Shopify cuts jobs again, sells most of logistics business to Flexport

Ilya Banares, Bloomberg News

May 4,2023

SHOPIFY INC - CLASS A (SHOP:CT)

77.65 14.60 (23.16%)

As of: 05/05/23 2:47:27 am
REAL-TIME QUOTE. Prices update every five seconds for TSX-listed stocks

Chart Type - 1year

See Full Stock Page »

Shopify Inc. is cutting jobs for the second time in 10 months and selling the majority of its logistics business to Flexport Inc. to focus on its core e-commerce platform business.

The moves mean the company will shrink by more than 2,000 people. “I don’t want to bury the lede: after today Shopify will be smaller by about 20 per cent and Flexport will buy Shopify Logistics; this means some of you will leave Shopify today,” Chief Executive Officer Tobi Lütke said in a memo to staff. “I recognize the crushing impact this decision has on some of you, and did not make this decision lightly.”

Shopify soared about 27 per cent to $79.76 as of 10:35 a.m. in Toronto, the biggest intraday rise since 2015.

The company expects to incur severance charges of US$140 million to $150 million. “Our numbers were unhealthy, just like it is in much of the tech industry,” Lütke said. “With the right numbers we’ll fully focus on outcomes and impact.” During a conference call, executives said Shopify has to operate with greater speed and is moving quickly toward its ideal size.

The logistics deal is a big change for the Canadian e-commerce giant, reversing a strategy it had implemented to better compete with Amazon.com Inc. Flexport will acquire most of its fulfillment assets including those of shipping startup Deliverr Inc., which Shopify bought just last year for $2.1 billion.

“We applaud management for making difficult decisions that set the company up better for long-term success, although this is significant pivot,” Baird analyst Colin Sebastian wrote in a note to clients.

Revenue for the period came in at $1.51 billion, beating the $1.43 billion average estimate of analysts surveyed by Bloomberg. Gross merchandise volume, the total value of merchant sales across Shopify’s platforms, was $49.6 billion, above Wall Street projections of $47.7 billion.

Bloomberg Intelligence analyst Anurag Rana:

“Shopify divesting its logistics business is a good strategic move, especially as Amazon.com pushes its ‘Buy with Prime’ program for non-Amazon sellers. This strategy shift, while painful in the short-term due to write-downs and layoffs, will increase the company’s focus on selling more products through its platform. Separately, 1Q results were surprisingly strong with sales 640 bps higher than consensus.”

The Ottawa-based company also gave an outlook for the second quarter, saying it expects revenue to grow at a similar rate to the first quarter growth rate on a year-over-year basis. It also expects to achieve free cash flow profitability for each quarter of 2023.

Shopify bet early in the pandemic that a rapid rise in online shopping, fueled by customers staying home, would become permanent. As that wager soured, Lütke has been forced to retrench. The company cut about 1,000 jobs last summer, raised prices and focused on building out client offerings and its in-house fulfillment network. Shopify had 11,600 employees at the end of 2022.

The company has had to contend with macroeconomic risks, including slower consumer spending and inflationary pressures. Retail sales fell 1.4 per cent in March, according to a preliminary Statistics Canada estimate.

BEARISH OR BULLISH ON SHOPIFY? HERE'S WHAT ANALYSTS SAY

Daniel Johnson , BNN Bloomberg

MAY 4,2023

Analysts are split on potential upside and downside scenarios for Shopify Inc., following the company’s latest move to reduce staff and offload a significant portion of its logistics business. 

On Thursday, the Canadian e-commerce company announced it entered into an agreement where Flexport Inc. will acquire the majority of Shopify’s logistics business. The company also outlined plans to reduce its workforce for the second time in 10 months after previously stating in February that no more staff cuts were imminent. 

In a television interview with BNN Bloomberg Thursday, Josh Beck, a managing director Keybanc Capital Markets, outlined the bullish case for the company, while New Constructs Chief Executive Officer David Trainer believes the stock is overpriced.

After Thursday’s announcement, Beck increased the price target to US$65 from US$55 on Shopify shares.

Following Thursday’s announcement, Shopify shares were trading nearly 25 per cent higher just below $80 per share in early-afternoon trading. 

THE BULLISH CASE 

Beck said the recent move by the Ottawa-based company is a positive sign for the business.

“To me, with them [Shopify] really lightening up on the investment mode and focusing on really what they're best at, which is software, [this] is actually a really encouraging update for them,” he said.

Beck said the recent move reflects what that market wants to see, “which is profitable growth.”

Shopify now faces room to grow its penetration in a multi-trillion-dollar global market, according to Beck.

“As successful as they've [Shopify] been, the penetration is still very low. And they're making really good progress with a lot of new products,” he said.

Shopify also has a “multitude of factors,” that could spur the company’s growth, Beck said. 

“Lots of companies are narrow. They may be selling one piece of subscription software, or one piece of fintech or one piece of ad tech, which is pretty narrow,” Beck said. 

“What they [Shopify] do is very broad and it gives them a lot of opportunity to have much higher revenue yield over time.” 

THE BEARISH CASE 

While Beck sees the potential for growth, Trainer said that Shopify shares are overvalued and oftentimes, good companies are not necessarily good equities to own.

He said if you look at underlying expectations that come with a “high $50 stock price,” you “see just how ridiculous the valuation is.” 

“To justify a $58 stock price, Shopify has to grow revenue at 25 per cent compounded annually for a decade, while improving its return on invested capital from negative to positive 300 per cent,” he said. 

According to Trainer, only a handful of companies have ever been capable of achieving a 300 per cent return on invested capital, with none being able to sustain it. 

“So that's what's being priced in, it's good to see them [Shopify] making some moves to rationalize the business because they'd been burning tons of cash flow. They burned $2.8 billion in the past year,” he said. 

Many companies completed an initial public offering (IPO) during an era of lower interest rates and “cheap money,” Trainer said adding that these types of organizations are “never really good stewards of capital.” 

In May 2015, the Ottawa-based e-commerce company completed its IPO at a price of US$17 per share.

Trainer said he could see more reasonable value in Shopify shares priced around $10, provided the company also improved its profit margins.

“And that would imply, to get the 10 bucks a share…that their [Shopify’s] profit margins would go from negative 10 per cent or so to positive 10 per cent. And grow revenue at consensus rates over the next couple of years, and then about 10 per cent after that,” Trainer said. 

'No cuts coming': Shopify president says company has no plans for another layoff

Tara Deschamps, The Canadian Press

Feb 17, 2023

As a growing number of tech companies carry out successive rounds of layoffs, Shopify Inc.'s president says there are no more cuts in the works for the Ottawa-based e-commerce company.

"There's no cuts coming for us," Harley Finkelstein told The Canadian Press.

"We're in a really good place."

His confidence that the company's reductions are done comes months after Shopify was among the first of the world's tech giants to lay off staff in a summer cut that impacted 1,000 workers — roughly 10 per cent of staff. The company attributed the move to it misjudging the growth of the e-commerce sector.

Since then, few major tech companies have been unscathed by the fading investor exuberance, falling valuations and pressure to reach profitability in the event a predicted recession materializes.

Tech giants as big as Amazon, Meta, Microsoft, Intel and Zoom have culled staff from their workforces along with smaller Canadian brands like Wealthsimple, Lightspeed, Clearco and HootSuite.

After Shopify's cuts, Finkelstein feels the company is at the right size.

"I don't think we are going to grow our head count very much," he said. 

"I think we can keep it pretty flat other than maybe a couple of key hires."

Asked what areas might garner hires, he said software and product staff are always in demand because there are fewer of them.

But retaining current staff is just as important. To keep workers, Shopify is leaning on Flex Comp, an initiative which gives staff a “total rewards wallet” and allows them to regularly choose between cash and stock options for their compensation. 

It was implemented in the wake of Shopify's layoff and as its stock came under pressure, falling from a 52-week high of $113.43 to a low of $33.

In designing the program, Shopify completed an extensive benchmarking exercise to ensure salaries are competitive, but executives warned Flex Comp will likely weigh on its 2023 outlook.

Historically, allocations staff made sat at around 70 per cent cash and 30 per cent equity, Finkelstein said.

"I think Q4 allocations may be skewed slightly more cash than those levels, but it's sort of expected that it will vary each quarter," he said.

"Cash gives certainty, but if you understand the business, obviously, you know, equity is what a lot of people want because they want to be able to participate in the upside there as well."

The company is also hoping to remain attractive to talent with a "digital by default" focus it adopted in 2020 after chief executive Tobi Lütke declared "office centricity is over."

Since then, most staff have worked remotely and Shopify opted not to move into The Well complex at King Street West and Spadina Avenue in downtown Toronto. The company was initially slated to occupy 254,000 square feet at The Well, with the option to add another 433,752 square feet.

"We don't need that much space given the new digital by design," Finkelstein said.

Now, staff feel like they can move wherever and whenever they want (Finkelstein is in the process of shifting his family to Montreal) and travel on a whim.

For those that want to head into an office, Shopify is maintaining some sites, including one at the King Portland Centre, not far from The Well. Many people gathered at the company's properties in recent weeks when it held a series of summits and hack days. Others joined virtually or invited colleagues living nearby over to their homes.

"They hosted like watch parties... so I actually think it is working really well for us," Finkelstein said.

He credits that flexibility with helping the company appeal to new, prized hires like Jeff Hoffmeister, who led Shopify’s initial public offering and worked for Morgan Stanley since 2000. Hoffmeister joined as chief financial officer but is able to work in New York, where Finkelstein frequently travels. 

Around the same time as Hoffmeister joined Shopify, chief technology officer Allan Leinwand announced he will be departing the company with chief executive Lütke to take on some of his responsibilities.

Rather than replace Leinwand, Lütke is now overseeing research and development. He previously stepped in to take over chief product officer Craig Miller's responsibilities, when he left in 2020. At the time, Lütke said there were no plans to replace Miller.

The latest move isn't as big as it may seem to outsiders, Finkelstein said.

"He's been doing this for a long time and now we're just sort of documenting it officially."

This report by The Canadian Press was first published Feb. 16, 2024.

Canada Revenue Agency, union reach tentative deal, ending strike of 35,000 workers

The Canadian Press

The public-sector union representing Canada Revenue Agency employees has struck a tentative deal with the federal government, ending a strike of 35,000 workers just after the tax season wrapped up.

The announcement of a prospective agreement comes after the government and Public Service Alliance of Canada came to separate deals that ended a strike of more than 120,000 other public servants.

CRA employees represented by PSAC's Union of Taxation Employees were still on strike two days after the federal tax-filing deadline.

The union is telling members to return to work on May 4 by 11:30 a.m. ET at the latest.

In a statement, PSAC said the tentative deal includes wage increases totalling 12.6 per cent compounded over the life of the agreement from 2021-2024, as well as an additional fourth year in the agreement that protects workers from inflation. The tentative agreement also includes a pensionable $2,500 one-time lump sum payment that represents an additional 3.6 per cent of salary for the average member.

In its own release, the CRA said it and PSAC reached a tentative settlement on telework outside of the collective agreement. It said both agreed to undertake a review of the directive on virtual work arrangements, and to create a panel to advise the Commissioner and Deputy Commissioner regarding employee concerns.

The union threatened earlier Wednesday that it would plan to send its members to disrupt a Liberal party convention in Ottawa on Thursday if the employer didn't table a "fair" deal. 

The separate agreements that PSAC negotiated with the government included a 11.5 per cent wage increase over four years.

Earlier in the negotiations, the tax employees' union had been pushing for a 20.5 per cent increase over a three-year period.

This report by The Canadian Press was first published May 4, 2023.

Pilots decry industry push for solo flying

Christopher Reynolds, The Canadian Press

Pilots are speaking out against an aviation industry push toward having a sole crew member in the cockpit.

At a Thursday news conference in Montreal, leaders of three of the world's largest pilot unions representing more than 150,000 workers said a proposal to Europe's aviation regulator aims to boost airline profits at the expense of safety.

The European Union Aviation Safety Agency is mulling a pitch by plane makers Airbus and Dassault Aviation for some aircraft to be crewed by just one pilot for part of the flight — though not during takeoff and landing — by 2027. Currently, two pilots are required at the flight deck throughout the trip.

The proposal would create an "unacceptable" safety risk for passengers, said Jack Netskar, president of the International Federation of Air Line Pilots’ Associations, which includes some 6,200 Canadians.

"There is no replacement for the skills and experience of at least two pilots at the controls of the flight deck at all times," he said.

Some manufacturers have framed single-person flying as a solution to labour shortages and pilot fatigue, said European Cockpit Association president Otjan de Bruijn, calling the characterization "misleading and inaccurate."

"It's a gamble with safety," he said.

The proposal could see only one pilot at the throttle during "less challenging phases" of a flight, so typically in cruise rather than at takeoff and landing, while the other pilot or pilots rest in the back, said Janet Northcote, spokeswoman for the European aviation agency. A pair would swap places halfway through the trip, but both pilots would be in the cockpit for the first and last 45 minutes or so.

In theory, the change could mean that longer routes which previously demanded three or four pilots on an in-flight rotation could make do with just two.

The concept — still years away from potential implementation — is being investigated more intensely by the agency, said Northcote.

So-called single-pilot operations, when just one pilot is on board from start to finish, are also undergoing "some consideration" — but only for freighters, she said.

Union leaders said they aim to counter a lobbying campaign by industry players targeting regulators around the world, as well as the International Civil Aviation Organization.

The Montreal-based United Nations agency's governing body and air navigation commission were slated to weigh the topic further after two working papers were submitted last year, but no resolutions have been adopted, said spokesman Anthony Philbin.

Pilot unions say France-based plane producer Airbus is leading the drive toward "reduced-crew operations," while North American airlines have been reluctant to jump on board.

"It's a sales pitch," said Netskar. "There's probably going to be airlines out there that find this viable —financially viable — and not considering the flight safety risk you're entering into."

Airbus and Dassault did not respond immediately to requests for comment.

Boeing said it has "participated in industry discussions" but safety remains its priority, with any new technology serving to strengthen it.

“Part of the reason the aviation system is as safe as it is today is because of what pilots do," the company said in an emailed statement.

The prospect of fewer pilots has risen along with advances in avionics technology, as well as artificial intelligence.

"As we advance AI and machine robotics, there is a clear path to bring some of that technology into the cockpit. It is the evolution of technology in aircraft that’s driving the manufacturers to consider this," said John Gradek, a lecturer at McGill University's aviation management program.

Machine learning and AI have already made inroads in areas ranging from flight path programming to dynamic pricing and parts production. Airbus is researching cockpit enhancements to allow single-pilot operations. Germany-based Lufthansa is deploying AI to forecast wind patterns. American Airlines, Delta Air Lines and JetBlue are all investing in the buzzy technology, while Alaskan Airlines implemented an AI-fuelled program to forge more efficient flight paths during a six-month trial period.

Nonetheless, Air Line Pilots Association International president Jason Ambrosi said abandoning two-pilot flying at all times "recklessly dismisses" lessons that airlines have learned the hard way, calling the notion "insane."

Bird strikes, volcanic ash encounters and, in February, an incident where two planes narrowly avoided collision at the Austin airport in Texas after "the pilot saw the danger" have all showcased the importance of keeping two pilots at the controls, he said.

This report by The Canadian Press was first published May 4, 2023.

To Understand Hurricanes of the Future, USGS Looks for Answers in Sand

Sediment core showing storm deposits. This example of a core was collected from the Dominican Republic. (File image courtesy Kristen Steele, USGS)

PUBLISHED APR 27, 2023 9:10 PM BY THE MARITIME EXECUTIVE

 

To get a better perspective on the storms of the future, the U.S. Geological Survey is studying evidence of past hurricanes in buried sediments in the Florida Panhandle. 

Hundreds of years ago, local climate conditions in the Gulf of Mexico were similar to what they are now - and what they likely will be in a few decades. USGS scientists believe that the signs of past storms from this time period can help extend the historical record of extreme weather in the region, improving modeling and predictions of future storm activity as the climate warms again. 

The data suggests that the existing records of storms - which date back only to the mid-1800s - may not fully capture the risk of high-powered hurricanes during warm periods in the local climate. 

“Most existing records on hurricanes that are used to help forecast storms date back to 1851, which is just over 170 years ago, and our research is looking beyond that by several thousands of years,” said USGS research geologist Jessica Rodysill. “We are collecting sediment from below the Earth’s surface and analyzing those samples to learn about hurricane occurrence over a long period.”

Specifically, the team collected sediment samples from two sites in coastal Florida, a bit inland from the shore. The soil at these sites is mostly fine sediment, punctuated by periodic layers of sand deposits. The sand represents incidents of heavy flooding from the arrival of a hurricane. The age, type, quantity and thickness of the sand deposit gives clues about the intensity of the storm. 

Based on the geological record, the odds of a major storm may be higher during periods when the local climate is warmer. The evidence in the cores suggests that there were several previously unknown Category 4-5 hurricanes during a period from 800-1,400 years ago, when sea surface temperatures were higher in parts of the Gulf of Mexico and the Atlantic. Before the study, the only known Category 4 or 5 hurricane to ever make landfall in the area was Hurricane Michael, which struck Panama City in 2018. 

Computerized climate models predict that hurricane activity could increase in the Gulf of Mexico as ocean temperatures warm in the decade ahead, and USGS believes that the new study supports this prediction - though other physical oceanographic factors will also play a role. 

Scientists Find Pollutants in Some of the Ocean's Deepest Waters

Christopher Michel / CC BY SA 3.0

PUBLISHED APR 30, 2023 3:55 PM BY ANNA SOBEK

 

I was part of a team that recently discovered human-made pollutants in one of the deepest and most remote places on Earth – the Atacama Trench, which goes down to a depth of 8,000 meters in the Pacific Ocean. The presence of polychlorinated biphenyls (PCBs) in such a remote location emphasises a crucial fact: no place on Earth is free from pollution.

PCBs were produced in large quantities from the 1930s to the 1970s, mostly in the northern hemisphere, and were used in electrical equipment, paints, coolants and lots of other products. In the 1960s, it became clear they were harming marine life, leading to an almost global ban on their use in the mid-1970s.

Sometimes called the Peru-Chile Trench, the Atacama Trench is visible in dark blue on this relief map (sea level is green and mountains are red). (Left, NOAA)

However, because they take decades to break down, PCBs can travel long distances and spread to places far from where they were first used, and they continue to circulate through ocean currents, winds and rivers.

Our study took place in the Atacama Trench, which tracks the coast of South America for almost 6,000km. Its deepest point is roughly as deep as the Himalayas are high.

We collected sediment from five sites in the trench at different depths ranging from 2,500m to 8,085m. We sliced each sample into five layers, from surface sediment to deeper mud layers, and found PCBs in all of them.

In that part of the world, ocean currents bring cold and nutrient-rich waters to the surface, which means lots of plankton – the tiny organisms at the bottom of the food web in the oceans. When plankton die, their cells sink to the bottom, carrying with them pollutants such as PCBs. But PCBs don’t dissolve well in water and instead prefer to bind to tissues rich in fat and other bits of living or dead organisms, such as plankton.

Since seabed sediment contains a lot of remnants of dead plants and animals, it serves as an important sink for pollutants such as PCBs. About 60% of PCBs released during the 20th century are stored in deep ocean sediment.

A deep trench like the Atacama acts like a funnel that collects bits of dead plants and animals (what scientists refer to as “organic carbon”) that come falling down through the water. There is a lot of life in the trench, and microbes then degrade the organic carbon in the seafloor mud.

We found that the organic carbon at the deepest locations in the Atacama Trench was more degraded than at shallower places. At the greatest depths, there were also higher concentrations of PCB per gram of organic carbon in the sediment. The organic carbon in the mud is more easily degraded than the PCBs, which remain and can accumulate in the trench.

A look into the past

The storage of pollutants means ocean sediment can be used as a rear-view mirror on the past. It is possible to determine when a sediment layer accumulated on the seafloor, and by analysing pollutants in different layers we can gain information about their concentrations over time.

The sediment archive in the Atacama Trench surprised us. PCB concentrations were highest in the surface sediment, which contrasts to what we usually find in lakes and seas. Typically, the highest concentrations are found in lower layers of sediment that were deposited in the 1970s through to the 1990s, followed by a decrease in concentrations towards the surface, reflecting the ban and reduced emissions of PCBs.

For now, we still don’t understand why the Atacama would be different. It is possible that we didn’t look at the sediment closely enough to detect small variations in PCBs, or that concentrations have not yet peaked in this deep trench.

These concentrations are still quite low, hundreds of times lower than in areas close to human pollution sources such as the Baltic Sea. But the fact we have found any pollution whatsoever shows the magnitude of humanity’s influence on the environment.

What we can say for sure is that the more than 350,000 chemicals currently in use globally come at a cost of polluting the environment and ourselves. Pollutants have now been found buried below the bottom of one of the world’s deepest ocean trenches – and they’re not going anywhere.

Anna Sobek is Professor of Environmental Chemistry and Head of Department of Environmental Sciences, Stockholm University.

This article appears courtesy of The Conversation and may be found in its original form here. 

Top image: Christopher Michel / CC BY SA 3.0

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.

California to Start Phase Out All Diesel Trucks at Ports Next Year

Drayage trucks and cargo movers are among the first to phase out beginning in 2024 and completed by 2035 (Port of Los Angeles file photo)

PUBLISHED MAY 1, 2023 6:59 PM BY THE MARITIME EXECUTIVE

 

The California Air Resources Board (CARB) approved on April 28 a first-of-its-kind rule that requires a phased transition toward zero-emission medium-and-heavy duty vehicles. Known as Advanced Clean Fleets, the new rule expands on California’s efforts to fully transition the trucks that travel across the state to zero-emissions technology by 2045 and includes provision for the ports and their cargo handling equipment.

Under the new rule, fleet owners operating vehicles for private services such as last-mile delivery and federal fleets such as the Postal Service, along with state and local government fleets, will begin their transition toward zero-emission vehicles starting in 2024. Drayage trucks, including those used to haul containers and freight from the ports as well as rail yards, are among the first to be targeted. Only zero-emission drayage trucks may register with CARB starting January 1, 2024. While there are provisions to phase out older trucks and ensure that operate through their useful life, dryage trucks will need to be zero-emissions by 2035.

The new bill is not entirely unanticipated. California has existing regulations since 2020 which required manufacturers to increase the sale of zero-emission trucks. Increasing numbers of zero-emission vehicles and cargo moves have begun to be introduced at the ports.

The Advanced Clean Fleets rule sets an end to combustion truck sales in 2036, a first-in-the-world requirement. In addition to impacting the trucks moving freight from the ports and rail yards, the new rules include provisions for off-road tractors. This will include vehicles such as cargo movers used in the yards at the ports. Other truck segments also have deadlines ranging from work trucks and day cab tractors must be zero-emission by 2039, and sleeper cab tractors and specialty vehicles must be zero-emission by 2042.

“We have the technology available to start working toward a zero-emission future now,” said CARB Chair Liane Randolph. “The Advanced Clean Fleets rule is a reasonable and innovative approach to clean up the vehicles on our roads and ensure that Californians have the clean air that they want and deserve. At the same time, this rule provides manufacturers, truck owners, and fueling providers the assurance that there will be a market and the demand for zero-emissions vehicles while providing a flexible path to making the transition toward clean air.”

The board says that the move is critical to the health and finances of California. While trucks represent only six percent of the vehicles on California’s roads, CARB reports they account for over 35 percent of the state’s transportation-generated nitrogen oxide emissions and a quarter of the state’s on-road greenhouse gas emissions. CARB projects the new rule to generate $26.6 billion in health savings from reduced asthma attacks, emergency room visits, and respiratory illnesses. Furthermore, fleet owners will save an estimated $48 billion in their total operating costs from the transition through 2050. An analysis of the sales and purchase requirements estimates that about 1.7 million zero-emission trucks will hit California roads by 2050.

Recognizing the scope of the transition that is called for under this rule, CARB notes that they have included transitions. Other fleet owners for example will have the option to transition a percentage of their vehicles to meet expected zero-emission milestones, which CARB says gives owners the flexibility to continue operating combustion-powered vehicles as needed during the move toward cleaner technology. The flexibility is intended to take into consideration the available technology and the need to target the highest-polluting vehicles. 

The rule also allows fleet owners to receive exemptions based on available technology to make sure fleet owners continue to replace their older polluting trucks with ones that have the cleanest engines in the nation. CARB reports that there are already about 150 existing medium- and heavy-duty zero-emission trucks that are commercially available in the U.S. today.

As part of the vote, board members also directed staff to coordinate with relevant state agencies on how non-fossil biomethane from sources related to the state’s wastewater and food waste diversion requirements can be used in hard-to-decarbonize sectors as part of the transition. The report will be presented to the board by the end of 2025. The board will use it to consider what actions might be needed to accomplish the transition.

Petrobras Makes "Plan B" in Case Amazon Drilling Permit Gets Rejected

Petrobras file image

PUBLISHED MAY 3, 2023 9:05 PM BY THE MARITIME EXECUTIVE

 

Brazilian offshore oil giant Petrobras has made a "plan B" for using the rig it chartered to drill off the mouth of the Amazon, given the permitting headwinds it has encountered with the Brazilian Institute for the Environment and Renewable Natural Resources (Ibama).

Last month, a team of technical reviewers at the regulator recommended rejecting Petrobras' permit application for drilling in a promising lease block off the Amazon River's mouth (Foz do Amazonas). The scientific review found that Petrobras' studies for the impact of the project had "inconsistencies," even after a series of revisions. The team also pointed to "significant deficiencies" in wildlife protection plans for an area that has endangered species found nowhere else. In addition, the team reiterated a longstanding concern that Petrobras has not performed a broader study to examine the potential impacts of the operation on the broader region, outside of the immediate area of the drilling site. 

Conservationists and marine scientists note that most of Brazil's sensitive mangrove habitat can be found in this region, along with an expanse of deep-sea coral reefs which have only recently been discovered and are yet to be studied. The area is also known for strong, dynamic currents, which could carry a spill for long distances in a short timeframe. 

The final decision on permitting rests with Ibama President Rodrigo Agostinho, a political appointee. His counterpart at the Ministry of Mines and Energy, Alexandre Silveira, has put a top priority on drilling in this region, the last frontier for Brazil's oil industry. "We have a window of opportunity, we cannot miss the new pre-salt [offshore fields]," said Silveira in March. "We need to take advantage of the wealth of the Brazilian people that is underground."

Silveira's view is shared by another appointee, Petrobras CEO Jean Paul Prates. Prates has made drilling in the Equatorial Margin (Amazon) region one of his top priorities, noting that it would help sustain the oil and gas revenue that undergirds federal spending.

Ibama has not yet handed down a final decision, but if it is unfavorable to Petrobras, the company plans to move its chartered rig to a "Plan B" site in the Potiguar Basin, a top executive told Reuters on Monday. 

If Petrobras does abandon the area, it would be the third supermajor to do so. In 2020-21, BP and TotalEnergies both gave up on plans to drill in the same region because of environmental and permitting considerations. 

US and Australian Alternative Investment Funds Acquire Australian Port

Geelong Port was acquired by U.S. and Australian investors (Geelong Port)

PUBLISHED APR 28, 2023 6:29 PM BY THE MARITIME EXECUTIVE

 

U.S.-based Stonepeak, an alternative investment fund manager, and Spirit Super, an industry fund based in Australia, completed on April 26 the acquisition of GeelongPort, the second largest port located in Australia’s Victoria state. The two funds view the port as a strong investment opportunity and committed to a long-term growth strategy when agreeing to buy the port in November 2022. They acquired the port for an estimated A$1.1 billion (US$660 million) from Canadian asset manager Brookfield and Australian pension fund State Super.

Stonepeak, which specializes in infrastructure and real assets, believes that GeelongPort offers significant opportunities owing to its status as a high-quality landlord port with operations that are critical to Australia’s economy. They highlight that the port is a major driver of the region’s economy facilitating over A$7 billion (US$4.6 billion) of annual trade and supporting more than 1,800 jobs across the state.

“Our investment in the port reflects Spirit Super’s strong commitment to investing in compelling opportunities across regional Australia,” said Ross Barry, Spirit Super Chief Investment Officer.

Located approximately 45 miles southwest of Melbourne, the port is Victoria’s premier bulk port handling 12 million tonnes of cargo and 600 vessel visits annually. The port encompasses 15 berths over two primary precincts, Corio Quay and Lascelles, and provides land, infrastructure, and services to facilitate trade for some of Victoria’s largest businesses.

In addition to the cargo port, GeelongPort worked closely with TT-Line and six months ago became the new Australian terminus for the Spirit of Tasmania ferry operations. The port developed a state-of-the-art passenger and freight terminal in its Corio Quay South precinct that includes a vehicle marshaling area for 600 cars, a parking area for 150 semi-trailers, crew accommodation, a café, and a children’s play area. Spirit of Tasmania completed its first sailing into Geelong on October 23, 2022, and the addition of the operation to the port is expected to increase tourism expenditure in both the city of Geelong and Victoria. Port officials also believe it has also created new opportunities for hospitality, agribusiness, freight, and logistics industries in Victoria.

“Closing this transaction marks another exciting milestone in the history of GeelongPort as it continues to serve its customers and the greater community of Victoria while playing an integral role in global trade,” said Darren Keogh, Stonepeak Senior Managing Director. “We believe GeelongPort has access to a meaningful set of opportunities for long-term growth, and we look forward to working with the GeelongPort team as we help them realize those opportunities while continuing to invest in existing objectives and supporting continued growth in the region.”

According to the new owners, the port is a highly contracted entity with strong barriers to entry and stable and predictable demand drivers, giving it meaningful opportunities for long-term growth through additional development to meet future import-export demand in the region. Following the acquisition, estimated to be worth $734 million, Stonepeak controls a 70 percent shareholding in GeelongPort with Spirit Super controlling the remaining 30 percent.

Shipping is Under Pressure to Stop Use of HFO - But It's Not Simple 

HEAVY FUEL OIL (BUNKER OIL)

PUBLISHED MAY 4, 2023 5:38 PM BY THE CONVERSATION

 

Interview with Don Maier, Associate Professor of Business, University of Tennessee

Most of the clothing and gadgets you buy in stores today were once in shipping containers, sailing across the ocean. Ships carry over 80% of the world’s traded goods. But they have a problem – the majority of them burn heavy sulfur fuel oil, which is a driver of climate change.

While cargo ships’ engines have become more efficient over time, the industry is under growing pressure to eliminate its carbon footprint.

European Union legislators reached an agreement to require an 80% drop in shipping fuels’ greenhouse gas intensity by 2050 and to require shipping lines to pay for the greenhouse gases their ships release. The International Maritime Organization, the United Nations agency that regulates international shipping, also plans to strengthen its climate strategy this summer. The IMO’s current goal is to cut shipping emissions 50% by 2050. President Joe Biden said on April 20, 2023, that the U.S. would push for a new international goal of zero emissions by 2050 instead.

Maritime industry researcher Don Maier discusses if the industry can meet those tougher targets.

 

Why is it so hard for shipping to transition away from fossil fuels?

Economics and the lifespan of ships are two primary reasons.

Most of the big shippers’ fleets are less than 20 years old, but even the newer builds don’t necessarily have the most advanced technology. It takes roughly a year and a half to come out with a new build of a ship, and it will still be based on technology from a few years ago. So, most of the engines still run on fossil fuel oil.

If companies do buy ships that run on alternative fuels, such as hydrogen, methanol and ammonia, they run into another challenge: There are only a few ports so far with the infrastructure to provide those fuels. Without a way to refuel at all the ports that a ship might use, companies will lose their return on investment, so they will keep using the same technology instead.

It isn’t necessarily that the maritime industry doesn’t want to go the direction of cleaner fuels. But their assets – their fleets – were purchased with a long lifespan in mind, and alternative fuels aren’t yet widely available.

Ships are being built that can run on liquefied natural gas (LNG) and methanol, and even hydrogen is coming online. Often these are dual-fuel – ships that can run on either alternative fuels or fossil fuels. But so far, not enough of this type of ship is being ordered for the costs to make financial sense for most builders or buyers.

The costs of alternative fuels, like methanol and hydrogen fuels made with renewable energy (as opposed to being made with natural gas), are also still significantly higher than fuel oil or LNG. But the good news is those costs are starting to decline. As production ramps up, emissions will drop further.

 

Can tougher regulations and carbon pricing effectively push the industry to change?

A little bit of pressure on the industry can be helpful, but too much, too fast can really make things more disruptive.

Like most industries, shipping lines want standardized rules they can count on not to change next year. Some of these companies have invested millions of dollars in new ships in recent years, and they’re now being told that those ships might not meet the new standards – even though the ships may be almost brand new.

Another concern with the EU’s moves is whether it has a grasp on all the “what if” scenarios. For example, if the EU has stricter rules than other countries, that affects which ships companies can use on European routes. Any vessels that they put on routes to Europe will have to meet those emissions standards. If there’s a greater demand for products in Europe, they may have fewer vessels they could use.

I do think the change will be coming soon in the industry, but changes have to make financial sense to the shipping lines and their customers, too.

Economists have estimated that the cost of cutting emissions 50% by 2050 are anywhere from US$1 trillion to, more realistically, over $3 trillion, and full decarbonization would be even higher. Many of those costs will be passed down to charterers, shippers and eventually consumers – meaning you and me.

 

Are there ways companies can cut emissions now while preparing to upgrade their fleets?

There are a number of options ship companies are using now to lower emissions.

One that has been used for at least 10 years is putting higher quality paint on the hulls, which reduces the friction between the hull and the water. With less friction, the engine isn’t working as hard, which reduces emissions.

Another is slow speed. If ships run at a higher speed, their engines work harder, which means they use more fuel and release more emissions. So shippers will use slow steaming. Most of the time, ships will go slow when they’re close to shore to reduce emissions that cause smog in port cities like Los Angeles. On the open ocean, they will go back to normal speed.

Another option common in the U.S. and Europe is shutting down the ship’s engines while in port and plugging into the port’s electricity. It’s called “cold ironing.” It avoids burning more of the ship’s fuel, which affects air quality. The Ports of Los Angeles and Long Beach, where smog from idling ships has been a health concern, have been a big driver of electrification. It’s also less expensive for shipping companies than burning their fuel while in port.

As simple as those may sound, they have made huge improvements in terms of emissions, but they aren’t enough on their own.

 

Will a higher goal set by the IMO be enough to pressure the industry to change?

I used to work in shipping, and I know the maritime industry is a very old-school industry from centuries ago. But the industry has invested millions in new ships with the most effective technology available in recent years.

When the IMO began requiring all ships using heavy fuel in global trade to shift to low-sulfur fuel, the industry pivoted to meet the rule, even though retrofits were costly and time consuming. Many shipping lines complied by installing “scrubbers” that essentially filter the ship’s engine, and new ships were built to run on the low-sulfur fuel oil.

Now, the industry is being told the standards are changing again.

All industries want consistency so they can be confident investing in a new technology. The shipping lines will follow what the IMO says. They will push back, but they will still do it. That’s in part because the IMO supports the maritime industry, too.
 

This article originally appeared in The Conversation. Click here to read the full article with its supporting data.

 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.

Fundraiser for FSO Safer Salvage Fails to Reach UN Target

(UN supplied photo)

PUBLISHED MAY 4, 2023 5:01 PM BY THE MARITIME EXECUTIVE

 

The latest international efforts to raise monies to fund the UN-sponsored salvage operation of the FSO Safer off the coast of Yemen failed to reach its targets on Thursday, leaving the United Nations urgently appealing for additional donations. The UK and Netherlands co-hosted a fundraising event that it was hoped would close the gap as the assets required for the operation are nearly on-site.

Reports are citing different amounts of funds pledged during today’s co-sponsored event but all agree it failed to reach the target of $29 million needed for the emergency phase of the operation. The UN had been able to grow the available funding to $99 or $100 million before today’s conference. Costs for the plan increased in part due to the rebound in the global oil markets. The UN earlier said that the cost of the replacement oil tanker increased with the final agreement being for $55 million to acquire a VLCC Nautica from Euronav.

UN officials thanked the participants in today’s event reporting that Egypt, France, Italy, Luxembourg, Malta, Norway, the Republic of Korea, the United Kingdom, and private company Octavia Energy and its subsidiary, Calvalley Petroleum, announced pledges totaling almost $8 million, of which $5.6 million represents new funding. The UK issued a statement after the conference however saying that the event had raised over $7.54 million. The UK’s Minister for Development Andrew Mitchell is quoted as announcing the UK would provide an additional £2.5 million ($3.14 million) bringing the UK’s total commitment to £8 million ($10 million). However, it is unclear from the statement if that is in addition to the total raised from the event or part of the reported £6 million ($7.54 million).

In the statement after the conference, the UK Foreign, Commonwealth & Development Office said, “The United Nations can now start the operation to transfer the oil onto a replacement vessel and resolve the immediate threat.”

The UN calculates that it has now raised $105.2 million for the emergency phase of the operation to remove the oil from the FSO Safer. The monies raised includes more than $260,000 in contributions from the public through a UN crowdfunding campaign. This leaves $23.8 million for the emergency phase unfunded. An additional $19 million is required for the critical second phase, comprising the installation of a catenary anchor leg mooring buoy and the tethering of the replacement vessel to it, as well as the towing of the FSO Safer to a green salvage yard for recycling.

Speaking at the UN’s briefing, deputy spokesperson Farhan Haq said that the work could begin by the end of this month. He is being quoted as saying the financial need is “crucial” in order to let the UN complete the task that has begun. Haq noted that the UN can not sell the oil aboard the Safer to pay for the operation. The rebels that control that region of Yemen claim ownership of the approximately 1.1 million barrels of oil stored aboard the Safer. Pressed by reporters on how the UN would proceed, he said, "We’re going to do as much we can right away, and we’ll see what we can do to get the necessary funding."

The shortfall in today’s fundraising effort comes as the VLCC Nautica has nearly arrived in the region. The vessel’s AIS signal shows that it is traveling off the south coast of Yemen, although under the plan it is to proceed to neighboring Djibouti on the eastside of the Gulf of Aiden. The tanker is scheduled to remain there while the first phase of the operation stabilizes the Safer and prepares its tanks for the ship-to-ship oil transfer.

The UN Development Programme also has a contract with Boskalis for its SMIT division to manage the salvage operation. SMIT’s vessel the Ndeavor is due to reach Port Said, Egypt on May 13. After the transit of the Suez Canal, the plan calls for the vessel to make final preparations, including loading additional equipment and personnel, also in Djibouti. It would then proceed to the FSO Safer and begin with a visual survey followed by efforts to place a portable inert gas generator aboard the Safer to stabilize the storage tanks which have not been properly vented in years. The crew aboard the SMIT vessel will be measuring the levels of toxic gases and based on their inspection of the cargo and inert gas lines, valves and manifolds, have said they might have to refine the salvage plan.

The Dutch Minister for Foreign Trade and Development Cooperation Liesje Schreinemacher co-host of today’s fundraiser commented calling on the rest of the international community and the private sector to work together to secure the remaining funding necessary to fully cover the costs incurred by the UN and provide a long-term solution for the tanker.