The US economy has regained its momentum, but the project forwarding sector is feeling the impact of slumping oil prices well beyond the US. Currently there are enough moves in the pipeline to keep operators busy, but they are scratching their heads what they will be moving six or 12 months down the road.

2014 was a strong year for many forwarders in the project sector. Above all, it was the oil and gas sector that kept the business humming, as oil prices in the neighbourhood of US$110 per barrel were egging on drilling activities from the Dakotas and Alberta to Siberia and Nigeria.

“We had a pretty good year,” said Willy Hoffmann, senior vice president of BNSF Logistics. Juergen Osmers, president of KOG Transport USA, noted that he had budgeted for a weaker 2014 after record results in 2013, but in the event last year surpassed the results of 2013.

“It still continues strong,” he added.

Given the long lead times for many projects, logistics firms still have their hands full with moves for projects that were planned years ago. “We are still busy with existing projects,” confirmed Hoffmann.

The recent slump in oil prices has brought a stark change to the outlook for the latter part of 2014, though. Many projects in the Alberta oil sands and in the shale oil sector are not viable at oil prices below US$55 a barrel.

BNSF was looking at a shale oil project in Mongolia that was due to get under way in the second half of this year, but it will not start at the oil price level seen in late January, when it had dipped to US$45 a barrel, Hoffmann said.

“A couple of shale projects have either slowed down or were put on hold,” reported Osmers, adding that activities in the Alberta oil sands have also lost momentum. The slowdown in shale oil drilling has been more pronounced because individual drill projects typically yield relatively low volumes and are exhausted much faster than traditional oil fields. Hence, shale oil drilling is characterized by a higher number of individual drill sites and shorter drilling windows. Instead of slowing down oil production, operators simply stop drilling at new sites or reduce the number of new wells.

“Business has slowed down quite a bit,” remarked Dick Knoll, president of Drexel Logistics, adding that for the most part companies have postponed projects rather than cancel them outright. He attributed the slowdown chiefly to the decline in oil prices.

Oil is not the only culprit, though. Declining demand for some commodities has hit mining activities. Some operators point to the slower momentum of China’s economy, which has a knock-on effect on commodities needed for manufacturing.

Hoffmann recalled a visit to Brazil early last year. “Companies there were very optimistic. They were looking at new projects. When I went back in the summer, everything was on hold,” he said.

In anticipation of lacklustre demand in the coming months, forwarders are looking to hone their competitive edge, either by broadening their portfolio or boosting their capabilities. Switzerland-based Fracht bought Skytruck Air/Sea Transport, a US forwarder with a strong presence in airfreight, at the beginning of the year. “With the project market – look at the price of oil! – we want to diversify,” said Reiner Widerkehr, executive vice president and COO of Fracht USA.

– Ian Putzger