Political turmoil clouds promising outlook for UK project logistics

This year’s report on the UK project logistics market comes at a tumultuous time for British politics. In the weeks leading up to publication, Liz Truss became the second Conservative prime minister to resign this year, following Boris Johnson’s exit as leader in August.

Ms Truss announced her resignation on October 20, making her the shortest serving UK prime minister in history, beating a record set in 1827 by George Canning who died after four months in office. Rishi Sunak is now charged with steadying the ship – a tough task given the political and economic situation he is inheriting.

 

“Right now, our country is facing a profound economic crisis,” said Mr Sunak. “The aftermath of covid still lingers, Putin’s war in Ukraine has destabilised energy markets and supply chains the world over. I want to pay tribute to my predecessor Liz Truss. She was not wrong to want to improve growth in this country. It is a noble aim and I admired her restlessness to create change, but some mistakes were made. Not borne of ill will or bad intentions, quite the opposite in fact. But mistakes, nonetheless. I have been elected as leader of my party and your prime minister in part to fix them and that work begins immediately.”

Economic mistakes

Those “mistakes” included economic policies that triggered turmoil in financial markets, drew in criticism from the International Monetary Fund (IMF), required emergency intervention by the Bank of England (BoE) to support government bonds and saw the pound hit an all-time low against the US dollar.

As it stands, the UK inflation rate is around 10.1 percent; food prices are at their highest since April 1980; and the current weakness of the pound likely suggests higher inflation will continue, given the amount of imports required for an island nation.

The BoE said towards the end of October that it expects inflation to peak at 11 percent. Its target is 2 percent. It is still too early to tell whether Mr Sunak is up to the task, but history dictates that political uncertainty is almost always bad for a country’s currency and investment appetite, which does little to spark joy in the project cargo sector.

Andrew Civil, general manager, head of high and heavy at UK-headquartered Abnormal Load Services (ALS), explained that “due to the weakness of pound against the dollar, projects get delayed and there is no commitment to them”. Graeme Potter, ALS’ general manager based in Hull, added: “There is no consistency and things are seen as short term. Cost of financing is uncertain, which causes projects to be delayed or deferred. However, some projects such as Sizewell C (EDF’s nuclear power station project in Suffolk) – can be fast tracked if there is a shortage of electricity, although it is a five to 10-year project.”

 

Rising costs for UK project logistics

Felix Schoeller, commercial director at AAL Shipping, agreed: “Until the UK government can steady its ship of discontentment, there will be a further rise in domestic project costs – leading a path to a lack of appetite and even more delays in the approval of new projects.”

That said, the current pipeline of work is still strong.

UK-based Osprey Group provides a full spectrum of heavy lifting and logistics solutions. According to Wendy Kenny, chief operating officer, the company’s outlook remains the same: ”The economic climate may have an impact on some long-term projects – we expect smaller civil projects to suffer from geopolitical and financial instability – but overall, the sector’s current plans are robust and rooted in the levels of detail that can handle those external influences.”

The energy transition is still a key driver, said Kenny, and this was echoed by AAL’s Schoeller who pointed out that for the next five years renewable energy projects in the UK take up the lion’s share of the approved or highly possible projects, coming in close to USD59 billion, according to the EIC’s Approved Energy Investment Outlook. “Coming in second spot will be power generation (USD35.19 billion), where the majority of projects are estimated to be commissioned in 2026,” he added.

Capex forecast

In the EIC’s under-planning investment breakdown, almost all the capex is for offshore wind projects beyond 2027. “Drawing from the lessons learnt during the current energy crisis and the responses from OPEC+, many regions – especially Europe – have placed energy independence in second place on their priority list, with taming inflation in their top spots,” added Schoeller.

It is therefore expected that energy- related projects are likely to get going faster than others.

“However,” Schoeller cautioned, “one hurdle that needs to be overcome to approve projects in the near term is the rising interest rate. This is more pronounced for renewable energy projects, where most of the costs are front loaded versus traditional power plants.”

 

There have been some government backed initiatives. For instance, the Future Nuclear Enabling Fund (FNEF) whereby the Department for Business, Energy and Industrial Strategy will provide up to GBP120 million (USD139.4 million) in funding to help mature nuclear projects ahead of the government selection process.

The prime minister reaffirmed commitments to nuclear shortly after taking office, commenting that “the important thing is to focus on our long-term energy security. That means more renewables, more offshore wind and, indeed, more nuclear.” With a 24 GW target for nuclear by 2050, a new era of reactor construction could emerge, including getting Sizewell C over the line and deploying a fleet of small modular reactors (SMRs).

Policy U-turns

There was also the ‘Growth Plan 2022’ put forward by Ms Truss and former chancellor Kwasi Kwarteng. However, those policies – in keeping with the theme of the short-lived Truss government – have been characterised by U-turns. The first concerned fracking; as part of the plan, Ms Truss lifted the ban on hydraulic fracturing for the extraction of shale gas during her seven-week spell at Number 10 before this was reversed by Mr Sunak, returning to a manifesto commitment made ahead of the 2019 general election.

While that decision was welcomed by environmentalists, the latest U-turn connected to the Growth Plan has been met with greater criticism, with the proposal to lift the block on onshore wind energy developments in England now axed.

Onshore wind is one of the UK’s cheapest sources of new power – up to 10 times cheaper than the current cost of gasfired generation due to inflated input costs – and the proposal to lift the block was praised by the wind energy industry.

Mr Sunak’s approach to other elements of the Growth Plan – such as ambitions to streamline the planning process for offshore wind projects – are not yet confirmed.

Tim West, company secretary at Robert Wynn & Sons, noted: “Following on from the uncertainty of Brexit and the impact of the Covid-19 pandemic, we are now seeing the market react to the need to secure our energy future and that energy future will be delivered using many technologies. The current turbulence will have an impact if it is prolonged, as projects transition in to and out of the planning system to their construction phase. “Political and economic stability and a clear direction from government on its energy policy is what is required.”

Schoeller added: “In these extremely volatile times, a lot of energy, oil and gas, renewables and especially infrastructure projects need to be supported by government spending and planning. For now, it does not look likely that the current government will be creating much stimulus for large projects.”

For Civil at ALS, initiatives impacting the energy sector – whether it be easing the planning for offshore projects and lifting the block on onshore, or not as the case may now be – will not translate into project opportunities in the short term. “Wind farm-related projects that look positive for 2023 were started five or six years ago and take several years to come to fruition,” he explained.

West agreed that timescales are unclear, with some projects scheduled in the 2040s and beyond. But he said that the current energy policy and commitment to net zero makes for “interesting times in our sector”. “What is clear,” he added, “is that if their aspirations and targets are going to be met then there will be plenty of abnormal indivisible loads to be moved.”

 

West added that a “joined-up approach” is necessary to ensure that both government and developers are mindful of the need for appropriate infrastructure to facilitate the movement of those loads.

“From the siting of onshore connections for offshore wind farms or large subsea interconnectors to the development of multiple SMR sites and nuclear fusion, there are a lot of challenges to be overcome to ensure that out-of-gauge cargoes can be delivered to sites across the UK. All of which I hope signifies a buoyant market ahead.”

Osprey’s Kenny commented: “Several government-backed initiatives may impact the project pipeline, but at the recent Floating Offshore Wind event, there was a real buzz around the focus on connectivity; all types of offshore energy production still need cabling and connection to onshore infrastructure.

“And with so much news reaching consumers around the energy sector, it is only to be expected that we are seeing renewed interest in alternative energy sources. We are working on renewables all over the world. We are working on offshore wind projects, supporting tidal energy, and of course, developing nuclear capability with our presence at Hinkley Point C in Somerset.

“But we are also having many of those early contractor involvement (ECI) conversations around hydrogen and carbon capture – and at the other end of the spectrum we are investing in the equipment that reflects an environmentally aware supply chain. Cat 5 rated equipment, for example.”

Slowing market

Activities in the civil infrastructure market, meanwhile, have been slowing down since early 2022, said Schoeller. “As of now, it is difficult to see any good cargo opportunities arising from the civil infrastructure market. Even for the expectation outlook in the next 12 months, firms are registering their weakest growth projections since July 2020.”

He said that many central banks are focused on fighting inflation, while the rising interest rates, unfavourable foreign exchange rates and the gloomy economic outlook are delaying firms and consumers committing to huge expenses.

 

Charlie Latham, chief commercial officer at heavy haulage specialist Allelys, offered a more optimistic outlook. “There are various supply chain opportunities throughout the whole of the logistics network, ranging from transportation of construction materials through to the handling of heavy construction plant. The diverse and geographical nature of these requests require turnkey bespoke solutions from local partners,” he said.

“From of our own experiences, we are foreseeing a significant increase in workload across all market sectors in which we operate. We will be concentrating our efforts to service the emerging markets with our increasing heavy lift and specialist transport equipment fleet.”

Infrastructure maintenance

For Latham, a significant concern facing the heavy transport sector in the UK is the “ongoing issues of infrastructure maintenance”, especially considering the constantly rising weights of heavy lift cargo. “The availability of existing heavy routes throughout the UK is becoming compromised. This has the potential to seriously affect the delivery of key components in the future.”

The increasing size of components was also referenced by Kenny. She said that Osprey is currently handling a lot more work for clients with “special projects”, comprising one-off critical assets or components of an unusual shape or size or weight as part of a wider programme of work. “As demands for efficiency in those projects grows, the solution is often greater capability at the same location. We are being asked to consult on and deliver larger, taller, wider critical assets, into the same tight spaces – and we are investing in the equipment that meets those clients’ demands.”

New locations are also causing an issue. West said: “Infrastructure and particularly the condition of the UK strategic road network is a significant challenge. As the traditional energy map evolves and developers are seeking to develop sites that have not historically received abnormal indivisible loads, the problems caused by a lack of investment are exacerbated.

”Government and National Highways need to ensure that the energy consents process and investment in the strategic transport network are aligned. The use of non-traditional ports, beach landings and carriage via inland waterways need to be maximised to limit the road miles travelled.”

Robert Wynn & Sons demonstrated the benefits of beach landings back in 2020 when utilising its heavy lift ro-ro vessel Terra Marique to deliver a 128-tonne transformer at the Black Rock Sands beach in Wales. Destined for the National Grid substation in Trawsfynydd, the transformer was offloaded on the beach after it became clear that local stakeholders, including National Grid, were keen to avoid causing disruption at Porthmadog Harbour.

This year, Robert Wynn & Sons has been busy delivering projects and handling cargoes that demonstrate the need to transport abnormal loads throughout their lifecycle: three 121-tonne transformers were moved from Rotterdam to Combwich for the new Shurton substation that will connect Hinkley Point C to the UK electricity network; a 200-tonne material handler was repositioned by Associated British Ports, shipped from its facilities at Garston on the Mersey to Newport, South Wales; and three 160-tonne transformers were removed from the now permanently closed Hunterston B power station in Lancashire.

Ongoing challenges

Other issues, according to Latham, are fuel prices, increased costs, and driver shortages, which have all affected the industry within the last 12 months. Unfortunately, Latham predicts that these factors will continue to have an impact within the UK into the near future.

These concerns are not isolated to the UK, however. ALS’ Civil referenced the global issue of sourcing capacity, materials and equipment, and highlighted the charter market costs. “Shipping capacity is a challenge using heavy lift and ro-ro vessels for transporting project cargo,” added Civil. “There are significant delays, port congestion and an impact on costs.”

Another emerging issue, according to Potter, is compliance. “Financial investors are overseas and not necessarily based in the UK or Europe,” he said. “Sanctions are being placed and companies are acting on behalf of others. Therefore, an adjustment in approach is required.”

This article has been taken from HLPFI’s Nov/Dec 2022 edition, read more here.