PPI TS19 Session Roundups - Part III
A worldwide audience travelled to Amsterdam to hear about the latest developments in logistics/transportation
Published: December 3, 2011
SESSION 3: PULP PANEL
What do the producers want from transport providers? This is a never ending debate and it is not simply a question of low costs.
Hermano Sousa is logistics director for Altri (Portugal). In Italian, Altri means “other things” which, Sousa, said, describes Altri as it is a spinoff company. But, for a spin-off it has done very well with three mill in Portugal producing 900,000 tonnes/yr of market pulp.
Sousa said Altri has “simple” logistics needs as it is close to its markets, with 84% of its production destined for Europe and 9% being used domestically. Almost half of its production is shipped by conventional breakbulk. The next largest portion, 270,000 tonnes, is shipped by road.
Altri wants a supplier that is competitive, flexible and environmentally friendly. Breaking it down further, he said competitive includes resiliency, cooperation and the desire for a longterm partnership. Altri would like a one-stop shop that is “hassle-free”.
Following up his opening day forecast for the global industry, Rod Young, RISI, made a return to the podium. From a transport point of view, there has been a significant geographic change of where pulp is made and where it is consumed. There is an accelerating change to supply coming from South America while on the demand side, there is a continuing shift to China.
But, Young added, the growth in pulp shipments to China has not been quite as fast as expected as there has been huge growth in the import of raw wood into China. China will use more wood pulp, Young added, but much of the supply will be domestic made from imported wood.
Looking at cost structures, Young said there is still strong belief in the competitiveness of Brazil but recent offsets include a strong Brazilian currency. This has turned the US Southeast into the low-cost pulp producer. This has been helped by slow lumber markets leaving a lot of wood on the stump leading to lower prices.
Addressing the competition between recovered paper (RCP) and virgin wood, looking ahead five years, Young said a conundrum has been created for forecasters. There is a significant supply of pulp, which creates increased downward pressure of prices, which in turn creates increased downward pressure on RCP prices.
However, low-quality RCP prices are rising because of increased demand from the containerboard market. This creates a compression. Young believes tissue makers will increasingly opt for virgin pulp but the shift away from RCP will not happen overnight.
Raimundo Montt is director of logistics and transport for Chile’s CMPC. The company produces 2.5 million tonnes/yr of pulp from its four mills (three in Chile, one in Brazil). A possible 1.3-million tonne/yr expansion of the Brazilian mill is under study.
Transport is the second most important factor in the company’s cost structure, Montt added, and long distance is the main issue as more than 80% of CMPC’s pulp is exported, to places such as China, Europe and North America. More than 60% of that pulp is sent breakbulk.
There are three items on Montt’s wish list: Make it simpler; make it faster; make it cheaper. How to do that? “I don’t know.” It’s a journey that producer and carrier must make together. He had five suggestions:
- Keep innovating
- Focus on solutions, not problems
- Pursue efficiency relentlessly
- Be flexible
- “Let’s build trust.”
Philippe Wauters, Westfal-Larsen Shipping, said he wants to know what the producers want because, he stressed, the ship owners can do anything the producers want: technical innovation, environmental friendliness, jib or gantry cranes, etc. “Are you willing to jump into the boat and contribute to costs?”
Ulf Hofverberg is director of sales and marketing for Fibrek, a smaller North American company that produces 750,000 tonnes/yr of market pulp, both virgin and from RCP. Its two US mill produce pulp from RCP while its St-Felicien, QC, mill produces virgin pulp from black spruce. Most of the RCP pulp is sold in North America while 90% of St-Felicien’s output is shipped to northern Europe.
About 75% of the pulp exported in sent breakbulk, the rest in containers. As a smaller producer with scattered clients, Hofverberg said Fibrek is inconsistent in being able to say where its pulp is going so it tends to use brokers to book containers.
As the trend to certification grows, it will become more difficult for the recycled side of Fibrek’s business. (The St-Felicien mill uses all FSC-certified wood.) He noted that people look for logos even if they don’t necessarily know what the logos mean.
A good question and answer session followed the speakers. One of the first questions dealt with the massive long-term contract Brazilan pulp producer Fibria signed with a carrier. Montt said the entire industry was looking at this contract. For it to be successful, pulp producers have to get really involved with the shipping business. “We choose to focus on our core business of making pulp.”
Wauters asked if this is the model the industry wants. How much flexibility is there? He added that the industry has seen one of these deals fail in the past. It is not for everybody.
Another delegate asked if the trend in wood imports is to chips or logs. The vast majority is chips and the fastest growing source is Viet Nam, from zero in 2005 to 2 million tonnes in 2011.
Some one asked Sousa how important it is for Altri to work with “green” logistics. He said that Altri is “green” but that there is a limit.
Montt said the green issue is more complex than most believe. He echoed a long-held thought that the industry is not good at selling its message. In the end, he said, the market will determine the green factor.
Another question dealt with innovations in energy. Wauters said that as a ship owner, Westfal-Larsen is always looking at new projects. The company is adapting its hardware as much as possible. Projects to reduce fuel consumption will obviously lead to more environmental protection, but, he added, he asked if the industry wanted to help pay for it.
The issue of breakbulk versus container arose. Sousa said that if Altri were to ship logs to Asia, it cannot use conventional breakbulk; it has to use containers. It is also a matter of cost. Hofverberg said it is a question of volume for Fibrek. To be economical, it needs to use containers.
Montt said CMPC has to look at various issues. Where is the market? Some breakbulk ships can’t reach some ports.
What is the frequency? Containers loads can be daily or weekly. Breakbulk may be one or two ships monthly.
How does a company manage sales? Does it go through a broker or sell directly?
Asked about slow steaming as a way to save money and protect the environment, Montt said that CPMC was presented with the idea as a solution. But, he asked, does it make sense? Is it reliable, faster? CMPC is cognizant of ship owners’ problems and understands them. There is no worldwide pulp industry without transport. “Do we want to pay? No, unless it is a market and fair price.”
SESSION 4: CHALLENGES AND OPPORTUNITIES FOR SHIPPING
& TRANSPORTATION IN ASIA
This panel session was billed early on as the “Alan and Ulf Show,” referring to its two speakers, Alan Bog, commercial manager Asia at the Westerlund Asia Terminals of the Euroports Group, and Ulf Eriksen, vice president of Westfal-Larsen Shipping. Both of them have years of experience in forest products transportation and both have been busy finding success in China for the past few years.
Any consideration of Asia must begin with the Chinese economy, they said. There is an open drive by the government to maintain growth and limit inflation at the same time. Building up the infrastructure is a main component of this growth, most of which is taking place in non-coastal areas.
It’s impossible to discount the fact that China is the world’s industrial base today. Eriksen said he recently saw a front page of China Daily saying, “Go East Young Man,” referring to the expectation that China will be the world’s largest economy by 2020.
This means there are massive requirements for China to develop export markets and satisfy its “hunger for raw material to sustain the growth in the infrastructure.” Ports are on the front lines of these initiatives. The Chinese government “must continue to develop its export markets and help the ports handle larger import and export vessels,” said Bog.
The struggle of the ports is definitely one of the problem areas, he continued. And Eriksen added, “China is investing more heavily in port infrastructure than any other infrastructure project.” From 2006 – 2011, China committed RMB 360 billion to port infrastructure. Over the next five years, expect that to double to RMB 720 billion.
There are a large variety of ports in China. They are mainly state run companies with the appearance of modern infrastructure. There are some join ventures, but the ports are dominated by state-owned companies. And there is a focus on ports and not on terminals. But in reality, the ports in Asia and China “run from the sublime to ridiculous.”
There is the largest container port in the world and then there are the private berths along the Yangtse. On closer inspection, there are innumerable problems to be solved. Open yard storage is a typical solution to expansion, and shippers pay less in storage. But warehouses are limited and the lack of cleanliness can, and often does, lead to problems with pulp and paper shipments.
A pressure to get cargo out of the ports quickly leads to other problems, specifically with delays because all cargo must be at the port before loading. Modern warehouses could help alleviate some of this problem. “Warehousing capacity is a key,” said Bog.
China’s geography offers its own challenges. The country is vastly different between the south, the middle and the north. Congestion is hampering many port operations because 1) ports are judged on throughput; 2) they handle a mixed bag of products; and 3) weather conditions play havoc.
The distribution channels are the next item on the list. Barges and coasters are used in abundant supply on the waterways, but their quality, their short supply, and their quality of handling means headaches. Railway infrastructure is beginning to improve but, oddly enough, pulp is seen as a dangerous cargo. Inconsistent standards on the road round out this trio.
To find any success in Asia, concluded Bog and Eriksen, there also much be an effort to learn to adapt to the culture. Even as something as basic as a difference in philosophy, explained Ericksen. For example, where Europeans like to get straight to the point and share their feelings, Chinese will often take a more circuitous route and prefer to keep their emotions in check. Understanding these differences will go a long way. “You must be willing to spend time developing the relationships,” said Bog.
