Tore B. EvensenTore B. Evensen, the Director of Shipbrokers R.S. Platou, A.S., Oslo, has long experience in the sea transport of wood and wood products, especially from tropical countries to Europe.
The replacement of log exports with wood products processed in developing countries can result in savings, and therefore net profits, for exporters and importers alike; more volume and value can he shipped and these products are easier and cheaper to handle. But rational handling, unitizing and consolidation of cargoes are essential. Even more essential, says the author, is a change in thinking by many of those involved in wood transport by sea.
We live in a world of staggering inflation. We have seen it happen in the lumber industry and in the freight sector, particularly over the past two years. However, we also have a market mechanism which, following a probably unprecedented boom, has worked against the lumber industry. Thus, in the current economic slump the lumber industry is faced with higher freight rates, and even if the situation were to change we know that costs generally go up and that every dollar saved per cubic metre in freight is a net dollar, whether lumber prices are high or low.
We also live in a world of fibre shortage. This is partly due to the physical shortage of wood in the developed countries, but also to a shortage of the men needed to cut and process wood.
The situation is quite different in the developing countries. They usually have both fibres and manpower, and their business outlook should be good. The main question, then, is how can they keep most of their income at home? Since freight costs are so high in the export of lumber products, it is to be hoped that some assistance may be offered them in this field.
The graph shows the freight costs for various lumber products, based on the official freight conference tariffs from Singapore to Europe. A cost-insurance-freight (c.i.f.) estimate is given for each commodity, the shaded section indicating the share of freight in the total expenditure.
The importance of the freight element is evident in the graph. But what is more important is that the more highly processed products carry a lower actual freight cost per cubic metre, and that by ratio of percentage the difference between freight for logs and plywood is 3.25 to 1 per cubic metre related to c.i.f. prices.
The difference is solely due to the degree of processing. Now, this processing can very well be done in most developing countries and it would be much more profitable, if we take into consideration the gain from rational handling and transportation. A vessel is like a factory where the capital and the operating elements are more or less fixed and its cargo is the factor giving the cost element per ton. The lower the output, the higher the cost and vice versa.
The loading of logs ex water or ex quay or barges is a very time-consuming process. Lengths may vary, utilization of the holds is poor and can hardly be improved upon by preplanning of the stowing operation. All these elements result in high freight. That the export of logs should require so much labour in the exporting country itself is bad enough, but what is much worse is that very costly labour is needed at the port of destination in a developed country. Every operation, from the ship's arrival, is extremely labour intensive. It involves handling out of holds on to dock, into storage, out of storage and into transport to the processing mill, as well as handling in the mill.
Shipping logs to developed countries not only means exporting a comparatively low-priced commodity, which is subject to high freights, but also the creating of a need for extra labour in a part of the world where labour is short and costly and which therefore reduces the net profit for the exporter.
Log transport operations bear no resemblance to the handling of plywood or particle board. By importing the latter the developed countries can utilize their own mechanical advantages, i.e., rational, manpower-saving handling methods. Whether we like it or not, we live in a world of competition. To sell a commodity which forces the importer to resort to his costliest element - manpower - is a very wrong policy.
Comparison of shipping costs from most exporting areas is very difficult, because we are up against a jungle of varying rate structures. Figures would be misleading, but some examples may give an indication. Thus, it is interesting to note that the rate applicable for logs ex Rangoon as of October 1974 is $115.80 per 50 cubic feet, equivalent to $81.30 per cubic metre. For veneer in crates the rate is $77.61 per 50 cubic feet, equivalent to $54.81 per cubic metro. In other words, it is nearly 50% more costly to ship logs than it is to ship veneer. Freight costs have risen considerably, and it is unfortunate that be cause of the lack of data it was not possible to establish how this difference in costs for logs and processed lumber commodities came about. What seems obvious is that the economic yield of logs for export did deteriorate because of freight costs.
A significant transport development in the past four or five years is the chartering of tramp ships for full loads of lumber products only. These vessels run without fixed schedules. Their use is a natural development due to high costs and the shortage of shipping space in regular liners. These services have already yielded some freight savings to the export industry, but even better results could be achieved.
It is encouraging to know that after the introduction of conventional trampers members of the conference found it desirable to compete in this field. The United States and Canada have been using special trampers for many years, for carrying both lumber and wood-based panels. There is no reason why developing countries should not use the same facilities whenever quantities warrant it.
Today, a regular modern liner is a multipurpose ship where the cargo is of the greatest importance. Containerization makes high loading possible. Conference liners have for a long time proved to be the fastest and most regular service for the transport of smaller parcels, but the lumber carrier is the best solution for large quantities. It is specially designed for the various lumber products. However, in order to achieve rational handling right through the transport operation, and save in freight costs, the commodity must be adapted to one or other of these forms of shipping.
Special ships designed to avoid excessive handling must be built, although the cost of such vessels has now jumped to 300% of what it was in 1960. Fuel prices have gone up about 400% since then and other expenses, such as manning and operation, have risen about 150%. Large units will offset, to some extent, the increase in freights.
Apart from the fact that ships have to be renewed from time to time, soaring handling and other related costs are the main reason why we must adopt rational new units. This is an evolution which cannot be stopped and the sooner the shippers are able to adjust themselves to it, the better the chances for more profitable exports in the future.
The use of old, second-hand low-cost vessels under a national flag to save freight costs is not advisable. These vessels only increase handling, and can cause damage to goods to such an extent that costs would be higher than those of a modern vessel. Whether developing countries should start building new rational ships at fantastic prices is another matter. My contention is that such capital would be much better used in their own lumber industries by modernizing plants and building new capacity, taking advantage of the developments in handling methods taking place in the world today.
A modern vessel able to carry about 80000 tons of wood-based panels per year from the Singapore area to Europe - a 20000-tonner - would cost from $16 to $20 million, while building a modern plywood or particle board factory would call for only $10 to $14 million.
As an example of rationalization, let us take a look at the pulp industry, which for many years used irrational handling methods. A slump which started ten years ago made more rational handling in shipments essential if the industry were to survive. The opening of new and more distant production areas made rationalization even more urgent, for economical marketing. As a result, the pulp industry today enjoys a boom which is in part related to reasonable freight costs.
There is no significant difference between the handling of pulp and of wood-based panels, and a comparison is not out of order. It is also justified because fibre shortage has forced the western world to search overseas for pulp. No doubt the same shortage will force the same customers to go overseas for wood-based panels.
Brazil is at present developing a pulp industry, and worldwide tenders are being asked for ocean transportation from Brazil to Europe and Japan. Tonnage registered in such different areas as Japan, Singapore, Brazil, Europe and the United States are tendering and are fiercely competitive. The freight cost for about 25000 tons of pulp per shipment from Brazil to Japan as from 1977 will probably end up at less than $40 per ton. This is equivalent to about $27 per cubic metre from Brazil to Japan. The distance between these two countries is 11500 nautical miles, which is the distance from Singapore to Rotterdam via the Cape of Good Hope. After the reopening of the Suez Canal this distance will be cut to 8.500 nautical miles, or two thirds of the distance. What the Canal's tolls will be is another question.
This significant difference in the transportation costs for pulp and lumber products is the result of the most rational handling, the consolidation of full cargoes and, last but not least, a terminal system at both ends, which allows consolidation at port of loading as well as a unitized handling system at the discharging port, permitting individual distribution to each receiver.
How much of the product cost is freight?
Hatched lines indicate the proportion of freight costs contained in products costs. First four columns refer to one species which could be exported in four product forms. The two columns on the right are for a species of Asian redwood used mainly for peeler veneer. All figures are approximate and refer to c.i.f. Singapore/Europe in December 197.(Source: the author).
Again I would say that comparison is fair, as wood-based panels could well be subject to the same pattern if the right shipping and handling expertise were adopted. By unitizing is meant the shipment of various types of product in separate and compact units. This implies the manufacture of panels in standard sizes.
Having been directly involved in this type of planning, I know that by taking into consideration all elements, including production oriented to shipping and vice versa-size of units, handling methods, distribution, and design of vessels-the end result is economically rewarding to everybody concerned. Within the next five to seven years we will probably see close to a million tons of pulp transported from Brazil to Japan. Unless the lumber industry in east Asia knows how to make its own commodity attractive to this transportation system, other exporters will move in and a golden opportunity will be lost.
In any event, shippers should prepare themselves for such a development, which is bound to create competition in the ocean transport sector, and to interest present or future vessels in carrying east Asian lumber at lesser cost than today.
Shippers in other areas of the world may not have the same prospects as east Asia for transportation beyond their doorstep. Carrying pulp from Brazil to Japan and returning to Europe with lumber products is a practical example of the utilization of cross trade. Other areas, which may never reach such quantities as east Asia already has today, should market their products in the nearest possible markets to shorten their transport routes. Again, rational handling, unitizing and consolidation is the answer to transportation economy. These principles may be applied to the local liner services for instance, and the shippers may more often than not find an eager liner service willing to grant rate reductions if their ships can be better utilized.
As an alternative, international shipping expertise should be applied to find cross trades enabling the full utilization of small modern lumber carriers.
AFRICAN MAHOGANY LOGS AWAITING SHIPMENT AT THE IVORY COAST PORT OF ABIDJAN Not to be packaged
A fairly substantial fleet of so-called minibulkers is available today to meet such demand. Again, the use of these advanced smaller carriers can only be economical if time in port and the number of ports are brought down to a minimum. The process is the same as for the larger exporting areas, although the savings may not be as substantial. However, even if only a reduction in future costs is assured, this would be a great deal in itself.
What are the remedies needed for redressing the situation?
- Unitization and standardization of the commodities at the mills.- Consolidation of cargoes between various mills to reach a sufficient quantity for each shipment.
- Concentration of loading to one or at maximum to two ports.
- A port development scheme offering modern deep water berths and huge paved areas to consolidate cargoes.
- Modern technical equipment to handle cargo at loading ports.
- Cooperation of sales and distribution at points of destination.
As already stated, the ships may be available for this operation. Efficient handling systems are already in operation at the receiving end in Europe. Thus these six points boil down to three - cooperation, administration and port development - and these are mainly the concern of the exporting areas. It may be difficult, but it is possible.
It takes effort and capital to modernize or build new mills, reorganize shore transport, reorganize sales and all the many other factors.
It has been done to a great extent in the western world - at the loading ports and, more specifically, in the discharging ports in Europe. There, the traditional exporters have had to invest in both loading and discharging systems. Newcomers in the lumber exporting industry have the advantage of being able to concentrate on their own local problems, because modern technology is ready for them at the unloading end.
Governments and port authorities should give top priority to the development of port areas to promote rational handling. The berths may even exist in some places, but they are often so cramped by old warehouses and so limited by poor paving that they are not really useful.
A decision to allocate an area for this special purpose is often the most severe problem. The authorities need factual knowledge and foresight probably more than they need investments, though I do not mean to underestimate the importance of the latter. A temporary port utilization tax based on private foreign investments until this particular expense is repaid could be the answer. Such a tax would run to only a fraction of the savings in freight.
PLYWOOD BEING MANUFACTURED AT A MILL IN COLOMBIA Made to be packaged
Without a developed port facility other forms of rationalization are a waste. If a port is suitably developed, the tendency is for shippers to follow suit within a very short time, and the immediate outcome will be a higher national income and the growth of local industry.
Large standard size pallets of 20 X 8 feet (6.10 X 2.5 metres), suitable for oven-baked plastic protection, loaded at the mill, will often provide a good answer to many problems and also give protection from damage, one of the many items to take into consideration. Such pallets should be possible to stack by means of supports in each corner.
It is not possible to specify how rational unitizing should be applied, as this will vary according to area and commodity. Sliced veneer will require one shipping method, particle board and plywood another, and readymade processed and lacquered wood strips may require a third.
It costs money to rationalize in this way, but immediate savings will result. The goal seems to me to be worth the task.
