Behind the Forecasting 8-ball

Industry Leaders Navigate the Latest Uncertainties

By Gary Burrows
For the industrial project cargo industry and its key sectors, forecasting opportunities and challenges in 2021 is a dicey proposition.

Nonetheless, a panel representing carriers, forwarders and engineering, procurement and construction companies attempted to shed light on the globe’s comparatively dim current environment, kicking off Breakbulk Americas’ Digital Special, as final voting in the U.S. election continued Nov. 3.

“Any predictions in terms of forecasting these days is basically on a caveat, and that’s getting through the pandemic,” said Raj Desai, senior vice president procurement and contracts and chief commercial strategist for Fluor.

“It’s hard to forecast for the future when your customer is having difficulties forecasting for the future. And a lot of times they’re having a hard time because the customer’s customers are having a hard time forecasting for the future,” said Richard Seeg, president of Intermarine Americas LLC.
EPC Opportunities

Assuming the world emerges from the pandemic by the first quarter of 2021, Desai and Fluor see the dependence on green energy increasing, as laws and regulations that seek to lower carbon emissions and address climate change evolve.

At the same time lower priced, cleaner-burning liquefied natural gas is drawing interest and foreign investment into the U.S. Likewise, with low priced gas a feedstock for specialty chemicals, the U.S. gas market is “one of the most attractive places for that,” Desai said.

Further, carbon-capture projects are picking up. Desai noted that these projects capture carbon from fossil-fuel emissions, storing carbon dioxide underground, while burning hydrogen to generate power. These projects earn carbon credits in the U.S. at about US$50 per tonne. For a 1 million-ton plant, at the current credit rate of US$50 per tonne, a project would payback its costs within three or four years, he said.

Finally, though the IT industry was burgeoning before the pandemic, the drive towards working remotely has required new and broader adoption of IT solutions. That, coupled with green energy, is raising the focus on mining for the copper, nickel, rare earth minerals and other metals necessary for IT and green energy products.

“We see [Fluor] being very busy in 2021-22 moving forward,” he added.
‘A Function of the Market’

For service providers, such as ocean carriers, the latest plight is cratering what has already been a difficult operating environment for several years. Webinar moderator Mac Sullivan, head of technology and digital promotion, NNR Global Logistics, noted that massive layoffs and acquisitions among forwarders and shipping lines are not the only things impacting their business models.

While a panel of carriers at a Breakbulk Europe Digital Special session thought consolidation was over, a panelist from SAL Heavy Lift disagreed, and the following week, the carrier announced it had acquired a “major stake” in Intermarine.

The merger and acquisition activities among service providers is “a function of the market, nothing more,” said Stephen Garifalos, national director, out-of-gauge and specialized cargo sales, MSC Mediterranean Shipping Co. “Who else will marry up? Who knows.”

Intermarine’s Seeg said the shipping industry is facing multiple challenges. “There’s a depressed world economy. Nobody’s buying anything.”

Because of depressed business due to Covid-19, low oil and gas prices, trade tariffs and conflict, engineering, procurement and construction companies are “focusing less on new big project spend to keep existing projects going or starting smaller projects to keep up with lesser demand,” Seeg said. That’s all leading to smaller and fewer cargo shipments and a push to regionalize sourcing from an increased number of vendors.

Further, the trade and political uncertainty is leading to shippers having smaller cargoes and simpler supply chains on a more regionalized basis, with “some out of Europe,” but a lot more inter-Americas and domestic U.S., he said. The latter plays well with liner-service carriers such as Intermarine, and its regional Americas liner service.

“As a carrier I can tell you Intermarine is a different carrier from what it was 20 years ago, different from 10 years ago, different from the Intermarine one year ago ... The perfect vessel for the market constantly changes, depending on trade lane, depending on volume need or transit time. As carriers, we adjust our fleet to meet our customers’ needs. And this is all through communication, trust and relationships.”
‘Holistic Approach’

On a more global basis, the shift in sourcing from China to Southeast Asia continues, said Susan St. Germain, director of projects at LV Shipping, a Houston-based international freight forwarder and logistics company. Though China remains the leader in raw steel and has long been the main source for her customers, those same customers are finding alternative sources in regions where steel products are exempted from the tariffs, such as Vietnam.

St. Germain said over the past three-to-five months, as customers seek new sources, she has seen quotes sourcing out of Croatia, Turkey and India.

Fluor’s Desai said he’s seeing the trend of weaning from China dependency as well. CEOs are no longer “depending on one source globally … the trend among clients is towards a broader global dependence rather than counting on one market only.”

But the shift isn’t happening in a hurry. “It’s not so easy to pick up a factory and move it,” St. Germain said. And, unfortunately for many, contracts were already in place prior to the tariffs, so projects that don’t have a lot of flexibility in start-up date have to bite the bullet on pricier Chinese steel goods.

As a forwarder, St. Germain said LV Shipping tries a “holistic approach. We don’t say, ‘how much freight have you got? Here’s a ship, let’s move it.’ It’s more managing the flow of the product … It is about (the customer) taking delivery of the product at the last possible moment so maintaining cash flow.”

While tariffs have been lifted on some items out of China, St. Germain said there has been a “mad dash to get it on board ships and across the pond and customs cleared before the end of the year,” and her company is adapting to that.

She did note that if she were to “throw a dart at the map, India might be the next big supplier of materials, at least for our company and the projects we’re working with.”
Seeg added that Intermarine is seeing increased flows from Vietnam and Indonesia.

Panelists largely agreed that the pandemic has greatly accelerated the industry’s push towards digitalization. In fact, the topic interlaced through the Americas’ Digital Special sessions as much as Covid-19.

MSC’s Garifalos sees the focus among all carriers large and small. “It makes sense. It also insulates your business from events such as this (pandemic).”

Businesses scrambled at the pandemic’s onset to shut down offices and move all employees that could to work from home. “Some were prepared, well prepared,” Garifalos said.
He admitted that, though MSC had digitalization plans in place, they were “not for that week or month.”

“We increased our IT ability greatly. We were mostly office-centric, and had to be there to actually operate,” he explained. The carrier’s IT department was quick to pivot operations and provide systems, software and hardware “to give us all the tools we need.”
Who Pays?

With the advent of digitalization, and developing plans to take it much further in the industry, NNR’s Sullivan asked panelists that as these IT innovations bubble into being, who pays: client or service provider?

“Making things easier has a cost associated with it, at least from my P&L (profit-and-loss statement),” he said.

“I don’t think it’s with our customer base,” Garifalos responded. “The expectation is that you’re there to support customer service. The easier you make it for your customer to navigate your own company systems, the more trust they’ll give you, the more that they will come to you. That’s the whole point of the service side of this business is. You make it so that when they come to you, you make it as simple as possible – not free – but as simple as possible and they will continue coming to you. If you make it difficult, they’ll go somewhere else in a hurry.”

It comes down to trust and communication, the panelists agreed. Customers demand “more agile and flexible,” said Seeg of Intermarine. But with the challenges that the industry now faces comes opportunities. To “support our customers as their needs changed, that’s the critical and important part.”

Going Deeper

The required push to home office, and to split staffs into individual domiciles, has developed a strangely paradoxical situation that has “actually brought us closer together,” St. Germain maintains.

“I know all of my clients’ wives, husbands, dogs, children. Somebody doesn’t know they’re in a Zoom meeting and the next thing you know, there’s a child in the lap and you’re meeting the kids,” she said. “When that first began happening, it was sort of embarrassing for everybody. Now it’s, ‘how’s your boy? Is your dog feeling better?’ ”

Besides a deeper relationship with clients, it helps the bottom line, she added. “I feel that I can go to them and say, ‘I mentioned something the last time we talked, and I thought about it and what if we do this or that?’ Rather than being reactive, I feel like I’m part of their team … I think we’re remembering to be human again, and I actually like that.”

Despite Sullivan suggesting that the current environment – and these deeper online relationships – makes it harder to acquire new business, St. Germain said in wooing new customers this year, that they’re looking for the same thing: “a decent relationship.”

Fluor’s Desai said the EPC saw opportunities to expand its range of services to help traditional and new clients navigate through the crises brought by the onset of the pandemic. That included breaking out of the typical EPC services box and creating offshoot supply chain services for non-traditional clients. This included customs issues, reshoring, and port issues.

When Fluor announced the service on public platforms, the response was “overwhelming,” he said. With Fluor’s global footprint, despite the travel restrictions, the EPC had a global presence to help clients do on-site inspections, provide logistics services and other hand-holding. They are not expanding the service.

Further, they are investing in artificial intelligence, predictive modeling, auditing and digitalization services. Its modeling is tied into IBM’s “Watson” platform. The payoff for customers would be dynamic pricing, he added.
Subscribe to BreakbulkONE and receive more industry stories and updates around impact of COVID-19.