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Knowledge is Power
Thursday, 11 February 2010 00:00

The economic environment has led to several subtle shifts in the way forwarders in the heavylift and project cargo industry need to operate.

Several forwarders have revealed that the number of enquiries in the past few months has increased considerably, but few have come to fruition, while lead times, especially for ad hoc equipment orders, have shortened.

“There are many budget enquiries, but less tangible and real tenders for freight forwarding services out there at the moment,” says Thorsten Grams, corporate head of operations of Panprojects, Panalpina’s independent competence centre for project shipments. “The amount of real cargo has decreased.”

According to DHL Global Forwarding Industrial Projects, part of the reason is budget figures, as original equipment manufacturers (OEMs) and engineering, procurement and construction firms (EPCs) respond to increased bid activity from principals planning to ramp-up activities that may have slowed. Smaller manufacturers may also be attempting to break into alternative markets.

Meanwhile, for those projects which do come to fruition, lead times have been significantly shortened. Jillian Peacock, group marketing manager for Abnormal Load Services (ALS), says: “We are quoting and getting a response much faster. We can see the results quicker—it’s now just a matter of months, and that helps with the cash flow.”

DHL Global Forwarding believes the short lead times can be put down to a number of factors.

“A number of projects which may have been deferred, particularly in extractive industries, are now coming back and wishing to make up time. Also, some end-users of equipment may be trying to source new equipment quickly before any major upturn in demand,” says a spokesman.

The company also suggests that manufacturers may be offering shorter lead times as part of their value proposition.

Despite changes to the way they work, in general, players in the heavylift market are optimistic and see signs of growth.

“The outlook is certainly more optimistic than six to nine months ago,” says DHL Global Forwarding, claiming there is particularly strong interest in downstream petrochemical and refining complexes, renewable and nuclear power.

The inevitable project cargo time lag means that a “reasonable recovery will be in progress by late 2010 or early 2011”. It adds that some customers are increasing bid activity now in the hope of locking-in lower cost unit rates before the upturn comes.

But Jawad Kamel, president and CEO of Advance International, is less hopeful for the longer term. “Project cargo is an investment business—billions of dollars of investments. That can’t happen in the private sector—it is government projects. What we are doing now is projects signed between 2006 and mid-2008, and they will continue to 2014 and 2016. But then there will be a vacuum. No major new order has been placed.”

He too has seen an increase in requests, but says: “Lots of manufacturers are pulling out old files or making imaginary projects and contacting the market for things which might happen one day. It’s just a way of keeping them busy.”

Kamel is convinced that large-scale government projects will see a gap in 2014, because of the lack of orders now.

“The banking systems are not yet working properly and the finance and support is simply not available. There is some money in Japan and China, and they will deliver some to manufacturers, but only their own, which makes it very difficult.”

He believes major project cargo will return once developing countries are back on their feet, but adds: “The size of projects will shrink. There won’t be 7,000 tons of daily production, but maybe 1,000 tons. Heavylift cargo will drop for a time to light and medium-light heavylift.”

DHL Global Forwarding believes the key issue for the industry is being able to balance the supply and demand equation, and “the ability of players to remain in the marketplace long enough for a recovery to gain momentum”.

At the moment, rates are holding up in the 1,000-ton plus sector, while for smaller items, where there is significantly more capacity and competition, rates are less.

In the small and medium-sized forwarder market, things look buoyant.

“I think it’s a good market for us at the moment,” says ALS’s Peacock. “There are some opportunities as some of the larger companies have made cutbacks. We have flexibility and specialism to offer.”

She adds, however, that more competitors have moved into the heavylift area.

“They have less specialist knowledge, but often they win the contract, and then use third-party companies like us to help. It’s really crazy. We lost some bids, I think, because they looked expensive, but often there were additional costs added later by the winning bidder, or the job hadn’t been done properly, so we have won back some business.”

Last month, medium-sized forwarder UTC launched its heavy equipment division. Mark Kennedy, UK country manager, says the company is benefiting from its experience and from customer relationships.

In October it delivered 6,000 tons of Liebherr cranes to Rio, having beaten several top-tier global forwarders to the deal. “It partly came down to price, but also expertise,” says Kennedy.

“Some global companies don’t seem to respond to requests in the right way. They just give prices, with no substance behind it or justification for that price. They just hope their reputation will win it for them.”

He adds that since the recession began, many companies cut back on staff travel. “That means you don’t hear of jobs at source. Instead of trying to stop everything, we are investing in people, time and travel so we can find the opportunities.

“For lots of the big forwarders, with Asian imports down, I think they just set up project divisions just to appeal to that sector, but without any real expert knowledge.”

International Freighting Weekly, 2/11/2010