breakbulk magazine january/february 2015
DESCRIPTION
ÂTRANSCRIPT
HEADLINE
JANUARY/ FEBRUARY 2015
Breakbulk Outlook 2015 n Banking on Ex-Im n Friending China n India on Fast-Forward
FUEL’S GOLD
Could Plummeting Oil Prices Make or Break Industry?
NORTHAMERICA
contents
JANUARY-FEBRUARY 20154 BREAKBULK MAGAZINE www.breakbulk.com
cover story
20 BREAKBULK
OUTLOOK 2015Oil Prices Jumble Expectations
32 RULES & REGULATIONSBANKING ON
EX-IM BANKProgram’s End Would Harm
U.S. Capital Projects Industry
40 MARKET SPOTLIGHTA FRIEND INDEED
Relationships Key in China’s Challenging Business Climate
58 RULES & REGULATIONSRUSSIAN WINTER
Western Sanctions, Economic Issues Cloud Outlook
62 CARGO LENSFAST-FORWARDIndia’s Fast-track Projects
Need Infrastructure to Match
66 TRADE NOTESDOING BUSINESS
IN TURKMENISTANPromising Market
Not Without Obstacles
8 FUEL’S GOLDCould Plummeting Oil Prices
Make or Break Industry?
52 China’s Sea Dragons n 70 Minimize Risk n 72 Shelter from the Storm n 74 Breakbulk Index
79 Path of Change n 82 Falling Prices, Shrinking Chains
JANUARY-FEBRUARY 20156 BREAKBULK MAGAZINE www.breakbulk.com
editorial
May you live in interesting times.”
Robert F. Kennedy, in a 1966 Day of Affirmation
Address in Cape Town, South Africa, cited the above expression and its popular pre-sumption as a traditional Chinese curse.
While the saying has grown healthy legs, no evidence exists of its Chinese ori-gin. But certainly ample evidence of the irony embodied in the phrase can be found in the past several months. Anyone fore-
casting how 2014 could have turned out would have never expected the economic detour that came with the plummeting price of oil.
So it isn’t sur-prising that the impact of cheap oil has challenged expectations for 2015. After years of cursing the pumps,
it’s hard for a consumer to see a downside to cheaper oil prices. But for the breakbulk and heavy-lift industry, it is a poser, fraught with potential and peril, depending on your business role and area of concentration. It’s enough to have Pollyanna nursing an ulcer.
In our cover story, “Fuel’s Gold,” (page 8), Herman Trabish explores these com-plexities. In Breakbulk’s annual exercise of prognosticating the coming year (“Break-bulk Outlook 2015,” page 20) industry leaders offer widely divergent insights on cheap oil’s impact. Janet Nodar also touches on the issue in an opinion piece on page 82.
As Trabish notes, Saudi Arabia plays a prominent role, as it has maintained oil production despite rising output from the U.S. and Canada, and reduced demand due to weakening Chinese and European econo-mies. If the Saudi plan is to wagering on falling prices driving the nascent U.S. shale and Canadian tar sands producers out of business, the industry will take that bet.
For the overall oil and gas sector, though, projects are already being cut or
curtailed, an issue that executives in our annual outlook fully acknowledged. Yet despite the risk to such a prominent busi-ness, their collective vision was towards the potential.
While oil and gas projects may struggle, other energy fields provide potential, including LNG-related business. Falling oil prices are expected to stimulate the world economy, driving downstream potential for project players. Cheaper oil also impacts cost structures, changing previously out-of-reach projects into new opportunities for engineering, procurement and construction contractors. Africa, the Middle East and other developing markets should continue to offer potential, executives say.
Carriers continue to struggle, unfortu-nately. And while lower bunker prices may be a positive, any potential downturn paired with continued overcapacity pushes hopes of recovery farther out into 2015 or 2016.
Interesting times are the fertile fields where the innovative and resilient sow suc-cess. In the cold of winter, the executives who offered their outlooks for 2015 dared to find optimism.
This is not simply a commodity busi-ness, where prices fall into line with market variables. For any heavy-lift move, the vari-ables have variables. The broader-picture market forces are never cut-and-dried when considered multimillion- and multibillion-dollar projects that stretch over years. The diversity of projects and industries that rely on the heavy-lift, project and breakbulk industry means there’s work there for those willing and able to grow and adapt.
Having recently navigated the recession and countless prior economic and geopoliti-cal issues, breakbulk’s best and brightest will find opportunities to survive and thrive in the most interesting times.
EDITORIAL DIRECTORGary G. Burrows / +1 904 535 [email protected]
DESIGNERCatherine Dorrough
REPORTERSLily Casura V.L. SrinivasanBy Burcu Gürses Herman Trabish Eric Johnson Mark Willis BREAKBULK EDITORIAL BOARDJohn AmosAmos Logistics
Ed BastianBBC Chartering
Murray CooperMcDemott International Inc.
Etienne de VelFednav Belgium
Dennis DevlinPanalpina
John HarkBertling Project Logistics
Dennis MottolaBechtel Corp.
William MoyersoenArcelorMittal Antwerp Logistics
Albert PeggAntwerp Port Authority
Dirk VisserDynamar D.V.
Grant WattmanAgility Project Logistics
MANAGING DIRECTORAlli McEntyre / +353.21.470.9595 [email protected]
ACCOUNT MANAGERSKathleen Pinson / [email protected]
Manager for West, East & North Africa
Kingsley Ekweariri / +1.353.89.952.4754
HEADQUARTERSClifton HouseLower Fitzwilliam StreetDublin 2 Ireland
To subscribe, email [email protected], or call from inside the US +1-877-475-4157, or from outside the US +1-847-763-4933 between 8:00 am and 4:30 pm CST.
Gary Burrows
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cover story
JANUARY-FEBRUARY 20158 BREAKBULK MAGAZINE www.breakbulk.com
www.breakbulk.com BREAKBULK MAGAZINE 9
FUEL’SGOLDCould Plummeting Oil Prices Make or Break Industry?
By Herman Trabish
D rivers across the U.S. and around the world are cel-ebrating as oil prices continue to drop. And the rig count, the
oil industry’s most predictive statistic, says the price will not soon go back up.
But the oil industry is laying people off and canceling spending at a rate that is raising the specter of a 1980s-like industry-crippling recession. For the already overstressed breakbulk trans-port sector, this adds new uncertainties.
Breakbulk carriers saw improved regional and sporadic cargo volumes and freight rates in 2014, and falling oil prices have already helped improve returns on voyages contracted for high cost fuel assumptions, according to Intermarine Operating Chairman Andre Grikitis. But the oil price drop is also a signal of a looming falloff in oil industry related cargoes.
The New York Mercantile Exchange and Brent crude oil prices were near US$110 per barrel in July 2014. They fell to below US$50 per barrel in January 2015. Affirming that industry planners do not foresee oil’s price coming back to a level justifying more drilling, rotary drilling rigs in use in the U.S. fell from more than 1,925 in mid-2014 to about 1,750 in January 2015, according to
WTRG Economics. Early in January, the use of the horizontal drilling rigs pre-ferred by U.S. shale oil drillers took its biggest one-week fall since the U.S. shale oil boom began. It was the seventh week in a row horizontal rig use declined, according to Bloomberg.
In another strong indication the price will not soon bounce back, Halliburton, an industry leader in engineering, pro-curement, and construction, or EPC, laid off 1,000 workers in Europe, Russia, the Middle East, and Africa. Schlumberger, one of the world’s biggest providers of oil field services, will lay off 9,000 workers.
Finally, a Rystad Energy survey of 800 global oil projects valued at US$500 bil-lion awaiting a 2015 green light found that a US$150 billion portion of them are no longer considered economically feasible.
The price drop is widely thought to have been provoked by the Saudi Arabia oil ministry’s decision not to reduce its oil production in the face of increasing output from U.S. shale and Canadian tar sands. In response to the glut and decreased demand from weakening Chi-nese and European economies, the Saudis would normally be expected to cut back their production and call for proportional output reductions from other members of the Organization of the Petroleum C
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Exporting Countries, or OPEC.Instead, the Saudis announced
in October they would make no such moves. They also announced they expect a US$38.6 billion 2015 budget deficit and made it clear they are prepared to use their US$750 billion in foreign currency reserves to drive U.S. and Canadian producers out of business and take back control of the oil business, according to Forbes.
Subsequently, the U.S. Energy Information Administration, or EIA, projected U.S. production to rise by 600,000 barrels per day to 9.3 million barrels per day in 2015 and by 200,000 barrels per day to 9.5 million barrels per day in 2016.
The EIA numbers were heralded by
some as an indication the Saudi strat-egy will fail. “Anybody who says Saudi Arabia will put the shale producers out of business by continuing their produc-tion is naïve,” said CEG Partner Edward Osterwald. “These producers are entre-preneurial. They can switch it on and off. It is a flawed assumption to think these producers are going to behave like a national oil company that is high cost and influenced by politics.”
Others noted the EIA projections were lower than earlier numbers and clearly indicated diminishing output. “Many oil companies have cut back on their exploration drilling in response to falling crude prices and will concentrate their drilling activities in established areas,” EIA noted.
Impacts are already being announced, according to Bloomberg. Canada’s Husky Energy said in Decem-ber it will delay a US$2.8 billion offshore drilling expansion and cut its 2015 explo-ration and production (E&P) budget by one-third. British Petroleum announced a US$1 billion to US$2 billion cut from its 2015 capital spending budget.
A United Arab Emirates oil minister said OPEC will not alter its strategy.
Challenges Facing BreakbulkHow does all of this impact the
breakbulk industry?For at least two years, an overcapac-
ity in breakbulk vessel tonnage induced by competition from dry bulk and con-tainerized carriers has depressed freight rates, said Susan Oatway, senior consul-tant of Drewry Shipping Consultants. “Even heavy-lift project cargo carriers are seeing some of their cargo cannibal-ized by container lines.”
“We lose on every ton we carry,” Rickmers Holdings Chairman Bertram Rickmers was recently quoted, and “40 percent to 50 percent of project-carrying vessels of 8,000 to 30,000 deadweight tons are in severe financial difficulties (“Marriage Counselor,” November- December Breakbulk, page 28).”
With the improving economy, Oat-way late last year foresaw improved demand, better rates, and reason for optimism about 2015 (“MPV Stand By,” November-December Breakbulk, page 32). But the loss of cargo volume to a depressed oil industry could easily undermine that optimism.
Breakbulk is still plagued by “exu-berant ordering” and especially “the ordering of vessels that are retarded in design and inappropriate for our real world trading patterns,” accord-ing to Intermarine’s Grikitis. Negative returns create an urgent need for cost cutting. “Vessel maintenance suffers,” he explained. “Personnel recruitment, training, retention deteriorates, and all this results in poorer service capability in an industry that was already lagging.”
In the near term, customers will find space at “very competitive rates” as long as they ignore “the fragile nature of many of the carriers to which they entrust their cargo,” Grikitis observed.
More significant, he believes, is “the
U.S. CRUDE OIL AND LIQUID FUELS PRODUCTION16
15
14
13
12
11
10
9
8
7
6
2013 2014 2015 2016crude oil natural gas plant liquids fuel ethanol biodiesel
Source: Short-Term Energy Outlook, January 2015
MIL
LIO
N B
AR
RE
LS/D
AY
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
AN
NU
AL
CH
AN
GE
(M
MB
B/D
)
RIGHT AXIS:LEFT AXIS: total production production forecast
Jan 2016
U.S. GASOLINE AND CRUDE OIL PRICES5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
price difference retail regular gasoline crude oil
Crude oil price is composite refiner acquisition cost. Retail prices include state and federal taxes.Source: Short-Term Energy Outlook, January 2015
DO
LLA
RS
PE
R G
ALL
ON
Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015
forecast
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JANUARY-FEBRUARY 201512 BREAKBULK MAGAZINE www.breakbulk.com
lack of bulk and homogenous cargoes.” Because every segment of the shipping industry is overbuilt and scrambling for business, “breakbulk cargo ends up ship-ping in containers, never to return as breakbulk cargo. We lose cargo to conven-tional bulkers, large ro-ro vessels, deck carriers and specialized car carriers.”
It will get worse, but that will lead to it getting better, Grikitis believes. “The growing demands of project and heavy-lift cargo will not be serviced by cheap space.” Ultimately, competent opera-tors are necessary. “Perhaps 2015 will provide us a combination of vessel and carrier failures, which seems more likely quarter by quarter, as the catalyst for market stability.”
Cheap Fuel“With a significant reduction in the
cost of fuel, there will be a reduction in the cost to provide transport,” said Greg Gowans, director of logistics and expediting for CH2M Hill Logistics & Expediting. The maritime market sectors’ overcapacity has made it a buyer’s market for a number of years. Lower fuel prices will ease that on the cost side, he added.
“In many breakbulk trades, which are tramp type services and not operated in liners, there is not an established rate,” Gowans explained. “With no established price, and given the quick fall in pric-ing for new contracts, the benefit for the next few months will more likely be accrued by the transportation company. The market won’t drive the price down as quickly as the cost of fuel is falling.”
The price paid by the buyer of the services will go down less quickly, allowing carriers to retain some benefit, Gowans said. “They will get a little bit of a bump in their operating margins for a period of time.”
The first effect of the oil price drop is “the cost of consuming heavy fuels is decreasing and that is a short-term effect the entire industry can enjoy, like any consumer who fuels up a car,” agreed Raymond Fisch, vice president of BBC Chartering.
It will not be as big as the drop in the price of oil, he added, because bunkering is an average calculation and some fuel has already been “bunkered in” at higher prices. Nevertheless, the impact to a car-rier like BBC, one of the leading players
in the multipurpose heavy-lift sector, can be enormous.
“BBC has 1.5 million tons of annual carrying capacity. Its fuel expenses are in the multi-hundred millions of dollars per year,” Fisch explained. “The vessels average 10,000 to 11,000 tons and use 15 tons to 30 tons of heavy fuel per day, depending on the vessel and the speed, and BBC operates approximately 140 vessels to 150 vessels.”
“For shippers, this is a long-term reduction in their fuel costs and for any-body in the shipping business, that has to be very good news,” Osterwald said.
Refiners are not complaining either. “We buy oil in the marketplace,” said Bill Day, Valero Communications vice presi-dent. “Low oil prices are good for us and
we have passed those lower prices on to consumers.”
Major expansions in refining, includ-ing an estimated US$100 billion in petrochemical and refining projects, will go ahead, Rickmers believes.
Industry sources report 80,722 chemi-cal projects worth an estimated US$13.2 trillion in various stages of planning and development around the globe, accord-ing to Dennis Devlin, vice president of sales south and head of business devel-opment energy solutions for Panalpina USA. Components for these projects will be breakbulk cargo from China, South Korea, India, Turkey and Europe, he said.
Others have noted continued break-bulk activity coming from the wind industry. A domestic trucking company
Forecasts show prices bottoming out in 2015 with some recovery in 2016.
Despite falling petroleum prices, U.S. production is forecast to continue to grow.
U.S. PETROLEUM PRICE SUMMARY
U.S. PETROLEUM PRODUCTION AND CONSUMPTION
2013 2014 2015* 2016*
Crude Oil Prices ($ per barrel) WTI Spot Average1 $97.91 $93.26 $54.58 $71.00Brent Spot Average $108.64 $99.02 $57.58 $75.00Imported Average $98.12 $89.09 $51.26 $67.52Refiner average acquisition cost $100.46 $91.73 $53.71 $70.05Retail Prices (including tax, $ per gallon) Regular Gasoline2 $3.51 $3.36 $2.33 $2.72Diesel Fuel3 $3.92 $3.83 $2.85 $3.25Heating Oil $3.78 $3.71 $2.71 $3.03Natural Gas ($ per 1,000 cubic feet) $10.30 $11.00 $10.63 $11.00Electricity (cents per kilowatt hour)4 $12.12 $12.50 $12.63 $12.86
2013 2014 2015* 2016*
Production (million barrels per day) Crude Oil 7.45 8.67 9.31 9.53Natural Gas Plant Liquids 2.61 2.96 3.19 3.51Fuel Ethanol 0.87 0.93 0.94 0.94Biodiesel 0.09 0.08 0.08 0.08Consumption (million barrels per day) Motor Gasoline 8.84 8.94 9.00 8.96Distillate Fuel Oil 3.83 4.00 4.06 4.12Jet Fuel 1.43 1.47 1.47 1.47Total Consumption 18.96 19.06 19.32 19.43
* Forecast 1 West Texas Intermediate 2 Average regular pump price
3 On-highway retail 4 U.S. residential average. Source: U.S. Energy Information Administration
*Forecast Source: U.S. Energy Information Administration
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spokesperson who asked not to be named concurred with this. “Wind transport is about 5 percent of turbine cost at most and fuel is only part of that,” he said. “Trucking companies are unaffected and the wind industry remains busy.”
Domestic rail shippers have not yet been impacted. “It looks like ship-ping volumes are going to remain fairly stable,” according to Lowell Rothschild, senior counsel for Bracewell & Giuliani. Production at the wellhead has held steady but is not increasing. “But if prices remain low for some considerable period of time, the increased flexibility offered by rail shipping over pipeline shipping could become less favorable.”
Current contracts cover the short term, Rothschild said. “But a pipeline company will build a line if you agree to use it. When producers start thinking about renewing those contracts, do they start thinking about shipping less by rail and encouraging the construction of a pipeline?”
Loss of Carrying VolumeIf low oil prices are only temporary,
it would benefit BBC Chartering, Fisch said. But his company does about 70 percent to 80 percent of its work in the oil industry and about half of that is in the production, or upstream, part of the industry. If oil prices fall below a cer-tain level and stay there, he explained, a significant portion of BBC’s custom-ers will find it uneconomic to pursue projects. “A large share of the non-stan-dardized cargo business depends on the energy business.”
Upstream activity in the oil industry will slow down, CH2M Hill’s Gowans predicted. “Exploration activity is going to be reduced. That will quickly reduce the amount of freight that gets moved.”
“The falling price of oil is the result of technology. It is a permanent change,” Osterwald insisted. “Maybe a few rigs will shut down, but it is not going to have the effect people think. This is a funda-mental shift.”
Some shale producers are produc-ing at a cost that makes it affordable for them to sell at US$40 per barrel, while others are not, Osterwald said. It might be uneconomic in the short term but they will keep producing for other reasons. Some will keep drilling to avoid losing their leases. Others will make up losses on associated gases and liquids. “The blanket assumption that if the Saudis are going to keep producing then everybody in North America will shut down is just naïve.”
There will eventually be an equi-librium of about US$50 to US$60, he guessed. “But as long as they keep pro-ducing from shale, which they will, prices will not go back to US$110 per barrel.”
The only limit on project devel-opment is the availability of capital, Osterwald said. He expects activity in the oil and gas industry to increase and shift. For companies in downstream operations, refining margins have increased and capital investment is going into refining systems.
BBC Chartering does about 70 percent to 80 percent of its work in the oil industry and about half of that is in the production, or upstream, part of the industry. / Credit: BBC Chartering
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JANUARY-FEBRUARY 201516 BREAKBULK MAGAZINE www.breakbulk.com
For a shipping sector, with an ongo-ing 10 percent to 15 percent tonnage overcapacity, even a small loss of ship-ping volume could hurt, Fisch said. The oil price is providing some relief but “we are observing very closely.”
The Winner: Economic ActivityOne of the first things to think about
is a hedging strategy through the oil futures market, Bracewell & Giuliani’s Rothschild said. “Southwest Airlines was successful in the late 1990s because it bought lots of low-priced oil for future delivery. When the price shot up, the legacy carriers were buying US$100-per-
barrel oil while Southwest was still using US$50-per-barrel oil. It is much easier to make money when you are paying half as much as your competitors for your big-gest expense.”
If supply doesn’t shrink much and demand doesn’t grow because of a slowed economy, Rothschild said, “prices will stay low until people start buying Hummers again or until the producers can no longer afford to not make money and cut back on production.”
Few expect demand to stay flat. For every penny the price of gas falls, the sav-ings per year to U.S. consumers is about US$1.5 billion, according to Gluskin-
Sheff’s David Rosenberg. That puts more than US$150 billion into consumers’ pockets. The oil and gas industry only accounts for about 2 percent of gross U.S. economic output, so 98 percent of the economy has lots more money to spend.
The upside is expected to be even bigger in Asia, according to the Wall Street Journal. Lower fuel expenditures will allow governments in India and Indonesia to invest in urgently needed infrastructure and growth projects without fear of inflation. China’s slowing economy will get a crucial bump.
Based largely on anticipated low oil prices through the rest of the year,
List of U.S. exploration and production companies and reductions in their budgets. U.S. OIL AND GAS COMPANIES CUT CAPITAL SPENDING
2015 CAPITAL 2015 VS ESTIMATED 2014 OUTPUT FOR QTR. RIG PLANSCOMPANY EXPENDITURE CAPITAL EXPENDITURE ENDED SEPT. 30 FOR 2015 (AVERAGED)
ConocoPhillips US$13.5 billion Down US$3.2 billion 1.47 million min. Not disclosed from US$16.7 billionContinental US$2.7 billion for Down US$1.85 billion 182,335 Plans to cut average rig countResources Inc. non-acquisition CAPEX from US$4.6 billion from about 50 to about 34 by end Q1 with average of 31 rigs for Q1Marathon US$4.3 billion Midpoint down US$1.5 billion 409,000 net* Not disclosedOil Corp to US$4.5 billion from US$5.9 billionApache Corp US$4 billion Down US$1.4 billion 637,000 Reducing to 55-60 rigs in in North America from US$5.4 billion North America from 93 as of Q3Oasis US$750 million Midpoint down US$630 million 45,873 Reducing rig count to 10 by end ofPetroleum Inc. to US$850 million from US$1.4 billion January and to 6 by end March. As of Sept. 30, 2014, was running 16 rigsDenbury US$550 million Down US$550 million 73,810 Not disclosedResources Inc. from US$1.1 billionLaredo US$525 million Down US$475 million 32,970 To operate equivalent of about 2.5Petroleum Inc. from US$1 billion horizontal rigs and 1.5 vertical rigs on its Parmian-Garden City acerage in West TexasRosetta US$700 million Midpoint down US$450 million 73,500 Plans to operate 1-2 rigs in EagleResources Inc. to US$800 million from US$1.2 billion Ford and 2-3 horizontal rigs in the (with flexibility to spend Delaware Basin up to US$900 million)Sanchez Energy Co. US$850 million Midpoint up US$250 million 38,613 Cut 2015 drilling program to 6.25 to US$900 million from US$600 million-$650 million from 8 rigsEmerald Oil Inc. US$62 million Midpoint down US$178.5 million 3,855 Cut to 2.25 rigs in late Q1 2015 to US$81 million for from US$250 million from 3 now drilling and completion Halcon US$750 million Midpoint down US$175 million 43,554 Reducing drilling to 6 rigs from 11Resources Corp. to US$800 million from US$950 million originally plannedSwift Energy Co. US$240 million Midpoint down US$145 million 2.99 million1 Not disclosed to US$260 million from US$390 million-$400 millionAbraxas US$54 million Down about US$136 million 7,076 Plans to let go off a rig drilling inPetroleum Corp. from US$188 million-$192 million Texas’ Eagle Ford and cancels 2015 Permian programEnergy XXI $670M to $690M Midpoint down US$135 million 58,600 Cut to two rigs by December 2015 (Bermuda) Ltd. from US$815 million from 4 now
BOEPD: barrels of oil equivalent per day * Total continuing operations excluding Libya
1 Barrels of oil equivalent Source: Multiple sources including Reuters.
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consultant Capital Economics boosted its forecast of emerging Asia’s gross domestic product growth from 2014’s 4.3 percent to 4.7 percent for 2015. IHS con-curred, predicting the oil price impact to be a 0.25 percent to 0.5 percent GDP increase.
Only oil exporting countries like Malaysia, Myanmar, Brunei, and Austra-lia are expected to take a hit.
Solution: DiversificationWhile BBC Chartering remains
anxious about the business it gets from oil’s upstream, it also has clients in the downstream and carries wind turbines and natural gas equipment, Fisch noted. “It looks like major oil projects could be postponed and halted,” he said. “But we are also seeing the benefit of the shale gas revolution. Wherever equipment is needed for that, we are involved.”
Oil and gas majors have had their UTC Overseas moves manifold subassemblies from the Midwest where they were manufactured to the Gulf for export to a new overseas LNG processing facility. / Credit: UTC Overseas
www.breakbulk.com BREAKBULK MAGAZINE 19
upstream budgets sliced in half and are delaying projects, said Marco Poisler, executive vice president of UTC Over-seas. “That is the negative side. But UTC is sort of the mutual fund of proj-ect cargo, and we see other industries picking up thanks to the decrease in oil prices. New plants and facilities are look-ing to North America to take advantage of more reasonable energy costs.”
UTC has clients in mining, heavy equipment, oil and gas, cement, and sev-eral other business sectors, Poisler said. “There are plenty of industries that move breakbulk cargo, and there is a benefit for a company like us that is not depen-dent just on oil and gas clients.”
Even in the oil and gas sector, he added, “there is always something to move. We might not be moving E&P equipment, but we might be moving refining equipment. And we are moving it at a much more rea-sonable fuel surcharge than before.”
Oil and gas project investment is either being diminished or delayed, but volumes in sectors not related to oil and gas are increasing because there is new capital investment, Poisler added. “In an era of lack of profitability for the carriers and lack of stable revenues, the carriers are going to be forced to be more creative in making a successful voyage.”
The message may seem kind of depressing, especially in Houston where there is the memory of the oil price plunge and local depression in the 1980s, Poisler said. But it is a cycle and things turnaround. “From the feedback I am getting from clients, I think oil may turn around by the end of the year.”
“CH2M Hill is not heavily involved in upstream energy so this is not affect-ing our business,” Gowans said. In the midstream and downstream, he added, the estimated US$265 billion backlog of mega-projects that are fully committed
and funded are continuing and taking advantage of the lower fuel prices.
“That money is already committed and is going to get spent over the next two or three years,” Gowans said. “On the international marine side, I don’t think it will make more goods travel. But in domestic transport, outside of break-bulk, it will make more goods travel. In rail and trucking and air freight, com-panies will be spending less money on their transportation systems and will therefore have more to spend and invest elsewhere.”
Spending will go less to a few energy companies, but “the U.S. economy overall will be better off with lower oil prices,” Gowans said. “And there are opportuni-ties in transportation infrastructure, fuel storage, and warehousing and factory construction that will start to deploy, based on low cost energy. We will look to shift our activities toward those.” BB
JANUARY-FEBRUARY 201520 BREAKBULK MAGAZINE www.breakbulk.com
breakbulk outlook 2015
BREAKBULK OUTLOOK
2015
Oil Prices Jumble Expectations
www.breakbulk.com BREAKBULK MAGAZINE 21
reakbulk magazine has again prevailed upon a disparate group of industry executives to share their expectations and apprehen-
sions for the breakbulk transportation industry in 2015.
While a new year is often a cause for hope, breakbulk and heavy-lift industry executives’ prognoses for 2015 ranged from optimism to expected volatility. Turning the Ouija board on its side, and shaking the Magic 8 Ball vigorously was the plummeting price of oil starting at mid-year 2014. Its impact reverber-
ates through word of projects shelved or scaled down, particularly in the oil indus-try, and how fuel prices play into rates.
Rates in turn are yet another vari-able exacerbating shipping lines’ already precarious bottom line, and their rela-tionship with cargo owners.
Nonetheless, industry executives chart the coming year with potentially new and expanding markets, and anticipate the political and economic issues that will mold and shape them.
Here then are the views of selected industry minds for the coming year.
PANALPINA INC.Dennis DevlinVice-President, District Head of Sales South District, USA/Country Head of Business Development Energy Solutions, USAwww.panalpina.com
2015 will be an interesting year in the breakbulk and project cargo markets. Six months ago most predictions about 2015 would probably have been dif-ferent than they are today because of the drop in oil prices. Global economic growth rates continue to weaken the mining sector. And with oil prices having weakened precipitously in a six-month period, some big projects are being delayed or cancelled, especially those being financed by the oil majors or national oil companies.
Conversely, the supply (and thus the costs) of North American shale gas will likely continue to drive chemical plant expansion and construction projects there, including much of the planed project work on the U.S. Gulf Coast and agricultural and other chemical plant projects in the interior. Similarly, North American liquefied natural gas export projects may not necessarily be negatively impacted by the weak global oil market, although other factors may cause some delays, and some of the projects
may not move forward as fast as anticipated.Similarly, the global outlook for projects may
change, but not significantly, because of the drop in oil prices. Major developments in Africa and Asia will not likely be impacted, although Russia will likely see a slowdown. The Middle East will continue to diver-sify, taking advantage of low energy costs for chemical and other manufacturing. Projects there will con-tinue. And while U.S. infrastructure spending (roads, bridges, airports, rail networks) is not even close to keeping up with increasing demand, principally for political reasons, other countries including, notably, Gulf Cooperation Council countries and China, con-tinue to invest handsomely in infrastructure, at far higher rates than countries in the West.
While the rate of acceleration in North American and global project investments may slow, the trend is very clearly upward. In the longer term, global spend-ing in projects and infrastructure, including extraction (oil and gas, mining), manufacturing (chemicals, refining, metals), transport, utilities and other infra-structure (roads, bridges, hospitals) is expected to increase to US$9 trillion by 2025, from slightly more than US$3 trillion in 2008, according to PWC and Oxford Economics. That’s a significant increase, and will result in a lot of work, globally, in support of these projects.
Overall, although not necessarily in the very short term, the market looks very promising, as global project spending will increase significantly in the next decade, despite the current drop in oil prices, and the short term potential for some delayed or cancelled projects.
B
Dennis Devlin
JANUARY-FEBRUARY 201522 BREAKBULK MAGAZINE www.breakbulk.com
breakbulk outlook 2015
INTERMARINEAndre GrikitisOperating Chairmanwww.intermarine.com
From the carriers’ perspective, I would offer the notion that as an indus-try we are now beyond stagnation and continue on a course of deterioration. A majority of carri-ers have five-plus years of accumu-lated losses and have no reason to be optimistic about a near-term rebound. Lower oil prices might provide us a short-term uptick in margins. However, the corresponding slowdown in oil and gas projects will result in volume drop-offs, lower utiliza-tion and for many, no margins.
Our sector continues to be plagued by vessels trading below principal – and now interest – repayment levels. This persists because of the unwillingness of financial institutions to mark vessel assets to market and accept impairments to their balance sheets. This is perpetu-ating capacity trading at what amounts to subsidized levels. While this contin-ues, supply-and-demand factors will never be able to adjust to real world con-ditions. This has translated into chaotic and desperate pricing scenarios.
From the cargo perspective, this has generally meant predictably low freight rates combined with more than sufficient availability of space – all, theoreti-cally good for industry. But what about future impact? How will carriers be able to recruit, train and retain talent in an industry with such a poor financial record? How will the industry cope with increasing compliance issues in technical, safety, environmental and other legislative matters? Who will fund the building of next-generation vessels that are appropri-ate for today’s and future markets? As the cargo handling demands of our customer base outstrip our capacity to suitably meet their growing needs, the current benefits of low freight rates will not overcome ser-
vice failures – buyer beware.Since the project carrier sector is
not solely defined by the movement of project cargo, we need a robust improve-ment in bulk and homogeneous cargoes to survive, then to build and sustain healthy businesses. Some in our sector will continue to be overwhelmed by the need to cut costs in the current environ-ment, some will continue to trade with artificially subsidized fleets, a few will keep bleeding with hope as their best plan, and a very few will manage to plan for the realities of our marketplace and find a way to prosper. The shipping busi-ness is about cargo, so will cargo find the “right” home in 2015?
AGILITY Grant WattmanPresident and CEOwww.agility.com
I am optimistic on 2015 and confident of our planned growth in emerging mar-kets and North America. With declining oil prices, I anticipate postponement of at least one-third of capital investments that have yet to receive their FID (Final Investment Decision).
In addition, our clients in the oilfield service industry and drilling contractors will be impacted as owners claw back in upstream spending. Smaller owners pressed by reduced cash flow and work-ing capital will be forced to slow down overall spending, ratcheting this sector further. While investment deceler-ates in liquefied natural gas (LNG) and natural gas liquids (NGL) capture and conversion capital projects, there is still movement in the petrochemical sector and in retrofit of existing power and pro-duction facilities to gas.
Mining looks neutral to slightly improving over 2014, with significant challenges in infrastructure cost, access to reserves, environmental, social licens-ing, energy and water to support the operations. This is causing the indus-try to modify its business models and extraction methodology.
Who would have thought that U.S. fabrication would come back, or North America projects would be driven by imports in 2015? Well it is! North Ameri-
can capital investment is driving a shift to “import capital equipment.” This requires a significant shift in focus and the capability required to support this change. It also means vessels are coming into U.S. Gulf Coast ports in larger num-bers than past years.
With continued entry of vessel new builds, and market forces, stress will not be relieved from the oversupplied tonnage in the project cargo and heavy-lift industry. I am not optimistic for benefits through lower cargo pric-ing from lower bunker. This will be absorbed as the industry swallows the impact of low sulphur fuel regu-lations, vessel quality and compliance requirements of clients and government regulators, tonnage out of position in North America and vessel owners look-ing for a return.
Lower oil prices will be the rule for 2015, with industry cost reductions and investment delays trailing quickly behind. It’s perfect timing for Agility’s increased investment globally in capital projects, oil, gas and our marine services products, and accelerated expansion in emerging markets. This positions Agility strongly as oil prices rebound to a more economic level as we approach 2016.
JUMBOFred BedfordMember of the Boardwww.jumbomaritime.nl
Overall prospects for the industry have suffered a setback from the severe depression of crude oil prices start-ing June of last year but accelerating in December. This has caused a frantic reappraisal of both on-shore (down-stream) and offshore projects, and created a psychological change of heart for shippers and shipowners.
Both have been looking to gradually increasing demand for capacity at a time
Andre Gritkis Grant Wattman
JANUARY-FEBRUARY 201524 BREAKBULK MAGAZINE www.breakbulk.com
breakbulk outlook 2015
when the flood of newbuildings coming into the market was slowing to a trickle, and some albeit extremely modest growth in freight rates could be expected by even the most cynical.
It is not going to happen. Demand and freight rates will at best flatline, but more likely mar-ginally decrease during 2015 or at least until such time (probably not before September) when the crude oil price graph bends upwards and shows signs of steadying at or near the $70 level. Whether this price is achieved by a Saudi-led reduction in supply, geopolitical developments or a presently unforesee-able upturn in demand is a bet too far off at this moment.
The two main drivers of the break-bulk/project market are China and the project capital expenditure of oil- and/or gas-producing countries and inter-national oil companies. The latter have already been under shareholder pressure to cut back on “expensive projects” and return money to them as dividends. The latest news that Qatar Petroleum and Shell have decided not to proceed with their US$6.4 billion Al Karana petro-chemical project – the region’s second big energy project to be shelved since oil prices began to plunge last year – is hardly welcome news to the project cargo sector at this time.
Ironically the reduction in fuel costs based upon current crude prices may well stimulate the world economy. And while this may initially be in the consumer section of society and thus stimulate an upturn in the container market, it should feed through to the project sector in due course, albeit prob-ably not this year.
Unfortunately for the “semi-tramp-ing” regime, which dominates the project transportation market, any sav-ings in fuel costs will tend to pass onto the shippers as long as the current sup-ply/demand balance remains.
The last joker in the deck is what will bankers, or more specifically the
battered ship finance sector, do? It has already shrunk its lending activity but maintains a swathe of bad loans on the books. It is debatable whether this is the year that forced sales and foreclosures accelerate, or whether banks rather press for the continued consolidation already visible in the sector. Undoubtedly con-solidation and alliances make sense, provided they create carriers with suffi-cient critical mass to ensure service and viability without creating unbalanced market dominance by virtue of size.
As always, time and the market will tell.
KBRDon BurkettSenior Project Logistics Managerwww.kbr.com
2014 was a good year. The engineer-ing, procurement and construction industry is wrapping up some overseas LNG plants and realizing an increase of several U.S. domestic EPC projects.
Looking forward, while the recent decline in oil prices may present challenges to certain near-term upstream project eco-nomics, low natural gas prices continue to result in a number of good EPC prospects in LNG, downstream, and chemicals mar-kets. As shale gas production continues to keep prices low, the industry is experienc-ing more interest in new ammonia, urea and UAN grassroots projects and expan-sions of existing facilities.
Along with the domestic EPC work, heavy-haul contractors are keeping quite busy in all modes of transport, including rail and barge movements. The EPC hydrocarbons industry growth is primarily due to the high volume of downstream EPC projects being
executed in North America, as well as downstream and oil and gas services projects globally. 2015 EPC segments are having strong global bookings for downstream and oil and gas-related projects.
I’m optimis-tic for the 2015 construction outlook for U.S. downstream and chemicals grassroots and expansion projects, boost-ing much-needed economic domestic growth. Along with that comes an increase of out-of-gauge and heavy-haul transport demand, from both domestic and international resources.
DREWRY SHIPPING CONSULTANTSSusan OatwaySenior Analystwww.drewry.co.uk
As 2014 drew to a close, Drewry sus-pects most carriers were breathing a sigh of relief and hoping that things can only get better in 2015. We started 2014 with the comment that rates seen in 2013 were untenable and they, coupled with signifi-cant operating and capital costs, could only be borne for so long.
However with demand growth almost stagnant over 2014 and continued pressure from other sectors for market share, carriers have accepted these rate levels longer than expected. The market has been at the bottom of this cycle for more than two years now, but there are
“THERE ARE DEFINITE GREEN SHOOTS OF RECOVERY SHOWING FOR THE SPRING.” — Susan Oatway
Fred Bedford Don Burkett
JANUARY-FEBRUARY 201526 BREAKBULK MAGAZINE www.breakbulk.com
breakbulk outlook 2015
definite green shoots of recovery show-ing for the spring.
The demand for breakbulk and proj-ect cargo picked up in the latter half of 2014, while some consolidation along with new finance has steadied the sup-ply side of the picture. But can carriers really last much longer on the current low rates? And should they need to? We are continually questioned about carriers’ financial reliability. And we regularly reply that with demand grow-ing at an estimated 4 percent over the next two years and fleet growth steady the time is right for a market upturn, if we do not want to see this sector squeezed further.
There is undoubtedly room for con-solidation of some of the smaller fleets, and there also seems to be more interest in investment in this sector. The proj-ect carrier sector of the fleet has shown significant growth over the last few years and is expected to continue at an annual rate of more than 4 percent to 2017, in contrast with the stagnation of the simple MPV fleet.
However it is also true that multipur-pose carriers still have to contend with competition from Handy bulkers and container ships, But as demand grows we believe significant erosion in market share is unlikely. Moreover, with an overall fleet growth of less than 1 per-cent, this sector is well placed to benefit from the increase in demand from a wide variety of commodities.
BARNHART Jeff LattureSenior Vice President, Sales and Marketingwww.barnhartcrane.com
We certainly see cause for cautious optimism as we look toward the New Year. There are a number of indices that offer favorable trends in our sectors of the market, which include power gen-
eration, refining, gas production and chemicals. The movement of the U.S. to a net exporter of energy due to natural gas development certainly affords the poten-tial for an improving industrial economy.
The outlook for non-residential construction is steady: construction employment is on the rise, as is the num-ber of commercial construction projects. Several projects that we have been tracking are moving from the planning stage and are becoming real, viable and permitted projects. We see this across several of the markets that we typi-cally work in, especially in the arenas of power generation and petrochemi-cal, where we are witnessing con-struction and/or expansion.
The recent energy sector forecast suggests the U.S. will con-tinue to increase exploration and production. The abundance and availability of natural gas, along with its affordability, is good news. It has spurred additional construction activities, as natural gas becomes an attractive alterna-tive as both a fuel and a feedstock. Also, as the owners of coal-fired plants decide whether to upgrade their facilities or to construct new facilities in order to comply with emission standards set by the Clean Air Act, we will see a continuing demand for project cargoes in the form of compo-nents for these plants.
Lower fuel costs have the ability to lower overall transportation costs, at least in the short term. While the positive energy forecast may suggest the opposite, we aren’t going to count on cheaper fuel for the long term. Instead, like many of our colleagues in the cargo-handling business, we are working to increase our efficiencies in order to lower costs. We remain very deliberate in how we approach our business, concentrating on our systems, equipment and infrastruc-ture across the nation that provides us with a network to move cargo inland and beyond in an incredibly efficient manner. That, as much as anything else, allows us to be optimistic about the future.
CB&IJake SwansonRegional Logistics Manager, Americas, Engineering, Construction and Maintenance, Oil & Gaswww.CBI.com
There is room for optimism. There are quite a lot of projects that are set to take off in 2015, especially in the U.S. Gulf region. The potential is tremendous, with liquefied natural gas and some of the projects that are being considered on a global scale. Most likely, not all of these projects being discussed will move forward to execution phase; however the ones that do will gen-erate quite a lot of movement in the project cargo industry.
The big growth markets that we are seeing in the near future are with the oil and gas projects in the U.S. Gulf region, specifically the Lake Charles area, where there are about 19 oil and gas projects in the planning process. Many of these U.S. Gulf projects are LNG related. The other potential growth region that we are seeing is South Africa to East Africa, where there are quite a few projects in the LNG and oil and gas sectors.
As for fuel prices, they tend to fluc-tuate throughout the life of a project. Currently, fuel prices are down, which lowers operating costs for transportation providers and helps keep project cargo rates low – all things we like to see as a project shipper. However, the negative impact of low fuel prices is that project owners will be more reluctant to invest in major projects, resulting in delays or cancellation of projects. Somehow a happy medium must be maintained.
There is no doubt that carriers and cargo owners need each other. Carriers need our projects and our cargoes to keep their equipment moving, and we need their equipment to move our material to our project sites. Additionally, project owners work closely with carriers dur-ing proposal and front-end engineer and
Susan Oatway Jeff Latture Jake Swanson
JANUARY-FEBRUARY 201528 BREAKBULK MAGAZINE www.breakbulk.com
breakbulk outlook 2015
design, or FEED, study stages in order to develop critical logistics budgets and plans that ultimately help cargo owners win important projects.
Shipping rates will fluctuate as per market conditions, however it is impor-tant that carriers and cargo owners see each other as partners not adversaries.
It has been rough for the project ocean carriers over the last six to seven years. We have seen bankruptcy and consolidation over the last couple of years, and it is possible that we will see more of that in the next year or so. Car-riers have become more diligent in their efforts to reduce excess costs and main-tain optimum fleet sizes. Hopefully with the projects that we are anticipating for 2015-2017 it will help establish a healthier project cargo market for ocean carriers.
KITA LOGISTICSEmre EldenerGeneral Managerwww.kitalogistics.com
Growth and positive prospects in the project cargo industry for Turkey and the Middle East highly depends on the political situation in 2015. Demand for energy, transport infrastructure, refined oil and fertilizers are driving the project cargo market in this region.
When we look at Turkey, for example, we see the huge upcoming TANAP pipe-line project, the construction of the largest airport in Istanbul, two nuclear power plants, one major refinery, more than five brand new lines of high-speed trains, urban subway projects, nearly 100 hydroelectric power plants, and a significant number of wind power plants. These will all be active in 2015, and some of them already started in 2014.
We see that there may be increasing project activity in Iraq as the Kurdish part and the Baghdad government came to an agreement on oil resources. We do
not expect the Syrian situation to stabi-lize anytime soon, so we do not expect much activity there. Once there is peace in Syria, the country needs to be rebuilt completely, which will of course create many jobs for the project cargo industry.
Oil prices are going down. If this continues, we anticipate cancellations or delays in some oil exploration projects as well as refineries. While this would affect the project cargo industry in terms of business volumes, reduced fuel prices will also bring more affordable rates for all industries as an added advantage.
Multipurpose project cargo vessels that have been delivered within the last year helped shippers to enjoy more eco-nomical rates in 2014. However, due to the upcoming projects globally, includ-ing offshore oil projects and wind power plants that are now widely moved glob-ally, we expect the rates to be higher in 2015 than the previous year.
TRADELOSSARafael de los SantosGeneral Managerwww.tradelossa.com
2015 will be a year of volatility. With oil at levels not seen in years, and fore-casted to be at those levels for a long time, we know for sure that changes will occur. Oil drives much of the invest-ments that are made in the industries we serve. We can be sure that major energy projects will be postponed, and others will be put on hold. Alternative industries will make attempts to take the opportunity that low oil prices period will provide. The most flexible com-panies will take advantage of this new scenario. Others will follow the lead of the major players to hold, and wait.
At a local level each country has its own agenda. In Mexico, 2015 will see midterm elections for the administration, Congress and governors for half of the states. The election’s outcome will surely impact the country’s political and eco-nomic dynamics. After a very promising start, the current presidential adminis-tration is challenged to materialize the promises made during major energy reforms approved last year by Congress. Safety is still an issue in certain areas of
the country, and has reached the point that it can no longer be ignored by the government, public and private sector.
2015 will bring a redefined list of pri-orities. The breakbulk industry will be challenged to adapt where necessary, and maintain our bets where signs of conti-nuity show. As everything in life, we can only rely our set of skills to face the year with an optimistic and thankful attitude.
LARSEN & TOUBRO LTD.G. KannanHead-Logisticswww.larsentoubro.com
Overall prospects for project cargo in India are no cause for optimism, as the market is depressed and it will take another 18 to 24 months before seeing any significant revival. The new Indian gov-ernment is still in the process of making firm decisions and planning for growth that is still many months away. Falling rates is another factor for diminished optimism, and it is time Indian customers face the fact there is a limit to which the rates can be reduced and beyond those limits lines will not viably operate.
Release of the country’s 2015 budget in February will be the most awaited event, where many projects could be relaunched.
Potential growth markets for India, especially for project cargoes, will be steel, infrastructure and, to a limited extent, power. The rest will not see any significant growth. Circum-stances impacting these sectors are capacity reduc-tion, fuel prices and the industry’s distance from ports for easy and economic cargo transport. Financial burden of players and the long gestation period between decision and actual logistics are other factors impacting growth.
The overall geopolitical situation and supply/demand mismatch will take time to rebalance. Until then the market is likely to be dull.
Emre Eldener G. Kannan
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Oil prices have dropped almost 45 percent in the past three months. While this is good news for a country like India, which is dependent on imported oil, the larger picture is different. In 2006 and 2007 when oil prices shot up, the effect was counter-balanced to a great extent as the Indian rupee appreciated against the U.S. dollar. Due to higher oil proj-ects, more oil-related projects kicked off, which benefited everyone.
However, the situation now is inversed. The reduction in oil price is offset by erosion in value of the rupee. The Indian government is not pass-ing on the full savings to the public for understandable reasons. The govern-ment is using this opportunity to shore up the health of oil marketing compa-nies. Due to lower oil prices, pressure is on oil exporting countries to balance their budget. Lower prices also mean that big oil companies are slowing new
project launches. This will impact global demand and affect international busi-ness opportunities. This is the biggest risk for all sectors.
The relationship between cargo owners and the lines and service pro-viders is becoming more complex and blurred. Lines are reluctant to cater to some cargo owners’ requirements like extended credit periods. Rates are being forced down and this does not set well with lines locally with Indian customers.
Due to ongoing projects, we do not see immediate pressure on rates. Due to imbalance in two-way trade, there will temporarily be very low rates on some sectors. However this should not be viewed as a general trend. We expect rates to go up in the second half of 2015.
Container and general breakbulk rates are expected to remain soft and possibly under pressure. Expect many shipown-ers and shipping lines to rationalize their
services in accordance with demand.Many shipping lines have either
cut or curtailed capacity by bypassing Indian port calls, reducing frequencies, or calling only under inducement. For example, some lines have stopped west-bound services from India. Moreover with depressed market scenario and increasing costs, lines are on the verge of cash flow issues. Cargo owners need to exercise caution when selecting shipping lines, especially for critical shipments.
DREXEL LOGISTICSRichard “Dick” KnollPrincipal and Ownerwww.drexel-logistics.com
Optimism is the core concept of American business that will not be dis-suaded because of what many consider
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a downturn in pricing and therefore income. Falling oil prices have impacted proposed project budgets for principles in every major field, and created a some-what “conservative” assumption of future business. Public companies driven to maintain shareholder at least initially seem to have taken a more reserved stance with regard to commitments to large capital projects.
While it is true lower fuel prices are an advantage to all forms of transportation, at some point industry will slow down sufficiently to reduce need and therefore it is apparent that some of these transpor-tation entities may find themselves with reduced costs but no freight to haul.
Looking at traditional U.S. industrial growth, physical activities of expansion took a “water seeking its own level” type of concept. Industry expanded when
and, more cor-rectly where, it was economically feasible. Industry grew up around coastlines, riv-ers and with the completion of the transconti-nental railroad, along those ever-expanding western rail lines. Today however,
there is a differ-ing need to those traditional avenues of traffic.
Industry has found opportunities in far-reaching and hard-to-access areas, requiring it to “think smarter” to capital-ize on these various new found business opportunities.
It is clear U.S. infrastructure today is somewhat lacking at best, but the concept of creating and maintaining corridors to these far-reaching areas, building projects close to or directly on these corridors, is a concept which is being rationalized by industry as a whole.
Corridor project location reduces costs for industry. Motor carriers can move heavier and larger oversized goods on corridors built and maintained to support capital projects. Railroads take time to expand and indeed have their own intrinsic issues when it comes to moving cargo of oversize and overweight
cargoes based on traffic volumes, loca-tion and clearance capacity. Projects today may be hundreds of miles from the nearest navigable ocean port or river, or miles from the nearest railroad and the creation of corridors allows industry
to circumvent this physical inability to more cost effectively and easily move capital goods.
2015 must and will be a year of industry optimism and a departure from status quo of “business as usual.” BB
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T he U.S. capital projects industry (infrastructure construction projects) is highly specialized, and its economic impact to
the U.S. economy is perhaps one of the least understood industry segments by the general public. This is true even in the halls of the U.S. Congress where its future, as well as its contribution to the U.S. economy for more than 80 years, will be debated when the new Congress convenes in January.
Most large-scale capital projects in developing countries require a com-mitment of financing before the project sponsor can pledge a “Final Investment
Decision.” The FID cannot be issued until all sources of financing are identi-fied. The continuing global financial crisis, the European sovereign debt crisis, and Third Basel Accord on capi-tal and liquidity requirements, have all been factors that have led to decreased availability of commercial financing, and an increased percentage of government-sponsored Export Credit Agency (ECA) “tied” financing.
Indeed, other countries perform-ing similar financing arrangements are ramping up support for their capital project related exports. The procure-ment of goods and services is typically
January 1, 1934
FIRST TRANSACTION
The first transaction is approved, US$3.8 million to Cuba for purchase of U.S. silver ingots.
February 12, 1934
EXPORT-IMPORT BANK OF WASHINGTON ESTABLISHED
The Export-Import Bank of Washington is established to help U.S. companies during the Great Depression. While the goal was to lend to the Soviet Union, such loans never materialized due to the USSR’s unpaid war debts to the U.S.
March 9, 1934
SECOND EXPORT-IMPORT BANK OF WASHINGTON ESTABLISHED
The Second Export-Import Bank of Washington is established to lend to Cuba. In July, the lending authority expands to “any part of the world except Russia.”
January 1, 1936
EX-IM BANKS CONSOLIDATED
The Second Export-Import Bank is liquidated and its loans and commitments transferred to the Export-Import Bank.
January 1, 1938
BURMA ROAD
US$22 million is approved for a loan to China to assist in construction of the Burma Road.
June 18, 1938
FIRST DEVELOPMENT LOAN
The first development loan of US$5.5 million is loaned to Haiti to improve economic conditions.
EXPORT-IMPORT BANK THROUGH THE YEARS
rules & regulations
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BANKING ON EX-IM BANK
Program’s End Would Harm U.S. Capital Projects Industry
By William G. Schubert
rules & regulations
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“tied” to the particular ECA country. If ECA and commercial financing is not available at sufficient levels and com-petitive rates, then the planned capital project cannot move forward.
All capital projects require at least one engineering, procurement and construc-tion, or EPC, contractor who is responsible for the procurement of goods and services for the project. The importance of ECA financing has grown to the point where the only EPC contractors eligible to bid on a planned project are those who will “guarantee” a certain level of eligible ECA financing in their bid proposal.
In many parts of the world, a capital project will require 30 percent to 60 percent ECA financing before project sponsors make the final investment deci-sion. In view of these considerations, the ability of the EPC to qualify for ECA financing has become a critical factor in qualifying and winning the bid tender.
EPCs BenefitThe Export Import Bank of the
United States (U.S. Ex-Im Bank) is the official export credit agency of the U.S. government. This means that if a U.S.-domiciled EPC contractor is to compete internationally for a capital project that requires ECA financing, the contractor must meet U.S. Ex-Im Bank’s eligibility standards; only then will the bank act
as a lender/guarantor of last resort. The issue that members of Congress need to be aware of is that the successful EPC contractor will, in the end, determine from which country the goods and ser-vices are procured.
To illustrate, in 2012-2013, U.S.-domiciled EPC contractors were the successful bidders on five large infra-structure projects on three different continents that accounted for nearly US$77 billion in overall capital expen-ditures. Participation by the U.S. Ex-Im Bank in these projects resulted in nearly US$16 billion in goods and services pro-cured from the U.S.
To put it another way, if a non-U.S. domiciled EPC contractor had been selected for the US$16 billion procure-ment, then there would have been no meaningful procurement from the U.S. This would have resulted in lost jobs from the U.S.-manufacturer sector and associated U.S. supply chain services.
As to the ongoing debate in Congress about whether to extend the U.S. Ex-Im Bank charter, some members of Congress contend that the program benefits only a small number of American corporations. Nothing could be further from the truth. On average, an estimated 150 to 500 U.S. companies are chosen by U.S.-domiciled EPC contractors when bidding on large capital projects. Secondary participation
January 1, 1940
PAN AMERICAN HIGHWAY CONSTRUCTION
Ex-Im Bank’s first financing for the Pan American Highway is approved for road con-struction in Mexico, El Salvador, Honduras, Nicaragua, Costa Rica and Ecuador.
June 1, 1945 – May 31, 1947
POST WWII AND THE MARSHALL PLAN
Ex-Im Bank authorizes more than US$2 billion for post-WWII reconstruction in Europe, Asia and Africa.
July 31, 1945
EXPORT-IMPORT BANK ACT OF 1945
The Export-Import Bank Act of 1945 establishes the Ex-Im Bank as an independent agency; lending authority is now US$3.5 billion.
January 1, 1947
FIRST REAUTHORIZATION
Export-Import Bank of Washington is reauthorized for the first time and created as a federal corporation and independent agency of the Executive Branch.
February 14, 1959
PRESIDENT EISENHOWER AT EX-IM BANK
President Dwight D. Eisenhower visits Ex-Im Bank to celebrate the Bank’s 25th Anniversary.
Construction of the Pan American Highway, a project financed by the Ex-Im Bank.
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September 1, 1961
EX-IM BANK AND FCIA
Ex-Im Bank is given authority to issue exporter insurance. The bank can issue up to US$1 billion to insure U.S. exporters against political and commercial risks.
November 3, 1961
END OF DEVELOPMENT LENDING BY EX-IM BANK
USAID is founded. The agency assumes responsibility for the U.S. government’s foreign aid development lending.
January 4, 1962
EX-IM BANK IN GHANA
Ex-Im Bank authorizes US$120 million to the Volta Aluminum Co. to build an aluminum smelter in Ghana.
April 23, 1962
TAGUS RIVER BRIDGE
Ex-Im Bank authorizes US$55 million credit to Portugal to build Lisbon’s Tagus River Bridge, the longest suspension bridge in Europe.
March 13, 1968
A NEW NAME
The Bank’s name change: “Export-Import Bank of the United States” becomes the official name after passage of P.L. 90-267.
March 1, 1981
EX-IM BANK AND CHINA
Ex-Im Bank approves the first transaction to China since 1946.
February 14, 1984
VICE PRESIDENT GEORGE H.W. BUSH AT EX-IM BANK
Vice President George H.W. Bush celebrates Ex-Im Bank’s 50th Anniversary.
from sub-suppliers, including freight forwarders, packers, ports, trucking, and ocean carriers, can add thousands of U.S. businesses benefiting for each capital project.
Since the 2008 financial crisis, the U.S. Ex-Im Bank has helped more than 1,200 companies in my home state of Texas finance more than US$19 billion in export activities vital not only to my state, but also to the national economy in the energy, technology, and heavy manu-facturing sectors.
If the new Congress does not reautho-rize the U.S. Ex-Im Bank charter, it would have an immediate economic impact on the U.S. capital projects industry:
• Without U.S. Ex-Im Bank’s involve-ment, project sponsors would disqualify U.S.-domiciled EPC contractors (as well as their underlying goods and service providers) from bid proposals that are in various phases of development. These near-term projects account for about US$50 billion to US$60 billion in capital projects spending that require some level of ECA-guaranteed support.
• Without U.S. Ex-Im Bank taking part in the transaction, U.S.-domiciled EPC’s would have no option but to move their procurement activities to a coun-try with the same type of export credit support from their governments that the U.S. Ex-Im Bank offers — such as
China, United Kingdom, France, Italy, Korea or Japan.
• Without U.S. Ex-Im Bank participa-tion, project sponsors would then defer to non-U.S.-domiciled EPC contractors that can guarantee a specified level of ECA support from the respective coun-try. Once the decision is made to use a non-U.S.-domiciled EPC contractor, the opportunities to source goods and ser-vices from the U.S. are lost forever for that multibillion-dollar project. Equally significant, U.S. sub-contractors would lose 10 to 15 years’ worth of follow-on contract work after the capital project is completed.
• Without U.S. Ex-Im Bank assis-tance, the long-term damage to the U.S. economy would be irreversible, since we will eventually lose our nation’s essential industrial base to support American pro-curement for capital projects.
• Without U.S. Ex-Im Bank, the U.S. national defense capabilities would also be severely impacted because our highly skilled manufacturing base would be directly impacted. To underscore this point (and as I have said on many occa-sions when I am briefing audiences about U.S. Ex-Im Bank programs) if you can build a mining truck, or a gas turbine generator, or assemble a loco-motive in peacetime, you can build a tank or other armament in wartime.
Lisbon’s Tagus River Bridge, built with the help of credit from the U.S.
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Bipartisan SupportEver since the first recorded votes in
Congress going back to the end of World War II and all the way through 2012, congressional support for U.S. Ex-Im Bank’s charter has been bipartisan. Indeed, according to the Congressional Research Service, the average “yea” votes in support of U.S. Ex-Im Bank in the House of Representatives during this time period was 74 percent; and, in the U.S. Senate, 82 percent.
The reasons for decades of bipartisan support are plainly evident.
First, the U.S. Ex-Im Bank ECA pro-gram incurs no cost to U.S. taxpayers while at the same time it provides vital export financing which, in turn, helps U.S. companies compete internationally on a level playing field. Indeed, the U.S. Ex-Im Bank over the past three years alone has generated about US$3 billion in returns to U.S. taxpayers after pay-ment of overhead costs and setting aside the required “loan loss reserve” in the U.S. Treasury.
Second, the Congressional Budget Office recently testified that the U.S. Ex-Im Bank’s programs would generate budgetary savings of about US$14 billion
under the congressionally mandated Fed-eral Credit Reform Act of 1990 (FCRA) standards. In fact, if U.S. Ex-Im Bank pro-grams were eliminated, the federal deficit would be exponentially increased.
Third, the U.S. capital project indus-try and its associated supply chain cannot survive as we know it today if Congress unilaterally dissolves the U.S. Ex-Im Bank while the 60-plus for-eign countries with ECA’s continue to do “business as usual.”
When its charter expires on June 30, 2015, the U.S. Ex-Im Bank will cease to exist if Congress fails to act in support of the bank’s programs. This would render a crushing blow to the U.S. economy and all the jobs that go with it were this to be the outcome. As an industry, we must not let this happen.
William G. Schubert, president of Houston-based International Trade & Transportation Inc., was U.S. Maritime Administrator in 2001-2005.
October 15, 1986
REAUTHORIZATION
President Ronald Reagan signs a six-year extension of Ex-Im Bank’s charter.
January 1, 1988
CITY/STATE PARTNERS PROGRAM
Ex-Im Bank introduced the City/State Partners program.
January 1, 1990
NEWLY INDEPENDENT STATES
Financing options for newly independent countries in Eastern Europe. The Bank opens for the first time since World War II in Poland and Czechoslovakia.
June 30, 1998 – December 31, 1999
FISCAL CRISIS OF 1998-1999
Ex-Im Bank extends financing during the Asian fiscal crisis to support U.S. exporters and the global economy.
September 14, 2001
EX-IM BANK STEPS UP
Aircraft insurance waivers in the wake of 9/11.
October 12, 2005
SUPPORTING AMERICAN BUSINESS OWNERS
ExIm Bank announced relief provisions for exporters and financial institutions for those affected by hurricanes Katrina and Rita.
January 1, 2011
SMALL BUSINESS IS OUR BUSINESS
Global Access is launched.
February 6, 2014
OPEN FOR BUSINESS IN BURMA
Ex-Im Bank opens in Burma for the first time since 1988.
Source: Export-Import Bank of the United States.
CONGRESSIONAL VOTES FOR THE EX-IM BANK
HOUSE OF REPRESENTATIVES
SENATE
50%
50%
‘45 ‘58 ‘74 ‘74 ‘74 ‘78 ‘78 ‘83 ‘86 ‘92 ‘97 ‘97 ‘01 ‘01 ‘02 ‘06 ‘06 ‘06 ‘11 ‘11 ‘11 ‘12
‘78 ‘86 ‘97 ‘97 ‘06 ‘11 ‘11 ‘11 ‘12YeasSource: Congressional Research Service No Vote Nays
William G. Schubert
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T ens of thousands of people died when an earthquake rocked China’s Sichuan Province in 2008. But millions of survivors
were kept warm and fed after Chinese rescue crews called international air-craft cargo specialist Chapman Freeborn to aid in emergency deliveries of tents, blankets and other life-saving supplies.
Not only was the rescue operation a bright chapter for an otherwise tragic story, it gave Chapman Freeborn a ster-
A FRIEND INDEEDRelationships Key in China’s Challenging Business Climate
By Eric Johnsonling chance to prove itself a friend of China, four years after the British-based company opened a China division with a Beijing office.
The company flew critical supplies aboard nearly 30 flights to the Sichuan disaster scene, showing itself willing to work closely with Chinese authorities, and proving itself grateful for the chance to help Chinese people in need.
Not every non-Chinese company in the heavy-lift shipping and logistics business can expect the kind of oppor-tunity to shine in the way that helped solidify Chapman Freeborn’s business in
China. But the Sichuan earthquake expe-rience points to the fact that a foreign company that cooperates closely with authorities – and proves itself a friend – can succeed in China.
Companies in the cargo-moving industry from around the world have done just that. Clear evidence can be found at the annual Breakbulk China trade show in Shanghai, where the floor is crowded every year with representa-tives of European, North American and Asian heavy-hitters, many of which have well-established bases in China.
And evidence of China’s welcoming
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attitude toward overseas companies that want to do business is reflected by the country’s robust foreign direct invest-ment activity. FDI has been slowing in recent years, but it’s still a dynamic con-tributor to gross domestic product in the world’s second-largest economy. (By some standards, China in 2014 passed the U.S. to become the world’s largest economy.)
Foreign companies investing in non-financial, physical assets and labor in China – which for the logistics and heavy-lift sector includes warehouses, management offices and equipment – have together spent more than US$100 billion every year since 2010, according to China’s Ministry of Commerce. Total FDI in 2013 rose 5.3 percent year-on-year to more than US$117 billion and was likely to decline to around US$114 billion in 2014, based on ministry data for the first 10 months of the year available when this issue of Breakbulk went to press.
Much of the slowdown in FDI has been linked to declining manufacturing plant investments on the mainland by Japanese, American and European com-panies, the ministry said. Investment from South Korean companies, on the other hand, has increased.
‘Difficult Period’Some of the pullback involves for-
eign companies that, after surveying the landscape in China, have decided that for now the Chinese business environment is more challenging than worthwhile. Indeed, a survey in August of U.S. com-pany executives in China conducted by the Beijing office of the American Cham-ber of Commerce found 60 percent of respondents “feel foreign business is less welcome in China” than in past years “and 49 percent believe foreign firms are being singled out in recent pricing or anti-corruption campaigns.”
“Our members have been and remain enthusiastic supporters of China’s inte-gration into the global economy, but sadly this survey suggests that their posi-tive sentiment is eroding,” said AmCham China Chairman Gregory Gilligan. He added, however, “we still believe that China’s economy will emerge from this difficult period stronger than before.”
The “difficult period” referenced by Gilligan began after the 2008 global financial crisis. The crisis initially put a damper on global demand for Chinese exports and later contributed to an ongoing slump for real estate sales and
construction. The slump is expected to continue through 2015.
China’s shipbuilding, steel and coal-mining sectors have been financially strained in recent years, too. And a gov-ernment crackdown on corporate and official corruption under way since late 2012 has affected the business climate. Many foreign shipping and logistics companies have even found it difficult to speak with Western news media about their China operations.
But the China market can be doable – even lucrative – for companies willing to adjust to the environment, whether in search of profits or simply to serve cus-tomers transporting cargo to and from the mainland. Many consider China simply too big to ignore. Logistics sector revenues, including those for breakbulk transportation, for all companies oper-ating on the mainland topped US$1.1 trillion in 2013, according to the China Federation of Logistics and Purchasing.
U.S. package shipping giants FedEx and UPS, for example, stepped into China about a decade ago. They were allowed to open air cargo subsidiaries by cooperating with Chinese regula-tors and, in some cases, partnering with state companies. UPS took advantage of a “friend of China” opportunity in 2008 by serving as a corporate sponsor for the Summer Olympics that year in Beijing.
Today, one of FedEx’s 12 global air hubs is in the southern city of Guang-zhou, while UPS operates international air cargo facilities in Zhengzhou and Shenzhen. UPS also offers rail service to Europe from Zhengzhou.
Legal ChallengesChina’s legal environment is the
backdrop for some of the most daunting challenges confronting international logistics and shipping companies that do business in China. Laws that govern business licensing, foreign-Chinese joint ventures, currency exchange and taxes can be especially complicated. Customs and port-rail-air terminal rules are also China-specific.
To successfully navigate in this legal environment, according to experienced foreign company representatives in China who spoke with Breakbulk, an interna-tional company stepping into China does well to hire a mainland Chinese law firm.
A Chapman Freeborn crew loads machinery aboard an IL-76 cargo jet. Credit: Chapman Freeborn
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A firm whose lawyers are mainland-trained with offices in Shanghai, Beijing or another major city will likely under-stand the latest legal developments as well as the fine print and not-in-print nuances. Law firms based in Hong Kong or Taiwan, on the other hand, are less likely to have as much depth of experi-ence or knowledge of the latest conditions and regulatory adjustments, which can be made by administrative agencies without a public notification.
Moreover, local law firms best know any given locale’s particular legal envi-ronment, which can vary from province to province or even city to city in China. A shipping company that wants to do business or open an office in Beijing, for example, should consult with a Beijing-based law firm. A company set on doing business at the Port of Zhuhai will want to find a firm familiar with that city’s regulations and administrators.
China “is a big country,” said Diana Kang, the Beijing-based China commer-cial manager for Chapman Freeborn. “It’s better to talk with local people.”
Chapman Freeborn, which opened its first China office with one staffer in Beijing in 2004, has since added staff and offices in Shanghai as well as Hong Kong. The company’s chartered aircraft serves airports across China, provid-ing cargo-lift services for a variety of customers including oil and gas compa-nies. It’s also in a growing business that provides upscale private jet chartering services across the country. And it’s a company that links China to the world, with some 400 staffers speaking 50 lan-guages in 30 locations worldwide.
Open for InterpretationChapman Freeborn learned early in
its China years that a foreign company on the mainland must approach the legal and regulatory framework with an open mind. Flexibility is crucial in areas such as business licensing.
For example, Kang said, because Chi-nese commercial regulations do not have a special classification for aircraft char-ter brokers, Chapman Freeborn obtained a business license that’s fully legal as an “aviation services consultant.”
A mainland lawyer with a good track record of helping foreign companies get grounded in China will know how to
interpret – and apply to local circum-stances – the voluminous Company Law of the People’s Republic of China. The 219-section law, in place since 2006, applies to every business, but includes a special section for foreign concerns.
Some wording in the law’s foreign-company clauses leaves room for interpretations by Chinese authorities. For example, Article 197 says foreign companies with permission to register a mainland branch must follow all busi-ness regulations “and may not injure the social public interests of China. What’s meant by “social public interests” is not spelled out in the law.
More straightforward is Article 194, which says that to open “any branch within the territory of China” a foreign company “must appoint a representative or an agent within the territory of China to take charge of the branch, and shall allo-cate to the branch corresponding funds for the business activities it is engaged in.”
Many companies play it safe by hiring a Chinese national as the China branch executive. Article 194 also includes a strong warning by noting that a foreign company “shall bear civil liabilities for the business operation of its branches under-taken within the territory of China.”
An introduction to the Company Law and related information about doing
business can be found in the Ministry of Commerce’s booklet Invest in China. It stresses that as a communist but pro-business country, “China implements the socialist market economy, whereby the government regulates the economy on the market basis.” The booklet also says “enterprises have full authority of their operation(s) within the limits prescribed by law and are free from government intervention.”
Tax ChallengesInternational players also face spe-
cial tax challenges unique to China. The Chinese government’s 2013 extension of a value-added tax to cover international shipping and logistics providers has had a broad impact on the industry, for exam-ple, not only because it’s raised business costs since last year, but also because the law grants local government agencies a degree of flexibility in levying the tax. So in the early months of the new VAT regime, a tax on a piece of equipment shipped through one Chinese port might have been higher or lower than the tax levied in another port.
Adjusting to the VAT extension was initially “a big challenge” for Chapman Freeborn, Kang said. “In Shanghai and in Beijing, for example, the interpreta-tions of the VAT were different.”
But the company fully cooperated with the tax authorities and thus met the challenge. “Now it’s much better,” she said. “China is still changing.”
The Chinese government’s new lead-ership that was ushered in after 2012 under President Xi Jinping “has had a great impact, and it’s quite positive” for foreign companies doing business in China, Kang said. “The government is more open.”
Indeed, as the mainland’s legal and regulatory environment changes, the traditional “guanxi” factor – that is, the personal relationships traditionally made among company executives and other decision-makers, built over time and sometimes hours-long dinner parties – is becoming increasingly less important for non-Chinese companies that want to do business on the mainland.
But as Chapman Freeborn, UPS and other global companies have learned, proving oneself a cooperative friend of China can smooth the path to success. BB
FOREIGN DIRECT INVESTMENT IN CHINA
Business Services
Transportation & Warehousing
‘08
‘13
‘08
‘13
‘08
‘13
‘08
‘13
‘08
‘13
Manufacturing
Real Estate
Other
In US$ billions Source: China National Bureau of Statistics
$0 $10 $20 $30 $40 $50
www.breakbulk.com BREAKBULK MAGAZINE 45
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[ LOGISTICS | 2015 ]
G lobal Project Logistics Network (GPLN) is the world’s leading project logistics network and puts emphasis on bringing in
only qualified project and heavy transporta-tion companies.
GPLN has recorded its history of the past 11 years through photos on the GPLN Facebook page with over 10,000 pictures, probably making it the largest heavy haulage and lifting online photo bank: www.facebook.com/GPLN.HeavyTransports
From the very beginning GPLN was committed to promote the group globally, having members on every continent, in every region of the world and in every major projects port. GPLN has also kept it global when it comes to their annual general meetings and in the past, the conferences took place on 4 different continents of the world. This year the meeting was held at the 5-star Landmark Hotel in Bangkok, Thailand and the record breaking attendance of over 170 GPLN del-egates and sponsors was not only the highest in GPLN history, but also speaks itself for the quality of the network and their highly skilled project forwarders.
GPLN’s newsletter is issued bi-monthly and is made for the GPLN members, sponsors and their customers. The majority of the articles covered are the success stories of great moves by GPLN members. In one of our recent issues GPLN member
For more information about GPLN, please visit www.gpln.net[ [
Interfracht from Germany was featured prominently, handling four 800-ton reactors (see photo):
Following a three-year planning period, Interfracht Germany has successfully completed a challenging project job. Four reactors, each weighing 800 tons, were transported across a distance of 17,500 km from Japan via the Black Sea, followed by a river voyage on the Dnieper River in Ukraine all the way to Mozyr in Belarus. Four special barges, a ten-kilometer heavy duty road, plus the unloading pier were designed and built exclusively for this movement. The 50 x 7.2 x 5.5-meter reac-tors were loaded in Higashi Harima, Japan, and transported to Kherson, Ukraine by MV Trina of SAL Line. Then the ship-ment was loaded onto special barges constructed by Marine Digital. The pontoons were towed along the Dnieper River from Kherson to the landing stage.
Due to the unstable political situation in Ukraine, this seg-ment of the haulage in particular was extremely challenging and the location of the goods was inspected and monitored several times per day using the most advanced technology. Heavy storms in Eastern Europe, which resulted in flooding at the destination site made this shipment even more com-plicated and a protective dam had to be built around the landing stage. The final road haulage was carried out by using a 64-axle SPMT, to overcome inclines of up to 12 percent.
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T okyo-based NYK Bulk & Projects, a wholly owned subsidiary of Nippon Yusen Kaisha (NYK), is one of the lead-ing ocean carriers of dry bulk and heavy/
project cargo. All over the world, we operate a fleet of more than 200 vessels with a total DWT of 7,300,000tons, including multi-purpose carriers, Handy/Handymax bulkers, and Open Deck Carriers
(Non Submersible). Most of our fleet and organiza-tion are ISO9001/14001 and OHSAS18001 certified.
Integrity, Innovation and Intensity — the 3 I’s — has been transformed into NYK Group Value and engrained in our DNA. We contribute to the various industries, energy supply chains, and urban infra-structure development globally.
We provide regular semi-liner services worldwide including Europe, the Mediterranean Sea, Africa, South East Asia, India, the Middle East, and the South Pacific. In addition, we offer on-demand services dedicated to big/heavy lot and multi-desti-nation transportation, as well as modularized cargo transportation and dry bulk services. More details about our services can be found on our website at http://nbpc.co.jp
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A ARAS group of companies has been involved in providing total logistics solutions for clients worldwide. Today, it has gained experience of almost 22 years in the shipping field and
has achieved goodwill and trust of its clients worldwide. AARAS is not operating only from Pakistan office but is also operating from our branch offices located in UAE, China and Malaysia for securing the opportunity under the roof of AARAS. Our aim to achieve entire satisfaction of customer and overseas partners and ultimate in service excellence through their legendary customer service in significant areas of customer interests:
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Our valued services are as under but not limited to:• Bulk, break-bulk cargo handlers• Shipping, tramp, charter and broker• Oversized, ro-ro cargo experts with total logistic solutions• Project and heavy lift cargo handlers specialized in
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AARAS has proven record of many project cargo move-ments and these experiences qualify us as a trusted partner to safely deliver any sort of project shipments to/from Paki-stan, UAE, China, and Afghanistan. We also enjoy excellent partnerships with the biggest ship-owners and other indus-try service providers.
Please feel free to contact us to provide you and or all of the logistics and shipping services, be it shipping agency, stevedoring, heavy-lifting, custom clearance, transportation or may be road surveying etc. We are more than pleased to assist you in any way and assure you best and quickest of our services as our slogan goes:
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Yangtze
Heilong
Yellow
Pearl
nce upon a time, according to an ancient Chinese leg-end, four sea dragons took pity on farmers by water-
ing their drought-plagued crops. But in doing so, the dragons angered a rain god, who then jailed the dragons under four mountains. The dragons retaliated by transforming them-selves into China’s greatest rivers – the Yangtze, Pearl, Yellow and Heilong (also called the Amur) – to give people water forever.
Today port operators, shipowners and logistics companies are giving a modern twist to that fanciful legend of the origin of China’s rivers. They’re relying on China’s dragon-shaped rivers to spur a new phase of development that’s bringing busi-ness and jobs to underdeveloped inland provinces.
Behind this development is a central government push for river navigation and port expansion projects, particularly on the upper reaches of the Yangtze and Pearl rivers. A key goal is to improve living standards for hundreds of millions of people in areas west of China’s wealthy eastern cities, such as Shanghai at the mouth of the Yangtze and Hong Kong near the mouth of the Pearl.
CHINA’S SEA DRAGONS
Rivers Breathe Life Into Inland Economic Growth
By Eric Johnson
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That’s right. In four years, South Carolina doubled its non-container cargo volume. Rolling stock, metals, machinery, project cargo, forest products, and more. We’ve expanded capacity with new on-terminal warehousing and rail infrastructure. Couple that with experienced, productive labor and South Carolina is an ideal fit for whatever you send our way.
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Efforts since 2006 to boost com-mercial river shipping complement government tax and land incentives that encourage companies to build new facto-ries inland rather than in the eastern cities at the heart of Chinese manufacturing.
River cities such as Wuhan, Chongq-ing, Luzhou, Wuzhou and Nanchang are among those targeted for port facilities development under the government’s river initiative, which is part of the broader National Strategy for the Rise of Central China adopted by the State Council in 2006.
Domestic companies are the main beneficiaries of river development. China’s inland waterways are closed to non-Chinese cargo vessels and shippers. A foreign-flagged multipurpose vessel hauling heavy machinery, for example must load and unload at a seaport such as
Shanghai. The machinery would have to be transferred to or from a China-flagged river vessel or barge at a Shanghai wharf.
The manufacturing city of Wuhan, straddling the Yangtze about 600 miles upriver from Shanghai, has gotten the most attention under the nationwide port improvement project. The Wuhan metropolitan area is served by four river ports that together are called Wuhan New Port and billed as the country’s largest inland port.
Wuhan’s roll-on, roll-off ship-ping facilities handle cars and trucks assembled at area factories, where annual output topped 1 million vehicles for the first time in 2014. Dozens of other berths handle breakbulk, dangerous cargo, coal and chemicals. And Wuhan’s container terminals transfer goods made in factories scattered across four inland provinces –
Hubei, Hunan, Henan and Anhui.By 2015, according to the Hubei
Province economic development agency, Wuhan New Port’s total cargo through-put is slated to top 200 million tons, including 2 million TEU containers, up from about 1 million in 2013. The Hubei government has reportedly asked the central government for about US$400 million over the next five years to con-tinue port improvements. Plans call for adding 65 million tons of cargo handling capacity by 2020.
Work on Wuhan port facilities, dredging and streamlining navigation on area waterways – including the Yangtze, smaller rivers nearby and canals – is expected to cost the Hubei govern-ment more than US$5.4 billion by 2020, according to the province’s economic development office. Some of these funds
Wuhan is among the cities targeted for port facilities development under the Chinese government’s river initiative. / Credit: Shutterstock
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have been earmarked for beefing up navigation aids.
Efforts to build an electronic navi-gation mapping system on the Yangtze drew experts from around the world to an October conference of the Changjiang (Yangtze River) Waterway Survey Cen-ter in Wuhan. Among them was Zhang Weibin, a marine technology post-doctoral researcher at Finland’s Aalto University, who told Breakbulk that the electronic mapping is the “right way to relieve traffic congestion and reduce unsafe factors. ... I believe application of information technology and marine safety research will definitely contribute to the enhancement of marine traffic safety on the Yangtze.”
In another example of efforts to support inland commercial shipping, a Jiangsu Province city on the Yangtze in November bought what’s been called the world’s largest self-propelled dredg-ing barge – a 101 meter-long mammoth made by Zhenhua Heavy Industries that can hold 7,100 cubic meters of spoil. The dredge is slated to start clearing river channels in 2015.
Major port improvements are also under way hundreds of miles upstream from Wuhan on the banks of the Yangtze at the cities of Chongqing and Luzhou. These cities are also upstream from the Three Gorges Dam, which is equipped with locks for barges and small ships.
The US$1.6 billion project to expand Chongqing’s Guoyuan Port was aimed at tripling the number of berths to 12 by the end of 2014, and boosting annual throughput to 30 million tons of cargo.
One of the port’s major selling points is its proximity to the head of the Chongqing-Duisberg, Germany, inter-modal cargo railway, which opened in spring 2014. The railway is a key route for containers filled with Europe-bound consumer electronics.
The port improvements include channel expansions to improve naviga-tion around Chongqing, according to Teng Hongwei, a Chongqing government transportation department official. Teng recently told local media that river traf-fic congestion “is becoming increasingly serious,” thus the need for deeper and wider channels.
Chongqing’s goal is to significantly increase the port’s 2014 capacity of 150 million tons and 3.5 million TEUs. Reportedly, the port will be ready to handle 200 million tons and 5 million TEUs by 2017.
Meanwhile, Sichuan Province’s larg-est port Luzhou, about 100 miles upriver from Chongqing, is getting a makeover to facilitate shipments of goods made in southwestern China and bound for Shanghai and the world.
Other inland ports getting extra atten-tion as part of the inland development push are Nanchang at the confluence of the Jin and Gan rivers in Jiangxi Prov-ince, and Wuzhou on the Pearl, about 200 miles upriver from Hong Kong. Each city is a regional logistics hub serving dozens of smaller cities nearby.
Established seaport operators in China are playing a role in the push to develop inland ports. For example, Shanghai’s largest port operator Shang-
hai International Port Group recently agreed to jointly develop Yangtze River container terminals and river-to-sea shipping lines with the Hunan Province government.
Underscoring inland China’s status as a growth area for global logistics, an Asian trade journal recently quoted Hapag-Lloyd CEO Habben Jansen as saying that for his company investing in the Chinese interior “probably cannot be avoided.”
The German shipping liner wants to ramp up investments in logistics facilities for intra-Asia trade and services on the mainland over the next five to 10 years, Jansen told the publication Maritime CEO.
Altogether 11 provinces and munici-palities, as well as dozens of major cities, stand to benefit from the ongoing initia-tive to boost local economies in China’s interior. Encouraging companies to build factories in these regions is part of the effort. But much of this develop-ment hinges on the effort to expand river ports, shipping and logistics services.
The importance of services on the Yangtze, the country’s biggest river, was the core theme when Chinese Premier Li Keqiang delivered a speech last April in Chongqing. He called the river an “economic belt” that “underpins China’s sustainable economic development,” state media said.
In modern times, Li said, countries with seacoasts have historically started their economic development on the coast and gradually expanded inward along rivers to landlocked areas. That pattern is now at play in China. BB
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RUSSIAN WINTERWestern Sanctions, Economic Issues Cloud OutlookBy Mark Willis
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Following its unprovoked invasion of Crimea in spring 2014, political and military tensions between Russia and the West have escalated, with the subsequent annexation of the Black Sea peninsula and tacit support offered by Russian
President Vladimir Putin to rebel groups in eastern Ukraine, fur-ther contributing to the region’s most significant crisis since the end of the Cold War nearly 25 years ago.
The political standoff between former Cold War adversaries has already had severe ramifications for regional trade, with a series of tit-for-tat trade sanctions introduced by the European Union, U.S. and Russia during mid-2014.
Arguably more significant for the Russian economy, however, has been the sudden collapse in global oil prices since summer 2014, falling more than 50 percent to below US$50 dollars per barrel. Falling oil prices have been accompanied by an even more precipitous slump in the value of the ruble versus the U.S. dollar during the same period.
An icebreaker in the White Sea. Credit: Shutterstock
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“While these sanctions have so far had relatively little impact on actual (economic) output, they have strongly impacted the financial dynamics at a time when the economy is already under great pressure due to suppressed oil prices,” said Steven Eke, senior analyst for Russia and the former Soviet Union, at Control Risks, a consultancy special-izing in political and security risk.
Correspondingly, energy-dependent Russia is facing a per-fect economic storm at the start of 2015, with independent economists and the country’s central bank forecasting a return to recession with a potential 5 percent drop in GDP and rise in inflation during 2015.
Participants from across the shipping industry confirm that this combina-tion of western sanctions and the what is developing into the country’s most serious economic challenge in more than a decade has already resulted in a slowdown in regional trade flows, and a much more challenging environment for Western firms exporting to and invest-ing in Russia over the last six months.
“The difficulties of doing business in
Russia, which were already considerable, have definitely increased during 2014. We would not foresee them easing to any great extent in 2015,” said Eke.
EU and U.S. sanctions have placed new restrictions on trade with Russia, notably clamping down on Western exports of goods and services destined for its all-important oil and gas sector. Other measures include asset freezes and visa bans on a wide range of individuals closely associated with Putin’s admin-istration, as well as restricting the access of some state-owned firms to western capital markets.
The list of prohibited export items includes those relating to deepwa-ter oil extraction, arctic drilling, and equipment and services used for shale fracking, the military and dual-use tech-nologies.
David Lorello, partner at Covington, a legal practice whose services include advising clients on a range of inter-national regulatory and commercial matters under both European and U.S. laws, outlined how sanctions have placed new restrictions on Western firms
exporting to Russia.“They do not target the shipping
industry as such, but they can have a sig-nificant impact on what can and cannot be exported and imported,” Lorello said.
“If you look at Russia as a whole, the new U.S. and EU restrictions affect a very small percentage of total foreign imports. However, within the individual sectors (subject to restrictions), such as oil and gas, or the military, there are very significant new restrictions and rules that weren’t applicable to Russia or Crimea a year or even six months ago,” he said.
Given the large concentration of sanctions on the oil and gas sector, which represent more than half of total Russian exports, breakbulk and project cargo shippers and transport providers overwhelmingly report a much more difficult operating environment since mid-2014, though a significant slowdown in business has yet to take occur.
LaDonna Blackwell Logan, direc-tor of global projects at Lynden International, said a major logistical difficulty arising from the sanctions has been additional rounds of cumber-some bureaucracy and paperwork now required by government customs offi-cials for oil and gas equipment exports.
Lynden International, which pro-vides global freight forwarding and
*Summary as of Sept. 24, 2014.Source: Compiled by Reed Smith
EU, U.S. 2014 SANCTIONS ON RUSSIAU.S. EUROPEAN UNION
Designates or blocks certain Russian individuals and entities, and an important change in the Office of Foreign Assets Control (OFAC) policy on entities owned by
blocked persons.
Limits availability of debt financing for certain Russian financial institutions.
Prohibits provision of goods, services and technology in support of certain activities relating to the exploration or production of oil or gas in Russia, its claimed maritime
area, or “extending from its territory.”
Restricts the supply of certain items to the Russian military or other military end-users in Russia; and for use in oil or gas exploration or
production in Russia, including Arctic offshore locations or shale formations.
Restricts licensing policies for export activities involving Russian-made defense articles (including spacecraft) and defense articles intended for end-use in Russia.
$€
Sanctions target individuals and entities through travel bans and asset freezes.
Measures deal with access to the capital markets for specified financial and defense institutions.
Restricts export of dual-use goods and technologies.
Restrictions on dealing with technologies listed on the Common Military List.
Restrictions on dealing with goods and services related to the oil industry.
Steven Eke David Lorello
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specialized logistics solutions, has been advising its clients since summer 2014, “that they should seek legal counsel, even when they are not dealing with a sanctioned company,” said Blackwell Logan.
“We haven’t had issues like this before with Russia, and it’s never affected the oil and gas industry. But ultimately we have no control over the situation, so we can’t change the regula-tory environment. We just have to figure out a way with clients and manufactur-ers to make it work,” she added.
Despite having had some shipments temporarily detained, as of the end of 2014, Lynden International had not had to cancel any contracts, and was also able to obtain a special license from U.S. Customs and Border Protection to carry out an existing order for transit of shale fracking equipment, which is among the main prohibited items.
Covington’s Lorello also outlined how new sanctions and a prohibition on trade with the annexed Crimean pen-insula have added an additional layer of bureaucracy on Western shipping firms operating in Russia.
“Logistics companies, as well as their clients, are having to come to terms with new export and import restrictions regarding Russia and the Ukraine, which they have had to build and implement controls for,” he said.
“Subsequently, many of our clients have had detailed interactions with the customs authorities and regulators in the EU member states, which are respon-sible for administering the trade controls and restrictions, to understand the new rules relating to Russia and Crimea and to work to obtain licenses for restricted transactions, where licenses are avail-able. This has presented a series of new challenges,” he said.
Russia-based shippers have also highlighted that restrictions on Western imports in place since mid-2014 have had a pronounced impact on their ability to deliver EU- and U.S.-manufactured equipment for the domestic oil and gas sector.
Valentin Bokatyy, CEO at Novo, a Novorossiysk Port Terminal Ltd. firm offering chartering, logistics and liner services for heavy-lift and oversized project cargo, outlined how the more
challenging operating environment has affected business over the last six months.
“It has been difficult for delivery of equipment for oil companies, and some of our clients have been forced to cancel a number of contracts due to the sanc-tions. Some Russian oil companies have also been forced to look for some alterna-tive suppliers of equipment, such as from China and Korea,” Bokatyy said.
“Some projects reliant on foreign investment have been frozen until politi-cal matters are resolved, or they will look for alternative suppliers who are not subject to the sanctions,” Bokatyy added. These projects include those involv-ing Russian energy sector firms such as Rosneft and Lukoil, which are subject to sanctions.
“It is also difficult to use some Ukrai-nian ports, such as the port of Mariupol, which were previously used for trans-shipment of heavy-lift project cargo, as some ship owners are wary of associated war risk,” he said.
As far as the outlook for 2015 busi-ness, sanctions appear likely to continue to restrict the capacity of Western ship-ping firms to operate in Russia this year, most notably within the oil and gas sector, with little sign the political stale-
mate will thaw over the next year.Control Risks’ Eke outlined that with
the political standoff between the West and Russia appearing unlikely to escalate substantially during the next year, a fur-ther expansion in sanctions also appears improbable. However, he added that with the most important U.S.-EU sanc-tions set to remain in force well into the second half of 2015, the impact of these measures is likely accelerate.
With sanctions to remain focused on the energy and military sectors, an arguably more important issue for wider international trade and shipping firms will remain the challenging headwinds facing the Russian economy.
In particular, the collapse in oil prices and sharp fall in the value of the ruble versus the U.S. dollar may result in a deceleration in Russian demand for foreign direct investment, and the country’s capacity to finance these new projects.
Eke said that more than sanctions, “the more relevant issue here is the downturn in the economy, which means greater concern over Russia’s purchasing power, and the now negative predictions for economic growth. I think a more marked downturn in shipping volumes is more likely in 2015.” BB
Cars in the customs control zone at the multipurpose transshipment complex Yug-2 in Ust-Luga port. / Credit: TASS/ZUMA Press/Newscom
www.breakbulk.com BREAKBULK MAGAZINE 61
Workers removing billboards at a toll plaza to allow passage a mega reactor on its way to Bharat Petroleum Chemicals Ltd.’s Kochi refinery.
Credit: Resham Singh & Co.
W ith its political stability returning and econ-omy showing signs of improvement, India’s new government led by Prime Minister Nar-endra Modi has been in a fast-forward mode,
and more than four dozen mega infrastructure projects worth about US$5 billion (INR3 lakh crore) were cleared between July and September 2014.
The government-owned National Thermal Power Co. alone has been implementing 21 power projects – thermal,
hydroelectric and wind – in the coming years and another 36 projects are in planning stage. Once commissioned, these projects will generate 53 gigawatts of electricity in the next 10 to 15 years.
Since equipment manufactured within and outside the country needs to be transported to the project sites in time, the big question is whether India has adequate logistics infrastructure in place to move the over-dimensional, or ODC, cargo.
By V L Srinivasan
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India’s Fast-track Projects Need Infrastructure to Match
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In the World Bank’s Logistics Per-formance index, India has slipped 17 places – from 37th ranked in 2007 to 46th in 2013 and 54th in 2014 – which shows that infrastructure in the logistics sector needs immediate attention, as the unwarranted delays in moving project cargos have resulted in cost escalation in the past.
The World Economic Forum Global Competitiveness Report 2014 ranked India 85th out of 144 countries in terms of infrastructure quality, with “inad-equate supply of infrastructure” listed as the most problematic factor in doing business.
Even the National Transport Devel-opment Policy Committee submitted a report to the government in February 2014 recommending that overall invest-ment in infrastructure should increase from an expected 7 percent of gross domestic product in the 12th Plan (2012-2017) to 8.1 percent in the subsequent three plans through 2032.
The public sector investment in logistics infrastructure should rise mar-ginally, from 4 percent of GDP during the 12th Plan to 4.3 percent to 4.5 percent in
the next three plans, and private sector investment from 3 percent to 3.7 percent over the same periods, the report said.
“Annual investments in transport should increase from US$45 billion (INR2.2 trillion) in 2011-12 to US$70 billion (INR3.8 trillion) by 2017, and rise further to about US$250 billion (INR14 trillion) in the 15th Plan period (2027-2032). This means an increase in investment from about 2.7 percent of GDP in the 11th Plan to 3.3 percent in the 12th Plan, and further to 3.75 percent in later plan periods,” the report said.
According to a study by McKinsey & Co., inefficiencies in logistics infrastruc-ture costs the Indian economy an extra US$45 billion, or 4.3 percent of the GDP, every year. The study also warns a 150 percent growth in freight traffic demand by 2020 (compared with 2010 levels) will strain India’s infrastructure further.
However, revival of the Indian economy along with the imperative need for infrastructure development is expected to fuel growth and simultane-ously create demand for project cargo logistics activity in sectors such as energy projects, heavy engineering and
capital equipment movements, mining and refinery projects.
Though the cost of carriage by coastal shipping is INR 0.25 (0.4 cents) per tonne per kilometer as compared to INR 1.20 (1.9 cents) per tonne by road and INR 0.60 (1 cent) by rail, project cargo movers prefer transportation by rail and road. However, they have to cross hurdles like low-tension and high-tension power lines, weak and nar-row bridges, low tunnels, flyovers, tree branches and welcome boards, besides getting clearances from various govern-ment agencies.
“The main challenge the project cargo movers face is lack of infrastructure for the safe and speedy movement of ODC and super ODC,” said Girish Pandey, managing director of the Chennai-based Alacrity Projects and Logistics Ltd.
Insufficient parking slot and shoul-der width for over-dimensional cargo during night halt permits, temporary decorative arches and welcome boards, alleged harassment from Road Trans-port and Public Works department officials in spite of taking all required permissions, all in an effort to transport cargo impacts the morale of investors, Pandey said.
As an example, Pandey said his company faced many problems while transporting a 420-tonne stator by barge from Mumbai port to Karwar and onward to Raichur by road in the south Indian state of Karnataka for a power project in May 2014.
“The 825-kilometer-long route from the port was one of the most difficult ones, as we had to construct a tempo-rary jetty at Belekeri, dig road under the Konkan railway bridge due to insuf-ficient height clearance, hill-cutting and road-widening while crossing the Yelapur hill section, and also construct a temporary bypass on Krishna River,” Pandey said.
Along with experiencing delays in getting required permits from the gov-ernment agencies, the company had also faced the ire of local people while transiting certain villages, as the heavy equipment damaged nearby roads, he said.
With the project cargo movement set to pick up in 2015, Pandey believes the present logistics infrastructure – which has improved vastly in the last decade
Two transformers weighing 337 tonnes each on their way from Ballia in Uttar Pradesh to Bhiwadi in Rajasthan for the 2,500-megawatt, high-voltage direct current power transmission project. / Credit: Resham Singh & Co.
www.breakbulk.com BREAKBULK MAGAZINE 65
– needs to be fine-tuned to overcome obstacles.
“What the government needs to do is to set up a centralized, single-point authority which should accord all relevant permissions needed to move over-dimensional cargo, increase the minimum height of overhead structures to seven meters, and also construct all new bridges, flyovers and road-over bridges to carry heavy cargo so that India can meet the targets set for next decade,” Pandey said.
Challenges AplentyIn a recent development, the Indian
government has responded to a plea made by the Hydraulic Trailer Owners Association of India to provide online approval for movement of cargo weigh-ing up to 169 tonnes of gross vehicle weight (GVW) as per the Indian Motor Vehicle Act.
Earlier, permissions were given up to 49 tonnes GVW on a mechanical trailer and, if it was over the prescribed weight, the cargo should be moved on a hydrau-lic trailer. The GVW includes vehicle’s weight (about 15 tonnes).
Procam Logistics Director Nilesh Kumar Sinha said the challenges facing the industry are three-fold: regulatory, infrastructure, and skill and competence of service providers.
There is no clarity on the guidelines issued by the Indian Ministry for Road Transport and Highways, as they are interpreted differently by each state to suit its convenience. This results in delays in transporting project cargo and in cost escalation of the project.
“The basic road infrastructure has certainly improved in the last 10 years,” Sinha said. But “non-availability of details or database of en route bridge inventory always delay the permission process from concerned authorities. With a forward-looking approach and the right tools of technology, the govern-ment can ensure glitch-free movement of heavy equipment by road by providing such information,” he said.
Much attention is also being given by the government for transporting ODC by inland waterways and coastal ship-ping, and discussions are taking place to explore the opportunities to utilize cost-efficient haulage of heavy equipment.
“While some progress is on to overcome the first two bottlenecks (reg-ulatory and infrastructure challenges), lack of skills and competence of crew are still posing challenge to us,” Sinha said.
Existing infrastructure is sufficient for present-day requirements, but the Indian government is working proac-tively to address many concerns raised by the operators. Introducing online approvals for movement of oversized cargo will certainly give thrust to many industries such as energy, defense, infra-structure, railways, oil and gas and steel and cement, Sinha added.
Coastal ShippingCoastal shipping is viewed as an
important and alternate mode of trans-portation of project cargo, as almost half of Indian states are maritime states with many major and minor ports. Besides avoiding congestion on roads, coastal shipping would save time and reduce greenhouse gas emissions in the country.
Sanjay Sikka, CEO, projects division, of Direct Logistics, noted that most of the economic activities, such as new power projects, opening and expansion
of oil refineries, new fertilizer units and renewable energy plants, are located in remote corners of the country. Because the project cargo has to be moved from the manufacturing sites (sometimes located in other countries) to major ports and then to the end locations, the government should encourage their movement by coastal shipping.
The federal government should sanc-tion all permissions for project cargo movement and not the states, as the lat-ter have their own set of rules for the transport vendors, he said.
“The logistics infrastructure is not yet in place in most parts of the hinter-land, and getting permissions from the states is making transportation of over-weight cargo as per schedule a costly business,” Sikka said.
Though logistics companies want to move the project cargo by inland water-ways, they are discouraged due to lack of facilities, making coastal shipping also a costly proposition. The existing logistics infrastructure was falling short of expectations of cargo movers, and the government should give lot of push to develop the same, he added. BB
Two ammonia converter reactors, each weighing 300 tonnes, were transported from the factory at Hazira to National Fertilizers project sites in Panipat in Haryana and Bhatinda
in Punjab. / Credit: Resham Singh & Co.
DOING BUSINESS IN TURKMENISTAN
while imports were estimated at US$12.5 billion in 2013, the most recent year sta-tistics were available.
In 2015, Turkmenistan and Turkey intend to conclude an extensive free trade agreement that will boost bilat-eral trade, which totaled US$5 billion in 2013. That potential trade is hindered by inland transport challenges, with Iran at the heart. While there are transport options, 90 percent of Turkey’s land transport to Turkmenistan goes through Iran. Each year 43,000 Turkish trucks pass via Iran to Turkmenistan.
For decades Iran has charged a fuel
reserves are ranked fourth in the world and second in Eurasia behind Russia, according to the U.S. Energy Informa-tion Administration, Its oil reserves in the Caspian are estimated at 12 billion tonnes.
Despite it’s energy resources, Turk-menistan’s government has been slow to implement reforms to attract foreign investment. Nonetheless, power and fertilizer plants, refineries and other enormous projects are going up in the country. According to Turkmenistan’s State Committee of Statistics, the coun-try’s exports totaled US$17.1 billion
A s one of the world’s fastest-growing economies, with huge gas and oil resources, Turkmenistan also holds a
wealth of planned and ongoing infra-structure projects in order to meet the demands of its economy and interna-tional trade.
Turkmenistan is among the five nations bordering the Caspian shores, with Iran, Kazakhistan, Ozbekistan and Afganistan. Turkmenistan’s natural gas
Promising Market Not Without Obstacles
By Burcu Gürses
Turkish forwarding company Dragon shipped by vessel eight amine absorbers, weighing 566 tonnes each, from Port of Derince in Turkey to Turkmenbashi Port for Hyundai Engineering’s gas processing plant. / Credit: Dragon
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TRANSIT ROUTES TO TURKMENISTANThis map shows the main transit route to Turkmenistan via Iran and the alternative route, which the International Transporters Association of Turkey (UND) prefers, starting from the Sarp border crossing, entering Georgia and Azerbaijan, and reaching Turkmenistan by ferry or ro-ro vessel.
Source: International Transporters Association of Turkey
Ashgabat
Turkmenbashi
Tehran
AnkaraSarp
T U R K M E N I S T A N
T U R K E Y
G E O R G I A
A Z E R B A I J A N
I R A N
Gürbulak
Baku
difference fee for Turkish trucks enter-ing Iran, as Iran’s subsidized oil prices were much lower than its neighbors. In November 2013, the International Trans-porters Association of Turkey, or UND, began protesting Iran’s fuel difference fee for Turkish road transportation com-panies, and Turkish authorities started to reject this fee. After negotiations between the two neighbors, Iran agreed to stopped asking for the fee from Turk-ish trucks as of Dec. 1, 2014, but instead started sealing fuel tanks of Turkish trucks at the border gates. The conflict has created long waiting times at the border, stretching the Turkey-Turkmen-istan transit to up to 15 days, according to sources familiar with the issue.
“It is not just the fuel difference fee that Turkish truckers suffer from,” said Fatih Sener, UND’s executive committee chairman. “Turkish trucks have long waiting times entering Turk-menistan while Iran-plated trucks have priority when it comes to border cross-ings in Iran.
As an alternative solution, UND is seeking to use a ferry line between Alat port in Baku, Azerbaijan, and Turken-bashi Port in Turkmenistan.
“What we had requested from Azerbaijani authorities is two ferries operating regularly twice a day for Turk-ish trucks,” Sener said. “On this route Turkish trucks will be able to enter
Turkmenistan in six days,” compared with 15 days with the extended wait times in Iran.
According to Sener a dozen ferries and two roll-on, roll-off ships operate between Baku and Turkmenbashi port. The ro-ros are capable of hauling 30 to 35 trucks. The Caspian route could carry up to 25,000 trucks a year.
“All these ships belongs to Azerbai-jan, and in December Turkmenistan took the delivery of the first ro-ro ship; the second ship will be delivered later,” Sener said. Turkmenistan’s ro-ro ships will be able to carry up to 60 trucks each.
Port CapacityBut in order to meet the growing
demand from the Caspian route, stron-ger port infrastructure is needed, those familiar with the market say.
“Although we are facing different problems while doing business in this country, the main problem is port capac-ity,” said Yavuz Tas, project manager of Hareket Heavy Lifting and Project Transportation. Hareket has been doing business in Turkmenistan since 2002 and plans to open a local office this year.
“There is only one port, Turkmen-bashi, operating in the country. Hareket is performing heavy transportation services, but the port’s capacity is not enough to receive these cargoes. The port needs high-capacity cranes for unloading heavy cargoes,” Tas said.
Turkish company Gap Insaat is build-ing a nearly US$1.5 billion seaport at Turkmenbashi, to be completed by 2017, said Harun Demirci, import and export chief. Gap Insaat has been present in Turkmenistan for 20 years.
The seaport project includes a ro-ro and ro-ro/passenger terminal with capacity for 300,000 passengers and 75,000 trailers per year. Other expan-sion includes a general cargo terminal with capacity of 4 million tons a year; a dry bulk terminal with 3 million tons of annual capacity; and a container ter-minal able to handle 400,000 20-foot equivalent units, or TEUs, per year. The complex will also include a polypro-ylene terminal with annual capacity of
Waterways:1,300 kilometers,
Amu Darya and Kara Kum
TURKMENISTAN QUICK FACTS
* Figures are 2013 unless otherwise noted. Source: The World Factbook, U.S. Central Intelligence Agency.
Population: 5.6 million
Unemployment: 60.0%
12.2% growth rate11.1% 5-year compound annual growth
FDI Inflow: $3.2 billion
GDP (PPP): US$55.16 billion
Inflation (CPI): 4.9%
Pipelines: Gas, 7,500 kilometers Oil, 1,501 kilometers
Railways: 2,980 kilometers
Roadways: 58,592 kilometers
47,577 kilometers paved
Exports: US$17.1 billionImports: US$12.5 billion
www.breakbulk.com BREAKBULK MAGAZINE 69
CABA provided ship unloading, transportation and installation services for a vacuum column weighed 263 tonnes for the Tore roject in 2014. / Credit CABA
120,000 tons and a shipyard able to pro-duce four new ships per year
“Turkmenbashi International Seaport project is the milestone for Turkmenistan,” Demirci said. “The port will be a great gateway for Turkmeni-stan, meeting the handling needs of the country’s export and import traffic.”
Bypasses, EquipmentFor cargo moving across Turkmeni-
stan, there are physical obstacles.“When it comes to project and heavy
cargo road transportations, surprisingly everybody thinks that there is no water in Turkmenistan,” said Igor Tuliev, head of oil and gas for Beyik Yupek Yoly, a Turkmenistan logistics and freight for-warding company. “But there are more than 200 bridges, 11 of them are on the waterway. So this means bypasses.”
“We are facing a lot of bypasses and procedures,” said Tas of Hareket. “We also have some issues about the permits. And Turkmenistan has the road limita-tion as 10 tons per axle, but as Hareket we are carrying 400-500 tons on the roads.”
Turkmenistan lacks consistent and transparent business legislation, according to U.S. Department of Com-merce reports. Laws and regulations are subject to frequent change and con-tradictory interpretations by various government agencies and officials.
Bypasses has also been the main issue for Turkish turnkey forwarder Dragon Shipping & Multimodal, said Taylan Sayın, a board member. Dragon has completed nearly 30 bypasses in 10 years of projects in Turkmenistan, including Hyundai Engineering’s gas process plant in South Yoloten Field.
Mele Berkmuradov, general direc-tor of Beyik Yupek Yoly, stressed that bypasses and other issues were best overcome by finding a local partner.
“Project and heavy shipment compa-nies should find a reliable local partner in Turkmenistan to work with, so they may find the final costs caused by bypasses, since the bypasses in Turk-menistan are really hard to be foreseen,” Berkmuradov said.
CABA, a Turkish heavy-lifting and project logistics company, located its own company in Turkmenistan, with its own parking area and equipment.
However, Kemal Kunt, project and
planning manager, said: “Having your own equipment is not enough in this country. You should also know the facts of this country. For cargoes with gross weight over 150 tons you should be pre-pared for bypasses, which increase the time of the operation and also the costs.”
Having its own equipment enables CABA to provide more reliable and faster service in Turkmenistan, Kunt said. “We have located our own equipments and vehicles such as five units eight-axle semi trailers, 80-axle hydraulic trailers and 12 trucks.”
He pointed out two projects CABA completed in Turkmenistan: 10 units absorbers each weighed 500 tonnes, and a second involving 9,500 tonnes, or about 69,000 cubic meters, of cargos.
“Within these two projects there were 198 units of cargos, each weighed 50 tons and above,” Kunt said. The cargoes were handled at the port with special cranes with capacities to 750 tonnes.
Berkmuradov, of Beyik Yupek Yoly, said: “In terms of equipment, the local market is still developing. Frankly speak-ing there is now approximately 100 axles located in Turkmenistan. Because of the lack of equipment in local market, we prefer to import these services from the
companies such as Hareket who has their own heavy-lift equipment and vechicles.”
Beyik Yupek Yoly has carried out recent projects in Turkmenistan including: Hyundai AMCO National University; TONE, a gas desulphuriza-
tion plant; and TORE, in which South Korea’s Hyundai Engineering Co is imple-menting a $534 million modernization project at the Turkmenbashi refinery, Turkmenistan’s largest oil refinery.
Turkmenistan’s booming market will entice new participants to operate in the challenging conditions. Finding local partners with adequeate knowledge and equipment is key to successfully com-pleted project shipments. BB
“Having your own equipment is not
enough in this country. You should also know the facts
of this country.”— Kemal Kunt
insurance
JANUARY-FEBRUARY 2015
best as possible. For example, where there is exposed metal, confirm that desiccants are used to protect your cargo from water damage, condensa-tion or atmospheric conditions that could result in rust damage.
Should a claim occur, it’s impor-
tant to know the proper course of action to follow and to act promptly. A prudent first step is to immediately notify the under-writer and request that a cargo surveyor be appointed to inspect the damages. Take pictures of all of the cargo (damaged and undamaged), packing, etc., and submit the photos to your insurer at the time the loss is reported.
While the insurance you purchase for your cargo is there to protect you, you will also want to ensure that your insurer does what they can to recoup any money paid out to keep your policy’s loss ratio at a minimum. The loss ratio is defined as the total losses incurred by an insurance company in the form of claims divided by the collected premium to determine a percentage. For example, if a company pays $800 in claims for every $1,500 in collected premiums, then the company has a loss ratio of 53 percent. Money that an insurer collects from a negligent party can reduce your loss ratio by crediting that amount back to the claim. A poor loss ratio can result in higher insurance premiums or even cancellation of your policy.
Shipping breakbulk cargo is a costly venture. Depending on the type of cargo being transported, fees incurred for extra resources such
as additional longshoremen, cranes, dock space, and pre-shipment surveys can quickly add up. Taking steps to manage overall costs should include an assessment of potential exposures to cargo and what can be done to minimize the risk of loss or damage.
Purchasing cargo insurance is a com-mon method of transferring the risk of financial loss to an insurance company. However, a large loss may impact future insurance costs, so it is critical that the insurance company aggressively pursues the negligent party when possible.
There are several steps you can take to ensure your financial interests and cargo is protected. Most importantly, arrange for your cargo to be insured. Provide all per-tinent details of the voyage, including type of cargo and value of the cargo to your insurance provider and know what to do in the event a loss occurs.
Often, a cargo insurance underwriter may require that a pre-shipment inspec-tion is prepared. If a survey is required, ask that the underwriter recommend survey companies. The surveyor should be a qualified marine cargo surveyor with knowledge of your specific product. Often times the surveyor appointed has knowl-edge of cargo claims, but not necessarily your specific type of cargo.
Be aware of whether your cargo will be stowed on deck and therefore exposed to the elements such as seawater, rain and changes in temperature. Cargo that is stowed on deck should be protected as
Karen Rzeszutko
Being Prepared Key to Limiting Shipping Risk, Costs
By Karen Rzeszutko
MINIMIZE RISK
www.breakbulk.com BREAKBULK MAGAZINE 71
Collecting From Liable CarrierHow much can one expect to recover
from the negligent party? This question has been tested over time by decisions made through the courts, which pave the way in determining how much a carrier is liable to pay in the event of loss or damage.
If cargo is stowed on deck without your knowledge and the bill of lading does not treat the cargo as having been shipped on deck, the court may find the carrier liable in full and that their limita-tion of $500 per package would not apply as it is a deviation of the contract.
You can also declare a higher value. A carrier is obligated to offer you a choice of increasing their liability from the standard $500 per package. This is not often done as most cargo is insured under a cargo owner’s own insurance policy. A carrier’s failure to offer you the option to declare a value may be a way to circumvent their $500-per-package limi-
tation. In order to limit their exposure, carriers may seek to include the follow-ing wording on the bill of lading:
Carrier shall not be responsible for any loss of or damage to the goods stowed on deck from any cause whatsoever including negligence or unseaworthiness of the ship, or Carrier shall not be responsible for any loss of or damage to the goods stowed on deck whether or not caused by the perils of the sea, by the carrier’s negligence or by the unseaworthiness of the ship.
Accepting these limiting terms can effectively waive the insurance com-pany’s right to subrogate, so it is strongly recommended not to accept them.
If the carrier is found to be grossly negligent, then the chance of recovering more than the standard $500-per-pack-age limitation increases. To be grossly negligent means that the carrier com-
mitted a deliberate act resulting in loss or damage to the cargo.
Minimizing the risk of loss and subsequently managing the high costs of shipping breakbulk cargo can be achieved by incorporating some basic steps into your risk management strat-egy. It is essential to know your cargo, purchase insurance to transfer the risk of loss and discuss the risk in full with your insurance provider. Should a loss occur, follow all necessary steps to file a claim and maintain the insurance company’s right to subrogation against the responsible carrier. Ensure that sub-rogation activities are pursued. Being prepared in advance is the key to mini-mizing risks and costs associated with shipping breakbulk cargo. BB
Karen Rzeszutko is assistant vice president professional liability claims for Roanoke Insurance Group Inc.
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regional capital Erbil.The offensive has been a major wakeup call for
foreign companies operating in Kurdistan with the IS offensive interrupting oil operations of local and international companies, following the precaution-ary, temporary evacuations of staff and families. The clear reality of operating anywhere in the region is that the security situation has never been benign, and that robust risk management is critical to sustainable operations.
With the effective counter to the IS advances by Kurdish forces supported by U.S. airstrikes, relative normality has returned to Kurdistan. Many employees of smaller foreign companies have returned to Erbil and commerce is being
For the last decade Kurdistan has been sheltered from the turbulent political and security environment across the rest of the region, allowing companies – primarily
the oil sector and associated industries – to operate relatively normally and profitably.
The protracted and devastating war in neigh-boring Syria, and the takeover of large areas of northern and central Iraq by Islamic State (IS) jihadists during the first part of 2014, caused concerns to business in Kurdistan. That is until mid-year when a sudden advance by IS militants saw local military forces, known as Peshmerga, retreat from positions around Mosul, and IS take territory as close as 30 kilometers from the
SHELTER FROM THE STORM
Paul Beat
Managing Risk in Northern Iraq-Kurdistan By Paul Beat
In this December photo, a Kurdish fighter in Kirkuk sits in a vehicle heading to the front line against the Islamic State. / Credit: Chen Xu Xinhua News Agency/Newscom
www.breakbulk.com BREAKBULK MAGAZINE 73
conducted, although the city is quieter than before the offensive. Many busi-nesses are limiting the movements of their foreign staff as the harsh reality of the underlying instability in the region hits home. Notwithstanding the positive messages coming from the Kurdistan administration at various conferences around the world, it will take some time for foreign confidence in Iraqi Kurdistan to be rebuilt.
There is little doubt Kurdistan is suf-fering from an economic crisis bought about by the offensive and the perception of a very challenging business environ-ment. Events during the second half of 2014 have exposed the fragility of the per-ceived security bubble in Kurdistan, and the extent to which it remains vulnerable to developments in neighboring countries and provinces. The challenges facing Kurdistan as a result of the ongoing secu-rity crisis in Iraq show that for foreign companies, concerns about terrorism, security and stability in the region are unlikely to fade in the coming years.
But Kurdistan remains resilient and has ambitious targets around oil produc-tion over the next couple of years. With the threat of IS unlikely to abate in the medium term, critical to this economic recovery is the importance of geography
(open plains conducive to airstrikes and the separation from IS strongholds such as Fallujah in Iraq and Raqqah in Syria) and relatively coherent Kurdish forces providing insulation and protection from conventional IS attacks in comparison to Arab Iraq.
But beyond the conventional security threat, other risks pose significant busi-ness challenges, not least of which is the continued budget dispute with Baghdad and the ongoing shortage of refined fuel, the impact of which is widespread and includes increased logistics costs from Turkey coming into Kurdistan.
Easy access to northern Iraqi areas such as Mosul and Kirkuk from the relatively safe Kurdish region was once an aspect of the Kurdistan’s appeal. But now, the viability of these borders has led to considerable concern. A huge influx of refugees into Kurdistan from IS-controlled land, and the likely increased IS frustration due to its inabil-ity to achieve territorial gains against organized Kurdish forces supported by airstrikes, will probably lead IS to resort to terrorist attacks on key Kurd-istan targets. To date, Erbil, Dohuk and Suleimaniyeh have not experienced any-where near the level of violence seen in neighboring provinces such as Nineveh
(Mosul) or Tamim (Kirkuk).That said, the effectiveness of secu-
rity forces has likely prevented many attacks in Kurdish cities – where they are much less overstretched than along the borders with Mosul or Kirkuk. Addi-tional foreign aid and training pledged to the Peshmerga will probably boost these capabilities. In turn, this reduces the likelihood that Erbil and other Kurdish cities would become the site of regular terrorist bombings.
So in this respect, although the short-term security situation is disconcerting, looking to the next five years of this struggle the story is much more positive, with Kurdistan remaining at a security advantage over the rest of Iraq, while IS continues to struggle on all its fronts in the face of increasingly better trained and supported Iraqi forces, airstrikes and counter-insurgency operations.
When we consider calculating secu-rity risk for foreign investment it is clear that Kurdistan has the significant advan-tage over Iraq. The only problem – and this could challenge smaller companies in Kurdistan – is the risk of IS infiltrating and suicide bombing the main Kurdistan cities. But if this would eventuality occur, as it has done in the past, it would not be on anything like the same scale as in Arab Iraq and would not disrupt international oil companies’ operations.
For companies considering investing or continuing to operate in Kurdistan-Northern Iraq, robust security risk management will be a critical concern. Success in this most challenging of mar-kets will require steady nerves, a clear strategy and a granular appreciation of the plethora of security-related business risks. Prior planning in the form of risk workshops will usually provide clarity. Companies must have robust security plans and procedures in place, managed by security professionals. Crisis management and response plans need to be regularly reviewed and exercised and evacua-tion procedures in place at all times. Governance risk will undoubtedly be considerable during these turbulent times. Corruption is pervasive due to factors including inadequate law enforcement. BB
Paul Beat is CEO of Brecon Group, a specialist risk management consultancy focusing on the Middle East and Africa.
In this December 2014 photo, blue flags mark the front line with the Islamic State in an operation command of Kurdish fighters in Kirkuk. / Credit: Chen Xu Xinhua News Agency/Newscom
INDEXreakbulk cargo is an eclectic mix, encompassing forest products, steel, pressure vessels, windmill blades, rolling stock and out-of-gauge items.
With this in mind, BREAKBULK INDEX data ranges from steel production to details of planned capital projects.
The global nature of today’s breakbulk and heavy-lift sectors requires transportation professionals to be on top of economic trends worldwide, which calls for inclusion of focused macro-economic data on prices and events that affect EPCs, the breakbulk community and the multipurpose fleet.
B
www.breakbulk.com BREAKBULK MAGAZINE 75
Source: Danske Market Equities, www.danskebank.dk
EUROPEAN FREIGHT FORWARDING INDEX
The index, based on European forwarders’ actual and expected freight volumes, remains below 50 although August marked an increase. Values below 50 on the zero-to-100 scale indicate a decline.
FORWARDING INDEX
JF
MAMJJASONDJF
MAMJJASONDJF
MAMJJ ASONDJF
MAMJJASONDJF20
1520
1120
1220
13
Actual Forecast
80706050403020100
2014
FOREST PRODUCTS: PULP INDEX
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
125
100
75
Pulp prices cost, insurance and freight to main European ports were normalized to 100 in January 2000 and are based on average euro prices of northern and southern bleached softwood and eucalyptus kraft and northern bleached hardwood kraft pulp weighted by production volume.
EUROPE
2012 2013 2014
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
175
150
125
100
75
Delivered pulp prices were normalized to 100 in January 2000 and are based on average US$ prices of northern and southern bleached softwood kraft, bleached eucalyptus kraft, and northern bleached hardwood kraft pulp weighted by production volume.
NORTH AMERICA
2012 2013 2014
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
175
150
125
100
75
Pulp prices cost, insurance and freight to main East and Southeast Asian ports were normalized to 100 in January 2003 and are based on average US$ prices of northern, southern and Russian bleached softwood, radiata, eucalyptus and mixed tropical hardwood pulp weighted by production volume.
ASIA
2012 2013 2014Source: RISI, www.risi.com
FOR
EST PR
OD
UC
TS
$
FOR
WA
RD
ING
IND
EX $
JANUARY-FEBRUARY 201576 BREAKBULK MAGAZINE www.breakbulk.com
bb index
Transparency International ranks the perceived levels of public sector corruption in 175 countries/territories around the world. More than two-thirds of the countries score below 50.
CORRUPTION PERCEPTIONS INDEX 2014
COUNTRY/ RANK TERRITORY SCORE
1 Denmark 922 New Zealand 913 Finland 894 Sweden 875 Norway 865 Switzerland 867 Singapore 848 Netherlands 839 Luxembourg 8210 Canada 8111 Australia 8012 Germany 7912 Iceland 7914 United Kingdom 7815 Belgium 7615 Japan 7617 Barbados 7417 Hong Kong 7417 Ireland 7417 United States 7421 Chile 7321 Uruguay 7323 Austria 7224 Bahamas 7125 U.A.E. 7026 Estonia 6926 France 6926 Qatar 6929 St. Vincent & the Grenadines 6730 Bhutan 6531 Botswana 6331 Cyprus 6331 Portugal 6331 Puerto Rico 6335 Poland 6135 Taiwan 6137 Israel 6037 Spain 6039 Dominica 5839 Lithuania 5839 Slovenia 5842 Cape Verde 5743 Korea (South) 5543 Latvia 5543 Malta 5543 Seychelles 5547 Costa Rica 5447 Hungary 5447 Mauritius 5450 Georgia 5250 Malaysia 52
Source: Corruption Perceptions Index 2014, Transparency International, www.transparency.org/cpi.
COUNTRY/ RANK TERRITORY SCORE
50 Samoa 5253 Czech Republic 5154 Slovakia 5055 Bahrain 4955 Jordan 4955 Lesotho 4955 Namibia 4955 Rwanda 4955 Saudi Arabia 4961 Croatia 4861 Ghana 4863 Cuba 4664 Oman 4564 The FYR of Macedonia 4564 Turkey 4567 Kuwait 4467 South Africa 4469 Brazil 4369 Bulgaria 4369 Greece 4369 Italy 4369 Romania 4369 Senegal 4369 Swaziland 4376 Montenegro 4276 Sao Tome & Principe 4278 Serbia 4179 Tunisia 4080 Benin 3980 Bosnia & Herzegovina 3980 El Salvador 3980 Mongolia 3980 Morocco 3985 Burkina Faso 3885 India 3885 Jamaica 3885 Peru 3885 Philippines 3885 Sri Lanka 3885 Thailand 3885 Trinidad & Tobago 38
COUNTRY/ RANK TERRITORY SCORE
85 Zambia 3894 Armenia 3794 Colombia 3794 Egypt 3794 Gabon 3794 Liberia 3794 Panama 37100 Algeria 36100 China 36100 Suriname 36103 Bolivia 35103 Mexico 35103 Moldova 35103 Niger 35107 Argentina 34107 Djibouti 34107 Indonesia 34110 Albania 33110 Ecuador 33110 Ethiopia 33110 Kosovo 33110 Malawi 33115 Côte d´Ivoire 32115 Dominican Republic 32115 Guatemala 32115 Mali 32119 Belarus 31119 Mozambique 31119 Sierra Leone 31119 Tanzania 31119 Vietnam 31124 Guyana 30124 Mauritania 30126 Azerbaijan 29126 Gambia 29126 Honduras 29126 Kazakhstan 29126 Nepal 29126 Pakistan 29126 Togo 29133 Madagascar 28133 Nicaragua 28
COUNTRY/ RANK TERRITORY SCORE
133 Timor-Leste 28136 Cameroon 27136 Iran 27136 Kyrgyzstan 27136 Lebanon 27136 Nigeria 27136 Russia 27142 Comoros 26142 Uganda 26142 Ukraine 26145 Bangladesh 25145 Guinea 25145 Kenya 25145 Laos 25145 Papua New Guinea 25150 Central African Rep. 24150 Paraguay 24152 Congo Republic 23152 Tajikistan 23154 Chad 22154 Dem. Rep. of the Congo 22156 Cambodia 21156 Myanmar 21156 Zimbabwe 21159 Burundi 20159 Syria 20161 Angola 19161 Guinea-Bissau 19161 Haiti 19161 Venezuela 19161 Yemen 19166 Eritrea 18166 Libya 18166 Uzbekistan 18169 Turkmenistan 17170 Iraq 16171 South Sudan 15172 Afghanistan 12173 Sudan 11174 Korea (North) 8174 Somalia 8
CO
RR
UP
TIO
N
$
www.breakbulk.com BREAKBULK MAGAZINE 77
ECONOMY, ASIA-PACIFIC
Inflation rates are expected to reduce across the Asia-Pacific region in 2015, except for projected increases in Indonesia and Malaysia.INFLATION FORECAST
10%
8%
6%
4%
2%
0%
AUST
RALIA
CHIN
A
HONG
KON
G
INDI
A
INDO
NESIA
JAPA
N
MAL
AYSIA
NEW
ZEAL
AND
PHILI
PPIN
ES
SINGA
PORE
SOUT
H KO
REA
TAIW
AN
THAI
LAND
2013
2014
2015*
2016*
*Forecast
Current account balances are the difference between a given nation’s imported and exported goods, services and transfers and are an indicator of foreign trade trends.
CURRENT ACCOUNT FORECAST
$300
$250
$200
$150
$100
$50
$0
-$50
MAL
AYSIA
PHILI
PPIN
ES
TAIW
AN
CHIN
A
SOUT
H KO
REA
INDI
A
JAPA
N
NEW
ZEAL
AND
SINGA
PORE
THAI
LAND
INDO
NESIA
AUST
RALIA
HONG
KON
G
2013
2014
2015*
2016*
Economists largely forecast GDP growth among Asia-Pacific countries to be consistent with 2014 results. GDP FORECAST
8%
6%
4%
2%
0%SO
UTH
KORE
A
SINGA
PORE
INDI
A
CHIN
A
PHILI
PPIN
ES
HONG
KON
G
MAL
AYSIA
THAI
LAND
INDO
NESIA
NEW
ZEAL
AND
AUST
RALIA
JAPA
N
TAIW
AN
2013
2014
2015*
2016*
*Forecast
Source: Consensus Economics, www.consensuseconomics.com
*Forecast, in US$billions
EC
ON
OM
Y, ASIA
-PAC
IFIC
$
JANUARY-FEBRUARY 201578 BREAKBULK MAGAZINE www.breakbulk.com
bb index
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PIRACY
NIGERIAN MARITIME SECURITY INCIDENTSAttacks in Nigerian water have fallen dramatically since a November high. Efforts to combat piracy off the Horn of Africa have been largely successful; there hasn’t been an incident since April.
Total Failed Attacks Hijackings Attempts Theft Robbery
October ‘13 9 4 5 0 0November 5 2 1 0 0December 3 1 2 0 0January ‘14 5 3 2 0 0February 7 3 3 0 1March 10 5 4 0 1April 4 0 3 0 1May 5 1 1 0 2June 6 5 1 0 0July 3 1 2 0 0August 7 3 3 0 1September 5 1 1 0 3October 9 6 3 0 0November 13 5 7 1 0December 9 2 5 1 1January ‘15 3 2 1 0 0
Note: “Failed” includes attempted robberies/thefts as well as hijackings. “Hijackings” include kidnappings from vessels.
Source: Risk Intelligence, www.riskintelligence.eu
SOUTHEAST ASIA MARITIME SECURITY INCIDENTSWhat a difference a year makes. In January 2014, there was one attack in South East Asia, a robbery. In January 2015 there were 15, including two hijackings.
Total Failed Attacks Attempts Hijackings Theft Robbery
October ‘13 19 9 1 4 5November 13 4 0 6 3December 13 3 0 9 1January ‘14 1 0 0 0 1February 7 1 0 0 6March 9 2 2 1 4April 12 1 4 5 2May 18 11 1 2 4June 15 2 3 4 6July 14 5 2 1 6August 14 6 1 4 3September 8 2 3 2 1October 26 7 4 8 7November 20 9 0 5 6December 16 7 1 3 5January ‘15 15 6 2 3 4
Note: “Failed” category is for attempted robberies/thefts, not hijackings.
PIR
AC
Y
$
www.breakbulk.com BREAKBULK MAGAZINE 79
Background“My background is in truck deregulation,” Emmett said in
an interview. With the ICC in his 30s, his focus was on the rail-roads as well as trucking.
“One of the major issues that I had been working on in Texas — to give you an idea of how absurd it was at the time — was that UPS could not deliver point-to-point within the state of Texas, because the Texas Railroad Commission regulated it, and said you had to operate on fixed routes on a fixed schedule,” he explained. “Well, UPS doesn’t go to your house every Tuesday. A lot of businesses came to me and others and complained, because what was happening was that it was cheaper to ship — if you wanted to ship from Houston to Dallas — you would ship from Houston to Shreveport, La., and then back to Dallas. And that way it was an interstate move instead of an intrastate.
Edward M. Emmett jokes that he’s managed signifi-cant accomplishments in international shipping and logistics, all without ever moving a pound of freight in his life.
“It’s an interesting path I’ve followed,” admits Emmett, who has been Harris County Judge in Texas since 2007.
Emmett was appointed by President George H.W. Bush in 1989 to the Interstate Commerce Commission — now the Surface Transportation Board — for three years. Emmett
served as president and chief operating officer of the National Industrial Trans-portation League for more than 10 years. He’s been a member of the Texas House of Representatives, worked as a transporta-tion consultant in private industry, and in addition to being county judge, heads up Harris County’s Office of Homeland Secu-rity and Emergency Management, a role, he says, “that took on special significance when Hurricane Ike” struck the Gulf Coast in 2005.
Although his title is “judge,” Emmett has no law degree, but does have a deep background in transportation issues. He was named one of the “Top 20 Logistics Professionals” by the Logistics Forum in 2003, and Transportation Clubs International named him its “Transportation Person of the Year” in 2005.
“In any other part of the country, I’d be called a ‘county executive,’ ” he said.
Harris County itself is enormous. The third-largest county in the U.S., more densely populated than 24 U.S. states. It’s also home to the Port of Houston, an important player on the inter-national shipping scene.
Emmett “has been a valuable and public leader when it comes to the Port of Houston because he has this deep trans-portation background, not just in rail but also in shipping. He knows the full package,” says Ned Holmes, former Texas trans-portation commissioner and chairman emeritus of the Port of Houston Commission.
Emmett’s career path might have taken a few turns, but a consistent theme has been in-depth knowledge of the industry and an almost uncanny sense of its future.
“My staff’s gotten tired of this analogy, but for years I’ve talked about how the freight system is really the circulatory system of the economy,” he said. “If you go to your doctor, they always check your circulatory system, because if your circulation slows down, your health is going to go bad. The same is true of an economy. You have to make sure that the circulatory system — mainly, the freight network — functions efficiently.”
PATH OF CHANGE
Edward Emmett
Emmett’s Career, Shipping’s Evolution Entwined by Lily Casura
profile
profile
JANUARY-FEBRUARY 201580 BREAKBULK MAGAZINE www.breakbulk.com
“So, I carried legislation to try to change that, in Texas — and we got much of it done.”
Fortunately for industry, Emmett and the other ICC commissioners were able to push through true deregulation that took the state regulatory agencies out of the picture and created a more efficient truck-ing industry. “I think that’s been one of the
boons to the economy. Then we tried to do the same for ocean shipping,” he said.
To accomplish that, he moved from the ICC to the NIT League.
“In 1994, the National Industrial Transportation League board said, ‘you know what? You’ve managed to deregu-late trucking nationally; we’d like you to deregulate ocean shipping.’ Because at
that time, the United States was perhaps the only country — there may have been a few more, but it was by far the only one that mattered — where you had a filed rate doctrine, where you had to file your rates with the Federal Maritime Commission.
“In my typical fashion, I knew what a ship looked like; other than that, I didn’t know anything about maritime law. And so I gave a speech to the maritime bar in Washington, D.C., and said basically, ‘We’re going to deregulate all this … and maybe even do away with the Federal Maritime Commission,’ and that got everybody’s attention.”
Four years later, the result was the Ocean Shipping Reform Act. Effective May 1, 1999, OSRA modified the Ship-ping Act of 1984, effectively deregulating ocean shipping and making it more market-driven.
“And the world of ocean shipping changed,” he said.
‘Transportation Wonk’Emmett believes he’s seen as a
“transportation wonk,” with freight transportation being “where I spend the bulk of my thought process.”
In this role, Emmett is a strong pro-ponent for shipping within the Texas Gulf Coast. “I give 10-12 speeches a week to various groups; and in nearly every
Edward Emmett on a recent tour of the Houston Ship Channel near the Port of Houston. Credit: Port of Houston Authority
www.breakbulk.com BREAKBULK MAGAZINE 81
BrazilJuan Marcelo Oyarzun [email protected]+55 (11) 969 03 0636
ASIADiego [email protected]+852 (2) 161 3377
EUROPENicolas [email protected]+34 (913) 990 087
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Andrew [email protected]+1 (11) 969 03 0636
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C
M
Y
CM
MY
CY
CMY
K
Aviso 1-3_13NOV.pdf 1 13-11-14 18:19
one I manage to work in a reference to the Texas Gulf Coast, not just Houston, but the (whole) area we live in: Houston, Freeport, Galveston, even Beaumont and Port Arthur,” he said.
In his talks, Emmett points out that more and more traffic is being routed across the Atlantic.
“If you just realize that five or six of the 10 most populous cities in the world are going to be on or near the Indian Subcontinent. I think India is going to be the next China,” he said. “And that traffic is going to come through the Suez Canal to North America.”
And as more trade moves across the Atlantic, Emmett stresses “there needs to be a gateway not to North America but of North America.” And he sees the Gulf as perfectly positioned to play that role.
“All you have to do is look at a map or at a globe, and particularly if you understand that Mexico is part of North America,” he said. “Roughly one-third of the overseas imports into Mexico come through the Port of Houston.”
Creating that gateway requires people to focus on freight, he said. “Most people when you talk about trans-portation improvements, they think ‘commute.’ Texas right now is in the middle of an economic miracle, but that is going to come to a grinding halt if we
don’t build the infrastructure to allow freight to move (efficiently) into and out of ports. They’ll go somewhere else. And we need to get as much of that freight onto trains as we can, because that will help to remove the highway congestion.
Emmett says he will ask audiences at speeches questions, like what’s the largest U.K. container port. “They want to say, ‘London,’ or something like that. Of course it’s Felixstowe, which is built out in the middle of nowhere — because it has the infrastructure to move the freight into and out of that port.
“One of the things that I find energiz-ing is to talk to people and explain the logic of freight transportation, and also the fact that it has no conscience, if you will. (A company like) Wal-Mart is going to put their distribution center in the most efficient place possible,” he said.
“Trying to stay on top of those effi-ciency measures is exciting. And being able to look ahead and say, ‘you know what? Nobody thinks about India, but India is going to have great potential. In the 1950s and ’60s even, it was ‘Japan.’ And then recently, it’s been ‘China.’ Well, if you’re not in China now, you’re too late,” he said.
He looks back to a time when rail-roads weren’t interested in the prospects of intermodal transportation because they failed to see the profit in it.
“So those things all change,” he said. “One of the things I do all the time is try and make sure people understand the need to constantly change and be as effi-cient as we can in moving freight.
Looking back on a career that’s seen a revolution in the shipping industry, Emmett insists big changes are still to come.
“I’ll give you an example,” he said. “When they asked me to look at the Panama Canal and its impact on Texas, I said, ‘You’ve probably got the wrong guy, because I don’t really think it’s going to be that big a deal.’ And so I had to explain to people how a ship will bypass LA-Long Beach coming from China, and come through the canal, and exit at a port East of Houston. It’s basically an 11-day trip. That’s poor utilization. If you’re the shipowner, you’re not going to want to tie up your ship for that long; and railroads are very happy to follow and forward that freight from the West Coast, keeping it more in-country.”
Does Emmett see changes in the types of cargo being shipped?
“Yes, but I can’t tell you what it is. The one thing that I’ve learned about it is, if I knew those answers (in advance), I’d be getting rich,” he said with a laugh. “So yes, I know that it’s going to change; I just don’t know what it’s going to be.” BB
opinion
JANUARY-FEBRUARY 201582 BREAKBULK MAGAZINE www.breakbulk.com
During the 1990s, supply chains began stretching around the world as shipping times and costs shrank and trade rules and information technology simplified. Now, domestic inputs are rising and foreign inputs are falling in China, determined to grow past the middle-income trap, and these appear to be stabilizing in the U.S. In other words, the report suggests that, even as ever-more-massive container ships ply the oceans, the world’s most important supply chains are actually either contracting or not changing.
That may signal even fiercer competition to come for all cargo: little letup in sight for our carriers, in other words. BB
A fter four years of hovering near $105 per barrel, the price of oil began sliding in mid-2014, recently nearing US$50. The
implications are mixed for the project cargo world, especially when global trade may be slowing as well, according to the World Bank.
Lower oil prices raise the risk factor for unconventional or difficult-to-get-at energy projects such as oil in far-off African hin-terlands or buried deep under the Brazilian presalt. These multibillion-dollar projects entice when oil prices are high – the “magic number” I’ve heard ranges from $90 to $100 per barrel – and of course the price will rise again someday. But for now, many projects have been canceled or delayed.
The ensuing loss or delay of the lucra-tive project cargo related to these projects is particularly painful for the project carrier niche. Bunkers may cost less as oil prices fall, but rates continue in the doldrums and over-capacity, cargo loss, unforgiving banks and fierce competition from the bulk and con-tainer sectors appears to have some carriers hanging on by their fingernails.
Not that project cargo isn’t moving; it is. In the U.S., for example, low energy prices have boosted a multibillion-dollar manu-facturing, refining and refurbishing boom nobody dreamed of just a couple of years ago.
However, something more than falling energy prices and vessel overcapacity may also be affecting the transportation indus-try. The growth of global trade appears to be slowing overall. It increased an average of 3.4 percent per year from 2012 -2014, a significantly slower pace than the pre-boom average of 7 percent, according to a recent World Bank report.
This is in spite of slowly recovering GDPs; world trade is not responding to increasing GDPs with its previous elasticity. There are several possible explanations, and a likely candidate may be a long-term structural change.
FALLING PRICES, SHRINKING CHAINS
By Janet Nodar
“Even as ever-more-massive
container ships ply the oceans,
the world’s most important supply
chains are actually either contracting or not changing.”
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