The Logistics Review – Project Cargo

by Array

Up until late 2008, Canada experienced an unprecedented level of activity on the project cargo front. Many companies found themselves undertaking large construction projects, particularly in the booming energy sector. Given the high cost of fabricating a specialized item in Canada, they found it more cost-effective to purchase it offshore and ship it in.

As a result, massive reactors were ordered from Asia for use in the Alberta oilsands. Giant windmill components were imported from Europe. Specialized mining equipment came in from all over the world.

Along the way, many companies came to recognize an appealing business opportunity. Project cargo is hard to move, and the firms that make it happen stood to reap tidy financial rewards.

Across Canada, ports—like the Port of Thunder Bay, for example—added new equipment to handle oversized cargo. Freight brokers cozied up to the owners of vessels able to handle dimensional loads. Rail and truck carriers purchased new equipment like specialized multi-axle trailers and rail chassis. CN went so far as to blast portions of the Canadian Shield to accommodate one oversized reactor. Stakeholders at all points in the project cargo chain had plenty of cause for optimism. Then came the economic crash.

The challenge

Project cargo is big. It’s heavy. It’s valuable. It takes a very long time to move. The same characteristics that make it so lucrative also make it risky. Once a project starts, it’s very difficult to abandon.

“The lifecycle of a project cargo movement is very long,” explains Dona Asciak Fletcher, managing director of project cargo specialists Convoy Logistics Providers. It is normal, she points out, for a project to take two to three years before final delivery.

This has delayed the effects of the recession on the sector. “There were still long-lead items being shipped to North America in the first half of 2009,” explains Jan Beringer, president and CEO of project freight forwarder Rohde & Liesenfeld Canada Inc.

But in the past year, he says there has been a “noticeable” decline in inquiries about big cargo movements, particularly from the oil and gas, energy products and mining sectors.

The current lack of orders causes Asciak Fletcher to point out that even if the economy picks up next year, “our turnaround period is going to be extended.”

In the longer term, some experts anticipate that federal infrastructure projects coming down the pipeline will spur orders for dimensional shipments. Road and bridge equipment is expected to fill the gap created by the energy sector, keeping service providers with project cargo knowledge very busy. But that will take time.

The opportunity

The type of project cargo currently experiencing the most activity is not related to the energy sector, but rather manufacturing.

As manufacturing facilities across Canada have shut down, plant relocation has emerged as something of a niche industry. The equipment found in most plants is far too valuable to demolish, so some companies have decided to sell off the entire facility and move it, piece by piece, to its new home, which is usually offshore. It’s incredibly complicated work—since most of the equipment is old and much of it has been altered from its original form, it’s time-consuming to get the correct dimensions—but it delivers a return to the plant owner and is keeping many project cargo carriers and brokers afloat.

Plant relocation notwithstanding, most service providers anticipate a lull in the coming year. That is good news for shippers with something big to move.

While transporting project cargo will never be cheap, it’s more affordable today than it was a year ago. According to Beringer, the rates charged by ocean carriers for project cargo have dropped from more than $300 per tonne to roughly $100 per tonne. Plus, he says, carriers in all modes are eager to do whatever is needed to attract more business.

“There is vastly improved flexibility on the part of vessel owners to make calls to out-of-the-way ports,” he comments. “Also, the availability of specialized railcars has improved a lot.”

Even though the situation is far from perfect—he cites the high cost of stevedoring labour and terminal handling charges at ports as a major barrier—he says the overall environment is decidedly shipper-friendly right now.

“It’s an excellent time to move project cargo.”