The average size of container ships deployed on the Asia-Europe and trans-Pacific trades is continuing to rise as carriers take delivery of ultra-large vessels.
According to the latest analysis by Alphaliner, container lines are removing smaller vessels on the world’s two highest volume box shipping routes and replacing them with larger vessels best able to generate economies of scale, a strategy that is helping offset bearish freight rates.
“This year saw the departure of the last 4,200- to 5,500-TEU ships from the Asia-Europe routes, following ZIM’s decision to withdraw the Asia-Mediterranean ZMP service in March and HMM suspending its Asia-North Europe AEX service in August,” said Alphaliner in its latest weekly report.
“Widely used on the Asia-Europe trades 15 years ago, tonnage of this size class was now been completely displaced by ships that are — most recently — up to four times larger than their predecessors in the mid-2000s.”
In July, MSC deployed the first 23,700-TEU “megamax-24” vessel on the Asia–Europe trade and an additional five units have been delivered in the last three months.
“Twenty-four such ships from various carriers will join the world fleet before the end of 2020,” reported Alphaliner. “All these ships are earmarked for the Asia-North Europe trade, where average vessel size is expected to reach 17,000 TEU by September next year.”
MSC deployed the first 19,000-TEU megamax units on the Asia-Mediterranean route in March, pushing the average vessel size on that trade lane to 12,600 TEUs.
“The Asia-North America routes also saw average vessel sizes increase, but this year the pace has been slower, compared to the Asia-Europe trades, as carriers took a more cautious approach in the face of slower demand growth in the U.S.,” said Alphaliner.
The analyst also reported that the number of inactive container ships is on the rise as lines push ahead with scrubber retrofit programs to avoid exposure to higher fuels costs when IMO 2020 low-sulfur fuels become mandatory on vessels not fitted with abatement technology at the start of next year.
“The inactive containership fleet has risen sharply over the last two weeks to reach 180 units for 753,819 TEU as of 30 September, or 3.3% of the total fleet,” said Alphaliner.
A further increase in the inactive fleet this month is forecast due to the impact of void sailings and the continuing stream of ships entering docks for scrubber retrofits. “Carriers have announced further void sailings in November in response to weak cargo demand, which could see the inactive fleet remaining above 800,000 TEU for most of the fourth quarter,” said the analyst.
Medical marijuana firm AMP German Cannabis Group announced that it will begin auditing its supply chain in accordance with the European Union (EU) Good Manufacturing Procedure (EU-GMP) to “ensure the quality and integrity of pharmaceutical goods” as they move through the supply chain from the supplier to the German patient.
Legalization of medical marijuana in Germany happened fairly recently (in 2017), while recreational cannabis continues to remain illegal. Nonetheless, even with medical marijuana being legal, patients still face significant difficulties in procuring it as Germany contends with supply shortages and unnaturally high shelf prices.
This ultimately boils down to the confusing reality of laws that govern marijuana in Germany. Since marijuana is still classified under narcotics and carries a state prohibition on its growth, sale and distribution, domestic cannabis fields cannot exist in Germany – making patients rely entirely on pharmaceutical imports for their needs.
Recognizing a huge opportunity, several foreign pharmaceutical companies have taken an interest in importing medical marijuana in Germany. A growing number of doctors jump onto the cannabis bandwagon every year, endorsing cannabis therapies for a variety of ailments, and thus creating a perfect recipe for the medical marijuana supply chain to flourish.
For AMP, the EU-GMP certification will help push products earmarked to meet the highest consumer health and safety standards. Meeting these standards will also ensure a more effortless entry into the German market.
“In addition to ensuring the suppliers’ production and operating processes meet EU-GMP certification standards, AMP’s German pharmaceutical consulting partner will audit AMP’s supply chain service providers during the fourth quarter of 2019 to ensure the quality and integrity of the pharmaceutical goods is maintained during transportation, warehousing, handling, testing and distribution,” said the company in a statement.
The idea of EU-GMP certification apart, global cannabis supply chains can also look to leverage the technology of blockchain to bring transparency and visibility into the movement of marijuana from the field to the pharmacy counter. Blockchain can also ensure accountability from every stakeholder across the value chain, as the decentralized ledger technology demands equal participation and responsibility from every party involved.
Pushing all the stakeholders onto a single decentralized blockchain network will also eliminate possibilities of counterfeit cannabis products making their way into the supply chain. Marijuana cultivation produces a lot of waste and some plants die along the way, which makes it vital to keep an accurate measure on the volume of harvested cannabis to ensure safety.
AMP expects its first imports into Germany to begin by the first half of 2020. AMP will be procuring its medical cannabis from two licensed producers based in the state of Alberta, Canada. The supply agreements will be made more concrete once these producers clear the audit for EU-GMP certification and receive their sales license from Health Canada.
AMP will check the medical cannabis products before they are transported from Canada to Frankfurt, Germany, via air freight. Upon landing in Frankfurt, the products will be stored at a narcotics storage facility. The products will be inspected one last time before they are cleared to be sold to German pharmaceutical wholesalers. These wholesalers will only be allowed to sell the stocks to pharmacists who are contractually bound to AMP for their medical cannabis supply – thus ensuring strict accountability over the cannabis inventory.
The logistics landscape of northern Europe is about to be reshaped, changing the continent-wide flow of goods by all modes, according to Wolfgang Lehmacher, leading logistics consultant and the former head of Supply Chain and Transport Industries at the World Economic Forum in Geneva and New York.
The catalyst for this change will be Britain’s scheduled exit from the European Union (EU) on October 31. However, even if a no-deal Brexit is somehow avoided this month, Lehmacher believes the eventual departure of the U.K. from the EU will have a major impact on the logistics landscape of the continent and the supply chain strategies of shippers.
“Supply chains perform best in fluid and stable environments,” he said. “Both factors are negatively impacted by Brexit.”
As previously reported in FreightWaves, a no-deal or disruptive U.K. exit from the EU will have catastrophic implications for Europe’s trucking companies and supply chains. Holger Bingmann, head of the foreign trade industry group BGA, said recently that German businesses were already suffering from the potential exit of the U.K., detailing losses to German exporters of €3.5 billion ($3.843 billion) this year.
Lehmacher takes a long-term view. He argues that supply chain design is a function of market size; a point equally valid for upstream procurement activities and downstream distribution and after-sales. “Larger markets have their own consolidation points or hubs benefitting from larger volumes and scale, while smaller markets are served directly from outside or smaller in-country warehouses, at higher cost,” he added.
“When the U.K. separates itself from the world’s second largest trade bloc, regardless of the efficiencies the U.K. may achieve at its borders, the barrier becomes an additional stop and incremental cost in the supply chain of a not so large market,” Lehmacher explained.
He continued, “So, of course, Brexit changes where goods are manufactured, stored and how they are routed during the distribution process.”
Image: Wolfgang Lehmacher; Lorenz Richard
As a result, Brexit of any form will erode the U.K.’s role as a gateway to the continent, with many manufacturers expected to migrate production and distribution of EU goods out of the U.K. to continental Europe. U.K. ports will also lose volumes.
“Post-Brexit, the U.K. cannot function any more as a key entry and exit gateway of the EU,” Lehmacher said. “Too many factors may hinder the fluidity of the supply, ranging from administrative burden, to potential delays.”
He added, “Flows of goods that can, will avoid the U.K. and U.K. warehousing and distribution facilities will be closed and reopened in markets in the EU, mostly in the Benelux countries where most of the EU distribution centers are located.”
As the European supply chain and logistics map shifts towards a more continent-centered model, U.K.-based European hubs will become the exception. “The shift within manufacturing networks and transfers of European distribution centers from the U.K. to the European continent will strengthen the Benelux nations, Germany and France as logistical platforms in the world of global commerce,” said Lehmacher.
“Ports there have the necessary capacity and the warehouses space will be created to absorb the additional volumes.”
Lehmacher expects the port of Calais in France and the U.K.’s port of Dover located on either side of the Channel to become major infrastructure bottlenecks if customs checks are required post-Brexit. Irish companies will increase their efforts to circumvent the U.K. land bridge by using direct routes between Dublin and the continental European ports.
Essentially, Brexit impacts three freight flows, he explains. The first is outbound products of U.K. origin destined for other EU markets and countries that have an agreement with the EU. The second is merchandise entering the U.K. from EU nations and countries that have trade agreements with the EU. Third are transit flows originating in markets outside the EU that currently transit the U.K. that are destined to other EU markets and vice versa.
Taking those flows into account, Lehmacher expects the chief supply chain officers (CSCO) of Beneficial Cargo Owners (BCO) to be most concerned with ensuring the fluid flow of goods across their manufacturing network or footprint.
Image: Shutterstock
“The EU is the U.K.’s largest trading partner, accounting for approximately half of both imports and exports of goods and the smooth flow of goods is the objective of CSCOs,” said Lehmacher. “As they plot new strategies, they will forecast likely changes in demand, sourcing partners and countries for materials, parts and products, and the kind of products they have to ship today and tomorrow,” he said. “Then they will scrutinize potential areas of risk, delays and disruptions along the chain, and tools which can help them rationalize a new strategy.”
U.K.-based firms in the food and drink, chemicals and automotive sectors will be most seriously impacted by Brexit. For example, automotive manufacturers, with their low margin business models and vulnerable, just-in-time supply chains will be heavily impacted by tariffs and border friction.
“They are left with little choice,” he said. “BMW is considering transferring production of its Mini brand from the U.K. to the Netherlands and Honda will be shutting down its plant in Swindon by 2021. Ford has confirmed that it will close its Bridgend engine plant in September 2020 with the loss of 1,700 jobs. This will burden an industry in decline and reduce further the automotive transport flows between the U.K. and other EU markets.”
Chemical supply chains will also experience disruption. “GSK estimates that its costs caused by Brexit could be up to £70 million ($88 million) over two to three years alone,” said Lehmacher. “The U.K. government estimates that the chemicals industry must factor in £400 million ($439 million) to reregister chemical products.”
And he believes the U.K.’s pharmaceutical business is in jeopardy too as access to the EU’s 446 million potential patients and customers risks being diminished. “U.K. patients might also suffer as 73% of pharmaceuticals are imported from other EU countries,” he added.
“The pharmaceutical industry, as with other sectors, has been stockpiling products in the U.K. for months leading to a shortage in warehousing space. Increasing stocks of medicines has been just one Brexit contingency measure, next to changing and adding new supply routes and duplicating manufacturing processes.”
As for food, in a post-Brexit world the U.K. is forecast to struggle. “The U.K. food supply chain will experience decreased competitiveness in exports and increased prices of agricultural imports,” he said. “Forty percent of the food consumed in the U.K. is imported. Several non-EU countries are preparing to take a part of that share. Import and export volumes are expected to decline, whether to EU markets or beyond, requiring an adjustment of transport and logistics capacity. Demand is expected to decline due to increasing food prices.”
The good news for the U.K.? Lehmacher believes its leading position in services will help the economy. “Services is a market that already exceeds that in goods when measured in value-added terms and it is growing more than 60% faster than the goods trade globally,” he said. “Telecom, IT and business services are growing two to three times faster. This presents an important opportunity for the U.K., considering that the services sector is less dependent on proximity to markets.
“Finally, the pressure resulting from Brexit might motivate U.K. enterprises to increase the adoption of digital solutions in supply chain management from currently 12% to the 30% achieved in Germany.”
Rhenus Logistics will roll out more of its iconic, eco-friendly distribution centers (DCs) as it expands its global network.
Enlargement of the third-party logistics (3PL) provider’s forwarding and logistics footprint in North America is top of the agenda.
Alphons van Erven, senior vice president of Germany-headquartered Rhenus Logistics, told FreightWaves “the money is there to invest” with Rhenus looking to build out its global network through organic growth and acquisitions.
“We have been making six to 10 acquisitions a year and we are building our global footprint. That strategy will continue, including building up our network in the U.S. where we currently don’t yet have a big presence,” he said.
Rhenus Logistics now employs over 31,000 people worldwide and declared revenues of 5.1 billion euros ($5.6 billion) in 2018.
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At the end of last year Rhenus Logistics opened ‘Rhenus A58’ – locally known as The Tube. The DC is widely lauded as one of the world’s most innovative and sustainable, achieving a record 99.48% Building Research Establishment Environmental Assessment Method (BREEAM) score for an industrial building.
The DC, located on the A58 highway in Tilburg, The Netherlands, is fully bonded and features storage space of 60,400 square meters (650,000 square feet), 16,000 square meters of temperature-controlled mezzanine space and an Autostore storage system.
Rainwater is used to flush toilets and storage areas are open to daylight to improve working conditions. Most impressively, the center’s roof is fitted with 13,640 solar panels that generate 4.2 megawatts of electricity each year, more than 75% of which is sold and used to power local homes.
Speaking during a logistics tour organized by The Netherlands Foreign Investment Agency, Erven told FreightWaves the design approach would next be deployed in Eindhoven, The Netherlands, “in the next three years” when an existing 110,000-square meter facility will be extended by 35,000 square meters. The expansion will be fitted with its own solar panels.
Similar constructions could soon come to the U.S. “In North America, we don’t have a big presence, but are looking at this type of design in France and Germany at the moment,” he said. “In the long run we will also do it in the U.S. That’s where we want to expand in the next five to 10 years.”
Rhenus offers a range of global and European logistics and forwarding services and has been expanding rapidly from its traditional strength in Europe, most notably in Asia but also through acquisitions in North America and Brazil. Earlier this year the 3PL acquired U.K.-based PSL Group. In April it purchased Miami-based freight forwarder and logistics solutions provider Freight Logistics, which at the time was its sixth acquisition of the year. And in March it acquired Canadian logistics company Rodair.
Erven said the life span of Rhenus A58 was expected to be at least 35 years but was unable to disclose the investment cost.
As in the U.S., attracting talent to the logistics industry is problematic in the Netherlands. Aside from its value as a DC, Erven said the design appeals to sustainability-conscious clients and helps the company attract workers in a tight labor market, “We are growing at 10% a year so we are constantly looking for ways to improve recruitment,” he said. “Offering workers a modern, light and clean space to work helps. We often have open job approaches from people who have seen the building and want to work here.”
He added, “We also have changed the company’s official language from German to English as we now employ people from all over the world.”
Deutsche Post-owned electric vehicle (EV) manufacturer StreetScooter has announced that the company will be expanding into the U.S., citing a huge market opportunity across the horizon. To help invigorate the North American expansion, the company has brought on two C-level executives with extensive experience within the automotive industry, who StreetScooter hopes will bolster its sales and technology segments.
Ex-Tesla director Peter Bardenfleth-Hansen will assume the position of Chief Growth Officer at StreetScooter and will be responsible for ramping up international sales. Ulrich Stuhec, a former Ford manager, will take up the role of Chief Technical Officer while current CTO Fabian Schmitt will move into a new role within the company.
StreetScooter will now begin pilot tests with DHL Express in the U.S. and will continue to expand from there. Joerg Sommer, the CEO of StreetScooter, explained that the company is increasingly looking to internationalize its business, and finds the U.S. market exciting as it witnesses substantial investment in the EV space.
“We are currently evaluating potential production partners for the U.S. We will make an announcement once partnerships have been finalized,” said Sommer. “Like we did in Japan, we plan to enter the U.S. market once we have customer contracts signed. We will launch pilot programs in the U.S. next year with DHL Express, and will continue to expand from there.”
Geographic expansion apart, StreetScooter is aligning itself towards becoming a global energy and logistics platform for the last-mile rather than stay shuttered within the EV manufacturing niche. True to this, StreetScooter has electrified more than 700 depots and has installed more than 11,000 charging points for small and large fleet operators.
On-demand ‘anything’ has been a trend that has proven disruptive in the logistics space, ever since the advent of Uber with its on-demand cab-hailing and the now-pervasive ‘gig economy.’ StreetScooter is attempting something similar by providing energy-as-a-service, wherein clients can configure platform subscriptions per vehicle for their last-mile energy and logistics needs.
The company also plans to provide clients with EV fleets, which will act as decentralized networks of ‘batteries on wheels’ helping facilitate the trade of goods and energy within neighborhoods. The fleets are equipped with fleet intelligence software to significantly reduce the total cost of ownership and have their software and infrastructure constantly updated – for instance, with bi-directional charging and decentralized grid software.
Following its announcement about entering the U.S. market, StreetScooter has unveiled its next generation of vehicles that come with a redesigned box body that promises a payload that is over a ton larger and can accommodate up to four more euro pallets.
“The new versions of the WORK and WORK L vehicle models can reach a top speed of 120kmph (~75 mph). They also offer additional features that make the new models safer, more comfortable and convenient for everyday work on the job,” said Sommer. “The features include in-vehicle automatic emergency call system, acoustic vehicle alerting system, keyless entry and start, automatic climate control system, and in general, more optimum use of space inside the vehicle.”
Currently, StreetScooter is one of the market leaders in Europe in the EV space, with more than 12,000 vehicles in daily use clocking over 100 million kilometers (~62 million miles) and eliminating 36,000 tons of CO2 in the process.
Pictured: an artist’s anthropomorphic impression of robotic workers. Cohesio’s robots, of course, do not look like this. They are small, block-like and fit under a movable stack of products. Graphic: by Shutterstock.
Körber Logistics, the investment and logistics arm of tech conglomerate Körber of Hamburg, Germany, has acquired a majority stake in the warehouse autonomous logistics robot installer and consultancy Cohesio.
FreightWaves asked Nishan Wijemanne, CEO of Cohesio, and Chad Collins, CEO of Körber Logistics Software about the acquisition. Unfortunately, neither would disclose the price paid nor the size of the equity stake taken.
Melbourne, Australia-based Cohesio is targeting the North American and Asia Pacific markets with its “autonomous mobile robotics,” which will be deployed in warehouses and distribution systems.
Pictured: Nishan Wijemanne, CEO of Cohesio. Photo: by Cohesio.
Goods-to-person
Wijemanne explained that Cohesio is targeting the goods-to-person segment.
There’s a big inefficiency in warehousing and that’s the problem of finding the products and goods on the shelf.
Then a picker has to get them off the shelf and then bringing them back to an appropriate person or place, such as a dispatcher at a fixed desk.
The time-consuming and expensive solution to date has been to employ human beings to wander up and down aisles in warehouses to find and bring product to a dispatch desk.
Wijemanne explained to FreightWaves how Cohesio targets this space.
“You’ve seen the robot vacuum cleaners, right? Well, they look like that. The robot goes under the stationary racking and picks up the whole rack. It brings the product to the operator, who takes the package and the rack is taken away,” Wijemanne said.
Amazon and Kiva Systems
If that sounds familiar, it’s probably because online retail giant Amazon some years ago adopted what appears to be a very similar system.
Amazon bought Kiva Systems for a vast amount of cash, reportedly in the region of about US$775 million back in 2012. Allowing for inflation between 2012 and 2019 and that $775 million is worth about US$866 million now.
According to Wijemanne, Kiva originally planned to take its robotics and systems to the distribution center market; however, it appears that the online giant rebranded Kiva as Amazon Robotics and kept the technology for itself.
That has created a market gap for companies like Cohesio. And there are a lot of companies in this space.
Consultancy and understanding are key
Wijemanne argued that Cohesio’s strength doesn’t lay so much in the nature of the technology but rather in the understanding, consultancy and support that it can offer its customers.
“Robots are robots. It’s really about workflow and understanding the customer’s business. We design workflow optimization, such as how to position the racks. … Consultancy and discovery is key,” said Wijemanne, adding that customers can’t just call and have the system installed.
“We go through discovery with customers. We need to understand the customer and the challenges. We have a number of consultants on the team that can go through the process.”
Although robots replace humans in the task of finding and bringing product to, say, a dispatch desk, as Wijemanne pointed out, human beings don’t lose their jobs when the Cohesio system is installed.
Jobs are not lost
“No one really loses their job. It’s the opposite — we help people up-skill to work with automation and we develop a high-value proposition.”
He gave the example of luxury fast-moving consumer goods, such as handbags. Pickers stop wandering around the aisles of a warehouse and, instead, are employed to spend time adding value with further touches to the end product such as extra luxury packaging or spraying the handbag with perfume.
The value added, Wijemanne explained, is that it helps online retailers to make the delivery and opening of a package an “experience,” which the online consumer can miss out on when compared to the in-store shopper.
Autonomous robots
The robots are autonomous. Cohesio fences off a designated space for safety purposes and the robots drive around in that space by themselves. They use QR codes to help with navigation. They also have an array of sensors, which means they can detect other robots and people in front of them and will stop if necessary.
They also are programmed to run at between 100% to 80% of power reserves and, when they get to the trigger point, will “go and charge themselves,” Wijemanne said, adding that the company will carry out preventive and regular maintenance as part of a service contract.
There are cost benefits from having robots do a job that humans would otherwise do. Not having to pay wages is an obvious benefit, as is the fact that robots will pick greater volumes of product faster and more accurately.
Scalable and relocatable
There are other savings too. As Cohesio’s system is flexible, mobile and modular, it is relatively quick and easy to install — and also to dismantle. If a business needs to relocate, then the Cohesio system can be packed up and trucked to its new home. It’s also scalable.
And there’s also the potential to save on distribution center space and associated logistics costs, such as trucking. Wijemanne said he’s aware of one system in the Philippines that is deployed over three levels.
“Distribution centers tend to be further out from CBDs [central business districts] and some customers are talking about putting them in stores,” he told FreightWaves.
There’s an artificial intelligence element and the system generates data for the purposes of business intelligence analysis. Cohesio also helps to connect data systems.
“There’s more to it than shipping more product more quickly,” Wijemanne said, adding that optimal benefits depend upon why a customer is using the technology.
Costs and pricing
Working out comparative prices is tricky as exact prices will vary depending upon a wide range of factors, such as customer throughput.
Wijemanne gave a rough ballpark example that if a fixed system (conveyors and racks fixed to the floors and walls and so on) would cost, say US$20 million, then the Cohesio system can be installed for US$1 million to US$5 million.
“It’s a very different value proposition,” Wijemanne told FreightWaves.
Market by market
Sectors being targeted by Cohesio include retail and e-commerce. Wijemanne added that third-party logistics operators are “coming onboard too.”
Geographically, the U.S. and Europe have been the biggest markets, but Wijemanne said the company is seeing a lot of traction in Australia, New Zealand and Southeast Asia.
“There’s lots of technology going into Thailand despite labor costs being cheap. Sometimes low labor costs mean [management] tries to throw people at it, but that’s not always the best solution,” Wijemanne said.
Labor is the big pressure in the distribution and supply chain
Collins, the CEO of Körber Logistics Software, explained to FreightWaves the attraction of Cohesio’s system.
“The big pressure we see is labor in the distribution center and the supply chain. Labor costs are increasing in all parts of the globe. Fewer people are willing to do this work. Companies are looking at doing more with software or mechanical solutions,” he said.
He pointed out that companies can, literally, pay hundreds of millions of dollars for installation of a fixed system, whereas robots are cheaper, more flexible and keep costs down. He added that robots may work in parallel to fixed high capital systems but they are replacing humans during peak season demand for labor.
Looking forward, Collins sees “tremendous growth” for logistics robots in e-commerce and Asia.
Collins said that Asia has “very dense” cities and there is a need for speedy deliveries for the last mile, which will drive demand for logistics solutions that can take place in CBDs.
Meanwhile, in the U.S. the markets have been manually focused. However, “robots will be a way to shift into mechanical,” he said.
Ever since Beijing envisioned its Belt and Road Initiative (BRI) to make foreign markets more accessible to China and vice versa, it has been expanding its networks far west, including the European mainland. The Chinese juggernaut marches on, investing heavily in ports encircling the continent, partnering with East European countries to develop high-speed rail networks, and taking controlling positions in airports across the heart of Western Europe.
The BRI can be viewed as a long-cherished Chinese dream of reviving the legendary Silk Road that connected China to the Eurasian empires 2,000 years ago, by creating logistics arteries connecting China to the entirety of the world.
Today, the eastern Chinese city of Yiwu announced a new freight train route to Belgium’s Liege, dispatching a train loaded with 82 standard containers of commodities that is expected to reach Liege roughly 20 days from now. Yiwu, which is one of the world’s largest small commodities markets, plans to operate this service twice a week.
However, this is not the first freight train connection from Yiwu to Europe. Yiwu is already connected to London by rail – a freight train service that has run successfully between the two cities for over two years, carrying commodities like clothes, electronics and a variety of household items. Yiwu is also connected to Madrid via rail, which incidentally is the longest railway route in the world, moving through eight countries and nearly 13,000 kilometers (~8,100 miles).
Though there have been several reports that point to underwhelming volumes being transported by rail between China and Europe, opening up new lines is expected to attract new businesses to take up rail freight as an alternative to maritime shipping. The direct train route to Liege will decrease delivery times by at least a day or two, while cutting travel times by nearly half of what it would have been if hauled by a maritime vessel.
Once the containers land in Liege they will make their way to eHubs, owned and operated by China’s Alibaba’s logistics arm Cainiao Network, and other distribution networks. This freight train route is a joint undertaking between the city of Yiwu and Alibaba’s Electronic World Trade Platform (eWTP), with eWTP setting up a global innovation centre in Yiwu.
The idea behind eWTP is to create a platform that promotes public-private cooperation and helps small- and medium-sized enterprises (SMEs) transcend national borders and participate in global value chains. eWTP looks to create industry standards, simplify customs regulations and lower tariffs for seamless cross-border trade movement.
That said, Alibaba’s interest in connecting Belgium to China goes beyond the freight rail network. The Cainiao Network is working with the Liege airport to build a smart logistics hub on its footprint, which will be ready to function by 2021. Alibaba has stuck by its mission to be a bridge between China and the world, with an aim to import $200 billion of goods from around the world into China over the next five years.
Yiwu is a city in the Zhejiang province of China – colloquially called the Silicon Valley of China – and a major region for electronic goods production, making it vital for the province to be well connected to the outside world through different transport modes.
Yiwu is home to over 15,000 foreign companies hailing from over 100 countries and attracts over 400,000 foreigners every year who come to do business in the city. Yiwu accounts for 40% of cross-border volume hauled by the Cainiao Network, which is hardly surprising considering that its parent company Alibaba has its headquarters in Hangzhou, about 100 miles north of Yiwu.
Maersk Line will only charge for the “extra cost of compliance” as the carrier introduces new IMO 2020 low-sulfur fuels in the coming months.
As reported by FreightWaves, shippers and forwarders have expressed dismay about the complexity of the charges being levied by some container lines as they phase in new low-sulfur bunker fuels ahead of the Jan. 1 International Maritime Organization deadline.
Shippers have also complained about a lack of transparency, suspecting that some container lines will use the introduction of the new fuels to bolster profits.
However, Silvia Ding, global head of ocean products for A.P. Møller – Maersk, told FreightWaves that while customers should expect to pay more due to the higher pricing of IMO 2020-compliant low-sulfur fuels, Maersk was only focused on recovering costs.
“Low-sulfur fuels are significantly more expensive,” she said. “As multiple industry reports have stated, being in a low-margin industry carriers cannot shoulder the cost alone; it must be passed on through the supply chain.”
Maersk will adjust its bunker adjustment factors (BAF) based on the price of low-sulfur fuels from Jan. 1 for long-term contracts of more than three months. For spot business and shorter contracts of less than three months, it is introducing on Dec. 1 an environmental fuel fee (EFF), a mechanism designed to recover the extra costs of the more expensive IMO 2020-compliant fuel.
“Our efforts for long-term BAFs and short-term EFFs focus on recovering the extra cost of compliance and are based on principles of simplicity and predictability for our customers to be able to plan their supply chains,” said Ding.
Unless some form of emission abatement technology such as scrubbers has been installed on vessels, the new IMO regulations mandate that the sulfur content of fuel oil used by ships operating outside designated emission control areas must not exceed 0.5%, compared to 3.5% now.
Drewry Shipping Consultants now estimates box shipping lines will be faced with an additional $11 billion fuel bill next year due to the switch to low-sulfur fuel oil, although the recent drone attacks on Saudi oil facilities have muddied estimates by adding to oil price volatility.
Shipping bodies also believe there could be fuel shortages and discrepancies in standards.
Ding admitted the introduction of low-sulfur fuels could see some fuel supply issues in the early weeks of next year. “We see sufficient availability of compliant fuels; however, we expect increased instances where ports in some confined areas see a limited supply of 0.5 compliant fuels,” she added.
“In such cases we would rely on more expensive 0.1 marine gas oil to get to the next port with 0.5% fuel oil availability. This adds cost and complexity and we expect it to happen more frequently in the transition period around 1 January 2020 than later in 2020 where supply and demand is expected to balance out,” Ding said.
The carrier has established joint initiatives with Vopak, Koole and PBF Logistics for 0.5% compliant fuel storage and processing facilities in Rotterdam in the Netherlands and New Jersey in the United States.
“The fuel manufacturing process allows Maersk to produce compatible low-sulfur fuels that complies with the IMO 2020 sulfur cap implementation, reducing the need to rely on 0.1% price-based gasoil and fuel oil outside the ECA zones,” said Ding. “This will be an important driver in ensuring stable, reliable services for Maersk’s customers during a potentially volatile period for global shipping.”
Container shipping lines will attempt to pass on extra fuel costs due to the introduction of low-sulfur IMO 2020 fuels next year. If shippers prove unwilling to foot the bill, carriers will likely make major cuts to service levels, according to new analysis by Drewry Shipping Consultants.
The analyst estimates box shipping lines will be faced with an additional $11 billion fuel bill next year due to the switch to low-sulfur fuel oil, although the recent drone attacks on Saudi oil facilities have muddied estimates by adding to oil price volatility.
The degree of compensation that carriers receive from shippers will dictate the level of service disruption during 2020, believes Simon Heaney, senior manager of container research at Drewry and editor of the Container Forecaster.
“Our working assumption is that carriers will have more success in recovering that cost than previously, to the point that there will be no major disruption to supply,” he said.
However, as reported in FreightWaves, “bewildered” shippers and forwarders have expressed confusion over the timing and transparency of new charges now being introduced by container lines as they phase in low-sulfur fuels — and pass on higher costs to customers — ahead of the Jan. 1 mandatory implementation date set by the International Maritime Organization (IMO).
Shippers are also wary that container lines might hike the fuel component of freight to compensate for bearish spot rates.
“Most shippers accept that they will have to pay more but they rightly expect any increase to be justified with a credible and trusted mechanism — in other words, the ball is very much in the carriers’ court,” said Heaney.
If lines do fall short in recovering IMO 2020 fuel costs from customers by a significant margin, Drewry believes they will “dust off the decade-old playbook” that saw them through the global financial crisis of 2008-09. “There will be much less focus by carriers on service quality and more on cost cutting,” added Heaney.
“In that scenario, carriers will try to protect cash flows by restricting capacity as best they can, through a combination of measures, including further slow-steaming, more blank sailings and off-hiring of chartered vessels.”
There also could be a push by lines to fit scrubbers to avoid the premium pricing on low-sulfur fuel. Vessel demolition rates could accelerate too.
“If events follow this path, the supply-demand balance will look very different from our current forecast,” said Heaney. “The worst-case scenario, when most shipping lines cannot operate close to breakeven and some potentially face bankruptcy, would actually be a far quicker route to rebalancing the market than the current plodding track.
“It would take a very brave carrier to want such a turn of events, but for those that could be sure of coming through the other side, after some initial pain the rewards would be far greater.” Higher operational costs for lines come just as demand is turning bearish. Drewry said the “mood music” surrounding the container market had deteriorated further in the last three months. As a result, the analyst has downgraded its 2019 world container port throughput forecast to 2.6% in 2019, down from the previous 3.0% expectation.
The Motley Fool has discovered last-mile logistics. The venerable stock-selection and opinion website had a podcast last week to break down the sector’s dynamics. Among the topics: Why robots probably aren’t coming for people’s jobs anytime soon; how Amazon.com Inc. changed expectations across the board; where drones and autonomous vehicles fit into the picture and where they don’t; just how much RFID can tell companies today; and what tech makers can do to offset the risk of “techlash.”
Did you know?:
Image: Jim Allen/FreightWaves
Tractor-trailers account for 20% of all traffic on rural interstate highways, according to nonprofit group TRIP.
Quotable:
“Dear Twitter trolls: Yes … I’m an idiot, I can’t do, so I teach, and I don’t understand genius. It’s a tech/energy play. I get it. … Save your breath. Yes, he is a genius, Tesla has changed the world for the better (I believe this). And … Tesla doesn’t have the scale to compete in a well-run, low-margin business — auto.”
— Scott Galloway, a marketing professor at New York University, in a blog post on why Tesla will lose 80% of its value or will disappear. His comments were reported on the website Teslerati.
In other news:
Probing safety of Daimler’s sprinter vans
German authorities are probing suspected faulty software in the carmaker’s Mercedes-Benz Sprinter vans after a report in German media that 260,000 vehicles could be affected across Europe. (Bloomberg)
French port’s blockchain project boosts intermodal moves
Completion of a blockchain pilot scheme coordinated and in part financed bythe Marseille Fos port authority has demonstrated blockchain’s scope for enhancing intermodal freight movements on the major French logistics axis Mediterranean-Rhone-Saone (MeRS) corridor. (Portstrategy)
Union organizing is an art form
Workers at the high-end art logistics company UOVO have announced their intention to organize with Teamsters union Local 814, the city’s union for professional movers and art handlers. (Hyperallergic)
Chinese robotics company launches Nanjing factory
Chinese robotics startup Geek+ in late September launched a “smart factory” in Nanjing. The facility, capable of producing more than 10,000 robots per year, employs industrial robots, its own AI algorithms, production logistics management system and other automated assembly programs. (TechinAsia)
Indian firm expands warehouse logistics footprint
Indian firm Embassy Industrial Parks will invest about $300 million over the next three years to develop 8 million square feet of logistics and warehousing projects, according to a company official. (Business-Standard)
Final Thoughts:
IMO 2020, the United Nations’ International Maritime Organization (IMO) regulation that enforces a sulphur cap on the fuels used by marine vehicles in order to reduce pollution, has long tentacles. According to an Oct. 7 report by logistics and real estate services firm JLL, ship lines will deploy larger vessels to offset higher operating costs because an increase in ship size does not translate into an equal increase in fuel consumption (i.e., one ship holding 20,000 twenty-foot equivalent container units (TEUs) won’t burn as much as two 10,000-TEU ships). This could lead to landside paralysis as ports struggle to process massive volumes from the larger vessels, according to JLL. Port complexes that have available land could use IMO 2020 to gain share from space-constrained ports, JLL said.
