Chaotic break bulk market does not return to pre-pandemic norms

Breakbulk and project logistics providers are making healthy profits due to near-record demand, but their schedules are less reliable. Photo courtesy of: SAL heavy lift.

Project and Break Bulk Logistics executives expect strong cargo demand for the project, despite tackling the unpredictable and expensive shipping market with no signs of returning to its pre-pandemic status quo. increase.

“We have pushed change to us. If the industry does not change in terms of people, processes and technology, the industry will retreat and the risks will be enormous,” said Deugro, Chief Sales Officer, Project Forwarder. Tim Killen told “They would be disappointed if they thought they could go back to the old model.”

Killen said the low cost and predictability that shippers took for granted before the COVID-19 pandemic was “due to immeasurable changes in the market.”

Kai von Taube, Global Head of Charter for deugro and Former Line Management Director for Multipurpose Career Rickmers-Linie, said continued blockades in China, rising raw material costs and a global transition from fossil fuels. I agreed with the influence of the pandemic. The transition to more sustainable energy sources has created a “situation never seen before”.

According to Jake Swanson, vice president of regional affairs in the United States, breakbulk and project logistics providers have experienced considerable “heartburn” for shippers, carriers and forwarders due to poor schedule reliability. We are enjoying improved profit margins with record levels of demand. , Project Forwarder at DHL Industrial Logistics.

“I’m making money, but I’m pulling my hair,” Swanson told

On-time performance of multipurpose vessels (MPVs) is better than container vessels, which plunged from about 80% before the pandemic to just 30% now, but port congestion disrupts break bulk and project schedules. .. And, “If you want to book something right away, there is no ship. [available on the] spot [market]And it affects the rate, “he said.

A new approach to a new market

In addition to the risk of rising freight rates and off-scheduling, break bulk shippers Scramble to find warehouse space And equipment, and the surge in detention and delinquency charges — costs were usually shrugged in the pre-COVID market.

“No one could have predicted this flood that all of us struck. Much of what we are doing. [now] A global break bulk shipper told

Fortunately, these problems are the result of mass production and healthy demand. “We primarily protect our bottom line,” said the shipper. However, efforts to maintain margins are complicated by shortages and rising costs. Warehouse space is extremely rare, it is difficult to find truck drivers and equipment, and penalties for transportation delays have increased dramatically.

For example, in MPV transport, used synonymously with “demurrage,” detention charges, which refer to the proportionally distributed charges imposed by the carrier for certain types of delays associated with a particular cargo, are 1 before the pandemic occurs. It has risen from about $ 8,000 to $ 10,000 per day. Up to $ 50,000 per day, according to Breakbulk shippers.

“The damage associated with delays is much greater,” said the shipper. “The cost is astounding. In some cases, we’re talking about millions of dollars worth of demurrage.”

Those who expected the break bulk market to return to “normal” in 2020 are now aware that they can’t get their watches back, Kiren said.

“We have been challenged in every aspect of transportation,” he said. Ship capacity has become an issue, all bookings require much longer lead times, higher prices, and fuel prices are a major factor in inflation, Killen said. “Not only procurement costs, but logistics end-to-end costs are a key factor,” he said.

Killen and von Taube say that much of their role as a project forwarder is to educate clients and colleagues about the risks and challenges of this chaotic shipping market, from force majeure to lack of trucking capacity. I did.

Killen also said that overheated markets are driving changes in break bulk and project logistics contract models. Although it is difficult to execute a contract signed before the pandemic, “Clients generally understand that old pricing levels and contract models can fail. Planning, procurement, bidding, Organize and deliver, “he said.

Some shippers and logistics providers are experimenting with new contract methods, such as linking costs to specific indices such as the Baltic Dry Index and Toepfer Multipurpose Index, or using a transparent “open book” approach. I am. However, the reality of projects and break bulk transport complicates these concepts, and they are far from perfect, says DHL Swanson.

In another approach, according to Swanson, the shipper of a project sends a bid proposal to a specific area of ​​the project, a segment, rather than the entire project. Once that scope is complete, the shipper sends another request for bidding to the next segment, helping to manage costs, but increasing the workload of forwarders bidding on individual scopes.

“Very healthy pipeline”

The hair-on-fire market is showing no signs of easing, but engineering, procurement, construction companies (EPCs) and project forwarders are just hoping that the project market will accelerate.

Ryan Foley, CEO of DHL Global Forwarding’s Industrial Project, told “As the pandemic expanded, many projects slowed down and some stopped altogether, but these projects are back.”

According to Swanson, industrial projects can take months or years from planning to final investment decision (FID), procurement, and actual cargo movement. This pattern became even slower when capital investment was depleted due to the plunge in oil prices early in COVID-19. The project, which was expected to proceed in 2020, is “currently underway in 2022,” he said.

“This can be seen on the EPC and IOC [international oil companies] According to Swanson, the IOC will come to us on turnaround and small and medium-sized projects that will be managed in-house directly with forwarders rather than using EPCs. Several megaprojects (ie, over $ 1 billion) are underway, including liquefied natural gas (LNG) projects in Australia, Qatar and Uganda. Meanwhile, technologies are being created that include renewable energy, mining, and microchip processing facilities. An opportunity for the project, he said.

Killen and Fontaube agreed.

“Currently, a huge work pipeline is approaching in various existing and new energy markets,” Kiren said. “We are looking at the project [that were] The COVID has now been shattered, priced and re-risk assessed and put on hold. “

Von Taube said deugro “has more projects planned than we’ve seen in the last decade,” and as the energy transformation intensifies, the break bulk industry moves away from LNG as well as wind energy. Will also benefit. He said several large-scale projects have already been awarded, including a multi-million ton of cargo project and the Qatar LNG project, which is expected to produce break bulk cargo.

EPCs that handle logistics for IOCs, original equipment manufacturers (OEMs), and clients of capital projects tend to rely on a short list of carefully scrutinized project forwarders, a forwarding executive told .. For example, DSV relinquished its Panalpina and Agility project logistics expertise in 2019 and 2021, respectively. DSV is rebuilding the project logistics team, but the EPC has two fewer professionally scrutinized project transfer teams. Select from there.

Strong demand and a relative lack of options created opportunities for other project forwarders to be on their list, executives said.

However, von Taube said there has been little movement towards further integration of the project transfer segment. “You have a client who is completely confused,” he said. All they see is that their logistics plan isn’t working well. [any] Straw that can help them. just now, [shippers are] We are pleased to have a very diverse market of forwarders to help them get out of this bad situation.

“Everyone is very busy for the time being,” added von Taube. “Why do these players need to think about integration? They have no benefit.” Chaotic break bulk market does not return to pre-pandemic norms

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