Back in January 2022, we had the pleasure of sharing the news from our founding member Alexander Global Logistics (AGL) with regards to their procurement of a 90.000 sqm storage space in Bremerhaven, Germany.
As a strong player on the global stage for transporting forestry products such as pulp and paper, the addition of such an asset has proven to be extremely impactful on their operations today.
Our team had the pleasure of talking with Mr. Alexander Tuleweit, Import Manager, and Mr. Kai Warrelmann, Warehouse Manager-Surveyor, about the current warehousing market in Europe, how owning a warehouse has impacted their operations, and their investments towards being more environmentally, economically and socially sustainable. We also talk about how they are actively promoting the usage of rail to take trucks off the road and even eventually replace barge services.
In conversation with Alexander and Kai…
NSRN: It has been around half a year since Alexander Global Logistics officially announced the acquisition of the warehouse in Bremenhaven, Germany. This is not a small feat, with the whole lot being 90,000 sqm, of which 35.000 sqm is covered warehousing space. What was the motivation behind purchasing this as an asset, as opposed to just renting the space as many freight forwarders traditionally do?
Alexander: We have actually been a tenant in a section of the warehouse since the last seven years. The idea to change from being a tenant to owner was really a step to diversify our portfolio. As you know, we are traditionally a 4PL (fourth-party logistics provider), but it became clear to us that we needed a certain level of independence when serving our customers, that was only possible by owning the asset.
The company has seen significant growth over the last few years. When another tenant went out three years ago, we had decided to double our space already. Especially the pulp and paper sector, with the impacts of Covid-19, the whole view towards carrying safety stock changed. So for our management, it was the right step forward.
NSRN: Talking about Covid, looking back at the development in the supply chain, what we saw initially were shutdowns in the factories and ports in China and other Asia countries, this created a significant strain on supply in the Western countries, that outsourced production to lower-cost countries. Further issues followed, with port congestion and high freight costs all around plaguing the scene. Could you elaborate more about the change in attitude towards safety stock? Is this perhaps the beginning of a nearshoring trend?
Alexander: Well, it might be too soon to say that nearshoring is happening, but we certainly see a trend. Before, we experienced a high degree of lean supply chains where no extra cost was needed or wanted. Risk management was not in place because everything was so efficient. Just ship it, and it will arrive on time. This has completely changed. I mean, we're still seeing that our customers in pulp and paper cannot produce enough product for the demand. Everybody is sold out essentially, and the manufacturers can't get enough raw material partly due to the broken supply chains. The just-in-time concept doesn't work anymore. The shipping lines are re-routing containers, it takes twice the time for containers to get loaded as they are rolled over, and some don’t get loaded at all. We have a lot of cargo coming to Europe from the US and Canada, where the pulp producers are, but the container freight stations are overflowing, and Savannah port has not even been called for several weeks. These factors amplify a dysfunctional supply chain, leading to our customers looking for options to put more safety stock in Europe.
NSRN: Does this also have a knock-on effect in Europe, creating scarcity in warehousing space? What do you think will be the trend in the next months?
Alexander: 100%, particularly the port locations are under strain. We see from our partners whom we have worked with for years, they are experiencing the same shortage in space as everyone else, which leads to price increases and a reduction in flexibility. This makes it all the more worthwhile to have your own asset. We don’t need to rely on a partner that has a whole portfolio of customers and we are just one of them. We are much more agile, with our own staff, we can determine how we want to work and when we work.
NSRN: We guess that such agility has helped keep the customers happy in these special times. What are some of the challenges that you are experiencing right now with the warehouse operations?
Kai: Well, to be honest the customers hate the situation because even though we have our own warehouse, we are still bound to issues such as a reduction in free time. It doesn’t matter which port or warehouse, every customer in general has this problem. Every importer in the pulp and paper industry is either exploring alternative solutions in break bulk, or is looking at a significant increase in cost on the base freight as well as on extra cost for free time and shunting. Then we have a trucking shortage as well. So basically, once the vessel arrives, the free time given by the shipping lines right now, despite the high freight costs, is relatively short, so they have a limited amount of time to get the containers unloaded from the vessel, get the cargo unloaded at the warehouse, and then to bring the containers back. In the past, the customers generally shipped under CIF terms from the USA, they would send 80 containers on one bill of lading, and we would have 21 days of detention here to work with. Now they're still sending 80 containers, but we only have five days of free time. That is the essence of the problem, and the shipping lines are the ones profiting most from such a situation.
NSRN: With the warehouse being your own asset, new investments to make it better are for sure in the pipeline. Are you also investing into making it more sustainable or more efficient? Can you give us an insight into what you have done so far?
Kai: For sure, the AGL management sees sustainability as a key point to develop. Since the beginning of this year, we are already seeing that some producers are taking sustainability into account when tendering their business. They take a qualitative approach, with questions such as: "Do you have solar panels? Do you have LEDs? Do you recycle?" The kind of questionnaire might not be perfect, but the questions are at least being asked, whereas before, this was never in the picture.
Of course, we approached the whole thing differently. We started with buying two reach stackers, with a value of about half a million each. This was the first step toward being independent and having a well-run operation. We then looked at the electricity consumption in relation to the area the warehouse covered. We realized that we have about 600,000 kilowatts of electricity consumption per year, and by replacing the lamps with state-of-the-art LEDs with motion sensors, we can save almost half of that. Of course, there's a business case behind it because with the energy cost spiking lately, this became an obvious thing to do, but we looked at this pretty much from the beginning when we took it over in November last year.
Another thing we are working on is installing solar panels. We will have another 607 kW peak of solar power. This will cover our consumption during the day, and together with investments in LED lights should reduce the initially mentioned 600,000 kilowatts per year by 80 to 95%. This means we would save more than 360 tons CO2 annually for that operation alone. We are also considering converting some forklifts from diesel to electricity. We already run electric forklifts, but these are five-ton heavy-lift forklifts. It's still not ideal from a sustainability point of view compared to smaller forklifts because of the battery life.
NSRN: Would the investment you mentioned in the solar panels be operational this year? What's the approximate timeline that you have?
Kai: Interesting question, because even as a logistics provider we're facing supply chain disruptions and supply shortages. Basically, the device that connects the panels to the grid and changes the frequency is sold out till February 2023. We're hoping to get it earlier than that, but none of the manufacturers want to commit to an earlier timeline.
NSRN: It sounds exciting, especially as you mentioned with the growing energy prices now. So, it's a bit of a push-pull effect. You have the push from the rising energy prices, and the pull effect from the demand from your customers, who are the producers. that are more attentive to sustainability.
Alexander: Yes, and to be clear we think this focus is still just in its early days. Five to ten years ago, we started to see compliance surveys from customers. In Central and Western Europe, this is more or less a given thing. Of course, price and service are still driving factors, but we are seeing more of a comprehensive evaluation portfolio. Now we are seeing sustainability surveys appear, so we believe this will also become a firm pillar in the decision-making process.
Kai: To further add to the point of sustainability, I think we also need to address the social aspects. The biggest challenge for the pulp and paper industry is cost. If you look at the output product, which is paper or hygiene products such as toilet tissue, it is generally used once before being thrown away. These types of disposable products tend to gravitate towards the cheapest options, which is not the most sustainable one when it comes to transport.
We are facing a huge problem right now: despite the shortages of truck drivers already, each year we are facing a net loss of tens of thousands of truck drivers due to retirements and insufficient replenishment of new trainees. That's in Germany alone. This will hit the forestry products industry the hardest because they are not Daimler; they're not BMW; they cannot afford to pay three or four times as much for a truck.
In the end, what drives inflation? Energy costs drive up transportation costs, and everything down the supply chain amplifies. Every day goods such as tissue become more expensive and this is how we are seeing a 7% inflation now.
So, when discussing sustainability, our management is also looking at the staff. We provide free showers for the drivers and have free coffee. Sometimes the drivers are treated inhumanely. They're not even allowed to be on the premises or to use the toilet. This is not right in our opinion. We are now building showers and hygiene facilities for the drivers to use at no additional cost. You can check our warehouse on Google; the drivers rate us and we have fantastic reviews.
So we approach sustainability from many angles. Investing into saving energy and water might be costly now, but in the long run, companies that don’t do so will be at a disadvantage. It will one day become the norm to be self-sufficient in energy supply, which is why solar panels are important. Of course, there is a payback period, but we are confident that we will start seeing the benefits soon. It is also socially expected to treat people right. Otherwise, the drivers will not want to go there, or you need to pay double to get another truck to come. It might seem like a small thing, but you have a competitive advantage if the driver wants to come to your place instead of someone else. Same with employees, we are paying them well above minimum wage, more than what the market can offer, and they have the right working mentality. These are all things that we can control much closer now since we operate our own warehouse. We have a planning horizon of 15 to 20 years because we have the asset.
Another thing we are proud of is our collaboration with the local “Lebenshilfe” organization in Bremerhaven. In each city in Germany, this association helps people who are either physically or mentally challenged to integrate into society. They are people who cannot do a regular job, they cannot get up in the morning and be on their own. But through the programme from Lebenshilfe, they are given challenges that leverage their capabilities. It was not easy, we have tried with many candidates, but they tend to drop out after 2 weeks. They are scared of using certain power tools; we need to be very slow and they only work six hours a day. But now we have Stefan, who has been with us for almost one year now, which is very rewarding. There are challenges, but we managed to integrate Stefan, and we're very proud to have him on the team. It’s a win-win situation. We pay the organization that supports people like him with their daily life, the salary is paid on an hourly basis and is lower than regular employees. And Stefan has a purpose and gets up every day for work, he repairs rolls, cleans the warehouse and the rail tracks, and is even getting his forklift driver’s license now. He also assists the staff in operating our recycling press, where 90% of all our plastic and paper waste is pressed and baled.
NSRN: We are glad you brought up the topic of the rail tracks. As the New Silk Road Network, rail freight is a huge topic for us. Of course, we understand this is more of an intro-Europe system, but can you give us an overview of the connections that you have, what frequency they run on and what products you usually carry, etc?
Alexander: The primary reason AGL bought this warehouse is the rail connection. We are one of three warehouses in Bremerhaven that still has a rail connection, so it's quite a unique selling point. Our usual cargo is generally bulk goods, such as paper rolls, so rail tends to be the most economical option. Paper rolls and pulp units can be transported by rail and truck. However, trucks carry 24 tons each, while rail carts can hold 62 tons. So for each rail wagon, we remove 2.5 trucks from the road. On a good day, we have around 20 wagons calling in the rail gate, but on average, I would say ten a day. So as you can see it is quite effective in taking out trucks from, as you called it, the intra-Europe system; in theory though, it's the same rail connection as you have anywhere. However, there are many factors hindering the effectiveness and connectivity of all the rail tracks across Eurasia.
To launch a new service is generally a nightmare, there are so many parties involved, as you are crossing many countries, and each has their own operator. We have seen successful deliveries in Germany into the hinterland, this is very straightforward, and we are also seeing producers from the Nordic region send their products into our warehouse by rail and then distribute them further via truck. Still, a significant leg is done by rail, hence reducing CO2 emission. As a core principle, we want to use as much rail as possible, but sadly up till now, for many customers cost still outweighs everything. This is not necessarily the making of a specific person, but quite often the managers get evaluated by the company on cost savings achieved. Of course, as mentioned before, sustainability is slowly coming into the picture now.
Another interesting project we are working on is proposing a switch from barge to rail for clients in Southern Germany. Due to global warming, the water level on the Rhine River fluctuates much more than it did before. We either have floods or droughts. To oversimplify it a bit, in summer it is too low and unless you put less cargo, the ships can hit the floor; and in winter the water level is too high, meaning the vessel cannot pass under certain bridges. One customer did a market study himself and identified this problem. So now he is looking to change the infrastructure on his factory premise to allow for a change eventually from barge to rail. We are working on solutions to exactly solve these types of problems, and in our opinion, this is exactly how the supply chain should be, resilient in the long term, and not just low cost in the short term.
With our new asset, we are rigorously working to be part of the future’s sustainable supply chain landscape.
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