Global supply chain - rash of newcomers joins the bulk carrier supply chain and ship operations

The make-up of the dry bulk shipping and transport markets is being transformed. Some global commodities players are evolving their approach to reduce exposure to logistics and shipping cost volatility, while a slew of transport majors have identified dry bulk markets as a good way of diversifying their existing service and infrastructure portfolios. All hope their investments will yield healthy dividends for shareholders.

raw materials to customers in manufacturing centres around the world. Noble no longer calls itself a commodities trader, but a global supply chain manager of agricultural, metals, minerals, ores and energy products.
Leiman said the 2010 results were a consequence of the company’s investments in capital assets in recent years and its integrated supply chain which had enabled volumes handled to be expanded by 30% last year alone, and had shielded the company from global price volatility
“We are optimistic about our business and financial performance in 2011,” he said. “We believe Noble is increasingly well positioned through our global platform to further expand our business and leverage our investments and supply chain activities.”
Traders are not the only companies buying up bulk sector infrastructure. APM Terminals, the port operating arm of the AP Moller Maersk Group, is known globally as a leading operator of container terminals. But the company has recently branched out into dry bulk port operations (for more details, see ‘Container terminals set their sights on bulk trades to diversify risks’ on p15 of this issue).
In April the port manager announced the acquisition of an 80% share in Poti Sea Port, located on Georgia’s Black Sea coast. While the port handles sizeable and growing container traffic, APMT was quick to point out that the mineral wealth of its hinterland and the existing bulk handling capabilities at its 15 berths totalling some 2,900 metres and boasting 25 bulk handling cranes were also major draws. APMT said it would invest some USD$100m in port upgrades to help increase bulk throughput from the 3.8mt handled last year.
Last month the company was also selected to run Terminal Muelle Norte, located in Peru at the port of Callao. APMT pledged to invest US$$749m in the port with the aim of taking capacity to 2.9m teu of containers each year and, crucially, 9.9mt of non-containerized cargo.
In India APMT is also investing heavily at Pipavav which caters to the North West region of India, most notably by providing shippers with an alternative to heavily congested Mumbai. APMT said Pipavav handled 2% of India’s growing coal import trade shipped from Indonesia and South Africa during 2010.
“Total dry bulk cargo handled in 2009/10 in India was 740mt,” added a spokesman. “Pipavav currently has market share of approximately 5%. Major commodities handled are coal, fertilizer, minerals, steel, project cargo and others.
“Coal is one of the important commodities moving through the port. Recognizing its importance, the port has developed world-class infrastructure for coal storage and transportation.
The Port of Poti in Georgia.
By 2013, Vale should have 41 VLOCs.
ports and two iron ore export terminals — Ilha Guai´ba Terminal (TIG) and Sepetiba Port (CPBS). Now Vale is adding ships to complete the supply chain.
Volatile freight rates over the last ten years have prompted the company to place sizeable orders for the largest dry bulk carriers in a bid to reduce exposure to shipping markets and maintain its cost-competitiveness in iron ore markets such as China where it faces severe competition from Australian exporters which benefit from closer shipping distances. By 2013 Vale is scheduled to have a fleet of 41 Very Large Ore Carriers (VLOCs) at its command.
Glencore, the Switzerland-based international commodities trader, is another looking to increase its supply chain control. Already a major operator and charter of bulk carriers, a merger with shipping and trading group Louis Dreyfus has long been- mooted and would further boost its power in shipping and logistics markets.
To some extent, both Glencore and Vale are following in the pioneering footsteps of cement and agricultural majors who have been quick to invest in both land and ocean transport infrastructure in a bid to control or cut the landed cost of their products in international markets. But the Hong Kong-based Noble Group has probably been the foremost exponent in recent years of using supply chain investment as a means not just of controlling costs, but also generating profits.
As explained in DCI back in 2007 when it became clear the trading and commodities behemoth was pursuing a new game plan, Noble has been casting off its ‘fixed-asset lite’ approach and instead building a global logistics network incorporating warehousing and ports under the guidance of Ricardo Leiman — back in 2007 the company’s chief operating officer but since promoted to chief executive officer.
Leiman’s plan has proven highly successful. In 2006 the company boasted turnover of almost US$12bn. In 2010 that figure increased to over $56bn, a new record. Last year records were also set for tonnage volume (184mt [million tonnes]) and net profit ($606m). Group operating income from supply chain activities rose 48% to US$1,632 million in FY2010 compared with US$1,105 million for FY2009.
The Noble strategy has been to invest in ‘physical’ assets, be that mines, farms warehouses, ports or overland transportation networks. As a result, the company is now a major owner of production capacity and the storage and transport facilities — including six ports — required to deliver its raw materials to global buyers.
“We own origination points, we produce and process our own raw materials, and we control the supply pipeline from beginning to end,” proclaims the company.
This approach has enabled Noble to secure long-term supplies of key commodity groups, using the information gleaned first hand in tandem with its in-house logistics capacity to deliver “Bhatia Coal, Gupta Coal, Ultratech Cement are some of the important customers. The future for coal is bright as several power plants are being developed around the port and are in discussions with the port for coal transportation.”
While cargo and port interests are increasingly investing in supply chain infrastructure,Third Party Logistics Providers (3PL) are taking a different tack. DHL, for example, is best known for its express and air freight logistics services, but the company is also now one of the world’s biggest freight forwarders and supply chain managers. This includes a strong presence in not only offshore and heavylift shipping, but also the dry bulk sector.
DHL’s dry bulk business is managed by DHL Global Bulk Chartering, headquartered in Shanghai and led by Mr Li Jiang as Global Head of Bulk Chartering. The company’s involvement in dry bulk began as far back as 2000, when there was an increasing customer need, especially in China, for international dry bulk services that could meet global standards of quality, transit times and reliability. Now the company is not only managing supply chains, it also charters a surprisingly large number of dry bulk carriers each year as well as offering time and voyage chartering options, Contracts of Affreightment (COAs) and logistics services.
“The bulk chartering business complements and synergizes with DHL’s Industrial Projects service offering, customer base and operational procedures, giving DHL an edge over competitors with single portfolios,” Jiang told DCI.
“In 2010, DHL Industrial Projects and DHL Global Bulk Chartering together transported over 22 million tonnes of dry bulk cargo, 70% of it being coal, making DHL the leading coal carrier in the Pacific, especially in China.”
DHL Global Bulk Chartering operates some 40 bulk carriers from Capesize to Handysize to ship cargoes such as coal, iron ore, grains, nickel ore, bauxite, cement clink and steel products. Key routes include coal from Australia, Brazil and Indonesia to China, soyabeans into China from Brazil, Argentina and the US Gulf, and coal from North America to Asia.
“We complement this by offering multi-modal transport services for heavy industries and services global clients in the steel mill, power stations, mines, grain processing plants and trading sectors,” said Jiang.
“DHL works with a significant number of major China national power groups and these relationships are doing very well.
“DHL Global Bulk Chartering is also extremely active on the Intra-Asia lanes, a key growth region for the group as a whole while the majority of our clients are from the manufacturing
sector, also a key strategic area focus.” Over the past seven years, the company’s chartering division
has seen 50-fold growth, according to Jiang. “We expect this growth to continue based on the growth prospects of the global dry bulk market — expected to grow to 4.5 billion tonnes with 6% CAGR from 2011 to 2015, largely driven by trade in China — coupled with DHL’s solid experience and expertise given its extensive business base.”
He said the key to the division’s success has been to simplify dry bulk chartering processes for customers while maintaining global service standards that allow them to compete in the international market.
He also believes the presence of major logistics players with strict internal operating procedures will be good for the bulk sector as a whole, not least in terms of environmental performance. “As a group, our goal is to improve its carbon efficiency by 30% by 2020 from a baseline of 2007,” he added. “To this end, DHL has implemented several initiatives under ‘GoGreen’, one of its three corporate social responsibility pillars. In line with this, DHL Global Bulk Chartering advocates low carbon and sulphur consumption on ships chartered.”
Another company with a strong logistics background, albeit one with a more well known presence in dry cargo than DHL, is GAC. Over the last decade the company has gradually increased its service portfolio in the sector via its dedicated Dry Bulk team, offering tailored services in combination with port agency and landside support specifically geared to meeting the demands of different cargoes and trades.
“Our integrated shipping agency and logistics services are complemented by the expertise of our in-house freight contractor and operator, Brobulk Ltd,” said Kostas Kakaris, Dry Bulk Development Manager at GAC Shipping Services.
While Brobulk covers the ocean operations, GAC focuses on inland destinations where it has a strong freight forwarding and logistics network. “By combining Brobulk’s freight coverage, we offer a total package covering ocean freight, port agency, stevedoring, customs clearance and inland transport to final destination,” added Kakaris. “GAC also has its own fleet of trucks, network of warehouses and repair bases in the Middle East and elsewhere, enabling us to control costs, quality and competitiveness.”
He said that while most shippers control their own logistics and supply chains, including railway, silos and open terminals, customers have “given us the opportunity to manage supply chains at destination/discharging points.”
He added:“GAC has a long history in areas that are considered ‘difficult’ and we invest heavily in maintaining high quality expatriate and local personnel to operate in such areas. With over 50 years of experience, we cover not only agency matters but any type of transport or relevant service. If a service is not available locally, we create alliances with specialists in bagging, heavy lift, haulage, joining forces and offering total logistics from port to any inland destination or site.”
A number of other leading 3PLs that compete with GAC and DHL in global forwarding markets were contacted by DCI for this article but declined to comment on their dry bulk ambitions. But most of the leading players are gradually expanding their vertical footprints away from the Fast Moving Consumer Goods (FMCG) sector where they have traditionally generated most of their profits into areas such as breakbulk, heavylift and offshore support and logistics. Many are known to be eyeing the efforts of their peers in the dry bulk business. As one put it:“Watch this space.”