by industry, in buildings and electric vehicles. Forecasts of the arrival of peak demand center on the mid- to late-2020s, the mid-2030s or a decade later, 22 BREAKBULK MAGAZINE www.breakbulk.com
The big story of the past few years has been the rise of the U.S. to become the world’s third-largest producer of oil and an exporter of liquefied natural gas, or LNG. U.S. production has reached 10.3 million barrels a day compared with Russia’s 11 million barrels a day and Saudi Arabia’s 10.6 million barrels a day, to honor Organization of Petroleum Exporting Countries’ agreements. Increasing efficiency of hydraulic fracturing, a halving of costs and an abundance of shale reservoirs will enable America’s oil production to reach 12 million barrels a day in 2019, according to the EIA. As Mark Madden, CEO of MJM Energy, points out, “cost is king.” By 2022 America will be a net oil exporter as well as exporting natural gas and coal. In short, it will have become an energy superpower. On the gas front, several recent discoveries including the 850 billion-cubic meter, or bcm, Zohr field off Egypt’s Nile Delta, which came online in January 2018; the 750bcm Ixachi 1 field in Mexico’s Veracruz basin; and the Rovuma basin off Mozambique, in which the Coral field alone has as much as 3681 bcm, have increased the world’s reserves.
TOP GLOBAL ENERGY PRODUCERS China
6,015 TWh
U.S. India
4,327 TWh 1,423 TWh
Russia
1,088 TWh
Japan
1,013 TWh
Germany
653 TWh
Canada
643 TWh
TWh = Terawatt hours Source: India Brand Equity Foundation, www.theatlas.com/charts
ISSUE 3 / 2018
COVER STORY
135 Eurasia -200 Europe U.S. -30
CHANGE IN PRIMARY ENERGY DEMAND, 2016-2040
480
Africa 485
Middle East
India 1005
China 790
-50 Japan
420
Southeast Asia
270
(IN MILLION TONS OF OIL EQUIVALENT)
Central and South America
Source: IEA, World Energy Outlook 2017, www.iea.org
Also, in the last decade the number of LNG export facilities coming online has increased in Australia, Angola, Papua New Guinea and the U.S. The recent collapse in LNG prices has also opened new markets around the world and new destinations for LNG tankers. In consequence, global gas demand is expected to increase about 1.6 percent per year from 3,630 bcm in 2016 to 4,000 bcm by 2022. Demand for gas by industry, for heating and cooking, by power and transportation – particularly by trucks and marine transport – will be met by increasing availability of natural gas and LNG which is expected to more than double by 2040.
RENEWABLES’ BIGGER BITE
Subsidies and price competitiveness alongside increasingly stringent environmental regulations have boosted renewable energy production. The project cargo industry has already borne witness to the rapid expansion of the offshore wind industry. Already, there are claimed to be days when countries like Germany, the UK, and Denmark rely on renewables for their needs. In 2015, renewables provided some 19.3 percent of the world’s power according to Renewables 2017 Global Status Report. By mid-century global electricity production could be as much as 100 percent sustainable according to Finland’s Lappeenranta University of Technology, or perhaps more realistically between 25 percent and 30 percent by 2040 according to BP. Greater scale and rising productivity from technological innovations have contributed to the rising cost competitiveness of renewables. According to the Renewable Power Generation Costs in 2017 report by International Renewable Energy Agency, or IRENA, fossil fuel power generation costs ranged from around 6 cents to 17 cents per kilowatt hour across G20 countries. 24 BREAKBULK MAGAZINE www.breakbulk.com
By 2020, IRENA predicts that renewables will undercut fossil fuel with costs ranging between 3 cents and 10 cents per kilowatt hour. Indeed, the best onshore wind and solar photovoltaic projects are expected to deliver electricity costing just 3 cents or less by next year. “The recent power auctions in Mexico saw some bidders offering less than 3 cents per kilowatt hour for new solar projects” observed Mark Allen, subsurface director, Assala Energy Inc. And Saudi Arabia has said it plans to invest US$50 billion to gain 10 gigawatts of renewable solar power. Ultimately, the market will determine how far and fast renewables will make inroads into the world’s energy mix. To cope with growth in demand, ports and project cargo logistics providers are adapting to the needs of the renewables sector, investing in new cranes and quays to cope with long wind turbine blades, nacelles (casings), and tower components. In February 2018, the Global Wind Energy Council, or GWEC, reported that total wind power installations in 2017 were 52.57 gigawatts, bringing the global total to 539.58 gigawatts. The GWEC expects an increase in annual new wind installations from 60 gigawatts today to 75 gigawatts by 2021. More than 90 countries are now home to wind energy – 29 have installed above 1 gigawatt and nine have exceeded the 10-gigawatt mark. The proportions of power coming from wind generally continued to increase, led by Denmark at 40 percent. The big markets of China, the U.S. and Canada source 4 percent, 5.5 percent, and 6 percent, respectively, of their power from wind. In the U.S. and Europe, rail companies such as Union Pacific, BNSF, and DB have set up specialist logistic divisions to move wind equipment long distances. ISSUE 3 / 2018
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240-megawatt Rance Tidal Power Station in France. CREDIT: SHUTTERSTOCK
OTHER RENEWABLES
Other forms of renewable energy are bound by geology or availability of water. Geothermal is a case in point, since it is restricted to volcanic regions such as Italy, Indonesia, Mexico, New Zealand and Iceland. Similarly, hydropower depends upon access to sufficient water flow, while biofuels are related to easy access to the agri-
26  BREAKBULK MAGAZINE  www.breakbulk.com
cultural or urban waste for processing. In recent years, biofuels and green gases have proved useful in producing electricity for battery storage being increasing used for transportation. According to a B2B researcher MarketsandMarkets report from January 2017, the bio-diesel market was worth $32.87 billion in 2015 and it is expected to expand to $41.18 billion by 2021.
ISSUE 3 / 2018
With an installed capacity of 1,064 gigawatts, hydropower is the original industrial-scale form of renewable energy, and supplies 16.4 percent of the world’s total electricity generation, according to the World Energy Council, or WEC, World Energy Resources 2016 report. In Europe, capacity is being added to existing hydropower stations. Elsewhere, hydropower is expanding with giant dams under construction along the Mekong River, the Nile in Ethiopia and in Latin America, the U.S. and central West Africa. Of global hydro capacity, China accounts for 26 percent followed by the U.S. (8.4 percent), Brazil (7.6 percent) and Canada (6.5 percent). Existing capacity and new construction could almost double hydropower by 2050 to some 2,000 gigawatts. Conversely, offshore marine tidal or wave schemes are in their infancy. Tidal schemes include the 240-megawatt Rance Tidal Power Station in France, the 250-megawatt Sihwa Lake Tidal Power Station in South Korea and the soon-to-be-completed 398-megawatt MeyGen tidal stream project in Scotland. Grand Review Research valued the global wave and tidal market at US$212.7 million in 2016, rising to US$15.29 billion by 2023. The main growth markets are in the Asia-Pacific region, specifically in Japan, the Philippines and India. Geothermal energy contributes a tiny proportion of
SKIDDING
RIGGING
the world’s primary energy consumption, producing less than 1 percent of the world’s electricity. Nevertheless, geothermal power is dominant in Iceland and has attracted energy intensive industries such as aluminum smelters and cryptocurrency mining. According to the WEC in 2016, China, Turkey, Iceland, Japan, Hungary, the U.S., and New Zealand accounted for roughly 70 percent of direct geothermal capacity in 2015. IRENA put current geothermal power capacity at 12.6 gigawatts in 2016 and Global Market Insights June 2017 forecast capacity to reach 23 gigawatts by 2024. On the nuclear front, global capacity is just under 400 gigawatts according to the International Atomic Energy Agency, or IAEA, and is projected to more than double to 874 gigawatts by 2050. However, unlike other energy projects, nuclear raises a mix of financial, political, operational, construction and decommissioning challenges as demonstrated by projects in France, Finland, Germany and South Africa. That said, nuclear’s contribution in eastern Asia in future decades is likely to increase significantly, forecasts the IAEA. Nicholas Newman is an energy journalist, editor, and copywriter based in England, with a focus on energy issues, but also covering transport and technology issues.
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COVER STORY
There are about 900 multipurpose bulk carriers, specializing in transporting products that are extra-large, very heavy or awkward shapes. For this industry the energy sector is a valuable market segment and should provide even greater opportunities in future years. First, continued growth in oil and gas, combined with rising importance of new centers of demand for fuel and power especially in China, Asia, India, Africa and Latin America, favor more long-distance carriage of out-of-gauge cargoes to support extraction and production. Second, the power sector, whether fueled by coal, oil, gas or increasingly by renewables, is set for rapid growth in India, China, Southeast Asia, the Middle East and Africa. This creates opportunities for the carriage of heavy, large and expensive turbines. Third, costly offshore oil and gas fields are coming to the end of their useful life at a rapidly accelerating pace. In the area of the UK Continental Shelf alone, decommissioning costs are estimated at nearly GBP£60 billion, and in the case of the Gulf of Mexico about US$26 billion. The breakbulk and project cargo industry stands to gain as the rigs decline. Finally, the growth in offshore wind to satisfy demand for greater power has resulted in bigger and more powerful wind turbines and blades. Today, 8-megawatt wind turbines with
28 BREAKBULK MAGAZINE www.breakbulk.com
CREDIT: HANSA HEAVY LIFT
GAINS FOR PROJECT CARGO MOVERS
81-meter blades are not unusual and need specialist handling to be transferred to project sites. As Kristian Lundqvist, special cargo trade manager of Maersk, explains, the growth and spread of wind power has encouraged traditional container carriers to set up divisions to specialize in transporting wind power equipment and “proactively participate in supply chain optimization and cost reductions.” Lundqvist predicts that over the next decade, “the continuing growth in wind power and a shift in demand for higher power output will spill-over into larger dimensions and higher weights of wind power equipment.” BB
ISSUE 3 / 2018
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ENERGY UPDATE
A FALSE UTOPIA
MARKET ANALYSIS
Establishing the necessary infrastructure presents a dual challenge: • Ensuring the electricity system has the capacity to supply enough energy to charge the additional 200 million EVs. • Developing a reliable and convenient charging system across Europe. If the majority of EV owners charged their vehicles at home (primary charging location) in the evening, residential peak demand would increase dramatically, potentially by up to 40 percent. Thus, lowvoltage distribution grids are likely to require expensive upgrades. CREDIT: SHUTTERSTOCK Furthermore, to-date, development of a comprehensive and workable charging network has BY ED OSTERWALD AND SALMAN NISSAN been fragmented and incremental. Charging systems need to be fast and standardized across the industry and countries. This will require cooperation and significant investment. The current slow charging speed and the necessity to charge Vehicles Aspirations frequently creates resistance from the public to switch to EVs. Given that Europe has a vehicle A number of European cities aim fleet of around 290 million, this target to ban internal combustion vehicles to implies that 70 percent of fuel-based incentivize production and purchase vehicles will have to be replaced by of EVs. Is this a well-thought-out electric versions by 2050. To say this strategy? We don’t think so. is a challenge may be an understateThe focus of such a policy ment, as it not only requires vehicle is solely on emissions when in replacements, but a transformation in operation on the road. But EVs are infrastructure and the power sector. not zero-emission when viewed
LIMITED BATTERY LIFE Reality Check for Electric
T
he European Commission has committed to an 80 percent to 95 percent reduction in greenhouse gas, or GHG, emissions by 2050. The transport and power sectors produce a large proportion of GHGs. Current plans to meet this goal involve decarbonizing the power sector to produce up to 80 percent of electricity from renewable energy sources, or RES. The European Union transport sector is the largest consumer of energy, most of which comes from hydrocarbon fuels. Road makes up the bulk of transportation usage, with marine, aviation and rail having relatively small shares; about 61 percent of the sector’s GHG emissions are attributable to cars. The EU has a rather ambitious target of a 60 percent reduction of vehicle emissions by 2050. One of the methods it proposes to meet this target is to deploy 200 million electric vehicles, or EVs. 30 BREAKBULK MAGAZINE www.breakbulk.com
EU ENERGY CONSUMPTION BY SECTOR 2% Agriculture 14% Services
25% Industry
1% Other 33% Transport
25% Households
EU ENERGY CONSUMPTION BY TRANSPORT SECTOR 12% Marine
2% Rail
74% Road
12% Aviation Source: EC Eurostat and European Environment Agency
ISSUE 3 / 2018
HEAVY LIFT LEADERS.
ENERGY UPDATE
across their entire lifecycle. Many individuals and policymakers forget about the carbon emissions produced during extraction of the requisite raw materials, combined with the production and disposal of vehicles. The production of EVs are arguably more energy-intensive than conventional vehicles and require additional materials for their batteries. Another problem is whether sufficient quantities of the raw materials needed to produce 200 million electric batteries are even available, at any price.
CRADLE TO GRAVE GHG EMISSIONS Petrol conventional car Diesel conventional car Plug-in hybrid EV – renewable energy exhaust emissions fuel extraction and production
Battery EV – renewable energy
vehicle production and disposal
Battery EV – mixed energy Battery EV – 100% coal electricity
RESOURCE AVAILABILITY
Batteries for EVs contain varied combinations of lithium, cobalt, graphite and nickel. Based on our estimates, about 10 percent and 15 percent of the world’s lithium and cobalt reserves, respectively, may be required to manufacture 200 million additional batteries to meet the EU’s target. If extrapolated for the rest of the world, automobile manufacturers would need some 31 percent and 69 percent of global reserves, respectively. This is simply not realistic. The production of an additional 200 million EVs in Europe alone by 2050 means that annual lithium production would have to more than double to meet EU
0
50
100
150
200
250
300
350
LIFECYCLE CARBON DIOXIDE EMISSIONS (G/KM)
Source: European Environment Agency
demand and increase fourfold if world EV targets are similar. In the last 15 years, cobalt demand and production has more than doubled. Prices have more than doubled to about $56,000 per tonne. Deposits of cobalt are rare, however, and proven reserves have remained effectively the same despite the rise in prices. Unless additional cobalt deposits are located (which seems unlikely at present),
demand from significant increases in battery production will result in global cobalt reserves being depleted by the 2040s. The added complication regarding cobalt is that most reserves are in the Democratic Republic of Congo, or DRC, a country historically riddled with civil war, corruption, instability and allegedly unethical mining practices. There is a looming
8,000
400
7,000
350
6,000
300
5,000
250
4,000
200
3,000
150
2,000
100
1,000
50
0
0
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
annual production (without batteries)
remaining reserves (including batteries and additional discoveries found at historical rate)
additional annual production (for batteries EU)
remaining reserves (including batteries and no additional reserves)
ANNUAL COBALT PRODUCTION (‘000 TONNES)
COBALT RESERVES (‘000 TONNES)
FORECAST OF COBALT RESERVES AND ANNUAL PRODUCTION
2050
Calculated using cobalt production and reserve data from the US Geological Survey. / Source: Osterwald Rathbone & Partners
32 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
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ENERGY UPDATE
EXPECTED PRODUCTION OF LITHIUM TO MEET INCREASING EV DEMAND Existing annual production of lithium for existing industries
EU Annual lithium required for EV batteries
Annual lithium requirement for rest of world EVs (assumes similar target to EU)
Estimated total annual lithium requirement by 2050
0
50
100
150
200
250
LITHIUM PRODUCTION (‘000 TONNES) ceramics and glass
EV batteries
polymer production
other batteries
lubricating greases
air treatment
other uses for lithium
continuous casting mold flux powders
est. total annual lithium requirement by 2050
Calculated using lithium production and industry split data from the US Geological Survey. / Source: Osterwald Rathbone & Partners
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ISSUE 3 / 2018
fear of mineral resource industry re-nationalization. Also, China’s expanding influence in Africa has resulted in Chinese state-owned companies controlling much of the DRC’s cobalt production. Given China’s ambitious EV targets, that does not bode well for cobalt supplies to other countries.
of investment which many countries will resist. Eventually new renewable, battery or hydrogen storage technologies will create a step-change in energy generation, storage and/or usage. But until then, hydrocarbon fuels will remain a key ingredient in the energy mix. The internal combustion engine
vehicle will be on the road in one form or another for quite a long time to come. BB Ed Osterwald is senior partner, and Salman Nissan is a partner at Osterwald Rathbone & Partners, a London-based financial and strategic consulting firm.
SOURCE OF BATTERY POWER
Recent studies show that conventional vehicles produce between 10 percent and 27 percent more carbon in their lifetime than EVs running on the existing European electricity mix of nuclear, renewables and hydrocarbons. EVs require some 70 percent more energy, however, during production. Thus, lifecycle GHG emissions from EVs are only marginally less than those using traditional hydrocarbon fuels. Therefore, the presumed “green” benefits arising from shifts to electric vehicles are meaningless unless the EU radically changes how its electricity is generated. European power generation faces daunting challenges if European Commission targets are to be met by 2050. The intermittent nature of renewable energy, coupled with limited storage, makes it difficult to meet peak demand. Government policy and subsidies have skewed investment toward renewables; this cannot go on, so that in a truly competitive market significant new investment may struggle. The counter to this is that new technology may make it easier and cheaper to invest. For renewable energy to be truly efficient, the European transmission grid must be integrated between countries. This will facilitate balancing differences in generation and consumption across Western Europe. Today, however, the grid is fragmented, creating barriers to achieving emission reduction targets; developing adequate interconnection and ensuring efficient existing operations would require significantly larger transmission capacity. It has been estimated that this upgrade may cost more than €180 billion, a level www.breakbulk.com BREAKBULK MAGAZINE 35
TRADE NOTES
US TARIFFS SHAKE UP STEEL SECTOR
36 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
Trump’s Action Protectionism or Political Play? BY AMY MCLELLAN
A
ddressing a topic related to U.S. President Donald Trump for a bimonthly magazine comes with its own degree of risk. For an administration that has announced policy or personnel change in a 140-character Tweet, there was always the chance that his proposed tariffs on steel and aluminum imports could be reversed before the article made it into print. Whatever transpires while the ink on this issue dries, Trump’s rallying cry of “America First,” a key theme of his 2016 election campaign, has already been translated into a more protectionist trade policy. With the president asserting “trade wars are good, and easy to win,” the U.S. announced plans to impose a 25-percent tariff on steel imports and a 10-percent tariff on aluminum, with exemptions granted for Canada and Mexico. Cue frenzied lobbying by the world’s steel powers, while politicians parried verbal blows, raising fears of an escalating tit-for-tat trade spat. Turkey, for example, the sixth-largest steel exporter into the U.S., threatened to slap tariffs on U.S. cotton imports for its large textile industry, while European Commission President Jean-Claude Juncker warned of retaliation against iconic U.S. goods, including HarleyDavidson motorbikes, Levi Strauss jeans and bourbon whiskey. As the U.S. Trade Representative went on to unveil tariffs on US$50 billion of Chinese imports in the aerospace, information and communication technology, robotics and machinery sectors to combat what it calls unfair acts related to technology transfer and intellectual property, there
CREDIT: ARCELORMITTAL
came a further ramp in rhetoric and retaliation. By early April, China had announced retaliatory duties of up to 25 percent on 128 kinds of products of U.S. origin, including pork, fruit, nuts and wine. China had also filed an official complaint with the World Trade Organization, or WTO. It’s not alone – more than 40 nations took to the floor of the WTO’s most recent Council on Trade in Goods to protest the unilateral action by the U.S. WTO Director-General Roberto Azevêdo called for “restraint and urgent dialogue” from member nations, warning that “an escalation in confrontation will have no winners.”
NOT AS BAD AS IT SEEMS
Compared with the size of the global steel industry, the volumes hit by the tariffs are small. The U.S. imported 36 million tonnes of steel in 2017, with Canada, Brazil and South Korea the leading suppliers. But this is just 8 percent of the global steel market’s traded volumes of 473 million tonnes. China, which produces half of the world’s steel and is the main target of Trump’s ire, has shrugged off the tariffs. China’s powerful Iron and Steel Association said the tariffs would have little impact as the country, already targeted by 29 U.S. duties, only exports 0.1 percent of its direct output to the U.S. Indeed, the steel industry is no stranger when it comes to
When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE going on for years!
protectionism. Analysts at S&P Global Platts, for example, have tracked 170 anti-dumping and countervailing cases globally. And while Trump’s political style attracts headlines, the Section 232 measures he announced are in fact a continuation of U.S. policy. “Over the last two to three years, the U.S. has been on a crusade of steel protectionism,” explains Peter Brennan, senior editor on the European steel team at S&P Global Platts. “There have been a whole raft of anti-dumping measures and tariff rises in recent years – under the Obama administration, for example, the U.S. hiked its tariffs on imports of cold rolled steel from China to 522 percent which makes Trump’s proposed 25 percent tariff look very modest.”
POOR TIMING
What is different is that Trump’s tariffs will hit at a time when global steel prices are finally rising. China has driven up prices since 2016, with demand for steel much stronger than anticipated as a result of its ambitious One Belt One Road initiative and an ongoing construction boom. U.S. steel prices in particular are high as a result of strong demand from a growing economy. Domestic steel production is up 4.4 percent, and imports are also up in a bid to meet demand. “That’s what makes this move to increase tariffs now so surprising,” Brennan said. “The conclusion is that
We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!
www.breakbulk.com BREAKBULK MAGAZINE 37
TRADE NOTES
President Donald J. Trump signs the Section 232 Proclamations on Steel and Aluminum Imports, levying tariffs on foreign steel. CREDIT: OFFICIAL WHITE HOUSE PHOTO BY JOYCE N. BOGHOSIAN
Trump is doing this as a negotiating tool, a hardball tactic, as part of his ‘America First’ approach to international trade.” That is certainly borne out by recent developments. Trump has linked the promised exemptions for Canada and Mexico to a swift agreement to an updated North
The European Union, wonderful countries who treat the U.S. very badly on trade, are complaining about the tariffs on Steel & Aluminum. If they drop their horrific barriers & tariffs on U.S. products going in, we will likewise drop ours. Big Deficit. If not, we Tax Cars etc. FAIR!
38 BREAKBULK MAGAZINE www.breakbulk.com
American Free Trade Agreement. On March 23, hours before the deadline, the EU, Australia, Argentina, Brazil and South Korea joined Canada and Mexico in clinching a temporary reprieve from tariffs until May 1, allowing additional time to negotiate. By March 26, South Korea was the first to secure a permanent exemption in a move that both sides called a “win-win deal,” albeit one in which Seoul agreed to limit its steel exports to 2.68 million tonnes, or 70 percent of the annual average exports to the U.S. over the past three years, and agreed to allow the U.S. carmakers greater access to its auto sector by easing environmental regulations and certification procedures. The EU is now engaged in a serious lobbying effort to convert its temporary reprieve into a permanent exemption. Axel Eggert, director general of the European Steel Association, warned
that Trump may only extend the suspension if “substantial concessions” are made before May 1. The EU is seeking safeguard measures to prevent steel deflected from the U.S. market, swamping what Eggert calls “a still fragile recovery” of the European steel industry. Rather than imposing its own tariffs, Richard Warren of UK Steel said the favored and more measured response is to introduce quotas, with tariffs levied on volumes above the quota. But the big issue remains global overcapacity in the steel industry. “Even China realizes this is a problem,” Warren said. “The U.S. tariffs are nothing more than a shortterm solution, and will do little to tackle the root cause of the problem. We need governments around the world to tackle the problems of global overcapacity collectively and cooperatively.” Global steel giant ArcelorMittal ISSUE 3 / 2018
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BASED ON OUR CURRENT CONVERSATIONS AND UNDERSTANDING, THERE’S A COMMITMENT ON BEHALF OF THE ENERGY INDUSTRY AND THE ADMINISTRATION TO WORK THROUGH THE IMPLEMENTATION AND APPLICATION OF THE TARIFFS.” – Louis Perrin, Hemisphere Freight Services
If tariffs force project costs up, some may no longer be viable. CREDIT: HEMISPHERE FREIGHT SERVICES
agreed, welcoming efforts to address unfair trade, but also stressing that “fundamentally a solution must be found to address the high level of overcapacity that still exists.”
THREATENING PROJECT VIABILITY
For those on the breakbulk logistics frontline, charged with the safe transit of heavy industrial plant and equipment, anything that increases steel prices could lead to a slowdown in construction. Louis Perrin, director of Hemisphere Freight Services, a 40 BREAKBULK MAGAZINE www.breakbulk.com
global logistics provider, points out that much of the U.S. steel imports are used in manufacturing, construction and defense sectors, which could see costs rise. “As a result, projects may become no longer viable, which of course would have an adverse effect on project logistics companies, particularly focused on these sectors,” Perrin said. Oil companies are already running a slide rule over their budgets to see how tariffs may impact new developments awaiting final investment decisions. Wael Sawan, who heads Shell’s deepwater
Louis Perrin Hemisphere Freight Services
ISSUE 3 / 2018
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TRADE NOTES
CREDIT: SHUTTERSTOCK
operations, recently told Reuters the tariffs could materially impact some U.S. Gulf deepwater projects. DowDuPont also has warned of the impact on its next wave of U.S. Gulf petrochemical expansion. Last year, the chemicals giant spent US$6 billion building plants along the Texas Gulf Coast, which contained US$1.2 billion worth of steel. The tariffs would have added US$300 million in costs. Indeed, the American Chemistry Council, which represents a petrochemicals industry rejuvenated by low feedstock costs resulting from the country’s shale gas boom, said the tariffs come “at the worst possible time.” It warns that more than half of the US$185 billion investment in new factories, expansions and facility restarts across the U.S. are still in the planning stage, and that investors could be driven elsewhere as a result of the tariff increases.
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WEIGHING IMPACTS
For now, heavy users of steel are still weighing the impact of the Section 232 measures. “The short answer is: it’s too early to know the potential impact,” said a spokeswoman for Shell, the global oil giant. “Based on our current conversations and understanding, there’s a commitment on behalf of the energy industry and the administration to work through the implementation and application of the tariffs. Our goal is to better understand the specific parameters and what, if any, exemptions might apply to Shell’s current and future projects.” It’s not all doom and gloom, however. Perrin of Hemisphere Freight Services points out that the logistics and project logistics industry is adept at adapting with changing trading conditions. “It’s a constant dynamic in the
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
world in which we operate,” Perrin said. “No matter what politics, business or even natural events occur, we are quick to act and remain agile in ever-changing environments, whether that be delivering aid to disaster zones or providing logistics services and vessels to markets all over the world. We strive to meet our
clients ever changing demands and business markets.” At the time of writing, the EU and fellow steel powers were still negotiating with the U.S. in a bid to secure an extension of the current waivers. Clearly Trump is looking to reduce U.S. trade deficits with its trading partners and is willing to do deals that fit his America First template. The key is to keep talking because the big fear is that an escalation will lead to retaliatory tariffs applied to a whole host of industries, with many in the EU fearful of U.S. action against the trade bloc’s important car industry. And if we get into a real global trade war, cautioned S&P Global Platts’ Brennan, “everyone suffers.” BB Amy McLellan has been reporting on upstream oil and gas and maritime industries for 20 years.
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www.breakbulk.com BREAKBULK MAGAZINE 43
SPECIAL REPORT
TRADE WINDS
CREDIT: ALAN BURLES PHOTOGRAPHY / FAST LINES BELGIUM
NAVIGATING INTERNATIONAL TRADE is difficult enough under the best of circumstances. For centuries, trade between nations was threaded one product at a time, through intense negotiations that spun taut rules of engagement and compliance, and assurance of mutual benefit. Thus, nations built global markets for their unique products. In recent decades, regional neighbors have successfully woven these individual deals into trade agreements that have blanketed regions, eased onerous customs and trade procedures, streamlined 44 BREAKBULK MAGAZINE www.breakbulk.com
supply chains and pledged mutual benefit. Today, in the western world, pockets of nationalistic resentment have taken scissors to two of the largest trade pacts: the European Union, through the United Kingdom’s departure, and the North American Free Trade Agreement. As the following two stories show, negotiations on both fronts have delivered mostly uncertainty and little direction for a highly complex project cargo supply chain seeking the means to navigate its way, just as signs point to the revival of project business. ISSUE 3 / 2018
BREXIT MEANS BREXIT But Who’s Ready for the Challenge?
BY STEPHEN SPARK
U
K Prime Minister Theresa May is fond of saying “Brexit means Brexit.” It’s a phrase that sounds authoritative yet explains nothing. Is this going to be a “hard Brexit,” in which the UK leaves the European Customs Union without a deal, or a softer, fuzzier Brexit that provides a few symbolic fig leaves – one being blue UK passports – to cover a trade deal that looks a lot like European Union, or EU, membership but without any decision-making influence? And more importantly, how can breakbulk and project cargo exporters, transport operators, ports and logistics companies plan ahead when the destination is unknown and the route towards it uncharted? The EU’s mantra of “nothing is agreed until everything is agreed” only heightens the sense that companies are going to have to negotiate a very uncertain course through treacherous shoals. It is understandable, therefore, that many in the project cargo transportation business are reluctant to commit themselves at this stage. Robert Keen, director general of the British International Freight Association, summed up a widely held view by saying: “I’m not pronouncing on Brexit until the final picture is clear. I’d liken it to a car journey. When you tell me the destination I will tell you the route, but until then too much is speculation.” Max Harmstorf, director business development, Hansa Heavy Lift, agreed. “Once the actual exit conditions are agreed and established we will look into the industry impact, if any,” he said. Its impact is undeniable, however. The consequences are likely to be felt most immediately by the short-sea roll-on, roll-off and container trades and the ports serving them. But the knock-on effects will inevitably spread
to all transport modes in all industry sectors. If there is a single message that emerges from the conflicting advice and confusion around Britain’s exit from the European Union, it is that everyone involved in UK-EU crossborder trade needs to plan ahead and prepare for the new regime – whatever that may be.
IMPACT ON COST, SPACE AND TIME
Few doubt that Brexit will increase the cost of doing business, at least in the short term. Beyond this, though, the two critical landside impacts are likely to be on space and time, and seaports are in the front line. Wim Dillen, regional development manager – international relations and networks at Antwerp Port Authority, said that shortly after the Jun. 24, 2016 EU referendum result was announced, the authority initiated a Task-Force Brexit. “It goes without saying that we are very much concerned about Brexit,” Dillen said, pointing out that Antwerp handles around 15 million tonnes of UK cargo every year. Emphasizing the importance of UK trade – including breakbulk cargo – to the port, the port
authority is recruiting a port representative in the UK and organizing Antwerp Port roadshows in Liverpool, Birmingham and London this year. Other ports are more relaxed about the next two years. Andreas Hoetzel, a spokesman for Bremen-based BLG Logistics Group, told news agency Bloomberg: “As the English [sic] still aren’t very sure themselves what preparations they want to make for an eventual Brexit, we are also in a very poor position to prepare. Why should we add more workers to the port? We won’t get more cargo.” Isabelle Ryckbost But Isabelle Ryckbost, secreESPO tary-general of the European Sea Ports Organisation, or ESPO, said that ports will have to reorganize themselves. ESPO’s recent position paper on Brexit stated: “The reintroduction of border controls could require ports to reorganize the layout of their terminals. This may require
CREDIT: SHUTTERSTOCK
www.breakbulk.com BREAKBULK MAGAZINE 45
SPECIAL REPORT
TIMELINE OF AN UNEASY RELATIONSHIP 1952
Following the 1951 Treaty of Paris, Belgium, France, Italy, Luxembourg, the Netherlands and West Germany (“the Six”) establish the European Coal and Steel Community.
March 25, 1957
The Six sign the Treaty of Rome to found the European Economic Community, or EEC.
Aug. 1, 1961
UK applies to join the EEC.
TREATY OF ROME VIA VANDEVILLE ERIC/ ABACA/NEWSCOM
ports to make investments in order to accommodate the increase of border inspections, to avoid congestion.” “Space within ports, especially for road traffic, is a big concern – some do not have the space to expand,” Ryckbost said. “The port area in Dover, for example, is quite small. Even Rotterdam will need to reorganize themselves.”
DEMAND FOR PEOPLE
Any new rules that are imposed will need systems and people to enforce them. This is a sensitive issue on the island of Ireland, where fears have been raised that the reintroduction of border posts and vehicle searches will reawaken old divisions between communities in Northern Ireland and the Republic of Ireland. Continuing the present open arrangement, however, would punch a large hole in the European Union’s external border and provide a tempting route for smugglers. Irish Prime Minister Leo Varadkar is said to want the Irish border question settled by October. The fear is that a no-deal Brexit will leave EU-UK trade being governed by World Trade Organization terms and without reciprocal customs agreements. There is general agreement that this will increase direct costs for all cargoes as a result of tariffs. ESPO stated in its position paper: “Introducing tariffs will make goods 46 BREAKBULK MAGAZINE www.breakbulk.com
January 1963
President Charles de Gaulle of France vetoes UK membership.
CHARLES DE GAULLE DURING WWII VIA US LIBRARY OF CONGRESS
traded between the UK and EU-27 more expensive, which might lead to a decline in the overall demand for those goods. This in turn could have a negative impact on the industry located within ports, as well as the overall traffic of ports that heavily rely on EU-UK trade.” Many are worried that the cargo inspections will inevitably lead to congestion in ports and rail and airfreight terminals. Subjecting breakbulk goods and vehicles to onerous checks would create a ripple effect of delays extending far beyond the perimeter fence to the wider region and even to nonEU states. Matthias Maedge, general delegate to the EU of international road transport organization IRU, agreed. “Market access and customs are pressing Matthias Maedge issues for the road IRU freight transport and logistics industry with regards to Brexit,” he said. “It is highly undesirable post-Brexit to have miles of trucks queuing up at the ports of Calais or Dover as a consequence of burdensome customs processes and insufficient rules on mutual market access from the EU to the UK and vice versa.”
Jan. 1, 1973
Along with Denmark and the Republic of Ireland, the UK joins the European Communities (known as the Common Market) after President Georges Pompidou lifts the French veto.
June 5, 1975
Referendum endorses UK membership, 67 percent to 33 percent.
GEORGES POMPIDOU VIA WIKIMEDIA COMMONS
EXPECT CONGESTION, QUEUES
The UK Freight Transport Association, or FTA, which represents 17,000 member companies, has been in the forefront of those warning of the consequences for business if insufficient effort is put into ensuring the smoothest possible transition to a post-Brexit customs and inspection regime. “Two extra minutes spent checking each truck during peak hours could result in lengthy queues of almost 30 miles on each side of the border, which could have important knockon effects on the wider transport networks and on supply chains that often rely on just-in-time processes,” said James Hookham, James Hookham the association’s deputy chief FTA executive. Exactly where those checks will be made is critical, he said. “We still do not know on which basis and how many trucks will be able to cross the borders. In the absence of a liberalized agreement for road transport, industry will have to rely on a very limited and conISSUE 3 / 2018
Nov. 1, 1993
European Union formed by the Maastricht Treaty 1992. The EU absorbs the European Communities. EEC renamed the European Community (absorbed into the EU in 2009).
1994
European Economic Area founded.
June 24, 2016
Referendum result in favor of Brexit by 52 percent to 48 percent.
FORMER LONDON MAYOR BORIS JOHNSON VIA BEN STEVENS/ZUMA PRESS/NEWSCOM
straining system of permits which would cover less than 3 percent of the needs, woefully under what will be required,” he said. Hookham asked how business can be expected to trade without transport? “That needs to be uppermost in the minds of negotiators as they move on to talks about the future relationship with the EU.” Nor are these uncertainties confined to the roads, he added: “Arrangements for aviation and rail freight are still unclear at this stage.”
RAIL DEAL A BAROMETER
Laura Wright, head of international policy at the Rail Delivery Group, or RDG, believed that getting Brexit right for the rail industry would be a barometer for whether the overall deal will enable Britain and Europe to prosper together in the decades ahead. “The EU Single Market has enabled British and European railway operating and manufacturing companies to set up complex supply chains and services that benefit competitiveness, growth and employment in both economies … Successive ‘railway packages’ and the creation of the Single European Railway Area have liberalized intra-EU rail traffic,” Wright said. After the opening of the Channel Tunnel in 1994, the UK rail industry became much more closely linked with its European counterparts, not just
March 29, 2017
Article 50 of the Lisbon Treaty 2007 (formal application to leave the Union) triggered.
April 5, 2017
European Parliament adopts Brexit guidelines.
TREATY OF LISBON SIGNING VIA WIKIMEDIA COMMONS
physically, but also economically and through the imposition of common European standards on environmental impact, safety and security and employees’ rights. Wright said that the RDG want to keep these close ties, “by maintaining influence in the design of European standards and continued recognition of EU standards by the UK government.” It will also be important to retain full mutual recognition of train driver licenses and EU technical specifications for interoperability if international rail traffic from the UK is to continue to cross European borders without delay or the need for doublemanning of trains.
PORTS LOOK FOR BREXIT ‘DIVIDEND’
The British Ports Association, which represents more than 100 ports in the British Isles, wants what it calls “a pragmatic deal with the EU on both customs and regulatory recognition.” In BPA’s document, A Brexit Dividend, the association stated, “The [UK] government has highlighted the desirability of continued membership of the Common Transit Convention (removing border import/export declarations) [and] increased take-up by exporters and importers of trusted trader schemes like Authorised Economic Operator status … Although customs and border security arrangements are
June 19, 2017
Negotiations on Britain’s departure begin.
AUG. 31, 2017 PRESS BRIEFING VIA YE PINGFAN XINHUA NEWS AGENCY/NEWSCOM
far more complex, the BPA supports these initiatives to maintain the frontier, as far as possible, as a tax point only.” Like RDG, BPA wants to see more investment in inland transport infrastructure and last-mile connections. Nor should it end there, with the association encouraging a concept of Port Development and Enterprise Zones – designating UK port zones with favorable business, tax and planning conditions to encourage regional and coastal development to boost trade and economic growth. BPA’s talk of a “dividend” from Brexit may be seen as provocative by some, but the association is by no means alone in finding traces of silver lining amid the clouds. “There are of Stuart Stobie course concerns over Brexit, but Priority Freight it should also be seen as an opportunity,” said Stuart Stobie, sales and marketing director of Priority Freight. “Brexit should not inhibit us, but make us reflect on the current systems in place and how they can be improved.” The key to making it a success will be productivity and initiative, so www.breakbulk.com BREAKBULK MAGAZINE 47
SPECIAL REPORT
CREDIT: SHUTTERSTOCK
TRANSITION TO BREXIT March 23, 2018
The other EU member states, or EU-27, agree to a transition period; European Council agrees guidelines on future EU-UK trading relationship.
Sept. 30, 2018 Date by which EU Brexit negotiator Michel Barnier wants the terms of Britain’s exit concluded.
October 2018
Deadline for the final deal on the Irish border.
that when the moment comes, supply chains are as prepared as possible for the inevitable change in procedures. “This means being agile to change, while continuing to deliver the best-inclass service,” Stobie said.
SECURITY SILVER LINING
But despite all the possible upheaval, there is one aspect that might not see disruptive changes when Brexit comes. Because the UK never joined the Schengen system – which abolished passport and other types of border controls at mutual borders – little ought to change in terms of port security once the UK is outside the European Union. The UK has retained the right to check everything, but that right was not exercised because of intelligence-led systems and paucity of checking staff. In the post-Brexit era, Simon Smith, company secretary of the International Professional Security Association, is confident that the need for physical checks will be obviated 48 BREAKBULK MAGAZINE www.breakbulk.com
March 30, 2019
Britain formally exits the EU, after the EU-27 and European Parliament ratify Brexit. Formal negotiations start on future relationship between UK and EU. Although its status within the EU remains largely unchanged, the UK will no longer participate in EU decision-making. The UK can negotiate and sign trade deals, but these cannot be implemented until after Dec. 31, 2020.
by the use of online systems, through authorized economic operator, or AEO, designation and similar approaches. Any tariffs will be levied remotely, by email, as goods cross the border. In seaports and airports handling project cargoes, the big issue is likely to be manpower, Smith believes, saying that UK Border Force has insufficient staff to carry out the extra checks needed. Even under existing conditions, resources are tightly stretched. At a major UK south coast port there are “about five personnel to check goods per shift,” he said. “Many are ‘multifunctional,’ as they are immigration-trained, so can’t be in two places at once. When a passenger ship is in, part of the shift is passports and passenger luggage, so often there’s nobody to check the cargo.” Smith’s comments on manpower feed in to another widely shared concern: loss of skilled workers as Brexit Day approaches. The FTA’s Brexit Manifesto document sets out the scale of the potential
Dec. 31, 2020
Transition period ends; UK formally leaves the EU – unless all parties agree to an extension.
Jan. 1, 2021 UK is free to implement independent trade deals and treaties.
problem: “The logistics sector employs 290,940 EU workers, with 10 percent of HGV [heavy goods vehicle] drivers and 23 percent of warehouse workers coming from the EU. It faces a labor shortage which is likely to worsen in the coming years, as the average age of logistics employees rises. Industries with quantifiable labor shortages in the British market – such as logistics – will need to be able to continue recruiting staff from outside the UK and to keep the EU staff they already employ.” To counter the looming skills deficit in the logistics industry, it is essential to invest in training and apprenticeships, the FTA suggests. Ready or not, when New Year 2021 dawns the likelihood is that breakbulk and project cargo business between and with the UK and the European Union will change significantly and irrevocably. “Brexit” continued on page 52.
ISSUE 3 / 2018
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TAKING BREXIT’S LEGAL TEMPERATURE Brexit isn’t just about operational and commercial changes. There are plenty of legal knots that need to be unpicked, not least the rewriting reams of EU law out of UK law. Jeremy Kelly, associate at Londonbased law firm HFW, explained the sticking points to Breakbulk, the first being understanding how tariffs and duties will be affected post-Brexit. After the transition period through to the end of 2020, duties may be applied to goods moving between the UK and the EU and also on imports into the UK of products from countries with which the EU currently has a free trade deal, such as Canada and South Korea. “Whilst average global customs duties – which are usually calculated as a percentage of the good’s value – are not high, the total amount payable may be significant when applied to high-
value project cargo,” Kelly said. “As there is no guarantee that the EU and the UK will agree that all trade should be tariff-free following the end of the transition period, or that the UK will be able to benefit from the EU’s free trade deals.” Kelly recommended that breakbulk and project cargo businesses check Jeremy Kelly any long-term contracts to see HFW who is liable to pay in the event of increased duties, and to give this issue consideration when negotiating new contracts.
Some Shippers Just Can’t Contain Themselves
Despite all the uncertainty, companies can – and should – use the temporary respite offered by transition to take steps to protect their business interests. “We are recommending companies to consider whether a Brexit clause, which triggers certain rights and obligations in the event of defined events, should be included in new or existing contracts,” Kelly said. A Brexit clause could, for example, provide a right to renegotiate a contract if a trigger event occurs which may cause an adverse impact and to terminate the contract if amendments cannot be agreed. “As the potential effect of Brexit will vary significantly depending on the subject matter of the contract, this will need to be reflected in individual contracts,” he said. Further uncertainty surrounds the jurisdiction of disputes, as there has not yet been an agreement on
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ISSUE 3 / 2018
the Brussels Regime, which governs enforcement of judgements in the EU. “There is a danger that courts in the EU will not recognize English jurisdiction and/or the decisions and awards of English courts in certain circumstances,” Kelly said. However, the Rome I Regulation, which gives effect to parties’ choice of law in a contract throughout the EU, will continue to apply to the UK during the transition period. Finally, Kelly raised an issue that could affect shipowners and equipment manufacturers. Generally certain categories of equipment – such as machinery and pressure equipment – must be certified to have met certain standards in order to be sold in the EU. Authorized “notified bodies” test equipment in order to certify that it meets the required standards. However, “there is a risk that UK notified bodies – which include
Lloyd’s Register and ABS Europe – will no longer be able to certify that the relevant standards required by the EU have been met unless mutual recognition agreements are put in place,” he said. BB
EU Council President Donald Tusk holds a press conference in Brussels on March 29, 2017, after receiving British Prime Minister Theresa May’s Brexit letter in notice of the UK’s intention to leave the EU. CREDIT: ALEXANDROS MICHAILIDIS / SHUTTERSTOCK.COM
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SPECIAL REPORT
REFASHIONING NAFTA BY LORI MUSSER
Negotiations Characterized by Vague Fears, Slow Progress
T
here was no definitive reason to renegotiate the almost 25-year-old North American Free Trade Agreement. As Reggie Thompson, Latin American analyst for geopolitical consultant Stratfor, succinctly explained: “These issues didn’t have to be addressed during this [U.S.] presidency.” There have been a few minor updates over the years, but there is no renegotiation schedule or sunset clause. There is, however, consensus that NAFTA needs a tune-up to strengthen North American competitiveness, innovation and growth. Steve Cernak, chairman of the American Association of Port Authorities, which represents the seaport industry throughout the Americas, said North America’s economies, supply chains, trade and consumption have evolved over 25 years, and it makes sense to address those changes within the parameters of NAFTA. “We’re in a global economy now. 54 BREAKBULK MAGAZINE www.breakbulk.com
There has been a great deal of change in where we buy and sell, and in how we do it,” Cernak said. Indeed, the level of technological change alone, over the last quarter-century, demands an update. But that update needs to be sensitive to the existing agreement and what it already offers to U.S., Canadian and Mexican businesses. Glenn Hamer, president and CEO of the Arizona Chamber of Commerce & Industry, said a new NAFTA must be built through a “practical and business-savvy modernization of the pact,” because NAFTA means jobs – more than 230,000 to Arizona alone. Nearly half of Arizona’s exports are Reggie Thompson destined for cusStratfor tomers in Canada and Mexico. NAFTA may not have been equally beneficial to all regions or industrial sectors, but despite U.S. President Donald Trump dubbing it “the single-worst trade deal ever approved in this country,” statistics confirm positives for the U.S.:
• Increased trade between members. • Increased economic output. • Job creation related to stronger growth. • Increased foreign direct investment, or FDI. • Lower prices on many items including oil and transportation following the elimination of tariffs. From the U.S. perspective, the preeminent question is whether these benefits outweigh the migration of U.S. manufacturing jobs to Mexico, and suppressed U.S. wages? Project cargo supply chains could be sorely affected if NAFTA were to come to an end. Insofar as the North American trading bloc has grown and developed robust internal supply chains, and fostered FDI, North Americanbased engineering, procurement and construction, or EPC, companies have benefited from the elimination of tariffs and gained a competitive edge over project cargo movements from outside of the NAFTA bloc. According to international trade specialists M. Angeles Villarreal and Ian F. Fergusson of the U.S. Congressional Research Service, or CRS, NAFTA provisions on foreign investment helped to lock in Mexico’s reforms and increase investor confidence in Mexico, especially in Mexico’s booming manufacturing sector. A May 2017 CRS report said: “The United States is the largest source of FDI in Mexico … increasing from US$15.2 billion in 1993 to US$104.4 billion in 2012,” although other events have thrown off investment in more recent years. Mexican FDI in Steve Cernak the U.S. has also American Association increased, from US$1.2 billion in of Port Authorities 1993 to US$16.6 billion in 2015. Similarly, the U.S. is the largest single investor with FDI in Canada reaching US$352.9 billion in 2015, up from US$69.9 billion in 1993. While Canada is not the largest investor ISSUE 3 / 2018
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COUNTING ON NAFTA
Renegotiations on NAFTA have begun, but the process is already proving to be slow and onerous. Thompson said: “Although we are not close to a resolution, and it will be a little while before something emerges, the possibility of a withdrawal from NAFTA is less imminent today than it was a year ago. The talks are now addressing substantive areas.” The progress made to date gives a leg up to NAFTA over the main alternative; three bilateral treaties would likely take far longer to negotiate. In December 2017, the U.S. Business Roundtable published By the Numbers: The Costs of Withdrawing from NAFTA, concluding that, in a world without NAFTA, there would be a US$15.5 billion impact on U.S. exports of US$570 billion in goods to Canada and Mexico (in 2015). That figure was based on Canada and Mexico assessing new tariffs or taxes averaging 3 percent, triggering reductions in U.S. exports. The food and auto sectors would bear the brunt of the impact, at US$7.4 billion, but industrial sectors would also be gravely impacted – U.S. machinery exports without NAFTA could have faced an additional US$508 million in tariffs, and metal products exports an additional US$590 million. U.S. goods would simply be less competitive in Canada and Mexico relative to those produced in countries that have their own FTAs with Canada and Mexico – like Japan and the European Union. In June 2017, the Canadian Centre for Policy Alternatives, or CCAP, issued the report, What is the NAFTA Advantage? Putting the Tariff Impacts of a Trump Termination in Perspective. The tariff impacts on Canadian exports without NAFTA (reverting to World Trade Organization rules and tariff rates), would, according to the report, be surprisingly modest. Based on 2016 trade values, the report calculated US$4.2 billion in extra tariff costs – roughly equivalent to 1.5 percent of the value of Canadian exports to the U.S. And, according to the International Institute for Sustainable Development’s report, Renegotiating NAFTA: Pros and Cons for Canada and Mexico, issued in 56 BREAKBULK MAGAZINE www.breakbulk.com
September 2017, there would, however, be significant employment losses in important industry sectors in all three countries. Increased trade barriers could see the following loss of jobs: • Energy sector: U.S.: 600,000, Canada: 120,000, Mexico: 260,000. • Gas sector: U.S.: 100,000, Mexico: 26,000; Canada: 10,000. • Steel industry: U.S.: 460,000, Mexico: 240,000, Canada: 75,000. • Cement industry: U.S.: 2 million, Canada: 200,000, Mexico: 200,000. • Auto industry: Mexico: 800,000, U.S.: 750,000, Canada: 150,000. “Since cement and steel are important inputs in the shale gas and construction industry, as well as other energy sectors, unemployment in these sectors would affect downstream sectors too,” the report said.
UNCONVENTIONAL PROPOSALS
NAFTA mandates that 62 percent of the parts in a car sold in North America must come from Canada, Mexico or the U.S., but the U.S. proposes raising that threshold to 85 percent, and, reserving half of that amount for the U.S. Mexico and Canada have said that just isn’t acceptable. The automotive industry is chiefly responsible for the U.S. trade deficit with Mexico. Trump is on record as wanting to undermine that deficit. Another U.S. proposal, initiating a five-year recurring sunset clause for NAFTA, also proved unpalatable. For many businesses investing in Mexico or Canada this clause would introduce an unacceptable level of tariff uncertainty. David Floyd, in an Investopedia analysis dated January 2018 called NAFTA’s Winners and Losers, confirmed NAFTA’s implementation coincided with a 30 percent drop in U.S. manufacturing employment, from 17.7 million jobs at the end of 1993 to 12.3 million at the end of 2016. “Whether NAFTA is directly responsible for this decline is difficult to say, however.” He cited that although the U.S. vehicle market was immediately opened up to Mexican competition, U.S. employment in that sector grew for years after NAFTA’s introduction, peaking at nearly 1.3 million in October 2000. Jobs began to slip away at that point, and losses grew steeper with the financial crisis, Floyd noted. NAFTA is complicated: Looking
at economic growth can lead to one conclusion, while looking at the balance of trade leads to another, he added. Stratfor’s Thompson pointed out the impact of China, and the U.S. switching over from a manufacturing-based economy to a service-based one also have to be taken into consideration. “These developments have affected many business sectors in the U.S.,” he said. CRS has noted that credit may be due to NAFTA for helping U.S. manufacturing industries, especially the U.S. auto industry, become more globally competitive through the development of supply chains. Cars imported to the U.S. from Mexico contain 40 percent U.S. content, 25 percent from Canada and 2 percent from Japan, said the CRS.
INDUSTRY CONCERNS ABOUT ENFORCEMENT
The U.S. Chamber of Commerce reports that about 14 million American jobs depend on trade with Mexico and Canada. It is particularly troubled by a U.S. proposal to “gut the full array of enforcement tools” in NAFTA. John G. Murphy, the Chamber’s senior vice president for international policy, said in an opinion article: “While there’s broad support for measures to modernize the 25-year-old agreement, scrapping its enforcement provisions would be a mistake, and it could easily end in lost U.S. exports and lost American jobs.” Murphy said a voluntary advisory system for disputes would weaken the entire agreement and could lead to a situation where governments are free to ignore their commitments with impunity. Another concern is the U.S. proposal to opt out of investor-to-state dispute settlement provisions. According to Murphy, that will render the agreement’s investment protections unenforceable. Project cargo and breakbulk shippers should be wary that, although unlikely, the threat of losing NAFTA is indeed real, and doable with six-months’ notice. However, after seven rounds of talks, and with a softening U.S. stance, it is likely that the agreement will be revamped in some helpful ways. There is more than a trillion dollars in trade between NAFTA signatories at stake. BB Based in the U.S., Lori Musser is a veteran shipping industry writer.
ISSUE 3 / 2018
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BY MICHAEL KING
Capacity Crunch Sets Back Project Cargo Shipments
‘T
he first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it,” noted U.S. political philosopher and economist Thomas Sowell. He was not, of course, talking about air freight logistics in 2018. But the cap certainly looks a good fit entering the second quarter of 2018. Securing capacity to ship project cargoes by air is increasingly a question of managing scarcity; of finding a solution when pricing is prohibitive, and the availability of suitable equipment and capacity is erratic. It wasn’t always thus. Turn the clock back just two years and rows of freighters were parked in the desert, and airlines around the world were scaling back cargo operations to reduce losses. According to Brian Clancy, cofounder and managing director of specialist advisory Logistics Capital & Strategy (LogCapStrat), back in 2014-15 analyzing the air freight business was the equivalent of “writing its obituary.” Much has since changed. The industry, riding the tailwind of strong global economic growth, has seen international and U.S. domestic air freight demand soar, a trend given added impetus by the rapid expansion of e-commerce, which is transforming air freight demand – look no further than Amazon’s investments in its own air freight capacity for evidence of that particular trend. As previously reported by Breakbulk, all-cargo airlines are finding it increasingly difficult to retain slots at leading airport hubs. This is an issue for shippers, forwarders and carriers alike, because the largest hubs typically offer excellent connections, good
LEFT: New orders from UPS for freighters should
relieve some of the capacity constraints. CREDIT: BOEING
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onward shipping options and, critically, the best ground handling services for specialist cargoes. Yet this is just one side of the coin. The flip side is the simple lack of capacity available. Sometimes scarcity is seasonal, sometimes it is specific to key trade lanes, but when unitized shippers are struggling to find space on scheduled freighter services and the charter cupboard is bare, then the squeeze is on for those at the specialist end of Brandon Fried the market. AfA “In seven of the last nine years, capacity had outstripped demand growth, but that trend stopped in 2017 and now, demand exceeds capacity,” said Brandon Fried, who has been the executive director of Washington-based The Airforwarders Association, or AfA, since 2005. “We have particularly seen the impact of excess demand on most Asia routes to the United States. The issue has caused many of our members like Flexport, for example, to secure its own charter capacity twice a week from Hong Kong to Los Angeles.”
BOURNE OUT IN STATISTICS
The figures tell the tale. According to the International Air Transport Association, global air freight demand, measured in freight ton kilometers, or FTKs, grew 9 percent last year, more than double the 3.6 percent annual growth recorded in 2016. According to analysis from consultancy WorldACD, worldwide air cargo yield reached a level of US$2.05 per kilogram in December 2017, 23.5 percent higher than a year earlier. December brought an end to what the analyst called a “truly remarkable air cargo year.” Yet while airlines enjoyed doubledigit revenue growth during the latter part of 2017, the analyst admitted that shippers had to contend with “capacity shortages in a number of markets.” 62 BREAKBULK MAGAZINE
So far in 2018, demand growth has shown few signs of slowing down, with the latest figures from IATA indicating that global demand increased 7.7 percent year-on-year when January and February volumes were combined. Ahead of Chinese New Year, capacity constraints remained, particularly out of key load hubs such as Shanghai and Hong Kong. Post-Chinese New Year the market evened out, but most analysts predicted a further tightening through the Rogier Spoel second quarter. European Shippers’ Fried anticiCouncil pated “extreme demand” for the rest of the year barring “any extreme geopolitical event.” Air freight demand is being driven by “significant economic growth in most countries and of course, the e-commerce megatrend,” he said. “This means that shippers and forwarders should be prepared for higher costs, tighter space and the need to work with shippers in more accurate forecasting in determining preparation time and space needed.”
RUNNING OUT OF OPTIONS
Rogier Spoel, air transport policy manager at the European Shippers’ Council, said for shippers and forwarders flying out-of-gauge, project or breakbulk cargoes, procuring suitable capacity, even for those willing to pay a premium, has become increasingly difficult. “These shippers have extra challenges, because the number of full freighters with a nose cargo door is very limited,” he explained. “Heavy and out-of-gauge shipments are especially challenging and are often bumped off flights because of the amount of unusable space that is left aboard the freighter if heavy or out-ofgauge is loaded.” Spoel said that the phasing out of inefficient, older Boeing 747-400 freighters by legacy airlines because of maintenance and fuel costs and noise
pollution had also reduced the options available to project shippers. “There are still some orders for the new 747-8 freighter model, which is more efficient and silent, but as I understand it, there are some delays in production,” he added. “Even then, not all Boeing 747-8 freighters have the cargo nose door option, because this feature actually decreases the total amount of weight it is able to carry because of the weight of the cargo door. “The 747/8 freighter is, in particular, the workhorse for breakbulk, out-of-gauge and heavy shipments. The focus of the legacy airlines on belly cargo operations is hurting this particular business.” However, according to Spoel, although choices are more limited than they were two years ago, project shippers do still have uplift options, not least those available from dedicated freighter operators. “The specialized air cargo carriers such as AirBridgeCargo, Cargolux and Silk Way are more and more becoming the frontrunners in this market,” he said.
PACK SMART, SHIPPERS TOLD
While securing suitable uplift space is increasingly difficult for project cargoes, the AfA is urging forwarders and shippers to use the most efficient packaging possible to reduce excess volumetric air freight costs. Yet Fried acknowledged that “some outsized commodities, regardless of packaging, demand larger gauge aircraft with special capabilities” able to handle such shipments. “The scheduled market for such flights in the domestic United States market is largely confined to the integrated carriers – UPS, FedEx etc. – but a robust domestic charter market does exist,” he added. “For example, charter operators routinely fly aircraft for automobile plants in Michigan to the Mexican border and back each day with outsized shipments. Many of the aircraft used are converted passenger planes including the Boeing 737, MD-80 and Boeing 767 and are flown by small operators. “Of course, many Asian passenger carriers still fly freighter aircraft and will handle outsized cargo on routes to and from the United States. In addition, ISSUE 3 / 2018
unlike on domestic routes, all international carriers are using wide-body planes to and from the U.S., with ample room for CREDIT: GLENN BELTZ, large shipments,” CREATIVE COMMONS Fried said. However, there are increasing signs that even the world’s leading integrators are running short of capacity. Cathy Roberson, founder and head analyst at U.S.-based Logistics Trends & Insights, told Breakbulk that air freight demand remained strong and capacity was a growing concern. “During UPS’s earnings call in February, the company announced plans to purchase additional airplanes, thanks to the recent federal tax changes as well as to meet its growing air demand,” Roberson said. “But meeting demand now is difficult while they are waiting for the new airplanes. “From what I understand, Phasing out of inefficient, older Boeing 747-400 freighters has reduced the options available to project shippers.
integrators – not just UPS – are struggling with capacity concerns, and added to this are rumors of a lack of pilots as well as the U.S. military wet leasing cargo planes, thus reducing commercial capacity even further.” Indeed, a number of sources confirm that a lack of pilots has allowed the U.S. military to suck capacity out of the global charter market at a time when capacity is already scarce.
EXTRA CAPACITY IN THE PIPELINE
On the positive side for project cargo shippers, Airbus and Boeing told Breakbulk they anticipate more orders for freighters suitable for operations in a range of global markets, which should in the next few years address the current mismatch between supply and demand. UPS, which already operates a global airline network of more than 500 owned and leased aircraft and offers project shipment services via its UPS Supply Chain Solutions arm, has ordered 14 Boeing 747-8 cargo jets and
four new Boeing 767 aircraft earlier this year. This followed orders for 14 Boeing 747-8 freighters in 2016. UPS said all 32 of the new aircraft would be added to the existing fleet with no retirements in a bid to “provide additional capacity in response to accelerating demand for the company’s air services.” Eventually supply will catch up with the recent surge in demand in air cargo markets. But, in the short term at least, analysts agree that only a global trade war that turns confidence and demand bearish can rebalance air freight’s supply and demand fundamentals. Interestingly, Sowell’s theory on economic scarcity concluded that “the first lesson of politics is to disregard the first lesson of economics.” We can safely surmise he didn’t have Trumpian trade policy in mind when those words were penned. Michael King is a multi-award winning journalist as well as a shipping and logistics consultant.
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AIRBUS’ NEXT STEPS WITH BELUGAXL Earlier this year, Airbus took the next step towards realizing one of the most ambitious air freight projects in history. It is perhaps also the most unusual, because Airbus is the provider of the newly designed aircraft as well as the shipper. At the start of 2018 the manufacturer rolled out the first structurally complete airframe for its new BelugaXL design from its assembly hangar in Toulouse, France. Once operational, a fleet of these next-generation heavy airlifters, specifically designed for Airbus’ supply chain needs, will be used to transport completed sections of Airbus aircraft between the company’s European production sites, and to final assembly lines in France, Germany and Spain. The first BelugaXL is due to be
airborne by the middle of this year and eventually five are scheduled to enter service. The “super-transporter” design is based around the outsized airlifter version of the Airbus A330-200 jetliner from which it is derived, but also features a bulging upper forward fuselage and huge cargo area. Airbus explained that the BelugaXL program was launched in November 2014 to address Airbus’ increasing transport requirements. “At six meters longer, one meter wider and with a payload lifting capacity six tons greater than the BelugaST transporter version it is replacing, the BelugaXL will be able to transport both wings of the A350 XWB jetliner at once, instead of the single wing currently accommodated on the BelugaST.” “The rationale of the BelugaXL program is to provide five aircraft for the Airbus global production system,” a spokesman told Breakbulk. “These aircraft are being produced and optimized to offer Airbus the best possible capability and the best return on our investment, and to support Airbus’ TOP: Computer rendering of the completed BelugaXL. international ramp-up activities. In short, this ABOVE: In January 2018, the first structurally complete Airbus is the goal of the teams BelugaXL super transporter readies itself for months of tests who are producing ahead of its first flight. / CREDIT: AIRBUS 64 BREAKBULK MAGAZINE www.breakbulk.com
the BelugaXL, and it is where their attention is being focused.” Airbus had been operating the original Beluga – based on the A300600 platform – since January 1996. “We have five of them in service,” said the spokesman. “They continue to efficiently shuttle major Airbus aircraft components between our production sites in Europe. “The new BelugaXL is larger and is based on the A330-200F platform. The BelugaXL will offer even more capacity than the original Beluga, and the fleet of five aircraft will eventually replace the original Belugas.” Unfortunately, however, Airbus has no plans to build more BelugaXLs to meet the growing needs of third-party project shippers. “The BelugaXL is being developed by Airbus, for Airbus’ production system,” said the spokesman. “Some time ago Airbus did, as a ‘one-off’ furnish some Beluga capacity for a third-party customer, for example, to transport a satellite vehicle. However, for the past years, and going forward, the production needs of Airbus are such that our Beluga’s are fully tasked with their job of transporting Airbus aircraft major components. “Therefore, it means that the scope does not extend to offering BelugaXL services for third parties. The aircraft which Airbus will operate are solely dedicated and design-optimized for the needs of Airbus.” BB ISSUE 3 / 2018
RULES AND REGULATIONS
Added Bite for Anti-Corruption Efforts BY THOMAS TIMLEN
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A
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PHOTO ILLUSTRATION: CATHERINE DORROUGH; PHOTOS VIA SHUTTERSTOCK
Ignorance is Not Bliss
ccording to the World Bank, businesses and individuals worldwide pay an estimated US$1.5 trillion in bribes each year, about 2 percent of global gross domestic product. It’s an astonishingly high amount, and undoubtedly some of it will be pegged to facilitation payments for project cargo and breakbulk moves. As countries openly clamp down on bribery, several initiatives are underway aimed at curtailing corruption at all levels, some specifically catering to international transport. On a global level, and for the benefit of all sectors, Transparency International seeks to raise awareness to drive positive change with the annual update of its Corruption Perceptions Index, or CPI. The CPI ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople. Countries are ranked from the least to most corrupt and are given a score on a scale of zero to 100, where zero is highly corrupt and 100 is very clean. This year, the index found that more than two-thirds of countries scored below 50, with an average score of 43. Somalia, South Sudan and Syria are perceived as the three most corrupt countries in the world. There is no country that has achieved a perfect score of 100, with the cleanest of the clean, New Zealand, ranked in first place with a score of 89. Even here, there is perceived room for improvement.
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TAKING PROACTIVE MEASURES
Speaking with Breakbulk, Pottengal Mukundan, director of the International Chamber of Commerce’s International Maritime Bureau, explained the importance of breakbulk-related companies taking proactive preventative measures in the face of this threat, for which the CPI serves as a sober reminder. “Corruption has long affected business,” Mukundan noted, “but today with the UK Bribery Act and the U.S. Foreign Corrupt Practices Act and other equivalents around the world, there are stringent penalties which can result upon infringement. Persons at very senior roles in a company can and have faced criminal liability. It is common now for businesses to require their partners to comply with meaningful anti-corruption policies as a condition of their engagement. “Financial institutions and intermediaries, such as lawyers and accountants, through which the
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“ARE SMALL BRIBES NECESSARY FOR DOING BUSINESS ON A REGULAR BASIS ... OR IS IT THAT THE OPPORTUNITY IS PRESENTED TO GET TO THE FRONT OF THE QUEUE WITH A MORE SIZEABLE PAYMENT?”
– Guy Wilson-Roberts, Risk Intelligence
proceeds of corruption flow, could also face charges of money laundering if they have not taken steps to verify the purposes of the movement of funds.” Yet, despite greater awareness of the risks, corruption remains a serious distortion of fair business practice,
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in some countries more than others, Mukundan said. Defining the scope of the terms “corruption” and “perception” is important when determining the actual impact on business. Guy Wilson-Roberts, head of Intelligence Analysis at Risk Intelligence, said the challenge with the CPI as a source for analysis is that it combines Guy WilsonRoberts many different
levels of public Risk Intelligence service corruption perceptions, from having to pay a bribe on a day-to-day basis to access public services, to corruption of officials to secure a large government contract. “So you get different kinds of corruption in countries that are ranked similarly on the index.
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“For example, Libya scores just 17 out of 100 on the 2017 index, yet it doesn’t have the same culture of ‘baksheesh,’ small payments for services, as its neighbor Egypt, which scored 32 on the 2017 index. Libya’s corruption is more at the government level and in the maritime sector it is falsified paperwork used for facilitating smuggling,” Wilson-Roberts said. He noted that the CPI’s macro level of analysis also means that it’s not clear what the direct effect of the corruption is. “Are small bribes necessary for doing business on a regular basis, such as to get in the queue for services; or is it that the opportunity is presented to get to the front of the queue with a more sizeable payment?” For the breakbulk sector, relatively smooth port operations can exist in countries with massively corrupt governments at the higher level, he continued, while where the port call is incident free, crew ashore may need to avoid nuisance scams from the local police.
firms, including those involved in project cargo or breakbulk movements. MACN and its members promote good corporate practice in the maritime industry for tackling bribes, facilitation payments and other forms of corruption. The network collaborates with key stakeholders, including governments and international organizations, such as the United Nations
Development Programme, to identify and mitigate the root causes of corruption in the maritime industry. Achievements made by MACN during 2017 show that its collaborations lead to tangible actions. Such actions included: • Increased participation in the Suez Canal ‘Say No’ campaign, an initiative that resulted in a decrease
COVERING ALL COASTS Providing stevedoring & terminal operations in more than 42 U.S. ports and 80 locations
TRENDS REVEAL PROGRESS One useful aspect of the CPI is the trends that it reveals. In areas where efforts against corruption have been implemented, the respective countries’ movements up or down in the rankings, taken together with improved or worsening scores, is one way of monitoring the effectiveness of such efforts. The 2017 CPI shows that globally, over the last six years, several countries significantly improved their scores, including Côte d’Ivoire, Senegal and the UK; while other countries declined, including Syria, Yemen and Australia. New Zealand and Denmark now rank highest with scores of 89 and 88, respectively. The best performing region is Western Europe with an average score of 66. The worst performing regions are Sub-Saharan Africa (average score 32) and Eastern Europe and Central Asia. In addition to moves by governments to introduce anti-bribery legislation, industry groups are doing their part as well. For example, the Maritime Anti-Corruption Network, or MACN, was established in 2011 by a small group of maritime companies, and has since grown to include about 90 members globally. Among its members are shippers, carriers and law
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Miami New Orleans New York Newark Olympia Philadelphia Port Arthur Port Canaveral Port Everglades Port Hueneme
Portland, ME Providence San Diego Savannah Tacoma Tampa Vancouver, WA Virginia Wilmington, DE Wilmington, NC
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of demands from pilots for cartons of cigarettes to perform their duties. • Development of a regulatory framework for the dry bulk vessel clearance process in Argentina, with the training of more than 400 stakeholders, and open-sourced guidance to support implementation. • Enhanced container tracking in Indonesia. • Ethics training for nearly 600 government officials in Nigeria. Meanwhile, MACN’s anonymous incident reporting could help to provide empirical information for use by trade in risk assessment, alongside TI’s subjective perspectives.
ACTION ON A GLOBAL SCALE
The World Customs Organization, or WCO, with a history of government-to-government and government-to-industry collaboration, is also active on the anti-corruption front. In March the WCO Integrity
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Sub-committee met with a focus on curbing threats and leveraging opportunities. Customs administrations and stakeholder organizations took part to share views on the impact of corruption in the global supply chain. Customs administrations have taken several steps to address this problem, and Mexico’s anti-corruption strategy was cited as one effective approach. As Mexico is ranked 135th on the CPI with a score of 29, a score that has been moving downward from 34 over the past five years, there appears to be ample room for improvement. Corruption and its links to organized crime is one of many activities that the UN Office on Drugs and Crime is addressing. UNODC experts see two main drivers for corruption among customs officials: the number of rules and regulations that need to be applied, and the multiplicity of border operations that increases the likelihood of criminals finding ways to circumvent the system. In order to help customs
administrations reduce illicit activity, the UNODC promotes the use of risk management and is preparing a guide on corruption risk management at an organizational level. Another stakeholder working against corruption is the Organization for Economic Cooperation and Development. OECD’s Anti-Corruption Division sees the threat that corruption poses to peace and security worldwide, and is focused on setting international standards on combating corruption, in particular via the OECD Anti-Bribery Convention, which has 43 signatories to date.
STRONG ARM OF THE LAW
Naturally, the police also have a role to play. Breakbulk’s enquiries with INTERPOL revealed that although the organization does not have any anti-corruption projects specifically addressing the transport sector, there are a number of other ways in which INTERPOL assists its 192 member countries in their anti-corruption efforts.
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INTERPOL conducts training programs for investigators and prosecutors through the INTERPOL Global Programme on Anti-Corruption, Financial Crimes and Asset Recovery. At an operational level, INTERPOL coordinates working meetings between member countries to facilitate investigations which cover multiple jurisdictions. Additionally, when asset recovery is possible, INTERPOL’s Global Focal Point Network for Asset Recovery is available, a platform allowing authorized users in participating member countries to exchange information and better coordinate their asset recovery investigations. Like MACN and the WCO, INTERPOL also works with other stakeholders on a global basis to share best practices and provide joint training. Among INTERPOL’s partners are the World Bank, UNODC, the U.S. Department of State and the Basel Institute on Governance. As a final example of collaboration,
the International Chamber of Commerce has made its ICC Rules of Conduct to Combat Extortion and Bribery and Fighting Corruption handbook available to the World Bank in support of its global anticorruption efforts. With an abundance of anti-corruption initiatives underway, the question remains why the CPI shows a general stagnation with respect to the perceived levels of corruption. For now, breakbulk and project cargo logisticians have an array of programs and tools available to minimize and manage the risks associated with corruption throughout the global supply chain. If for no other reason, the avoidance of criminal liability should be an effective motivator. 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.
WINNERS IN THE CORRUPTION STAKES COUNTRY
CPI SCORE 2017
New Zealand Denmark Finland Norway Switzerland Singapore Sweden Canada Luxembourg Netherlands United Kingdom Germany Australia Hong Kong Iceland Austria Belgium US Ireland Japan
89 88 85 85 85 84 84 82 82 82 82 81 77 77 77 75 75 75 74 73
RANK
1 2 3 3 3 6 6 8 8 8 8 12 13 13 13 16 16 16 19 20
Source: Transparency International
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REGIONAL MOVERS AND SHAKERS ON CORRUPTION FRONT AMERICAS
Several countries in the Americas are heeding citizens’ demands to address corruption with concrete steps. One example is Chile’s move to pass a law on public probity that prevents conflicts of interest in the public sector. The Bahamas passed legislation on access to public information, while Guyana created transparent mechanisms for public procurement. In Jamaica, a consolidated anti-corruption agency was established to conduct investigations into graft. Despite this, the perception of corruption levels has not changed significantly, perhaps as the desired results have not yet been seen to have been achieved, despite several highlevel and widely reported convictions of corrupt officials.
MIDDLE EAST AND NORTHERN AFRICA
In a region stricken by violent conflicts and dictatorships, corruption remains endemic in the Arab states. In this environment, it is no surprise that 19 of 21 Arab states score below 50. Against that backdrop Jordan, Lebanon, and Tunisia have made some progress. For Lebanon, some improvements are attributed to the decision to join the Extractive Industries Transparency Initiative, the global standard for the good governance of oil, gas and mineral resources. The worst performing Arab states in the CPI are Iraq, Libya, Somalia, Sudan, Syria and Yemen.
SUB-SAHARAN AFRICA
Improvements for several SubSaharan African countries on the CPI has been attributed in part to the African Union’s anticorruption efforts, including its Winning the Fight against Corruption: A Sustainable Path to Africa’s Transformation theme for 2018. Countries where progress has been notable include Botswana, Mauritius, Rwanda, Cabo Verde, Cote d’Ivoire and Senegal, while Liberia, South Sudan and Somalia still struggle.
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EUROPE AND CENTRAL ASIA
Italy saw a significant improvement with its CPI score of 50, however, the country remains 16 points below the regional average for Western Europe. While corruption remains a serious issue in Italy, institutional and legal structures are being built to combat it. In contrast with Italy, Finland, seen as a bastion of good governance and one of the top performers on the index, saw its score drop from 89 to 86. Not a bad score, but a worrying setback. Meanwhile Albania, which scored 38 on the CPI, experienced some improvements with the passage of a groundbreaking judicial reform package.
ASIA-PACIFIC
The CPI for 2017 showed a high variance in public-sector corruption across the Asia-Pacific region. From top scorers like New Zealand and Singapore, to some of the worst scorers like Cambodia, North Korea and Afghanistan, more than half of the countries in the Asia-Pacific score less than 50 on the index. Indonesia has a long way to go in the fight against corruption, although it has climbed slightly on the CPI, moving from 32 to 37 over the last five years. This marginal improvement could stem from the work of Indonesia’s leading anti-corruption agency in taking action against corrupt individuals, despite strong opposition from the government and parliament. BB
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CASE STUDY
Rewards of Emissions Rally Project Cargo Upside From International Sulfur Legislation BY ANDREW WILLIS
I
nternational Maritime Organization plans to reduce the maximum allowed sulfur content of marine fuel from Jan. 1, 2020 are already having an impact throughout the global oil and transport markets. While shipping companies prepare for the higher fuel bills that may result from the environmental protection measure, oil refiners are moving to upgrade plants so they can meet
greater demand for cleaner fuels. This shift is offering project cargo movers a steady stream of business in the run-up to the 2020 deadline. One example is the Pernis refinery in Rotterdam, the largest of its kind in Europe, where Royal Dutch Shell is constructing a new solvent deasphalter. The upgrade will enable the plant to separate heavier fractions from crude oil so that a larger share of the petroleum can be processed into lighter, higher-grade products. Other refiners have also started or are planning similar solvent deasphalter investments as they bid to keep pace with evolving emission standards across the globe. “We have a changing fuel oil market,” said Shell’s Rob Snoeren,
project lead for the new development at Pernis. “We, as a refinery, want to be ready for that change and therefore we are developing the solvent deasphalting unit to extract more valuable products like kerosene and gas oil.”
SHIFT TO MODULIZATION
Refineries are typically constructed using a “stick build” method where individual components are added to the main structure, piece by piece. During the design stage of the Pernis upgrade, however, Shell decided to break with tradition. As a result, about 80 percent of the new refinery unit was built from five modules and five pipe racks that were assembled in China and then shipped to Europe in the second half of last year. This strategy enabled Shell to deliver the project quicker, cutting its overall cost. “We were able to start the module fabrication almost at the same time that we were putting the first spade in the ground,” Snoeren said. “So we are getting an overlap of construction phases and thereby gaining a lot of time.” Building the modules in a controlled workshop environment also brought
ABOVE: The Pernis Refinery upgrade project broke with tradition and used modularization in its construction. /
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CREDIT: SHELL
ISSUE 3 / 2018
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considerable safety advantages to the project, especially when compared with the risks of constructing at an active refinery with large volumes of hydrocarbons close by. While assembly of the modules took place in China, many of the electrical components, including cables, cable trays and pipes for the project, were shipped from Europe and other regions to the Chinese construction yard. The structural steel for the modules came from China itself. Shell hired Agility Project Logistics to carry out the logistics management for the multifaceted transport operation. This included sending hundreds of loose items from all over the world to China, shipping the completed solvent deasphalter modules back to Rotterdam, and all the customs formalities that entailed.
PARTNERSHIP SELECTION
This construction strategy did present challenges, however, influencing the unit’s design and Shell’s choice of companies to carry out the complex move of the bulky modules thousands of miles across the globe. “It starts with selecting the right partner to design the unit modules, and then understanding the limitations of logistics and transportation,” Snoeren said. Shell’s own internal experts verified the transport plans and stayed 76 BREAKBULK MAGAZINE www.breakbulk.com
limits and the shipment was able to proceed with the original transport plan. “Because we had to deal with all the changes in weights it was a particularly difficult one,” van Veenendaal said of the project. “We ended up very close to the edge of saying ‘no, this is not possible any more. The modules have become too heavy now.’ ” Had that been the case, the parties involved could have selected different vessels to transport RollDock provided the ships and carried out the the modules. However, sea transportation of the modules from China this would have caused to Europe over three separate voyages. delays and significant CREDIT: ROLLDOCK complications in Rotterdam and at the Pernis refinery site, where parts for the in close contact with all the parties solvent deasphalter needed to arrive in a particular sequence. involved in the move from the COOEC yard in China’s port of Qingdao to the CLOSE CONTACTS KEY Pernis refinery in Rotterdam. The One of Agility’s key roles in the comdimensions of the solvent deasphalter modules – some standing at 30 meters plex project was to stay in contact with all the parties involved and make sure high, 35 meters long and 14 meters everyone’s plans matched. This included wide – meant the job was anything but straightforward. linking the Chinese yard with RollDock for successful loading of the cargo in “It’s not like things that you do every day or every week,” Snoeren said. Qingdao, as well as ensuring that the proper unloading equipment was ready “These are large modules, they are a in Europe when the vessels arrived. particular size and the risk is there. RollDock, subcontracted by Agility, But we do everything to minimize the provided the ships and carried out the risk to as low as reasonably possible.” sea transportation of the modules from “The challenge we had during the process was that the weight of the China to Europe over three separate voyages in the second half of last year. modules changed considerably,” added The company’s multi-deck vessels Leon van Veenendaal, operations allowed roll-on, roll-off loading for manager with Agility. “They kept the heavier modules, as well as crane adding materials. So we started with loading of the lighter cargo. a weight and ended up with modules which were considerably heavier than expected.” The additional weight was an issue particularly for the second voyage, where the ship was carrying two large modules. Even before the weight gain the plans were to load the modules on a lower deck because of their weight and size. As the weight increased, stability considerations became more of an issue. However, final calculations showed the modules were still within the ship’s safe stowage and carriage ISSUE 3 / 2018
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The larger modules were loaded onto the ships using self-propelled modular transporters, with the heaviest module weighing about 1,800 tons. CREDIT: SHELL
Once construction was completed, the smaller cargo pieces were loaded using RollDock cranes. The Chinese yard drove the larger modules onto the ships using self-propelled modular transporters, or SPMTs, with the heaviest module weighing about 1,800 tons. To counteract the large and awkward size of the modules and the physical forces these created, a grillage was designed to help spread the load across the deck of the ship, increasing the overall stability. “It presented quite some challenges for the ships,” said Paul Hoogenhout, RollDock’s project manager for the operation. “Because the blocks were heavy, narrow and high, they were unstable and prone to tipping over.” Given the height of the modules, the grillage had to be low, yet still spread the load efficiently. The grillage 78 BREAKBULK MAGAZINE www.breakbulk.com
also helped to protect the deck of the ship from damage in case the ship met strong winds or large waves during the voyage.
SPECIALIST DESIGN PARAMETERS
With the grillage designed, loading of the tall and narrow modules onto the ships itself was complicated by the large tidal fluctuations in the Qingdao area, which made it harder to keep the ship’s deck level with the quay. RollDock achieved the loading during narrow windows of opportunity by adjusting the ballast of the ships while members of the Chinese yard drove the pieces onboard using the SPMTs. “We were in very close contact with our clients and the construction yard,” Hoogenhout said. “We determined the days and the tide windows when it was possible to load the cargo in a
safe manner, and then the construction schedule and the delivery schedule for the cargo were fine-tuned together with the delivery of the ship to the yard.” Once loaded on the grillage, the modules were then securely attached using sea-fastenings that consisted of clips at the base of the columns. Weather was another key consideration for the three journeys. The first two ships sailed earlier in the year and their passages were uneventful, while the third ship departed at the beginning of October, just weeks before Typhoon Lan hit Japan. “It was crossing the area, so we had to complete operations very fast so that the ship could go quickly out of port to be able to avoid the hurricane and go in front of it,” Hoogenhout said. The ship did successfully avoid ISSUE 3 / 2018
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the strong winds and arrived in the Netherlands carrying the final two modules for the solvent deasphalter.
THE LAST MILE
CREDIT: SHELL
BREAKBULK BOON FROM REFINERY SULFUR SWITCH The continued drive towards reducing carbon emissions suggests that transport companies can expect more breakbulk operations supporting the necessary evolution of refineries in the years to come. Solvent deasphalter units are an increasingly popular option for refiners who are looking to increase their products range, given International Maritime Organization, or IMO, legislation that will cut sulfur limits in marine fuel from 3.5 percent to 0.5 percent from Jan. 1, 2020. “This will significantly reduce the amount of sulfur oxide emanating from ships and should have major health and environmental benefits for the world, particularly for populations living close to ports and coasts,” the IMO said on its website. The lead time for a solvent deasphalter is about three years, significantly quicker than building other types of refinery unit that deal with heavier fractions from crude oil. As well as Shell’s project at Pernis, Total has built a solvent deasphalter at its Antwerp refinery,
increasing the plant’s ability to produce higher-value products, while Neste Corp. started up a solvent deasphalter at its Porvoo plant in Finland last year. The investments show just how much the IMO rule changes are shaking up the downstream oil industry. Although high-sulfur bunker fuel accounts for very small amounts of global oil demand, the marine market has traditionally helped refiners to use up residue from the refining process by turning it into heavier fuel oil. As well as this, analysts are forecasting further turmoil as the increased demand from the shipping industry for lower sulfur fuels from 2020 onwards exacerbates the limited production capacity, potentially increasing prices of oil products including petrol, diesel and jet fuel. For breakbulk transporters however, the rule change has produced a number of largescale projects for those willing to take on the complex operations. And as 2020 approaches, it seems a reasonable assumption to expect several more.
80 BREAKBULK MAGAZINE www.breakbulk.com
Mammoet was hired to carry out the final leg of the journey, transporting the refinery equipment from the docked vessels at the Mammoet quay in Schiedam to the Shell Pernis site, less than a halfhour’s sail away. The first RollDock vessel had five smaller bits of cargo ranging from 30 to 100 tons, as well one module weighing roughly 600 tons. Once the sea-fastenings were removed, the smaller pieces were lifted off the vessel using a floating crane and then sailed to Shell Pernis with the crane. For the larger and heavier module, the hull at the back of the semi-submersible RollDock vessel was opened. Mammoet then drove a barge next to the ship where it was connected to the vessel’s ro-ro ramp. After ballasting, the SPMTs were driven from the barge on to the RollDock ship, the modules were then secured on top of the SPMTs and driven off one by one. Once loaded, the barge was pulled by tugboats to Pernis. A ro-ro ramp was constructed at the Shell Pernis site so that the SPMTs could drive off the barge directly onto the refinery site and then to their final position. Here they had to be jacked down using timber because of the height of the grillage. The whole process was repeated for the second and third ships that each carried two larger and heavier modules. The successful operation illustrated the importance of detailed planning right from the start with the modules constructed in such a way that they could be transported from the construction yard in China to a particular quay in Europe, and still be able to successfully carry out their ultimate refinery role. BB Andrew Willis has worked as a journalist for more than a decade in countries including Argentina, Belgium and Colombia.
ISSUE 3 / 2018
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REGIONAL REVIEW
Belief in Belize Advancing Infrastructure in a ‘Go-Slow’ Culture
W
hile aiming not to compromise its beloved “go-slow” culture, Central America’s least-populous country is creatively forging ahead with an infrastructure initiative that should furnish a socioeconomic lift – and spur project cargo opportunities. “The relaxed way we go about engaging people in our day-to-day is definitely a benefit, because people immediately fall in love with the country,” said Christy Mastry, general manager of Belize Infrastructure Ltd. BIL was formed in 2013 by the Belizean government, with US$31.25 million in initial federal funding, to streamline design and execution of large capital projects. “We do need to maybe put a little more effort into how we expedite progress once we’ve committed to it,” Mastry continued. “We have to be cognizant about delivery, but not at the expense of changing our personality,
BY PAUL SCOTT ABBOTT
developing the first formal P3 policy for the country of fewer than 400,000 people. Mastry said that policy should be completed by the end of 2018. “I think that we don’t necessarily have to do everything all at once,” said Mastry, an architect by training, who, prior to taking the BIL helm in 2014, served five years as project director for the Belize Ministry of Tourism’s Sustainable Tourism Program, funded by a US$15 million loan from the Inter-American Development Bank. because that’s what everyone loves. That is the trick.” In late 2015, BIL became involved in creation of a public-private partnership, or P3, unit for Belize, and has been working closely with the Belize Ministry of Trade and Investment and the Belize Trade and Investment Development Service (Beltraide), as well as the World Bank and Caribbean Development Bank, in
PRIORITIZING CRITICAL
It is essential, Mastry said, to identify and prioritize potential projects, advancing those that reach across multiple sectors “where you’re getting more bang for your buck. “We do need to take a step back and realize where we should prioritize,” she said. “The only thing we need to do is, once we do prioritize a project, we have to make sure the
TOP: Belize City. The primary downtown connection over Haulover Creek between Belize City’s north side and its crime-ridden south side
continues to be a nearly century-old, manually operated swing bridge. /
CREDIT: SHUTTERSTOCK
CENTER: A deteriorating sign in the sand greets visitors arriving at the Caye Caulker ferry wharf with the informal motto of Belize: Go slow. CREDIT: PAUL SCOTT ABBOTT
82 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
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REGIONAL REVIEW
leading United Kingdom structural engineering firm John Reid & Sons Ltd., was brought via ship to Belize from England, and other big components, such as bleacher seating, came from China. Future BIL plans include advancement of a master plan for developing the Lake Independence area of Belize City, a 50-acre development inclusive of US$15 million to US$30 million of government buildings, recreational space, P3 commercial opportunities and a US$5 million to US$6 million national bus terminal. The bus terminal would be run under a P3 agreement, with funding via user fees, but would require public legislative change and transportation reform, including consolidation of bus lines and routes. A sports park and government offices are part of the Lake Independence development ambitiously planned for Belize City. CREDIT: BELIZE INFRASTRUCTURE LTD.
government is working professionally, that public servants sitting in administrative capacities treat that project as a priority. And it can be very relaxed in how they talk, but, when it comes to getting a permit done, for example, we have to be very timely about that.” That can be challenging in a former British colony that takes pride in being laidback but is saddled on its mainland and its offshore islands, or cayes, with what is widely regarded as some of the most inadequate infrastructure in Central America. Whereas Spanish, Belizean Creole and several other languages are spoken, Belize is the only Latin American country where English is the official language. The country was still known as British Honduras for nearly a decade after granted selfgovernment in 1964. Belize officially adopted its current name in 1973 and was granted independence in 1981. History of the country, occupying 8,800 square miles perched on the Caribbean Sea just south of Mexico’s Yucatan Peninsula, dates back to Mayan civilization. In the 18th century, the main inbound cargo consisted of captive Africans, arriving crammed like sardines in slave ships, 84 BREAKBULK MAGAZINE www.breakbulk.com
who harvested rich forests of logwood and mahogany, which became chief exports. Belize dollars are conveniently pegged to the U.S. dollar at an exchange rate of 2 to 1, a factor in attracting not just U.S. tourists but also money launderers and drug traffickers, as well as concomitant corruption.
POSITIVES EMPHASIZED
But leaders such as Mastry are committed to emphasizing positives as they focus on long-range planning. “We are looking to create a clear vision forward, with long-term spending, not just the annual budget or five-year budget, but a 30-year framework,” Mastry said. “We have to start to really focus on our citizens and social upliftment, and to look at more creative ways on the funding.” BIL’s biggest accomplishment to date, according to Mastry, is the recently finished US$30 million Belize Civic Center. The multipurpose venue in Belize City, being operated under a revenue-sharing P3, is able to accommodate as many as 6,000 people for conventions, concerts and sporting events. Notably, the center’s entire steel frame, made by
PROJECTS ADVANCING
Current major infrastructure project priorities for Belize include development of a better highway linking the Western Highway, from a point between coastal Belize City and the inland capital of Belmopan, with the Southern Highway. Not only would it reduce transit times for southbound tourists, but, more importantly, it would enhance access to the Big Creek Port, about 110 miles south of Belize City. The highway project, with a price tag of between US$30 million and US$40 million, is being underwritten by British High Commission grant funding, with hopes for completion by 2020. Discussions are afoot for making it a
Local beer advertising affixed to a Belize City building bears testament to the work-averse attitude embraced by Belizean culture. CREDIT: PAUL SCOTT ABBOTT
ISSUE 3 / 2018
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toll road, with assessments based on number of vehicle axles. The privately operated Big Creek Port is undergoing an expansion, including US$10 million to US$12 million of dredging to a 36-foot depth, slated for completion by the end of 2018. The port, second in significance in the country only to the Port of Belize in Belize City, is a hub for exports of citrus, bananas, sugar and oil. Another longtime – but as-yet-unfulfilled – priority is development of on-shore berthing for cruise ships, from which passengers are transferred via tender boats to Belize City for shore excursions. Private investment is actively being sought. The Belize Ministry of Works in late 2015 completed a bridge over Haulover Creek west-northwest of Belize City that allows vehicular traffic from Philip S.W. Goldson International Airport and other points to the north to travel to Belmopan and other inland destinations without a need to navigate Belize City. The primary downtown connection over Haulover Creek between Belize City’s north side and its crimeridden south side continues to be a nearly century-old, manually operated swing bridge. Another roadway project under way entails resurfacing of the primary highway between the airport and Belize City. In addition to international financing entities, investors in Belize infrastructure have come from Taiwan and South Korea, according to Mastry. Whereas much of the steel, cement and other building material used in Belize projects affordably is transported via trucks from Guatemala and Mexico, “there is room for growth for sure” in project cargoes coming via ships, she said. A professional journalist for nearly 50 years, U.S.-based Paul Scott Abbott has focused on transportation topics since the late 1980s.
86 BREAKBULK MAGAZINE www.breakbulk.com
SMART INVESTMENT NEEDED Whereas Belize may be one of Central America’s most infrastructure-challenged countries, its need to identify, prioritize and advance critical projects is a common thread woven throughout the fabric of the entire region. “Central America obviously needs significant investment in infrastructure – and not just investment, but, I would say, smart investment,” said Esteban Diez-Roux, principal transport specialist for the Inter-American Development Bank, which has been providing long-term financing for infrastructure in Latin America and the Caribbean for nearly 60 years. “The countries have to have the capacity to prioritize what they do.” Diez-Roux, who holds a doctorate in transportation engineering from the University of California, Berkeley, said not only is new development imperative, but also much of the existing infrastructure demands better maintenance and, in some cases, improved management. “It’s not just a question of infrastructure that’s missing; it’s also a matter of making better use of what’s already there,” said DiezRoux, who has been working in the region for two decades. “Things are way, way better than they were 20 years ago, but we always have to be striving to improve.”
Belize City swing bridge. /
Lack of appropriate timely maintenance leads to a work backlog and ultimately greater rehabilitation costs, DiezRoux said. “The first priority is actually getting the maintenance budgets up. On top of that, they need new infrastructure. All of Latin America, and specifically Central America, leaves a lot to be desired in the way of infrastructure.” In Central America, lack of sufficient port capacity is a significant issue, he said, with a need for more efficient smaller facilities, in addition to a few hub ports that offer deeper drafts and ability to accommodate larger vessels. The private sector must play a substantial role, particularly in the port sector, where concession agreements and other publicprivate mechanisms have proven especially effective, according to Diez-Roux. China is anticipated to remain the biggest player in direct bilateral investment in Central American infrastructure for the foreseeable future, he said. “The need is substantial,” Diez-Roux said. “We have enormous projects in the highway sector and elsewhere where the needs are very large and much of the materials and equipment need to be transported by ship.” BB
CREDIT: PHOTOSOUNDS / SHUTTERSTOCK
ISSUE 3 / 2018
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REGIONAL REVIEW
Lost in Libya Still Many Hurdles to Overcome BY KERRY DIMMER
T
he reluctance and hesitation by global engineering, procurement and construction companies and industry thought leaders to talk about the state of Libya is suggestive of just how conflicted the country is. On the one hand you have a deeply divided political environment; on the other, great potential for huge growth. Libya’s huge reserves of oil and gas are the largest in Africa, ninth globally, with crude oil reserves of 48 billion barrels. It is ranked fifthhighest in the world for recoverable shale oil reserves with estimates indicating some 26 billion barrels. It also has untapped mineral reserves of iron and gold. In fact, its development profile, from last year’s figures, makes it look like a very viable investment destination for projects. For the first time in four years, Libya in 2017 managed to export 1 million barrels per day of oil. Hard currency exports tripled to US$14 billion from US$4.8 billion in 2016. Shell and BP came back to the table, negotiating deals to buy Libyan crude. However, the outcome of those negotiations is very difficult to come by. The little that is broadcast is that Royal Dutch Shell Plc and BP Plc have agreed to buy Libyan crude, after a five-year absence from the country in Shell’s case. Another that has returned to the Libyan fold, following in the wake of BP and Shell, is PetroChina Co, signing a similar deal. Total, the French energy giant, has also lifted its profile in Libya this year, with a 16.3 percent stake in the Sirte 88 BREAKBULK MAGAZINE www.breakbulk.com
People celebrate liberation from Moammar Gaddafi’s rule in the streets of Tripoli in 2011. CREDIT: RM / SHUTTERSTOCK
Basin’s Waha concessions in eastern Libya from Houston-based Marathon Oil. Total will, as a result, have access to reserves and resources in excess of 500 million barrels of oil equivalent. The strengthening of the Libyan dina – by more than 50 percent on the black market, helped by an influx from the Central Bank – aids the current attractiveness of the country.
STRONG FUNDAMENTALS
Guma el-Gamaty, a Libyan academic and politician, and leader of the Taghyeer Party, has been somewhat prolific in the media in extoling Libya’s current value. He declined Breakbulk’s request for an interview, but commented in regional press that the fundamentals of Libya’s economy were strong, and the potential for achieving huge growth and high levels of prosperity were in place. El-Gamaty also mentioned that unlike other nearby countries that recorded billions of dollars worth of debt to international financial institutions last year – such as Egypt (US$67 billion), Morocco (US$47 billion) and Tunisia (US$28 billion) – Libya has virtually none.
Consideration must also be given to the US$67 billion invested in sovereign fund assets globally that have been frozen by the United Nations since 2011. But while on paper Libya’s economic projections look solid, in reality there remains much to be cautious about. Four years ago, a second civil war conflicted the country when two rival factions, the Tobruk government and the General National Congress, sought to control the territory and its oil, and, by implication, the wealth of Libya. Although the UN and a unity government formed in March 2016 brokered a cease-fire in 2015, there is still no permanent resolution to the dispute.
RISK ON THE GROUND
Libya Monitor’s Theo Rossi provides some perspective of how that translates into risk on the ground, and the variables that justifiably make investors hesitant. “The security situation remains unstable. Oil field closures are still common and foreign firms are holding back from restarting stalled projects. Compounding this is a continuing cash shortage ISSUE 3 / 2018
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crisis, which has forced commercial banks to limit withdrawals in many areas. The entire financial system is constrained by restrictions.” He continued that the decisionmaking process in government authorities is slow and opaque,
90 BREAKBULK MAGAZINE www.breakbulk.com
and that state spending is still almost entirely focused on salaries and subsidies, rather than capital investment. It is well-publicized that the Libyan economy has an undercurrent of corruption depleting government
funds. Combine this with a lack of transparency and accountability and a feeble attempt to enforce good governance, and the result is wary speculation. “With no single government authority in control of the country,
ISSUE 3 / 2018
Dawn in Tripoli. /
CREDIT: SHUTTERSTOCK
it’s no wonder foreign oil and gas services firms remain reluctant to send specialist staff to work in Libya,” Rossi said. Where impacts are being most keenly felt is in the oil sector, where fields are frequently being closed,
she confirms. “There is also a lack of funding related to maintenance particularly, as well as upgrades and other work necessary to maintain crude production. The risks are just far too high, especially from a security perspective, and it doesn’t help that international air links are very limited given ongoing EU sanctions on Libyan carriers.” Rossi doesn’t expect this situation to change in the near future either. But while the oil sector suffers, Rossi pointed out that other sectors offer project cargo potential, for example energy and power, which offer upside in terms of exploration of new fields and development or maintenance work on existing facilities, as well as upgrades. Construction and real estate also present opportunities, given the right climate, with vast amounts of redevelopment work required in many areas affected by conflict.
“Telecoms and IT also present much promise, given the state has historically prioritized spending in this sector,” Rossi added.
OVERCOMING PORT PROBLEMS
But this potential is stymied by port constraints plaguing Libya. Many are regularly closed without warning, largely due to clashes between rival groups. “A number of ports have changed hands several times in recent years,” Rossi added. Benghazi is one, while the oil ports of Es Sidra and Ras Lanuf both changed hands twice in March 2017 alone. Es Sidra and Ras Lanuf are crucial ports for Libya, as they account for 47 percent of the total Libyan capacity of onshore oil ports. When operating normally, Es Sider can export as much as 340,000 barrels per day, while Ras Lanuf can ship 220,000 barrels per day.
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REGIONAL REVIEW
Other ports require repairs and maintenance, as well as the clearance of mines and debris from conflict. Sirte is one such example, which has recently undergone the first phase of cleanup of its basin. This battleground over ports has manifested in a significant slump in Libya’s external cargo trade since 2013. The Petroleum Facilities Guard, a state-funded militia, has been credited with a number of blockades and more recently strikes at ports, for example at Zawiya, where protests over salaries in March halted the loading of crude export from the El Sharara oil field. “Trade has been severely disrupted by security problems at ports,” Rossi confirmed. “There are also issues with overland transportation and the overall decline in the business environment and consumer confidence hasn’t helped. Although major projects have theoretically been signed, for instance
92 BREAKBULK MAGAZINE www.breakbulk.com
new power plants, most have actually failed to make real progress and remain in the planning stage.” For example, there has been no confirmed progress on the US$370million deal that Libya’s General Electricity Co. signed with Greek EPC Metka last September to develop a 740-megawatt power plant.
BUSINESS ENVIRONMENT
The World Bank’s Ease of Doing Business Index for 2018 ranked Libya 185th out of 190 countries, which fails to inspire confidence. Rossi warned that any company considering doing business in or with Libya must undertake comprehensive research, specifically related to a client’s political affiliation and financial resources. “There are overlapping and competing government entities so it is crucial to understand with whom you are dealing,” she said. “The same goes for any local partners or private
sector clients. The climate is currently not conducive for most companies to open offices in Libya, so it makes more commercial and practical sense to conduct business through local firms.” International EPCs and project cargo movers might do well to consider neighboring countries for access, as a number of countries benefit from business with Libya. One such example is Egypt, which was previously an important trade partner for Libya and a major source of employment for millions of Egyptian workers. “Tunisia and Turkey are other key trade partners, and a pick-up in demand in Libya will boost exports from these two countries, which have declined in the past few years,” Rossi concluded. BB Kerry Dimmer is an award-winning freelance journalist, focused on African business affairs.
ISSUE 3 / 2018
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Euroports...................................................................1830 Rauma, Finland
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D Ports – Billingham P Billingham, England D Ports – Groveport P Groveport, England D Ports – Immingham P Immingham, England
Halifax Port Authority Port of Halifax.....................................................1856 Halifax, Nova Scotia, Canada
D Ports – Port of Felixstowe P Felixstowe, England D Ports – Port of Hartlepool P Hartlepool, England
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Port of Leixôes – Port of Viana do Castelo............................................1863 Matosinhos, Portugal
Port of Marseille..............................................1378 Marseille, France
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Port of Ferrol Ferrol, Spain
orts of Normandy Authority – P Port of Honfleur Honfleur, France orts of Normandy Authority – P Port of Le Havre Le Havre, France orts of Normandy Authority – P Port of Rouen Rouen, France
eaports of Niedersachsen – S Port of Brake Brake, Germany eaports of Niedersachsen – S Port of Cuxhaven Cuxhaven, Germany eaports of Niedersachsen – S Port of Emden Emden, Germany eaports of Niedersachsen – S Port of Leer Leer, Germany eaports of Niedersachsen – S Port of Nordenham Nordenham, Germany eaports of Niedersachsen – S Port of Oldenburg Oldenburg, Germany eaports of Niedersachsen – S Port of Papenburg Papenburg, Germany
Port of Gijón Gijón, Spain
Port of Huelva Huelva, Spain
eaports of Niedersachsen – S Port of Stade Stade, Germany eaports of Niedersachsen – S Port of Wilhelmshaven Wilhelmshaven, Germany
The Bristol Port Company – ort of Las Palmas P (aka La Luz Port) Gran Canaria, Spain
Bristol Port.................................................................... 679 Bristol, England
The Port of Virginia......................................... 479 Norfolk, Virginia, USA
Cherbourg, France
orts of Normandy Authority – P Port of Granville Granville, France Port of Venice-Venice Port Authority......................................................1459 Venice, Italy
Port of Cartagena Cartagena, Spain
Ports of Genoa – Port of Vado Vado, Italy
Ports of Normandy Authority....................................................................1843 Saint-Contest, France
Safi Port Derince................................................. 558 Derince, Turkey
Seaports of Niedersachsen................ 959 Oldenburg, Germany
Port of Avilés Avilés, Spain
Port of Rotterdam.........................................1349 Rotterdam, The Netherlands
Ports of Tenerife Tenerife, Spain
Port of Santander Santander, Spain Turkmenbashi International Seaport.................................. 154 Türkmenbaşy, Turkmenistan Port of Valencia Valencia, Spain Port of Vigo Vigo, Spain
Weserport: Bier Garten Sponsor, Hall 4 Bremen, Germany
x
PORT STARS BREAKBULK EUROPE 2018
MONTROSE PO AUTHORITY
FORTH PORTS LTD.
PORT OF T PORT O
UNITED KINGDOM
SEAPORTS OF NIEDERSACHSEN GMBH PORT OF DEVENTER
PD PO
PORT OF HAMBURG
PORT OF ZWOLLE
PORT OF AMSTERDAM PORT OF ROTTERDAM NORTH SEA PORT
PORT OF NETH. TWENTE PORT OF ANTWERP
ASSOCIATED BRITISH PORTS
Dublin IRELAND
THE BRISTOL PORT COMPANY – BRISTOL PORT
WESERPORT PORT OF BREMERHAVEN PORT OF BREMEN
PORTS OF NORMANDY AUTHORITY
GERMANY
PORTS HAROPA PORT OF LE HAVRE
NANTES SAINTNAZAIRE PORT
BELGIUM
PORT ATLANTIQUE LA ROCHELLE HALIFAX PORT AUTHORITY – PORT OF HALIFAX THE PORT OF VIRGINIA
PORTNOUVEL
PORT HOUSTON PORT OF SAN DIEGO
PORTS OF SPAIN PORT OF LEIXÔES – PORT OF VIANA DO CASTELO Madrid
Ports of Normandy Authority Seaports of Niedersachsen Forth Ports PD Ports Associated British Ports Ports of Genoa
FR
PORT OF BILBAO
PORTS AMERICA
Ports of Spain
DU
PORTUGAL Lisbon
SPAIN
PORT OF OULU PORT OF ARKHANGELSK
KVARKEN PORTS – PORT OF UMEÅ KVARKEN PORTS – PORT OF VAASA
SWEDEN
FINLAND
PORT OF PORI LTD. PORT OF RAUMA
PORT OF HELSINKI
EUROPORTS
NORWAY
PORT OF HANKO
Oslo
PORT OF GOTHENBURG
PORT OF TALLINN
PORT OF PALDISKI
Stockholm
PORT OF HAMINAKOTKA OY
St. Petersburg
ESTONIA
ORT
RUSSIA
LATVIA
TYNE OF SUNDERLAND
DEN.
ORTS
RUS. BELARUS
UNKERQUE PORT
Berlin
PORTS HAROPA – PORT OF ROUEN Paris
POLAND Kyiv Prague CZ. REP.
Munich
MEDLINK PORTS
AUSTRIA
SLOV. Budapest HUNGARY
PORT OF MONFALCONE
PORTS OF GENOA PORT OF MARSEILLE
UKRAINE
Vienna
SWITZ.
-LA LLE
Warsaw
GERMANY
PORTS HAROPA – PORT DE PARIS
RANCE
LITHUANIA
Copenhagen
SEE INSET MAP
PORT OF VENICE – VENICE PORT AUTHORITY
BOS. & HER.
ITALY
Barcelona
ROMANIA
PORT OF KOPER
Rome
MONT.
SERBIA KOS.
Bucharest
TURKMENBASHI INTERNATIONAL SEAPORT BULGARIA
MACE. Ist.
ALB.
SAFI PORT DERINCE
GREECE
TURKEY
GSEZ PORT
ABU DHABI PORTS PORT OF DUQM
Athens
MERSIN INTERNATIONAL PORT
ADVERTORIAL
Port of Zeebrugge: Hub of Excellence for Breakbulk Cargoes Port of Zeebrugge lays claim to a strong reputation for the handling of breakbulk cargoes. The port constitutes an authoritative port for roll-on/roll-off traffic, new cars and project cargo. Handling almost 3 million new cars annually, the port ranks at the top of the world’s leading automotive ports. These cars are shipped within Europe and worldwide. The port accommodates several automotive centres for vehicle modifications and other value added logistics. Zeebrugge is also highly specialized in the handling of high & heavy loads such as agricultural and industrial machineries. Almost 3 million tonnes of forest products pass through the Port of Zeebrugge. Paper products are distributed in Europe by train and by lorry and are shipped overseas by container or specialised roro vessels. Port of Zeebrugge, being a clean or pollution free port, has evolved into a major distribution hub for food and perishables such as fresh fruit, fruit juices, vegetables, coffee, meat, fish and dairy products. The coastal port also offers large expertise in the handling of project & heavy-lift cargoes, the Yamal LNG modules project being the latest succesful test piece. All terminals are equipped to load and unload project cargo such as offshore wind industry components, boats, towers, military equipment, etc.. Zeebrugge is also known as a London Metal Exchange/LME recognized zone for steel and non-ferrous metals.
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HINTERLAND AND MARITIME ACCESSIBILITY
The substantial water depth and the easy maritime accessibility of the coastal port allows it to receive any type of ship 24 hours a day. The extensive range of intra-European and intercontinental services, combined with an inland waterway, estuary barge, railway and road network, and the immediate connection to the new highway A11, safeguards your links to the markets in continental Europe and the UK, or overseas markets.
SKILLED LABOUR FORCE AND SPECIALIZED TERMINALS
Lashing and securing is performed by more than 250 highly skilled, experienced and trained dockers for breakbulk. Solid support from the port authority contributes to the success of your logistic project. Your logistics can also be streamlined via partnerships with terminals, and shipping lines such as Wallenius Wilhelmsen Logistics, ICO, Verbrugge, PSA Zeebrugge, C.Ro Ports, PortConnect, EML, Flamar, Sea-Invest, CSP Zeebrugge, UECC, Minne Port Services and many other companies that offer specialized handling of breakbulk cargoes. Port of Zeebrugge will point you towards the best possible transport solutions for your breakbulk volumes or challenging projects.
ISSUE 3 / 2017
DEDICATED BREAKBULK PORT
commercial.department@mbz.be
ADVERTORIAL
Specialist Expertise in Rotterdam
With nearly a century of experience in shipping, the Port continues to expand cargo capabilities by looking ahead to future maritime trends and growing transportation demands.
At RHB Stevedoring & Warehousing, we have specialist expertise in the fields of project cargo, heavy-lift, wind equipment and breakbulk. With over 87 years of experience, we are one of the leading firms in the Port of Rotterdam. And as a private, independent terminal, we are not only distinguished by our long-standing expertise, but also by our unrivalled flexibility, short lines of communication and 100% pure stevedoring services.
LIFTING YOUR CARGOES FASTER!
We offer extensive knowledge of the market and our own range of facilities, including a unique, 208-tonne high-speed heavy-lift mobile crane and the availability of floating cranes. Combined with our experienced, knowledgeable, skilled and quality-minded team, this ensures that we can handle all your out-of-gauge and valuable cargo securely, competently and swiftly, and with exemplary care and expertise. When you work with RHB, you are sure that your cargo is in safe hands!
STEVEDORING
As a pure stevedoring company, we load and unload liners, semi-liners, charter vessels, inland vessels, trucks, railway wagons and containers at our private terminal with 730 metres of quay on Waalhaven Noordzijde in the Port of Rotterdam. Where required, we can also store cargo on your behalf at our secure AEO- and ISPS-certified sites or in one of our warehouses. Many of our clients work in freight forwarding. Besides offering flexibility, we are also preferred by these parties because we stay away from ‘logistics activities’ like chartering ships or
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booking freight. We are 100% independent – meaning that there are no conflicts of interest. This is one of the reasons why when you work with us, you can count on full transparency, and on the confidential handling of your freight details or cargo documents.
OUR ADVANTAGES
·2 08-ton high-speed, heavy-lift harbour mobile crane · 8 high-speed multi-purpose cranes up to 55 tons capacity and handling heavy lifts up to 1.800 tons capacity · 100% pure stevedoring – 100% independent!! · Savings in transhipment time of up to fifty percent · All berths in quiet, calm harbour basin · 730 meters deep sea quay length with a max. draft of 10 meters · Railway connected · 12.000 m2 warehouse space, Heavy Lift Centre for Storage, L.M.E. quality and equipped with electronic alarm systems. Doors up to 10 meters wide · 30.000 m2 project cargo and heavy-lift, heavyduty storage space, fenced · Skilled, professional, experienced and very importantly: flexible labor · Lashing & securing, welding, grinding by professional partners · Optimized truck exit for windmill blades and windmill towers · Weighbridge Waalhaven for weighing containers acc. to SOLAS/VGM, next to our terminal · AEO certified – ISPS certified ISSUE 3 / 2017
stevedoring & warehousing rotterdam
Lifting your cargoes faster
PROJECT CARGO & BREAKBULK HEAVY LIFT STORAGE AREA HEAVY LIFT UP TO 1800 TONS ASSISTING OFFSHORE VESSELS 730 METRES QUAY LENGTH
CHECK OUT OUR
ISPS CERTIFIED AEO-F CERTIFIED
TELEPHONE
+31 (0)10 429 94 33 FA X
+31 (0)10 429 02 61 E-MAIL
office@rhb.nl www.rhb.nl
WEBSITE
www.rhb.nl
Waalhaven n.z. 4 3087 BL Rotterdam P.O. Box 55092 3008 EB Rotterdam Portnumber 2157
WEB
➔NEW
shorecranes up to 208 tons
ADVERTORIAL
Welcome to Bremen – in 2018 and 2019!
This is a great success. ‘Breakbulk Europe’ brings in everyone who’s anyone in international general cargo and heavy goods logistics. Bremen scored well thanks to its optimum conditions.
From 29 to 31 May, ‘Breakbulk Europe’ will celebrate its debut in Germany – in Bremen, thanks to port management company bremenports, Messe Bremen and Bremen’s tourism association (BTZ). Last year, their jointly developed event concept managed to convince British trade fair organiser Breakbulk Events & Media (ITE Group) to award the Hanseatic city the contract for the specialist international trade fair. bremenports’ Managing Director Robert Howe said: “This is a great success. ‘Breakbulk Europe’ brings in everyone who’s anyone in international general cargo and heavy goods logistics. Bremen scored well thanks to its optimum conditions.” These are highlighted by Andreas Marquardt, head of sales at Messe Bremen: “Above all, it was our all-round package of logistical expertise, an internationally recognised trade fair site and the maritime flair that won the Brits over.” Michael Skiba, head of marketing at bremenports, looks at the event from the viewpoint of the maritime expert: “We have three ports in the region that make the ports of Bremen the second-most important location in Europe after Antwerp for handling general cargo and heavy loads. These are Neustaedter Hafen and the Industriehafen in Bremen, as well as the high-and-heavy facilities in Bremerhaven. A total of around four million tonnes of breakbulk loads were handled at these sites in 2016 – plus cars on
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top of that, particularly in Bremerhaven.” The trade fair site in Bremen also delivers impressive figures: 20,000 square meters of space have already been rented for the event, around 4,000 m² more than last year in Antwerp. And a further 5,000 m2 could be used if required. “The conditions in Bremen are perfect for such an event and can withstand any competition,” Skiba said. bremenports will be represented on site with a 192 m2 joint stand for which 30 companies from throughout the transport sector in Bremen and Bremerhaven have already signed up. Sold out exhibition halls, 50 new exhibitors and up to 11,000 visitors, 44 percent more German exhibitors – Breakbulk Europe is on track to set new records. In view of these positive figures, the trade fair will be held in Bremen again in 2019. “We are delighted that the organizers of Breakbulk Europe have decided to return to Bremen in 2019 – well ahead of this year’s event,” said Martin Günthner, Senator of Economic Affairs, Labour and Ports of the Federal State of Bremen, Germany. “It is an endorsement of all that Bremen has to offer in support of this key industry gathering.” bremenports will return as the host port. “We are rolling out the red carpet for this year’s attendees and are committed to continuing the success for all industry participants in 2019,” said Robert Howe, managing director, bremenports.
ISSUE 3 / 2017
K L U B K A BRE EUROPE ! visit Us PLEAsE otH 1129 o b , 5 l l Ha
The specialist terminals at the ports of Bremen and Bremerhaven can handle huge components weighing up to 600 tons each. Specialist companies, extensive operating and storage areas and excellent hinterland connections make Bremen one of the leading project cargo and break bulk terminals in Europe.
www.bremenports.de/en
ADVERTORIAL
Purely Electrical Portal Crane The new LPS 420 E is the latest extension of the Liebherr mobile harbour crane product range. The newly designed machine is a purely electric driven portal crane. All crane movements like luffing, hoisting, slewing and travelling are done by electric motors. The forward-looking machine is designed for ports and terminals with an electrical infrastructure. Equipped with two winches, each with a powerful 190 kW electric motor, the LPS 420 E provides a maximum load capacity of up to 124 tonnes. Therefore, the portal crane can be perfectly used for heavy breakbulk as well as project and general cargo.
CONTAINER HANDLING
With up to 30 cycles per hour, the LPS 420 E is the perfect solution when it comes to container handling performance. Ship sizes up to postPanamax class are ideally servable for the LPS 420 E. The operator of the new LPS 420 E can rely on very dynamic electric motors. Furthermore, the low moment of inertia ensures a fast response of the motor for precise drive characteristics. Due to the high motor speed spread no gear shifting between normal and heavy load is required. This allows for uninterruptible power transmission from maximum load to maximum speed. Another well welcome side effect is that the noise emission of the planetary gear box is low.
LATEST TECHNOLOGY
BULK HANDLING
The LPS 420 E raises the bar in terms of electrical driven bulk handling performance. With a turnover of up to 1,200 tonnes per hour, the new Liebherr electric crane exceeds the average turnover of comparable electric driven cranes in the market. With a maximum outreach of up to 48 meters, ships with a size of up to Panamax class can be served – local emissionfree. The LPS 420 E impresses with some decisive technical advantages. The main components of the E-drive are liquid cooled and the heat is dissipated by heat exchangers. The fully closed liquid cooling system in combination with the heat exchanger are installed on top of the slewing platform. According to this, no overpressure unit is necessary to prevent dust coming inside the machinery house, which is a big benefit for cranes working in a dusty environment.
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The LPS 420 E is especially optimized for terminals with a power supply ranging from 380 V to 460 V. Thanks to the Liebherr activefront-end frequency converter deviations in the voltage supply can be compensated easily for safe and stable operation. Due to the critical conditions, like limited space and harsh environmental conditions, a liquid-cooled and highly efficient multi-drive frequency converter system was implemented. The frequency converters are Liebherr built components, which have proven themselves in Liebherr ship-toshore gantry cranes and material handlers. As an additional benefit, Liebherr energy storage units can be used to reduce the peak-load in the crane main power supply and to take advantage of regenerative energy within the system. The compact unit ensures a high power storage capacity, which enables the accumulation and supply of 200 kW of power within 15 seconds.
ISSUE 3 / 2017
Experience the progress.
Liebherr Heavy Lift Ship Cranes With capacities ranging from 120 tonnes to 600 tonnes, the Liebherr CBB cranes cover all the main area of the heavy lift segment. Above that range the delivery program includes new developments up to 1250 tonnes SWL. One of the main advantages of CBB cranes is their low self-weight. This has a positive effect on the stability of the vessel as well as cargo handling –simultaneously increasing safety and performance.
ship.port.crane@liebherr.com facebook.com/LiebherrMaritime www.liebherr.com
ADVERTORIAL
Spanish Ports: Ports That Move the World Spanish Ports, where too complicated simply doesn’t exist
The strategic geographic situation of Spain, the logistics/port offering and a constant effort to respond to the needs of our customers is turning Spain into the logistics platform par excellence in Southern Europe and one of the main bases for the world’s maritime routes. Together, Spanish ports moved 279 million tons of bulk goods in 2017, 71 million tons of conventional goods and close to 57 million tons of ro-ro traffic, granting the Iberian Peninsula and our Archipelagos a decisive role in maritime transport and in the composition of multimodal logistics chains. From traditional energy products such as oil and coal, and including more sophisticated merchandise such as components for wind power generators and others that are gaining importance in our ports, like liquefied natural gas (LNG), through to petrochemical products and cereals, our ports can handle all of these. The primary aim of the presence of Spain’s ports at this fair is therefore to consolidate existing business and capture new traffic, particularly transit and ro-ro.
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“Spanish Ports, where too complicated simply doesn’t exist” is more than a slogan. Spanish ports offer solutions for all kind of goods thanks to the 62,743 linear meters for bulk cargo, 17,272 meters dedicated to ro-ro traffic, and 36,285 meters of multi-use, served by over 200 cranes, and equipped with the latest-generation facilities that can receive and dispatch any type of good to any destination in the world.
ISSUE 3 / 2018
Not for Spanish Ports
PRINCIPAL HUB OF SOUTHERN EUROPE,
CONNECTED TO
LOCATED AT THE CROSSING OF MAIN SEA ROUTES.
EUROPE.
www.puertos.es
THE MAJOR TRANSPORT NETWORKS OF
Avda. del Partenรณn, 10 28042 Madrid - Spain T +34 915245500 F +34 915245501
545 MILLION TONS OF GOODS HANDLED.
EFFICIENT AND COMPETITIVE. SERVING EXACTING CLIENTS,
24 HOURS A DAY, 365 DAYS A YEAR.
HEARD AT BREAKBULK CHINA
Carriers Adapt in China BY GARY BURROWS
Ultra-low shipping rates combined with shifting trades and specialization are forcing the hand of ocean carriers serving the Chinese project cargo market to adapt and cooperate to build sustainable business. Alvin Sheng, project cargo manager, CMA-CGM Shanghai, speaking during a carrier panel at Breakbulk China, said carriers in the market are facing increasing pressure from competitors disrupting the market by offering ultra-low rates to secure business. “We all previously resorted to low price to win market share. I don’t think it’s feasible anymore,” Sheng said. Zhao Xinzhong, chief representative, Spliethoff Shanghai representative officer, Netherlands, agreed that the cutthroat bidding trend of recent years has become unsustainable. For the good of the industry, “the security of the products and efficiency of transpor-
tation should be more important than the price itself.” Henrik Pederson, chief operating officer, BBC Chartering Singapore, said further carrier consolidation is necessary worldwide, including in China. “There are too many players, too many competitors fighting among themselves. We need stability and excessive funds for technology and service, and an overall need for supply and demand balance,” he said.
BRIMMING WITH POTENTIAL
Despite the battle for sustainable rates, China is brimming with potential because of the Belt Road Initiative, or BRI, which is driving imports and exports of project and breakbulk goods. Yolanda Chen, pulp and breakbulk marketing manager, Nansha Grain and General Cargo Terminal, said the ports are responding by “upgrading and improving hardware, specifically the ports shall have heavy-lift equipment updated and optimized.”
Ports should also study how their facilities are best able to handle certain heavy-lift commodities, improve employee qualifications to meet those needs and establish professional sales to properly service project cargo owners, Chen said. Zhao added that, with BRI and relevant investments, service is moving to some unfamiliar ports, new ports will need to be established, and some remote islands explored. “For logisticians and ship owners, this poses a challenge as to whether we can go to this port and what kind of vessel to use, whether we need to use our own equipment rather than port facilities,” he said. For foreign carriers serving China, Pederson said its necessary to offer “flexibility, firm schedules, clear transit times that can be told to the client, worldwide organization, professionalism in executing cargo, storage plan recommendations on how to bring cargo forward, fleet diversity, a large number of vessels in case of emergency or delays so you can submit alternative tonnage, and finally a service that needs to be competitive in providing 24/7 service for clients.” Sheng noted that carriers are attempting to adapt to the migration of low-end manufacturing to Southeast Asia, while China develops more highend business. “We need to change constantly in order to adapt ourselves to the changing needs of the industry,” Sheng said. This includes carriers improving their logistics capabilities to serve clients and gain more business. Sheng also said it’s necessary for carriers to develop specialties to secure market share and ensure service quality. “This means you can be very professional in your respective business.” BB
Coverage from Conference Carrier Panel Session “Heavy Lifts, Heavy Seas”. 110 BREAKBULK MAGAZINE www.breakbulk.com
ISSUE 3 / 2018
New China’s Changing Manufacturing Landscape China’s shift in its economic growth model towards eco-friendly and environmental production will impact China-South Korea trade “100 percent,” said Lee Yong Gyoon, chairman of Union Logistics Jiangyin, a subsidiary of Intergis Co. Ltd. “China’s strategy affects all manufacturers over the whole country, especially in mass products, such as steel manufacturers, steel coils and cement, which all cause massive pollution,” Lee said during a panel session at Breakbulk China. “On the other hand, eco-friendly industries such as wind power energy are very much encouraged by Chinese government. I think particularly offshore will be accelerated over the next five years, based on a customer’s analysis,” he said. The Chinese government has strengthened environmental regulations, presenting challenges for steel manufacturers and related steelprocessing factories to overcome. This has also negatively impacted Korea and China trade, as steel is a staple of the economic region that includes South Korea and the Bohai Rim region, including Tianjin and Dalian. Union Logistics, which specializes in port business and international freight forwarding, has seen its “business cargo volume shrinking very much recently,” Lee said, “so we have to find a new business model to overcome this.” For Korean companies that means getting involved in China’s push for wind energy, electric vehicles and high-speed railways, said David Xu, general manager, Sino Projects China. “Actually, South Korea received the first electricity generated by an offshore wind farm in 2002,” Xu noted. “South Korea is speeding up its efforts for manufacturing of electric vehicles, and trying
to increase the number of charging stations across the country to promote their electric vehicle production.”
STEERING AUTO TRADE
However, China’s growth into the world’s largest auto market – expected to reach 30 million units in 2018 – is also causing shifts in South Korea’s trade. “A few years ago, a China auto joint venture company announced it would be a big exporter from China to the United States and Europe,” said Roh Jungmoo, managing director and head of China, Eukor Car Carriers. “This is now becoming reality.” China was exporting about 1 million units a year in 2012, but that volume tailed off until 2017, when it rebounded to 900,000 units, and is expected to return to 1 million ceu in 2018, Roh said. China has also become the No. 1 country in the world for electronic vehicle sales, reaching 770,000 units last year and is expected to top 1 million units in 2018, he said. For roll-on, roll-off carriers like Eukor Car Carriers and its sister company WWL, China is an important market.
Along with the returning car exports, China remains a major exporter of high and heavy machinery and breakbulk cargoes, with the main destination Myanmar and Southeast Asia, Roh explained.
CONSTRUCTION, MACHINERY
The China-South Korea business climate is also contributing to a healthy construction machinery and manufacturing sector, said Jum Gyu Kim, managing director of Super Rack Shipping and moderator for the panel session. Following a rollercoaster ride, construction equipment exports dipped 50 percent in 2016 to about 60,000 units, but rebounded to 130,000 units in 2017, and prospects are good for continued growth, to 180,000 units by 2020, Kim said. “It is a good chance for shipping companies and logistics companies who are involved in construction equipment for this new business in China,” he said. Of course, China’s Belt Road Initiative also offers great promise for South Korean customers. Xu, of Sino Projects China, said: “Some of our South Korean customers and clients have been involved in Belt and Road projects already, especially in Uzbekistan and Pakistan, Russia as well. EPC Korean players have already been deeply involved in some bigger projects in energy, oil and gas, as well as new infrastructure construction.” BB
CREDIT: TEAMWAY MARINE CO.
Coverage from Conference Carrier Session “China and South Korea: Breakbulk Neighbors Growing Together” www.breakbulk.com BREAKBULK MAGAZINE 111
EXHIBITION SNAPSHOTS
Tanks for the Memories While technologies have improved and developed across the supply chain for oversized chemical tanks, pressure vessels and industrial cylinders, for breakbulk professionals handling their movements, compliance and cooperation remain keys. “Compliance is what we focus our attention on,” said Andrew Zhang, head of logistics procurement, BASF China, during a panel session at Breakbulk China in Shanghai. As the industry develops a range of custom-made tanks with increasing complexities, Zhang’s company chooses suppliers based on their qualifications, their logistics plan, and their ability to control costs and risks. “As a logistics service provider, a first customer inquiry may be to calculate costs,” said Bi Rong, manager, Tianjin branch, China Great Logistics, a Chinese 3PL. “They may need to consider all these factors at once – transport, logistics, loading and unloading, and calculate the ability to handle the equipment – beforehand to lower cost and risk.” Rong said it’s important to choose a logistics service provider in line with a shipper’s enterprise development strategy. “It goes hand-in-hand with fine production and fine development,” said Sean Zhang, purchasing and supply chain manager, Salvay Asia Pacific, a multi-specialty chemical company. He acknowledged that while container logistics service scale and capacity have changed dramatically in China over the past 10 years, they still lag western countries.
“We’re not only looking for transportation, we want logistics services that comply with our smart development strategy,” he said. “We employ new technologies, data flows, procedure optimization, as well as environmental protection.” In 2011, Salvay initiated a sustainable development program that has seen membership rise from six to 10 companies. With large, highly complex projects requiring heavy-lift, BASF China’s Zhang acknowledged that often no single company is equipped with the resources to undertake an entire project. Therefore, choosing a logistics partner requires a reliance on subcontractors, as well as port selection, choices of transport, which type of vessel and carrier, inland land or water options, equipment providers, route planning and permitting. “The first question in choosing a subcontractor is do they fit in with the overall transport plan; is the plan feasible?” he said. Albert Wang, operations director, Bewellcn Shanghai Industrial Co. Ltd., emphasized that the onus isn’t merely on the logistics provider and its subcontractors. With larger vessels or tanks, it’s a mistake to consider transportation after manufacturing and not before. He noted the example of a large 500 cubic meter tank whose transport was turned back within 2 kilometers of its destination because it was too large. “We must, at the beginning of a project, coordinate as logistics companies and designers to pinpoint risk so we can provide a holistic solution,” Wang said. BB
Coverage from Conference Session “Calm Under Pressure: Handling Oversized Tanks and Vessels.” ISSUE 3 / 2018
Worldwide Connections ■ ■ ■
Meet Supply Chain Experts Share Best Practices Promote Innovation and Research
www.bvl.de
PHOTO CONTEST
SPONSORED BY:
See all the entries on display at Breakbulk Europe 2018!
OVERALL WINNER:
Abraham Farajian & Bros. Co
LOCATION: Aqaba, Jordan YEAR: 2017 DESCRIPTION: Two planes and one crane prepare to sink a plane in the sea.
EXHIBITOR WINNER: Bati Group LOCATION: Canakkale, Turkey YEAR: 2017 DESCRIPTION: A ship works to support a pipe carrier, which feeds a pipe laying ship.
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ISSUE 3 / 2018
EVERYTHING
STARTS WITH HYUNDAI DISCOVER THE 160D-9L HEAVY DIESEL FORKLIFT
HYUNDAI IS READY TO MEET YOU AT BREAKBULK EUROPE! Among many others, we will introduce our newest 160D-9L Counterbalance Forklift Truck, especially designed for heavy-duty applications. Discover this machine and many others from 29 to 31 May 2018 in Bremen, Germany.
Don’t miss out this opportunity and meet us in Hall 4 - stand 358!
www.hyundai.eu
MEET US AT