Forest product shipments making comeback

Forest product shipments are up. But just how they are moved is an ongoing battle between bulk carriers, containerships and ro-ro vessels.

The Port of Everett, WA was built more than a century back on the timber trade. That was long before Boeing moved into the neighborhood, decades before aerospace and defense came to dominate both local manufacturing and port exports. Forest products lost much of their luster beginning in the 1990s, especially as demand from Japan declined. The port dropped the log business altogether about a decade ago. Late last year, the Andalucian Zephyr, carrying 11,000 tons of high-value, Douglas fir, departed the port for Matsunaga, Japan. It was the first cargo of logs from Everett bound for Japan since 2005. This followed the re-entry two years earlier by the port into China-bound timber. It was an extremely modest restart. The shipper was local lumber supplier, Forest Marketing Enterprises. Formark de-barked the logs up the Snohomish River, rafted them and floated them downstream, where they were loaded directly from the water into the vessel, avoiding any dockside storage. Built by Nomura Shipbuilding, the 34,000 dwt specialized bulk carrier was new as well. Andalucian Zephyr was delivered only in March 2014 to the Tokyo-based Three Kings Shipping Corp. This new-generation handysize boasts four 30-ton cranes, oversized hatches and steel stanchions for securing logs. “The logs loaded real well,” said Eric Warren, Formark’s president and owner, speaking almost rhapsodically about the shipment. “It was a combination of a well-built vessel and a very good cargo.” When reached by telephone, Warren had just returned from Japan where he was attempting to lay the groundwork for more shipments. “We think they should take a long, hard look at us,” he said. Dollar Value Part of Warren’s push for more Japanese business stems from concern about China, where demand for lumber has fallen sharply as construction has slowed. He’s also worried about the strength of the US dollar. “It’s going to be a tough year in the wood products industry,” he said. Forest products are being whiplashed by conflicting trends and currents. Some corners of the business are probably in permanent decline. (Think pulp for newsprint.) Other kinds of products such as wood pellets are going great guns, as demand grows for renewable energy sources, especially in Europe. Any way you look at it, though, forest products are still big business. Global trade exceeds $200 billion a year. The US, alone, exported forest products worth just under $10 billion last year. That’s a record, according to the USDA. Like Everett, several ports around the world say they are making a renewed push to gain some of that business. They are offering new facilities, all-weather loading, environmentally compliant warehouses. And, they are tweaking operations to meet changes in demand. The Port of Gothenburg, Sweden, for example, now boasts a dedicated forest products terminal and intermodal facility. “We’ve invested in a new terminal where we can reload forest products, pulp, sawn lumber,” said Cecilia Carlsson, a port spokesperson. That can cut costs, she said as wood producers can move longer distance by rail, which is cheaper than ship. “More companies can benefit.” What Gothenburg doesn’t have are facilities catering to bulk carriers, although Carlsson said there are plans in the works to remedy this. As both Everett and Gothenburg illustrate, it’s not just the forest products themselves that are in a state of flux; the transport and handling are as well. The ships, themselves, reflect many of these changes. Competition between vessel types is fierce. Japanese, Korean and Chinese shipyards continue to build new generation bulk carriers, piling on the supply. After the global financial crisis triggered a free-fall in both shipping rates and new ship prices, several shipping companies placed major bets on neo-bulk designed primarily for forest products. Companies included Gearbulk, Grieg Star Shipping and Saga Forest Carriers, which last year merged forest products vessels in a joint operating agreement with those of Westfal-Larsen Shipping to form Saga Welco. Griegstar ordered ten open-hatch from Hyundai Mipo delivered between 2012 and 2014. Saga Welco has two new vessels scheduled for delivery in 2017. Gearbulk, which boasts the world’s largest fleet of open hatch gantry and fixed-crane vessels, was especially ambitious. It ordered more than 20 new-generation bulk carriers, many 73,000dwt focused on the pulp and newsprint trade. Rate Choice Between Box, Breakbulk or Ro-ro Forest products represent a major component of what is termed neo-bulk, bulk carriers outfitted for specialized cargo such as scrap iron and machinery. Time was, they were the undisputed ship of choice. These days, they face a tough fight. Container vessels can – and do—undercut dry bulk rates. They move not just paper and pulp, but even sawn lumber and logs. Containers are especially attractive for smaller orders of higher-value wood, according to Warren. “Container rates are unbelievably low,” said Carsten Hellmers, who heads Bremen-based Alexander Global Logistics, which specializes in forest products. On certain routes, such as Europe to Asia, where there’s a huge imbalance between inbound and outbound containers, “they can’t be beat.” Ricardo Schiappacasse, Latin America director at the Jacksonville Port Authority, talks about $300 being charged for a container shipped from the US to Asia. “A bulk carrier can’t possibly compete on that kind of math.” Add to this competitive mix Ro-Ro’s. Take the Port of Antwerp, for example, which has strong links with Africa trade. According to Ann De Smet, the port’s business development manager, Ro-Ro’s not only transport lumber, but also paper rolls, which are shipped from Scandinavia, then transshipped. They’re trying. Warren reports he can charter a 32,000 dwt bulk carrier outfitted for wood products for over 40% less than what it cost just a few years back. “There’s definitely a saturation of the market, a saturation of new vessels,” he said of bulk carriers. Containers provide additional protection from the elements, although more ports boast enclosed loading and storage facilities to protect against adverse weather. A few bulk-shipping companies, such as Gearbulk, offer fully covered vessels, some equipped with forced onboard draft ventilation and dehumidification plants. Warren identified another advantage containers have over bulk carriers: labor costs. Empty containers can be transported to the forest site by truck, stuffed with logs and transported to a container port. This avoids costly loading and unloading time at the docks, not to mention the need for large storage facilities. Formark, Warren said, is now finalizing plans to construct a new $4.5 million, container, log-loading facility outside the Port of Tacoma. Formark, he said, is already the largest shipper on the US West Coast of containerized logs. But Hellmers adds that not all routes favor containers. In certain markets, breakbulk ships are not only holding their own, but maintaining a dominance. “I wouldn’t say they are disappearing.” Decisions on what types of vessels will be used “is mainly because of geography,” said Hellmers. Some ports in developing nations near to the source of timber simply don’t have the container facilities available. Helmers singled out countries in Latin America such as Brazil, Uruguay and Chile where breakbulk is “very competitive.” Brazil’s Fibria is an example of a major forestry products shipper that continues to depend on breakbulk. However, its experience with newbuilds has been by no means smooth sailing. The world’s largest producer of eucalyptus pulp had commissioned the construction of a large fleet of specialized bulk carriers. The $5 billion deal, a 20-ship, 25-year consecutive voyage contract, was placed in 2010 with South Korean operator Pan Ocean and affiliate STX Offshore & Shipbuilding. However, only five of the original vessels were constructed – and there were glitches in those – when Pan Ocean went into receivership (the South Korean equivalent of bankruptcy). While Fibria was unsuccessful in its legal attempts to cancel the contract altogether, the original terms were reduced by more than 70%. “The Brazilians are dynamic, working technology for their benefit,” said Schiappacasse, whose port handled last year just under 400,000 tons of Brazilian forestry products, mostly Fibria. He’s hoping there’s even more potential business from Brazil, which is targeting the US because of a slump in Europe. The port, in turn, is looking at the feasibility of another specialized forest products warehouse. “There is a lot of cargo to be had,” he said.