JM: With the growth of the heavy lift and project cargo industry over the past decade, we’ve also encountered the global debt crisis, the Eurozone crisis, and China contracting, constricting, or otherwise limiting their trade. From an infrastructure development standpoint, what has been the impact of these issues on the projects you have been involved with? What has been the impact to Intermarine?
AG: When there is a crisis, project movement lags, whereas the bulk industry reacts almost immediately. Projects can’t stop immediately and they don’t start immediately. Essentially, there is a lag-effect in our industry and it can vary depending on the region, so it could be 8 months or longer, and that’s both in the up and down cycles.
I think that’s one feature of our industry if you relate it to the bulk industry. The demand for projects, or our type of cargo, is very difficult to forecast, because there aren’t many people following it and many people don’t report what’s on their books. Our view of the market has to be developed from what our clients tell us what’s coming. However, I think the complication for our market is that, like other parts of shipping, during the last decade or more our industry was really over-built, so the oversupply of tonnage is outstripping the forecasted demand, and has done so consistently since 2009 through 2013, from what we can see of newbuildings.
This overbuilding has had a few driving factors. The major factor is the KG system in Europe which has made Germany the largest ship-financing region. Many ships were built on speculation, and by people who didn’t operate them themselves, they did it because the money was available, and what you have now is equivalent to a sub-prime condition. Equity was available from private investors who got tax deductions, these funds were created and promoted by the financial community, and this really led to a boom in building of multi-purpose, heavy lift, and container vessels as well. It was completely overbuilt without any real notion of what the demand cycle was, and it far outstripped what many of the traditional carriers in this segment themselves had forecasted. The market became distorted, and that distortion is a bubble that will continue here until supply and demand comes into sync.
One of the difficulties in our industry, and I’m guessing some others, is that having the equipment, and having the ships is one thing, but having the personnel that are competent and capable of operating them, is in fact, in short supply. So, many of these ships are out on the market providing “space”, but they are effectively bringing down the industry. I would say the problem has been pushed down the road by the German banks with moratoriums etc etc and they anticipate of the market recovering, but that hasn’t happened. So, I think we’re expecting some redistribution of control, but that redistribution of control won’t necessarily improve the market if the ships don’t get into the proper hands in terms of how they can be used and managed.
JM: Regarding personnel competency and capability and some of the extended services you offer beyond A-to-B ocean-going service, where do you extend your logistics management expertise? How far into the supply chain to you go?
AG: Essentially, we go as far as our clients have wanted us to go.
One of our difficulties is that the freight-forwarding community is often involved in this as well, and in many cases, they arrange the ocean transportation. So, they are in fact our customers. We cannot, and do not, compete with them on a direct basis, however on certain projects, we have quotes on cargos that have included services including road building, believe it or not, we’ve participated in barging, we have a barge in Venezuela that has brought the equipment alongside the Jose Refinery, and was the only barge available that had the capability to do that. We’ve certainly done trucking, collaborated with heavy haul folks, all the way up to quoting on some erection. We offer packing at the terminal for people who want to consolidate their cargos in a single location from multiple suppliers. Clearly we do whatever is required on the documentation front, and I think that all these services, we can either do them in-house, or we collaborate with others in the industry, so it can all be done with the shipper going to a sole-source.
We’ve made arrangements, for example, for folks to be able to transport cargos from ship-side to their final destination by using berths where rail is available. So, essentially, we are flexible in our approach to how we handle transportation solutions, and even if we are not the party who does the direct contracting, we try to involve ourselves as early as possible into the lifecycle of a project, so that the proper pre-planning can be done. I suppose it’s no different in most businesses, but if you’re involved early enough in project cargos, quite often, you can achieve a much more effective and efficient operation in the end, and it puts people on the same page. We try to avoid surprises.
JM:I’ve seen on your website that you have a couple of images of ships carrying wind turbine blades which falls outside of heavy lift, and moreso into the project cargo domain. Do you see a difference with your services as they relate to the wind turbine industry?
AG: Let me make our position on heavy lift and project cargo clear. Our formula is that our business needs to run on a combination of cargos. Essentially, almost anything up to and including containers in some cases, in our view, qualifies as project cargo because a combination of cargos is necessary to make a successful voyage. Irrespective of how much cargo there is, if you don’t have it in the right combination on a vessel, then you cannot produce a successful and profitable voyage. So, with the number of ships in the world today, and the way cargo flows go, we certainly do not build our business around heavy lift cargoes. Heavy lift cargoes are not that large of a percentage of our overall cargo mix. Cargo mix is really what’s key in being successful in this industry in an ongoing basis. I think that essentially is how we’ve always treated voyages. We’re always combining various commodities in the best possible combination for a good outcome.
Wind blade equipment today, probably constitutes roughly 20% of ocean-borne multi-purpose heavy lift cargo today. It has become extremely important for a number of reason. For one, it moves almost from everywhere to everywhere these days, and producers are both importing and exporting from the same locations sometimes, which is not so easy to understand in some cases, but it’s become a commoditized business in many ways. It has produced a large volume of cargo. These cargos require specialized vessels due to their dimension, not because they are heavy. They need to stow on vessels in a way that makes them more economically viable to transport because they are not that highly valued. So, as part of the project multi-purpose heavy lift cocktail, they are a vital ingredient today. Some of the turbines, and the other structures such as the towers, can of course get quite heavy, and they move as well. The blades are a very important part of the global cargo movement.
Thinking about project and heavy-lift cargo, I would not make the distinction that only heavy pieces are project cargo. There exists the Heavy-Lift Club, which was modeled after the Container Box Club where many of the world’s heavy lift carriers get together twice a year on the CEO-level. The qualification to “join” the club is to have vessels of 150-ton lifting capacity continuously employed in service. If you look at a cross section of the members, it’s quite clear that the majority of them are engaged in things other than just heavy lift cargo. There are many ships today that have heavy lift cranes, but it doesn’t mean they are in that trade on a continuous basis or even necessarily on a high frequency of service in the heavy lift sector. There are many ships that have 150-ton lifting capacity in the modern fleet, and where as years ago we traditionally called things over 150-ton as heavy lift cargo, that story is different today. Many “multi-purpose” vessels which are capable of carrying containers and homogenous cargos and so forth are also equipped with good gear of over 100 tons.
by Salvatore R. Mercogliano, Ph.D. (gCaptain) This Veteran’s Day we remember the thousands of Soldiers, Sailors, Marines, Airmen, and Coast Guardsmen who gave their lives in defense of the United States...