PROJECT LOGISTICS

A handful of long-duration contracts yielding a continuous stream of revenue provide a solid financial base for logistics companies. Amidst the steady flow of cash, some spikes in the form of project logistics assignments add more grist to the mill. For some companies, these may be drops in the ocean, while for some others, they account for a significant chunk of their revenues.

The May/June 20009 issue of Logistics Insight Asia included a feature on Humanitarian Logistics, in which unexpected events trigger off responses at short notice, necessitating logistics service providers to be trained and ready to act when their services are called for. A project certainly, but one in which they would not have had prior information, and so more of a knee-jerk response, albeit skillfully executed thanks to similar earlier experiences.

While services rendered after natural calamities by logistics service providers could also be clubbed under the term Project Logistics, a stronger focus would be on short-term projects – either regularly occurring ones such as major sports events like the Commonwealth Games (scheduled to be held in India next year) and the ICC Cricket World Cup (scheduled to be held in the Indian sub-continent in 2011) for which logistics contracts would possibly be awarded well in advance, or projects which are beyond the ken of logistics service providers till such a time as when they are informed about them and asked to submit bids. One may think of major power plant projects (the Three Gorges Dam project in China, or mine development projects, as examples. Shortterm contracts if one may say so; contract logistics for sure, but with an entirely diff erent set of terms and conditions.

PLAYERS & PROJECTS

Mark Siegert, managing director (Asia- Pacific) of Agility Project Logistics, defi nes project logistics as “a set of operations focused on freight forwarding management on a specific project to best fit into the construction schedule, utilizing multi-modes of transportation and also marshalling and consolidating facilities in an efficient and economical manner”. This project division of Agility has been notably very active in logistics projects for the Australian mining sector.

Contract logistics, says Siegert, can be differentiated from project logistics by its focus on outsourced non-core activities (logistics in the supply chain) by a company to a third party who can plan, implement and control the logistics system with warehousing and trucking services to effi ciently manage domestic distribution and make the best use of third party’s logistics resources.

Andrew Seah, the corporate communications head of Schenker (Asia Pacific) notes that the Project Logistics division of the regional branch of the Germany-headquartered logistics service provider has been taking care of the transportation and logistics of heavy, large-scale industrial plants, such as oil refi neries in Saudi Arabia, oil rigs in Indonesia, power stations in India, and dams in China. During the last two years, the company bagged (and executed) over a dozen major industrial projects in Australia, China, India, Indonesia, Malaysia, and Singapore.

Meanwhile, DHL has been active in several industrial projects in Southeast Asia and China. The gamut includes projects related to the mining, energy and petrochemicals sectors. Rufus Frere-Smith, senior vice president of the Industrial Projects Division in Asia-Pacific region, informs LIA that the company also won contracts in the railway sector in South Africa.

While Agility’s Siegert puts the typical duration of a project to be two to three years, Smith says that this depends on the scale of a project; and whether the logistics service provider in concert with the EPC intends to fast-track the same.

SPORTING ARENA

During major sporting events, it is usually the sportspersons who become the center of (often worldwide) attention. Very few spare a thought for the men and women who move the myriad of materials and equipments to the venues. Sadly, only if there are delays on their part, do they ever come into the foreground – for the wrong reasons. When things are shipshape, their services are rarely applauded.

As is the case for all logistics operations these days, environment-friendliness, security and reliability are the hallmarks of a successful project. Sudhir Sobti, the media relations director for the ensuing Commonwealth Games (2010) in India, says that all vehicles will use compressed natural gas as fuel and the material handling equipment (mainly forklifts) will be battery-powered.

Mark Siegert recalls that Agility Project Logistics was one of the project logistics service providers for the FIFA World Cup in Germany in 2006, handling the shipments from China to Germany. For the same event, Germany-based Schenker AG’s 400-strong team handled (i.e. storage, distribution, assembly). 7700 monitors for media grandstands, 15150 chairs for media covering the event, 1000 printers, 200 photocopiers, 250 facsimile machines and 3300 table lamps.

ON THE RISE

Respondents have shied away from indicating the contribution of project logistics to their respective total turnovers. However, Frere-Smith points out that project logistics is certainly a key growth area for DHL in the years to come.

In the developing world, especially in the Asian economies – India, China, Thailand, Vietnam, Malaysia, etc – industrial project investments (domestic and foreign) will continue to pour in (once the economic crisis passes away) with increasing demand for resources and energy from a burgeoning middle class striving for western standards of living.

Consequently, business opportunities will blossom for logistics service providers. Competition would be rife, gauging from the fact that several players have entrenched themselves in the Asia-Pacific region.

And as infrastructure development speeds up, more and more Asian cities will become attractive venues for international sporting events, further opening up the event logistics market in the region. While the early birds who have already done the “spade work” will catch the worms, new local entities are also likely to emerge.

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‘OVER 210 PROJECTS DURING THE LAST FIVE YEARS’

MARK SIEGERT, managing director (Asia Pacific) at Agility Project Logistics, reveals some of the major projects the company has successfully completed, along with some more recent awards.

Q: When you talk of “project logistics”, what are the kinds of projects being referred to?

A: Project logistics at Agility can be looked upon a specialty business unit focused on projects in the oil and gas sector, mining industry, petrochemical sector, power and energy industries and the manufacturing arena. The services rendered under the project logistics umbrella encompass air, sea (ocean & river), road and rail transportation of containerized, small non-containerized and heavy-lift/over-dimensional cargo, and warehousing.

We work closely with the Engineering, Procurement, Construction (EPC) companies as well as the project owner to meet the requirements in both construction scheduling and project budgeting. Agility Project Logistics is one of the leading project logistics service providers in turnkey project management in the world, with over 210 large-scale international projects handled in the last 5 years.

Q: Among these 210-plus projects, could you single out some key ones from the Asia Pacific region?

A: Recently completed projects in Asia include Woodside Phase V LNG, in Australia; Boddington Goldmine, also in Australia; Bayer MDI Train, in China; and SPE II for Dow Chemical in Thailand. In addition, in 2009, several contracts have been awarded to the company.

These include the Guru Gobind Singh Refi nery Project for Hindustan Mittal Energy in India; BASF-YPC IPS Expansion Project for Fluor China in China; Lihir Gold MOPU (Million Ounce Plant Upgrade) Project for Lihir Gold in Papua New Guinea; and the Gorgon Project – Mainland Supply Base for Chevron Australia/Kellogg Joint Venture Group in Australia.

For the Lihir Gold Mine expansion in PNG, which is one of the world’s largest gold reserves, the project material logistics, expected to be in excess of 50,000 freight tonnes, will be sourced from multiple locations around the world, including the US, Europe, Asia and Australia. With an estimated completion date of two years. The total value of the project is estimated at US$700 million, with the proceeds for Agility estimated at between two to three percent of total project value. Agility was also involved in the original Lihir Gold Mine construction from 1995 to 1997, transporting in excess of 180,000 freight tonnes.

Q: Are you also active in providing logistics services to large sporting events?

A: Actually, Agility has another special sector, Fairs and Events, that provides specialized logistics services to global fairs, expositions and trade shows all over the world. We were one of the logistics service providers for the FIFA World Cup and handled shipments from China to Germany. Agility Fairs and Events is also the only international logistics provider with a global Fairs & Events network to be appointed as Official Logistics Service Provider for World Expo 2010 Shanghai, China, by the World Expo Bureau.

Q: In general, when one talks of project logistics, what is the scope of responsibility of the logistics service providers?

A: Project logistics service providers normally assign a dedicated project team to a specific project, who will take charge of the scheduling and transportation of materials according to the project requirements. The team is generally responsible for the safety of project cargo under its control; the details of the responsibilities are discussed and confirmed beforehand with the project owners based on the scope and scale of service rendered.

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‘PROJECT LOGISTICS IS A KEY AREA OF GROWTH’

The Industrial Projects Division of DHL was launched three years ago. RUFUS FRERE-SMITH, its senior vice president for Asia Pacific, talks to LIA.

Q: Could you describe some key project logistics assignments recently undertaken in Asia?

A: The highest profile project the unit is involved in at the time of writing is an integrated petrochemicals project on Jurong Island, Singapore, where we are undertaking the role of Project Logistics Provider, and thereby handling all aspects of the “tagged” equipment.

This means that we are co-coordinating all the heavy lift packages for the project. We are undertaking signifi cant heavy lifts – the largest piece is 1950 tonnes heavy and 110 meters long. This is also the first project to call directly at Jurong Island with a heavy lift ship to discharge heavy lift cargos.

Beyond the petrochemical vertical, we are also capable of handling project logistics for the mining and exploration sectors. We are involved in a project in Papua New Guinea for which we are coordinating worldwide deliveries from several countries to the site. With project logistics for this industry, we have to work with the natural terrain around the site.

Challenges we have to overcome include moving oversize shipments to the site and at times, manoeuvering along rivers and up steep mountain roads. While creating solutions to these obstacles, we have to take into consideration several factors, one of them being sensitivity towards the sentiments and interests of local landowners and stakeholders

Q: What would be the typical durations of a project logistics?

A: Project logistics is time-definite and tied to the duration of the project procurement and construction schedule. Smaller projects tend to last for about 12 months, while larger-scale ones would last for two to three years. Major oilfield developments can run over a period of several years. In general, there is no fixed time period; it depends on the scale of the project and whether the project is being fast-tracked, etc.

Q: For projects, is there usually one exclusive contract awarded for the logistics provider?

A: Normally, there is a competitive bidding process. The project owner (the resource owner or industrial company) in most cases, contracts an EPC to design, procure and build the plant. EPCs tend to work with project freight forwarders for the logistics element of the project, particularly the international shipping. There are typically five steps in the process of selecting a provider:

1. RFI (Request for Information) stage – EPC’s go to the market for indicative pricing, preliminary information and pre-qualification. 2. EPC’s shortlist likely candidates – usually about fi ve companies. 3. RFQ (Request for Quotations) is issued and usually the forwarder is given between two to five weeks to respond 4. Shortlist is made up and clarification meetings set up. 5. Finally, the contract award made; normally, the project owner has to approve the selection of the forwarder.

It is possible that the project owner may intervene in the selection process, particularly if the project is in a remote location where logistics strategy becomes a key issue for the overall success of the project.

Q: How significant is the revenue contribution of the Industrial Projects Division to DHL?

A: We are unable to provide specifi c figures about this. However, what we can share is that project logistics is a key area of growth for DHL Global Forwarding and we established the Industrial Projects teams just over three years ago, dedicated to developing bespoke solutions for customers.

Q: What is the general scope of supply for a project logistics service provider?

A: Project logistics generally involves the movement of cargo and information. Our scope of work in logistics delivery is very substantive and the product is very detail-oriented and schedule-driven. Particular issues are health & safety, risk management, chartering, heavy lift management, multimodal transport, tracking of materials by IT software developed by DHL, etc.

Q: Any new projects in Asia?

A: We are involved in various projects across Asia Pacific, from renewable energy and petrochemical projects in Singapore to energy-related constructions in Indonesia, Vietnam and China. The capabilities of this Asia- Pacific based division however extend beyond the continent. We are also associated with railway projects in South Africa.

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ON TRACK FOR THE GAMES

SUDHIR SOBTI, director-media relations, Organising Committee, Commonwealth Games 2010 Delhi, throws light on the logistics operations for the next year's landmark event in India.

“Warehousing is an important area of project logistics that provides the ultimate solution for storage, distribution of goods, stock packing and repacking to ensure that all products used in the games venues are provided in a manner that facilitates their subsequent use in time. The central warehouse will occupy a fl oor space of approximately 100,000 square feet.

“The warehouse management and monitoring will be computerized, with the assets being recorded in an Asset Management System (AMS). When a work order is received from any of the venues, the warehouse will generate a delivery order and the AMS will record the outgo.

“The goods will be taken to the loading bay where they will be scanned, checked and fi nally fork-lifted to the cargo vans to reach the desired venue. In addition, there will also be a Games Village Warehouse functioning round the clock to support the needs of the inhabitants of the Games Village.

“To keep pollution levels down, all vehicles used at the venues will run on compressed natural gas, while materials handling equipment will all be batteryoperated. In order to avoid adding to the traffic congestion problems, materials will be moved between venues, during the non-peak hours (between 10 pm and 6 am).

“Dedicated lanes and roads may be authorized by the Delhi Government, for transportation during the games. A professional logistics service provider will be contracted to help with the freight forwarding, custom clearance and dispatch of the cargo/shipments to the dry port (ICD) in Delhi.

“Security has become an increasing concern at sporting events (recall what happened to the Sri Lankan cricketers in Pakistan), and the organizing committee of the 2010 Commonwealth Games has ensured that security does not take a backseat when it comes to the project logistics.

“Among other things, all cargo vehicles will be screened at a location close to the Central Warehouse manned by the Delhi Police and the Organizing Committee. Every vehicle will go through what is called the “4-keys to the gate” These include accreditations, parking permits, timeslots on the master delivery schedule system, and secure load seals.”

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