What is the European industry doing to cope with rising transport energy costs and demands for sustainability?
July 2007
By Joanne Hunter
Exercising control over the cost of moving consignments of raw materials and processed and converted wood product in and around Europe, and to and from the rest of the world, imposes weighty responsibilities on logistics and distribution teams.
Rising fuel prices are just the start of complex calculations to work out the financial, environmental and social impact of different transport modes.
Further complicating matters is a wave of alternative fuel choices.
The cost to the planet of expending tonnes of transport fuel energy falls as a virtual bill on the doorstep of big users such as the forest products industry. Smart players are using their corporate sustainability credentials to form a virtuous circle, making good stewardship of the environment a profit zone in its own right.
It takes keen minds to follow the multiple strands of road, rail and maritime legislation, 'new fuel' development, transport infrastructure plans and global industry trends that augur change in practices.
What's needed, the industry says, are the tools and conditions to create flexible multi-modal transport strategies to safeguard business stability in a volatile world market.
A tremendous growth in shipping to Asia has resulted in rising costs, a phenomenon known as "the China effect", explains technology specialist in finishing and logistics at Poyry Forest Industry Consulting (Finland), Jarmo Pesonen.
Freight rates have trebled during the past three years; the daily rate for a charter vessel for transporting pulpwood has gone from $10,000-12,000 to $30,000, and at the same time fuel prices have doubled.
Container business picking up
The trend is for finished goods to be transported by container, and "old-fashioned" forest product carriers are disappearing. The move to containers and trailers means breakbulk business is slowing and a "completely new picture" is unfolding for the forest products transport industry, says Pesonen. "Any mill can ship anywhere without major difficulty in the transport chain," because containers don't need terminals dedicated to product and there can be seamless movement from one mode of transport to another.
By 2035-2040, northwest European container business is estimated to grow to three times what it is today.
The Port of Rotterdam's Maasvlakte 2 land reclamation project will expand capacity from 12 million to 30 million containers.
"Nothing can stem the rise in fuel costs; if you need it, it's worth the price," says Pesonen. "What is clear, as pulp mill unit capacities become larger and larger, to around one million tonnes/year, the mills need to be where the forests are."
The new pulp mills will be built in South America, Australia and wherever the biggest land resources can be found. In time this will leave the European pulp industry, without new investment, facing steady decline; but a new papermaking industry will rise up and its paper machines will also get bigger and bigger producing paper where their customers are. They will source pulp from countries such as Brazil.
In the paper supply chain from forest to paper end-user customer, pulp is the easiest commodity to transport. For example, the required wood raw material has four times the volume of pulp and hence is four times the cost to transport. In comparison "finished goods are much more vulnerable to damage and have very complex customer requirements," says Pesonen.
The cost to transport pulp from South America to Europe is about $35-40/tonne; and the production costs of pulp are in the order of $200/tonne, according to Pesonen. So at a selling price for pulp of $700-800/tonne, a $1billion investment in a new pulp mill in Brazil offers a good return.
SCA keeps close tabs
SCA can see clearly where its transport energy dollars are going and keep a check on fuel costs thanks to its Transforest business unit. SCA Transforest owns a sea-going fleet that cost-effectively serves remote parts of Sweden.
The Sundsvall-based company conveys a total of some 1.5 million tonnes/yr of SCA product: 1.1 million tonnes shipped southbound and 0.4 million tonnes northbound. An additional 1.5 million tonnes' worth of yearly external contracts makes an overall total of 3 million tonnes/yr.
SCA has seen bunker oil go up by a factor of five in the past 10-12 years. To improve fuel economy it lengthened its vessels in 2000 to increase capacity, it claims without adding to oil consumption. Further gains in transport energy cost efficiency come from a "fantastic" capacity utilization of 99% southbound, says, Transforest's marketing manager, Nils-Johan Haraldsson. The northbound vessels return nearly fully laden with raw materials, semi-finished products and parts for a range of Swedish industries.
Transforest keeps an eye on ships' emissions. An early user of low-sulfur oil, it set a level no higher than 1% sulfur when 3% was standard. Since then the European Union has ruled in a maximum sulfur content of 1.5% for Baltic Sea shipping and the same restriction will cover North Sea shipping from fall 2007.
Transforest believes the development of an inter-modal system at the port of Sundsvall would help it and others to better manage future transport fuel costs. The Swedish Government has yet to decide whether to finance improved rail connections.
In the Netherlands, a section of a new dedicated cargo rail link to Germany from the Port of Rotterdam opened for business in June 2007. SCA Transforest (which has a terminal in Rotterdam) intends to use more rail transport. It can justify truck use for just-in-time delivery over short distances.
"Everyone in the logistics chain needs to be aware of the costs they create," says marketing manager Haraldsson. "More and more conversations are happening on the subject, upstream and downstream, on emissions, oil price and vessel charter prices."
Rising bunker oil prices are difficult to compensate for and pass on to customers. But SCA believes it profits from paying a higher price for low-sulfur fuel, available only in Sweden where it attracts port charge subsidies.
"A customer is a long-term prospect and one that can see that SCA has been working with environmental issues for a long time," says Haraldsson.
"From the global viewpoint," he continues, "we must have cost-efficient solutions; if not, it will affect mill profitability in the northern part of Sweden. The question arises: How will companies invest money in the future?" Get it wrong and there are potentially drastic consequences for the industry, he believes.
Shipping manager, SCA Transforest, Roger Erixon explains: "Scandinavia is trying to make more developed products. Converted pulp can be cheaply and easily bought from Brazil, so the answer must be to add something more to the product. Paper mills must be kept running."
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External logistics set limits to what companies can do reduce the cost and environmental impact of transport fuels. Internally though, Stora Enso and others want to choose biofuels for trucks and cleaner bunker oil for ethical reasons and their public image. But to expand the use of greener fuels, more EU funding and incentives are needed, they argue.
When Stora Enso uses dedicated sea lines running between north and south Finland, Gothenburg, the UK and Belgium, "We can ask for certain equipment, better fuel, slower speeds", says sustainability co-ordinator for the team designing and purchasing transport services for outbound product, Karin Nordell. "We have been using 0.8% sulfur fuel since 1990, 50% lower than the allowed concentration in the Marpol declaration."
Nordell says she would join a call for European-wide measures to support the development and manufacture of trucks that run on biofuels. The European norm providing for clean exhausts includes oxides of sulphur (SOx) and nitrogen (NOx) emissions. "This would not have happened without European legislation," notes Nordell.
The forest products industry's view is that, as customers of shipping lines and truck fleet operators, companies are too fragmented individually to change things. The industry has been under tough control to operate as an environmental custodian -- it has paid the price, absorbed costs and is continuing to do so. The feeling is now it is someone else's turn to take responsibility and positive steps.
Differentiated port charges and fuel taxes could trigger a switch to cleaner shipping fuels, believes the European lobby group Transport and Environment. Such measures would offset their higher cost if, as has been proposed, the EU takes action to bring maritime shipping into the Emission Trading System.
"Global environmental concern to decrease CO2 emissions is certainly a main driver for our overall targets in transport," says director of environment and social responsibility at Sweden's largest forest owner, Sveaskog, Olof Johansson.
"We are striving to shift to train as much as possible for our long distance transport. We are also closely following and assessing the possibilities to switch to renewable fuels for our lorries. We have been testing a synthetic diesel for some time and we hope and expect that there will be a major breakthrough for alternative fuels to become mainstream within the next few years," he points out.
Also to cut emissions, adds Johansson, Sveaskog is using, "Coordinated transport planning and timber swapping with other companies, requirements to shorten transport by forwarders in the forest, education in eco-driving and specification of environmental demands on vehicles in our transport chain."
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New Rotterdam rail route
Rotterdam's newly opened Betuwelijn rail line operated by Keyrail will offer forest products transporters such as SCA Transforest, DFDS and Gevelco a new route to potential fuel cost savings and an alternative to the growing expense of road haulage. The line is designed to carry breakbulk non-containerized and containerized cargo to German markets in the Ruhr at speeds up to 120 km/hr. The 25 kV electrified line runs 160 km across the Netherlands to close to the German border and links with an existing rail network on the German side, which is said to have enough capacity for the coming years.
The Port of Rotterdam Authority's breakbulk business manager, Ard van Eck, says the new line will contribute to an "enormous" increase in capacity to relieve historically congested Dutch rail tracks; eventually double-height trains will be introduced to allow optimal fuel efficiency. Betuwelijn has an annual capacity of eight million containers and 150 trains per day running in both directions.
Two inland waterways are also earmarked for development to help ease transnational bottlenecks and raise the hope of reduced fuel costs. The Seine-Scheldt would connect six big western European seaports to the hinterland in France and Belgium; and the so-called Straubing Vilshofen section of the Rhine-Main-Danube-Corridor if upgraded could reclaim some 4.5 million tonnes and 15.7% of freight lost to barge traffic in the past five years, says the European Barge Union.
Joanne Hunter is a freelance writer based in Brussels, Belgium.
