By Kenneth Norris, Contributing Editor, Pulp & Paper InternationalGrowth & Sustainability - Meeting the Challenges in Forest Products Logistics
During this year's PPI Transport Symposium 19, speakers and presenters covered a wide range of topics and issues. From the global economy to the effect of electronic media, there are many distinct challenges facing the pulp and paper industry and the logistics industry. While all of them are pressing and deserve attention, some topics felt more important than others.
Here are five main issues that made for lively discussions throughout the conference.
Modal shift
There was some confusion about the EU's transport policy a few years ago, but the message was clear with the release of the European Commission's White Paper 2011. Maritime and rail will replace an increasing amount of road transport in an effort to reduce Europe's use of oil and cut carbon emissions by 60% by 2050. Eliminating and shortening the road journeys is a key part of the EU's initiative to create a more competitive and efficient transport system serving the 27 countries of the Eurozone.
Several short-term obstacles to shifting between these transport modes were presented by panelists, but the consensus was that a general move to rail and waterways is a good idea. One major concern is the reliability of Europe's existing rail system and how quickly rail infrastructure can be improved to meet the increased demand. Existing maritime capacity is a similar concern. And many agreed that improving road transport should not be abandoned altogether. Instead, they said, the bigger picture should consider road, rail and water on an equal footing, each according to their strengths.
SECA (Sulfur Emission Control Areas)
The focus on initiatives to reduce transport emissions throughout Europe has not been limited to reducing road transport. The International Maritime Organization's cap on sulfur content of fuel oil will drop from 1.0% to 0.1% in the Baltic and Nordic Sea by 2015. To meet the new restrictions, technology must be installed for vessels to use alternative fuel or to help remove the sulfur before it's emitted.
In order to meet the new restrictions, many shippers and carriers worry that the costs and the time to comply are impractical. The existing technology appears undeveloped at the moment: scrubbers are still in the pilot phase and lack production capacity; liquid natural gas lacks the infrastructure to supply the number of vessels; and the price of ultra-low sulfur fuel could soon reach a premium. And without an equivalent emissions control area in the Mediterranean, Northern Europe may find itself at a competitive disadvantage.
Industry consolidation
Continued consolidation and vertical integration of the pulp and paper industry is having a far-reaching effort on the transport industry. Panelists and speakers noted that the number of smaller players in the market is decreasing and fewer producers and products mean increased competition for volumes and rates. As long as the larger companies continue to use the wider sourcing market, logistics companies may benefit from new opportunities. However, bigger logistics companies are also developing, looking to provide a single, global solution.
The remaining shipper, carriers and logistics providers are faced with a dilemma. Either they can specialize their vessels and services to compete for the share of a dedicated business relationship. Or they can generalize their services to pick up additional cargoes, helping to offset forest products volumes. This issue was brought up in many places during the conference, from the jib crane vs. the gantry crane approach to the container vs. breakbulk debate. Market pulp may be ideally suited for breakbulk, but products and packaging are changing and with that evolution, the options for shipping are changing too.
Panama Canal
The expansion project is due to be completed by 2015, making it easier for the Panama Canal to accommodate the larger container vessels now serving Asia and the Indian subcontinent. This increased capacity may mean opportunity for US East Coast port. Many of them are investing and expanding now, hoping to gain on their West Coast competition. The post-Panamax world could see a major shift in how forest products are transported in North and South America.
Large containerships, though, will only increase the pressure on breakbulk vessels. Speakers were unsure whether market pulp cargo would be vulnerable, but virtually every other type of forest product will have to consider "the box." Improved fuel efficiency, lower emissions and greater economies of scale from these vessels will make the challenge from containers impossible to ignore. An improved trade lane from Brazil to China will also strengthen the ties between these two emerging giants, one that will continue to define global forest products transport for decades to come.
Biomass and biofuel
Reports on the European market estimate a 44% increase in demand for biomass over the next decade. That translates to approximately 37 million dry tons over the next five years. The southeastern US supplies nearly 20% of Europe's total consumption now, primarily in wood pellets, but that is expected to ramp up with investment in new facilities. Demand in the Asia is also expected to soar, leaving many panelists asking how existing resources will meet projected targets for biomass use.
The largest challenge for biomass such as wood pellets lies in the logistics costs. As a bulk commodity, margins are kept low by keeping transport distances from plant to port to a minimum. To meet the current targets, compromises in some areas will lead to higher transport costs. Additional breakbulk vessel capacity may also need to be found. Subsidies and grants may offset some of this increase, but the industry must solve these issues to become self-sufficient in the long run.
