A market in transition as it awaits recovery

Annie Roberts speaks to Grant Wattman, president and chief executive of Agility Project Logistics, about the state of the project forwarding market at the moment and his outlook on the industry's future.

heavyliftpfi.com -  News Desk heavyliftpfi.com - News Desk
Tuesday 17 January 2017

With the mood at the Breakbulk Americas exhibition in Houston particularly gloomy, against a backdrop of upheaval in the multipurpose shipping sector and the continuing commodity downturn, many are wondering what the future holds for providers of heavy and out-of-gauge cargo logistics across the world.

Kuwait headquartered global logistics provider Agility is not letting the downturn hold it back, instead treating this period as an opportunity to expand and develop its project cargo services.

"We consider 2016 to be a transition year," Grant Wattman, president and chief executive of Agility Project Logistics based in Houston, told HLPFI. "We foresee that the struggles will continue during 2017, with things starting to improve near the end of next year."

Rock-bottom 

He admitted that the situation the project cargo industry finds itself in at the moment is particularly bad, with market conditions at rock bottom.

"We are not bullish on the market, but that does not mean we are not positive," said Wattman. "We are not concerned. The market is not good but the world is still expanding and projects are still going on... we expect to see lots of tenders in the first and second quarter of 2017."

Wattman suggested that the regional hotspots for the movement of heavy and oversize cargoes are currently the Middle East, North America and Africa. 

"The Middle East is doing very well and, relatively speaking, the US market is also doing well. Meanwhile, Asia- Pacific is declining and Europe remains flat," he commented.

He told HLPFI that Agility has used 2016 as a year for investing, establishing operations in Nigeria, Angola, South Africa and Colombia - all markets in which the company sees huge potential.

New operations

Wattman added that the logistics provider plans to set up operations in Mozambique and Tanzania in the future, strengthening its commitment to the growing African market.

Despite the fall in gas prices, Wattman believes that there is still huge potential for project forwarders in the LNG industry. Alongside a number of substantial new projects currently under way in the USA and enhancements to some refineries, Wattman pointed out that existing sources of LNG will also need to be regasified in certain markets.

"Regasifaction plants will need to be built in Europe and Asia-Pacific - I believe this could be a very big market."

Wattman added that power generation is also a large market, but admitted that North America has not grown as fast in this sector as he expected. 

"Despite the emissions, coal plants in Asia-Pacific and India will be a big market," he continued, but suggested that the coal industry in general will decline as renewable energy sources move into sharper focus.

"The renewable energy share is still small, but it will be the fastest growing energy source over the next few years," he said - a trend that will of course provide opportunity for providers of out-of-gauge cargo transport services across the world.

Commenting on the plight of both the multipurpose and container shipping sectors, Wattman said: "The market is risky. A significant percentage of the ships are in the banks' hands and they remain in the market so that the owners can cover interest expense."

 

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Grant Wattman, Agility.

 

Considering the current conditions, Wattman expressed concern over the future of the service provided by the multipurpose carriers and pointed to the risk involved in choosing a suitable shipping company as the business begins to see more examples of consolidation and companies in financial difficulty.

"Maintaining the ships at the standards we are used to will be harder. It will be critical to evaluate the vessels and companies you are using going forwards," he went on. "There will likely be a reduction in service, as well as an increase in cost and risk."

Hanjin bankruptcy

He said that this trend will be the same on the container shipping side following the bankruptcy of Hanjin Shipping, and suggested that there will be some failures in the market to come.

However, Wattman believes that the carriers take a longer term view of the market, commenting: "They know the market will come back - they are probably holding out for 2018 and 2019."

As the entire industry struggles to keep its head above water, Wattman told HLPFI that these concerns have already trickled down into the engineering, procurement and construction (EPC) contractors and original equipment manufacturers (OEM), which are also feeling the squeeze of low commodity prices and economic malaise.

He predicted that there would be bankruptcies, acquisitions and realignment within some of the oilfield services providers, in particular.

Moreover, he suggested that the entire supply chain is showing signs of change, as project logistics services are considered "overhead" to the EPCs and OEMs - many of which are cutting costs.

Consolidation and acquisitions will also be seen in the project forwarding sector itself, said Wattman, forecasting that some of the mid-sized forwarders will struggle in these times. As business volumes decline, increased working capital is required to fund receivables and new opportunities are limited.

"When you are in this business you need capital, because expenditure is very high."

Overhead costs

He argued that mid to small-sized project logistics providers can be challenged by the overhead costs associated with compliance and health and safety requirements demanded by clients. "It is a difficult business to enter and a difficult one to sustain." 

Wattman saw hope for the smaller niche providers of project forwarding services in certain locations, however. "I see them as succeeding."

As a large player itself, Agility is also looking at investment. "We have done and are currently looking at acquisitions that align with our strategy," said Wattman.

This article is taken from HLPFI's November/December 2016 edition. See the full magazine here.

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