Category: Logistics

DHL
Global Forwarding has launched a new rail express service from China to Europe
offering transit times of just 10 to 12 days.

Launched in partnership with
Xi’an International Inland Port Investment & Development Group Co., DHL
said the service from Xi’an in China to Hamburg and Neuss in Germany is now the
fastest available.

The new rail express takes an approximate 9,400-kilometer route through Kazakhstan, Russia, Belarus and Lithuania to Kaliningrad Oblast, a part of the Russian Federation on the southern coast of the Baltic Sea. It then enters the European Union via the Mamonovo-Braniewo crossing between Russia and Poland before continuing on to the port of Hamburg and finally to Neuss on the River Rhine.

“Traversing numerous countries,
the fastest rail service between China and Germany was created with the support
of China Railway, Belintertrans, RTSB Gmbh and UTLC–Eurasian Rail Alliance,”
said a DHL statement.

Rail services between Asia and Europe have increased in popularity in recent years with shippers attracted by improved reliability, faster transit times when compared to ocean shipping options and lower prices than air cargo

The Northern Eurasian corridor
used by DHL via China, Kazakhstan, Russia, Belarus and Poland has emerged as
the fastest and most reliable route, carrying 325,000 twenty-foot equivalent
units (TEUs) in 2018, according to a report earlier this year from the European
Commission (EC). This predicted traffic would rise to at least 437,000 TEU by
2030 but could rise to over 4 million TEU if sufficient capacity and funding
became available.

“Two significant factors will
affect this development – rail transport subsidies by Chinese local governments and the
infrastructure capacity along main railway routes and border crossings,
especially between Poland and Belarus,” added the report.

DHL recently opened two Rail
Competence Centers in Le Havre, France and Felixstowe, U.K., in response to
growing demand for rail freight services between Europe and China.

The company said the
Xi’an-Germany express rail connection would offer customers real-time milestone
visibility using GPS tracking of shipments via the iSee software platform.

Xi’an is at the heart of the New
Silk Road economic belt and has developed into a significant manufacturing and
digital hub, added Steve Huang, CEO, DHL Global Forwarding China.

“A foreign investment and
manufacturing hub that has seen exports increase in 2018 by 29% year-on-year,
the city today is a thriving international center with high-quality production
capabilities in pillar industries like mechanicals, electronics, bio-pharmaceuticals
and automobile manufacturing,” he said.

“By boosting greater agility
whilst offering the express rail service at reasonable costs, DHL Global
Forwarding seeks to connect these fast-evolving industries to rising demand and
market opportunities in Europe.”

Qu Jinwei, General Manager of Xi’an International Inland Port Investment & Development Group Co., said the service would help attract more investment to the region.

“As next steps, we will strive to
make this express rail freight a success,” he said. “This would attract more
industries to our region, fortifying their capabilities to gather resources
from international supply chains and sharpening their competitive edges.”

Saudi Aramco, believed to be the world’s largest integrated oil and gas company, received approval Sunday from the Saudi Capital Markets Authority to carry out an initial public offering on the local stock exchange.

“Today marks a significant milestone in the history of the Company and important progress towards delivering Saudi Vision 2030, the Kingdom’s blueprint for sustained economic diversification and growth,” Yasir Othman Al-Rumayyan, chairman of the Board of Directors of Saudi Aramco, said regarding the announcement of the listing.

Many of the details of the float on Tadawul (Saudi Arabia’s stock market) do not yet appear to have been decided.

The price, volume and percentage of the shares of Aramco to be sold will be determined at the end of “book-building” — the process by which salespeople visit institutional investors to gauge appetite and pricing for the stock.

Those investors, including banks, pension funds and the like, can subscribe for Aramco shares, as can qualified individuals. The latter group includes Saudi nationals, any non-Saudi natural person residing in the Kingdom and any national of the Gulf Cooperation Council. Other members of the council are Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates. Saudi nationals will also be entitled to one bonus share, up to a cap of 100 bonus shares, for every 10 allotted shares.

An over-allotment option of up to 15% of the total number of shares sold will be granted to one of the banks involved in the IPO.

Key financial and operating metrics

For the year ended Dec. 31, 2018, the company reported an operating cash flow of $121 billion, free cash flow of $85.8 billion and net income of $111.billion. As of June 30, 2019, it had gearing of 2.4%. On Nov. 1, 2019, Saudi Aramco declared an ordinary dividend of $13.4 billion for the quarter ending Sept. 30, 2019.

Saudi Aramco produced 13.6 million barrels per day of oil equivalent, including crude oil, condensate and natural gas liquids, for the year ended Dec. 31, 2018.

“The Company’s crude oil production accounted for approximately one in every eight barrels of crude oil produced globally from 2016G to 2018G,” the company said in a statement. 

Proven liquid reserves as of Dec. 31 were 226.8 billion barrels, “the largest amount of conventional proved liquids reserves of any company in the world and approximately five times larger than the combined proved liquids reserves of the Five Major IOCs [international oil companies]. Further, the company believes that its portfolio includes the world’s largest discovered conventional onshore oil field (Ghawar) and largest conventional offshore oil field (Safaniyah).”

Saudi Aramco added that it believes its proven oil reserves are sufficient for the next 52 years.

As of Dec. 31, 2018, Saudi Aramco had 185.7 trillion standard cubic feet of proven natural gas reserves. In 2018 it was producing about 8.9 billion standard cubic feet of natural gas per day and 1 billion standard cubic feet of ethane daily.

In the previous calendar year, Saudi Aramco’s lifting cost averaged about $2.8 per barrel of oil equivalent produced, and its capital expenditure was about $4.7 per barrel of oil equivalent produced.

“The Company’s low cost position is due to the unique nature of the Kingdom’s geological formations, favourable onshore and shallow water offshore environments in which the Company’s reservoirs are located, synergies available from the Company’s use of its large infrastructure and logistics networks, its low depletion rate operational model and its scaled application of technology,” the company said in the statement.

As of Dec. 31 last year, Saudi Aramco had a net refining capacity of 3.1 million barrels a day.

Lead manager: Samba Capital & Investment Management

Joint financial advisers: Citigroup Saudi Arabia, Credit Suisse Saudi Arabia, Goldman Sachs Saudi Arabia, HSBC Saudi Arabia, J.P. Morgan Saudi Arabia, Merrill Lynch Kingdom of Saudi Arabia, Morgan Stanley Saudi Arabia, NCB Capital, and Samba Capital & Investment Management

Joint global coordinators: Citigroup Global Markets Limited, Credit Suisse Securities (Europe) Limited, Goldman Sachs International, HSBC Saudi Arabia, J.P. Morgan Securities, Merrill Lynch Kingdom of Saudi Arabia, Morgan Stanley, NCB Capital, and Samba Capital & Investment Management

Joint Bookrunners: Banco Santander, BNP Paribas, BOCI Asia Limited, Crédit Agricole Corporate and Investment Bank, Deutsche Bank, First Abu Dhabi Bank, Mizuho International, RBC Europe, SMBC Nikko Capital Markets, Société Générale and UBS

A long-standing complaint against the logistics industry, and the maritime sector in particular, concerns the sluggish efforts undertaken to phase out legacy operational processes that have kept visibility across the horizon to a bare minimum and have left supply chains wanting in terms of efficiency. 

Several startups have launched in the space, promising to disrupt the way logistics is done. However, Martin Landgraf, co-founder of German-based technology startup ItsMyCargo, believes disruption is not the only way forward for logistics startups; they can also be about helping the industry evolve into a better version of itself. 

True to that, ItsMyCargo calls itself a technology company rather than a logistics company. The startup’s intent is to sell software to incumbent logistics companies and help them leverage technology to take their business online, thereby competing with digital freight forwarding startups that have grown to exert dominance in the niche. 

Just before ItsMyCargo materialized, the three founders had two options to choose from. “We could either try to disrupt the industry like the rest, or we can acknowledge that the industry won’t be disrupted, but will only have to change as a whole. We decided with the latter and started working on enabling existing players in the industry,” said Landgraf. 

For ItsMyCargo, this characteristic doubles up as its defining trait as the startup does not take over customer ownership from its clients, but rather look at ways to retain their customers via digitalization. 

“It means that if we have a client who is a freight forwarder with a web page, we let them continue selling their freight service directly from their own web page. We actually host their services on their web page, and their customers will continue seeing their brand,” said Landgraf. “We help our clients digitalize without losing customer ownership, which is extremely important if you see how the industry operates.”

It has been over a year since ItsMyCargo took its product to the market, and it has since then expanded across eight countries, with a special focus on the Benelux and Nordic regions. The company aims to concentrate its resources across the four biggest container ports in Europe –  Rotterdam, Antwerp, Hamburg and Amsterdam. Though the startup does see traffic from the U.S. and Asia, it has remained a tiny fraction of its business. 

“The feedback for our product has been good so far. Obviously, in the beginning, you do a lot of iterations and fine-tuning. We’ve now reached a point where the system is incredibly stable and customers that use it in the market continue to see growth in terms of their users, which is the main KPI that we’re looking at,” said Landgraf. 

Landgraf explained that the complexities behind price quotations were not easy to untangle as for a specific price quote to materialize, about 30-40 price components would need consideration. “These price components also fluctuate with time, and thus makes it quite difficult for companies to automate the process of calculating a freight quotation,” he said. “Now, on top of that, consider that every customer might have a unique negotiated price. That adds a third layer of complexity into the equation.”

ItsMyCargo has charted an interesting route to its finances as well, with the company being funded in full by its own customers. “We weren’t interested in institutionalized money from venture capital firms at the time we started because we wanted to work with someone who knew how freight quotations work and how we could customize our product for the market,” said Landgraf. 

The company ended up accepting an offer from one of its customers who became its investor during the industry seed round in 2017. Two years hence, the company has built on its product and has developed all the features it believes are necessary for it to succeed commercially. ItsMyCargo also had another investment round this July, which was again fully funded by its own customers. 

Landgraf concluded with ItsMyCargo’s perspectives on the industry’s push towards digitalization. “We believe that this industry will digitalize over time. We don’t find it attractive to disrupt the market, but rather sell the software that will help digitalize the market,” said Landgraf. “We are turning traditional freight forwarding companies and NVOCCs into their own version of a digital freight forwarder. We are elevating the market by offering it technology to keep up with modern times.”

The full might of the DSV Panalpina (CPH: DSV) transport and logistics behemoth was unveiled earlier today when the Denmark-headquartered company reported its first quarterly results since DSV completed the $5 billion purchase of Panalpina in August.

Group revenue rose 21.2% to DKK24,521 million ($2.548 billion; 1DKK = $0.10) in the third quarter ended 30 September. Earnings before interest and taxes (EBIT) of DKK1,682 million represented a gain of 11.6%, while operating margin fell from 7.4% in the third quarter of 2018 to 6.9% in the third quarter of 2019.

“The closing of the Panalpina transaction on 19 August was the all-important event in the third quarter,” said Jens Bjørn Andersen, Group CEO. “We have had a good start to the integration and the first operational integrations have already started. Meanwhile, we are pleased to report strong results for the third quarter, despite challenging market conditions, especially in the air freight market.”

Given that around 90% of Panalpina’s revenue was generated from its air and ocean forwarding activities, the most striking third quarter year-on-year changes were evident in the integrated company’s DSV Air & Sea unit.

This saw ocean freight volumes measured in twenty-foot equivalent units (TEUs) rise 41% in the third quarter compared to a year earlier. Excluding Panalpina volumes, growth of 7% was reported.

The picture for air freight was even more stark. Volumes rose 63% year-on-year in the the third quarter of 2019 despite negative organic growth of 6%.

On an annual basis, DSV Panalpina now expects to handle around 3 million TEU and 1.5 million tons of air freight, making it one of the world’s top five freight forwarders with a presence in around 90 countries and a total of 61,799 employees, up from 48,182 employees at the end of the third quarter of 2018.

However, Panalpina’s troubled state before its purchase was evident in the third quarter financials, with the large volume gains failing to translate into profits.

DSV Air & Sea reported EBIT of DKK3,311 million for the first nine months of 2019, up from DKK2,796 million, yet Panalpina contributed just DKK39 million.

Jens H. Lund, chief financial officer, told FreightWaves by telephone this morning that turning Panalpina’s volumes into profits was a priority. “We have much higher productivity than Panalpina has,” he said. “We are historically more efficient and that is where the synergies are going to come from.”

Lund added, “We have to make sure we produce Panalpina volumes in the same way we have done with DSV volumes historically. If we manage to do that, we’re going to increase the earnings on the Panalpina volume and that’s going to pay for the transaction and hopefully give a return to our shareholders.”

DSV’s track record of successfully integrating major acquisitions is a good one. It has acquired DFDS Dan Transport Group, Frans Maas, ABX and UTi Worldwide since 2000. Generating cost synergies after making major acquisitions has proven fruitful in the past and will pay a key role in paying the Panalpina tab.

The company announced today (1 November) that it now expects to achieve annual cost synergies of around DKK2,300 million when Panalpina is fully integrated, up from its previous forecast of DKK2,200 million.

Around 5% of the cost synergies are expected to impact the firm’s income statement in 2019, around 60% in 2020 and the remaining 35% in 2021.

“Total transaction and integration costs are expected in the level of DKK 2,300 million,” reported the company. “These costs will be charged to the income statement under Special Items. We expect that approximately 30% of the transaction and integration costs will materialize in 2019, 55% in 2020 and 15% in 2021.”

Some of the savings will come from corporate functions as the company relocates the former Panalpina headquarters in Basel, Switzerland, to its headquarters in Denmark, a move expected to result in up to 165 job losses.

DSV Panalpina forecasts full-year EBIT before special items for 2019 of DKK6,600 million including amortization of customer relationships of approximately DKK100 million, of which DKK80 million are related to Panalpina. Transaction and integration costs (reported as special items) for 2019 are expected to amount to approximately 30% of total expected restructuring costs of DKK2,300 million.

DSV Road, a market leader in Europe but with extensive operations in North America and South Africa, posted revenue of DKK7,698 million in the third quarter, down from DKK7,812 in the same quarter of 2018, with EBIT declining 2.2% from DKK345m to DKK343m over the period.

“Revenue was impacted positively by the acquisition of Panalpina, but negatively by the divestment of the U.S.-based Market Transport (and revenue of approximately DKK600 million) as per April 1,” the company reported.

The acquisition of Panalpina delivered 500,000-square meters and annual revenue of around DKK2 billion to DSV Solutions, the company’s warehouse, logistics and e-commerce arm. The division’s EBIT in the third quarter of 2019 was DKK239 million, up from DKK184 million a year earlier.

“The general economic slowdown continued and especially the weak development in the automotive industry impacted market growth in the third quarter of 2019,” reported the company.

More articles by Mike

Fiat Chrysler Automobiles (FCA) and PSA Group-owned Peugeot have just announced a $48 billion merger, creating the fourth-largest carmaker in the world. 

The joint press release acknowledged “a new era in sustainable mobility” and the subsequent need for industry leaders to make “bold and decisive moves.”

While this merger may appear to focus on product development, Jessica Caldwell, Edmunds’ executive director of industry analysis, thinks it suggests more about funding research on electric and autonomous vehicles.  

“The electrified, autonomous future everyone is waiting for just isn’t feasible without automakers merging and forming strategic alliances to share research and development costs,” she said. “This is a smart move by both Fiat Chrysler and PSA to ensure their companies continue to be viable and relevant as the industry evolves.”

Executive leadership of this new company will be in the hands of Carlos Tavares, former CEO of PSA, for a five-year term. John Elkann, Fiat board chair, will be the chair of the new company. The company will keep its Fiat Chrysler headquarters in the Netherlands, but also have a North American office in Detroit, Michigan. 

“This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity,” said Tavares. “I’m pleased with the work already done with [Mike Manley, CEO of FCA] and will be very happy to work with him to build a great company together.”

Together, the companies will have 410,000 employees and a shared annual revenue of $190 billion. Last year, the companies sold 8.7 million vehicles, putting them ahead of General Motors. 

This merger comes several months after Fiat Chrysler proposed a 50-50 merger with its French rival Renault, but that fell through when French government representatives asked for the vote to be postponed. The French government owns 15% of Renault. 

The FCA and PSA merger doesn’t come without its own set of issues. Factory workers for Vauxhall, also owned by PSA, are concerned about whether they’ll keep their jobs. The Unite union has been seeking an appointment with PSA leadership on the workers’ behalf. 

Global automobile sales have also been down, which cause concerns about an impending recession. But stricter emissions regulations in China and Europe have motivated automobile companies to invest in electric and autonomous technologies that have the potential to shift traditional industry models. 

The often-maligned former president
George W. Bush was known for statements of simplicity. But love him or hate
him, Bush was profoundly correct when in Stockton, California in 2002 he told
the crowd of farmers and ranchers he was speaking to, “I’m thrilled to be here
in the breadbasket of America, because it gives me a chance to remind our
fellow citizens that we have an advantage here in America. We can feed
ourselves.” He was derided mercilessly by the media for that statement, but
some countries don’t see the joke. One of those countries is China.

Despite the importance of U.S. food
production on a worldwide scale, the agrarian-based economy of America’s past
is history. Several economic revolutions later, agriculture accounts for a mere
1% of U.S. gross domestic product. However, as a bargaining chip on the world
stage, U.S. agriculture far outweighs its low percentage of domestic economic
activity.

Throughout the ongoing trade dispute
with China, pundits have criticized American negotiators for concentrating on
low value products. But to governments that cannot feed their populations, the
value of U.S. agricultural production is much higher. Well over half of U.S.
agriculture is exported to other nations around the world, and the largest
recipient of our foodstuffs is China. A country of almost 1.4 billion people, China
cannot feed itself. 

China is currently experiencing a
pork shortage as African Swine Fever ravishes its pig population, doubling the
price of “the other white meat.” Pork is the most frequently consumed meat in
China, and a staple in millions of Chinese homes. This unfortunate
epidemic is the perfect opportunity for American farmers and agricultural
haulers in heavy hog production states like Illinois, Iowa, Minnesota and North
Carolina to retake their market share, which has previously accounted for 14%
of pork in Chinese supermarkets.

And it is not only pork that
American agricultural producers and carriers can expect to profit from this
year. China is expected to import almost 3.4 million tons of rice – some of it
from the U.S., which is a huge opportunity for American farmers and
transporters. And of course another highly popular food in China is soybeans,
which are used in everything from processed foods to tofu to swine feed. Though
the recent trade war and swine flu has impacted soybean imports from U.S.
growers, China still imported 6.51 million tons in July 2019 according to the U.S.
Department of Agriculture.

But the importance of American agriculture
is not just about the tonnage of soybeans sent to China. For instance, the
United States ships large amounts of corn to Mexico, a country with which the U.S.
has a totally different type of relationship than it does with China. The U.S.
has used corn as a major negotiation tool with Mexico and has used a comparable
strategy around the world in every type of negotiation, from embargoes of rogue
regimes to humanitarian aid to Africa. 

So while some are worried about the
lack of product to haul out of West Coast ports if the trade war does ramp up,
it is important to remember that there will always be activity in hauling the nation’s
agricultural production. After all, while popular sentiment may portray China
as a looming economic giant that threatens to dethrone the U.S., it’s good to remember
which nation can feed itself and which cannot. 

Europe’s leading truck manufacturers might have already been fined over $4 billion for historic price fixing, but further claims look likely.

Manufacturers DAF, Daimler/Mercedes, Iveco, MAN, Scania and Volvo/Renault were found guilty of violating European Union competition rules by the European Commission (EC) in 2016 and 2017 and fined €3.8 billion ($4.2 billion).

The Commission found that over
a 14-year period, senior managers at the manufacturers fixed truck prices,
agreed the cost that truck buyers should be charged for emissions technologies
and delayed the introduction of more fuel-efficient emissions technologies.

A number of class action claims are currently underway against truck manufacturers as a result of the EC’s findings and one of them, launched by the United Kingdom’s (U.K.) Road Haulage Association (RHA), made serious headway this week.

The RHA is seeking compensation on behalf of thousands of hauliers who suffered financially as a result of what it calls the “cartel action” of truck manufacturers. It won the first round of its legal action earlier this week when the U.K’s Competition Appeal Tribunal (CAT) ruled that the RHA is fit to proceed with its collective claim.

 “This is a very important milestone in what may prove to
be a lengthy journey to recover compensation rightfully owed to truck
operators,” said Richard Burnett, CEO of the RHA.

 “The RHA is delighted that the Tribunal has recognized the
ability of the RHA as a ‘well-established trade association’ to bring this
collective claim, while at the same time rejecting outright attempts by the
truck manufacturers to stifle the RHA’s claim at the outset.

“We are fully committed to seeing this process through to the end
and it is a real achievement to have had such a clear victory at this early
stage in the proceedings.”

The RHA’s proposed collective claim, which it has estimated could total more than $6 billion, covers all trucks over six tons of any make. It relates not only to trucks purchased or leased in the United Kingdom, but also to trucks purchased or leased in other European countries, provided the operator belongs to a group of companies that purchased or leased trucks registered in the United Kingdom.

“The RHA is claiming for trucks sold both during the cartel
period – 1997 to 2011 – and afterwards to the present
day. The claim also covers new and second-hand trucks,” said a statement.

UK Trucks Claim (UKTC) is also seeking to bring a collective
claim on behalf of truck operators.

The second part of the RHA’s collective proceedings order
application is now expected to be heard by the CAT around October 2020 with a
judgement expected a few months later.

“The RHA expects the claim to run for several years but is confident that compensation will be awarded in due course,” said a statement.

No response was forthcoming from MAN, DAF or Iveco at the time this article was published.

More articles by Mike

Everoad, the French-based road freight digitalization startup, has announced a strategic partnership with French mass-retailer Groupe Casino to help the retail major in its efforts to digitalize its supply chain. Spanning four years, the contract is worth a total of €100 million, making it one of the largest supply chain digitalization contracts awarded to a logistics startup in Europe. 

“We are a digital freight forwarder. We are competing with classical 3PLs [third-party logistics providers] and 4PLs [fourth-party logistics providers] from the industry and are managing transport for our customers who want to ship goods in Europe by working with companies that own carriers across Europe,” said Maxime Legardez, the CEO and founder of Everoad. 

Legardez explained that Everoad owed its existence to the challenges the European freight transport market witnesses – in the context of excessive fragmentation, logistical inefficiency and incumbent players who refuse to reinvent themselves. 

In its initial days, the startup engaged with small- and medium-sized enterprise businesses to help with their shipping needs. More than 80% of its business today is derived from companies that have over €1 billion in annual turnover. 

“Everoad provides its shippers better visibility into their supply chain by giving them multiple dashboards. There they can follow up on every single load, check on waiting times at pickup and delivery, and even enjoy price predictability on their loads,” said Legardez. “We help them save a lot on their shipping costs. All the companies that have worked with us have realized at least a one-digit percentage of savings by the end of the year of association.”

With Groupe Casino’s expansive supply chain, Everoad sees a great deal of potential. The startup plans to deploy its machine learning algorithms to the retailer’s digitalization infrastructure, improving visibility into transport capacity, gaining track-and-trace functionalities, and unlocking dynamic pricing possibilities. The company believes that this will help Group Casino to have an eagle-eye view over its operations, which translates to better real-time control of its supply chain. 

Everoad currently digs deep into the European road freight scene, working with roughly 5,000 carriers that jointly represent over 300,000 trucks. “We are really focussing on carriers that have one to 20 trucks, because we believe that is where we can add the maximum value. These carriers are the ones that need support because they aren’t invited to tenders that major players like Unilever or Procter & Gamble put out. We are really happy to be the partner of such smaller carriers,” said Legardez. 

Apart from running a digital freight marketplace, Everoad has also built out an elaborate ecosystem that caters exclusively to trucking fleets and drivers. The startup has partnered with French financial institution La Banque Postale to provide invoice factoring, and with truck manufacturer DAF and Bridgestone to sell trucks and tires at discounted prices on its platform. 

For Legardez, the now-announced partnership with Groupe Casino does not come as a surprise, as it is an extension of the startup’s successful collaboration with the retailer over the last year. 

“For us, the aim is to accelerate and be the leader of freight movement in Europe. Apart from reducing transport costs by digitalization, we also optimize the number of empty kilometres, give companies access to dedicated analytics tools that can help them better monitor their supply chain,” said Legardez. “Today, about 60-70% of our loads are fully automated, which means that there will be no human intervention from the minute the shipper publishes a load to the minute the carriers upload their invoice on the platform.”

Everoad’s partnership with Groupe Casino is vital for the startup’s continued growth within the European market. This can be confirmed by the company’s goal of hitting €1 billion in annual turnover by 2023 – an effort that would need immense growth, both in terms of freight volume and geographic footprint.

Maersk is teaming up with big shippers to test a new marine fuel made from plant fibers that aims to mitigate ocean freight’s contribution to climate change.

The Copenhagen-based company said the pilot project will include automotive logistics company Wallenius Wilhelmsen, Copenhagen University, BMW Group, H&M Group, Levi Strauss & Co. and Marks & Spencer.

Together they plan to study the use of a blend of ethanol and lignin called LEO. Lignin is a plant fiber and a byproduct of ethanol production and pulp and paper mills. It is often incinerated to produce steam and electricity.

Copenhagen University is running the laboratory-scale development of this potential marine fuel. Testing the fuel on actual vessel engines could begin in the second quarter of 2020, according to Maersk.

“Shipping requires bespoke low-carbon fuel solutions which can make the leap from the laboratory to the global shipping fleet,” said Maersk Chief Operating Officer Soren Toft. “Initiatives such as the LEO Coalition are an important catalyst in this process.” 

The testing of LEO comes on the heels of a study from Maersk and Lloyd’s Register that said biomass-based alcohols are among the most promising alternatives to crude-oil-based marine fuels.

The largest emitter of greenhouse gases in container shipping, Maersk has been actively testing alternative fuels. In June, Maersk trialed carbon-neutral shipping on a vessel powered by a cooking oil-heavy fuel mixture.

Helena Helmersson, Chief Operating Officer of H&M Group, which was part of the June biofuel trial, said the fast fashion retailer is “committed to reduce our impact in every aspect of our value chain, including how our products are shipped to consumers around the world.”

Maersk is also part of the Dutch Sustainable Growth Coalition (DSGC), a consortium of multinationals including Shell, Unilever, Philips and Heineken that are promoting the use of biofuels in shipping.

“Our customers’ ambitions on sustainability are increasing rapidly, and we applaud this development. Clearly, LEO would be a great step forward for supply chain sustainability, and it has the potential to be a viable solution for today’s fleet, and not just a future vision,” said Craig Jasienski, Wallenius Wilhelmsen Chief Executive Officer.