A talk with renowned transport and logistics expert Dr. Sebastian Kummer

“The burden on the world’s oceans caused by heavy fuel oil cannot be justified”

Dr. Sebastian Kummer is a renowned expert in the transport and logistics industry. Next to his function as Head of the Institute for Transport and Logistics Management at the Vienna University of Economics and Business, he also holds a chair at the University of Jilin in China. As a practice-oriented leader of numerous research and consulting projects, Dr. Kummer has authored many scientific publications. We asked him for his opinion about current industry topics as well as a well-founded forecast of 2020.

“Five years after my first visit to China in 1998, there were no steam locomotives left. China’s approach to tackling challenges is quite remarkable.”

Dr. Kummer on his impression of the country after numerous visits

Interviewer: You have had an active relationship with China for quite some time, ever since acting in an advisory capacity to the Chinese state railways over 15 years ago. This was followed by your first guest professorship in Jilin in 2010. What was your personal experience of the country’s rapid development during this period?

Sebastian Kummer: I have always been fascinated by the fast pace of development as well as the very efficient and targeted use of resources. China’s approach to tackling challenges is also quite remarkable.

When I first came to China, the Chinese railways still had a large fleet of steam locomotives: partly because the new locomotives were being used for additional transport due to the rapid rate of growth, and partly because China – and this is essentially still the case today – has a large supply of coal as an energy source.  In the late 1990s, however, the Chinese railways modernized their entire fleet within a few years, and as little as five years after my first visit to China in 1998, there were no steam locomotives left. Similarly impressive development and restructuring measures have been implemented in all industries, including the automotive industry.

However, the strong focus on economic development has also resulted in severe and highly visible environmental damage. In addition to the huge increase in traffic, coal-fired power plants have also led to a large increase in CO2 emissions and, in some regions, to marked damage to the environment. China has also acknowledged the need for action here. For example, it is no coincidence that China is the global market leader in solar technology and electric mobility. In my opinion, the measures that have been taken have already led to a significant improvement in air quality.

As an export nation, China is investing heavily in the expansion of numerous transport routes and sales opportunities as part of the “New Silk Road”. China intends to expand its trans-Asian rail services to Europe and Central Asia as an alternative to the longer transport routes by container ship. At the same time, these railroads are viewed as being heavily subsidized by the Chinese government. What developments do you anticipate here?

It is true that China is investing heavily in rail infrastructure and rolling stock. I cannot say to what extent these are subsidized, but I do know that, unlike the European railroads, the Chinese railroads are very profitable. I do not anticipate much competition between container ships and rail services, because the volumes that can be transported by rail are only a fraction of those that can be transported by container ships, even if the rail infrastructure were to be massively expanded.

You have recently and on several occasions advocated the extension of broad-gauge rail lines to include Central Europe. Other commentators believe that an existing 400km line to the Silesian town of Sławków could be used instead or that it would be sufficient to modernize existing transshipment infrastructure in Poland and Slovakia. What do you think of these views?

Having already conducted two intensive studies on broad-gauge extension eight years ago, I am now fully committed to extending broad-gauge lines. I believe that this will yield enormous benefits for Austria as a logistics location. A link such as this would generate a variety of economic activities and we know that in particular the terminal points of transport links will benefit greatly. Technically, of course, it is possible to use Poland as a transshipment point, but then the added value will be generated in Poland and not in Austria. Košice’s hope of positioning itself as an infrastructure hub is not realistic, in my view. Hubs of this kind only work if there is a corresponding demand in the region. As Eastern Slovakia is markedly lacking in infrastructure, this kind of demand is not to be anticipated. In addition, the Slovakian rail runs off a different electricity system from that of Germany and Austria.

For some time now, the cargo shipping industry has been faced with a challenging market situation due a lack of correlation between supply and demand. For the past 10 years, the industry has launched a wave of mergers and alliances in an attempt to steer the market back into calmer waters. One reason for this was also the constant growth in ship sizes. In July, for example, the MSC Gülsün, a ship with an unprecedented capacity of 23,000 TEU, was put into service – and the shipyards’ order books are full. How do you view this development? Are the carriers reverting to old habits and making the same mistakes as 10 years ago?

I think that’s the case. Of course, all the shipping companies had to switch to the 23,000 TEU class in order to remain competitive. This has created huge capacities. What is worrying, however, is that the big shipping companies are again busily ordering new ships. I think that they are anticipating a growth in demand in the next few years, and I just don’t see that happening. In my opinion, we are not only on the brink of a slowdown in economic activity, but intercontinental goods traffic will also tend to be lower than global growth.

 

“The burden on the world’s oceans caused by the poor quality of the heavy fuel oil used by ships simply cannot be justified by anything other than the interests of the oil industry.”

The Head of the Institute for Transport and Logistics Management shares his view about IMO2020.

As of January 1, 2020, international shipping will have to adapt to stricter environmental regulatory measures adopted by the International Maritime Organization: the limit for sulfur in fuel oil used on board ships on the high seas has been drastically lowered and the additional costs are expected to lead to a noticeable increase in transport costs. Do you agree with this assessment or will the effects of this provision, which is of course commendable from an environmental point of view, settle down at some point? 

The burden on the world’s oceans caused by the poor quality of the heavy fuel oil used by ships simply cannot be justified by anything other than the interests of the oil industry. I fully support reducing the sulfur limits. This step, in my opinion, was long overdue. However, I have heard that some shipping companies are apparently planning to convert the tanks of their ships or use the various chambers so that they can run on “clean” fuel in accordance with the new directives within territorial waters but continue to use the old heavy fuel oil outside territorial waters. In that case, the additional costs would indeed be very low. However, I sincerely hope that governments will develop ways to prevent attempts such as these. Of course, the exclusive use of clean fuels will entail additional costs, but it must also be said that these will not have a significant impact on the final consumer price.

Despite not being able to quite match China’s rapid development, India is also regarded as a rising star in the global economy. Nevertheless, from a logistics and transport industry perspective, the country is lagging behind in terms of transport and infrastructure. What do you think might be the reason for this?

There are several reasons for this: the high degree of fragmentation in the transport and logistics market, the many different regional regulations and tariffs/fees that are applied to transport from one region to another, and not least the failure to maintain transport infrastructure. However, the Indian government has addressed the last two points at least and I believe that conditions for the transport and logistics industry are improving rapidly. As IT skills become more important, the competitiveness of the Indian transport and logistics industry will also increase because India is a global leader in software development.

The digital transformation and major technological developments offer unprecedented opportunities and have reached an increasing number of business areas, including the transport industry. Air freight by drone and blockchain technology in particular were hyped as enormous breakthroughs in the transport sector. By now, however, most of the more ambitious prognoses have been scaled back. How do you as an expert view this development and have you already spotted any new “hot topics” on the horizon?

The digital transformation is in full swing and it is normal for spectacular phenomena such as drones or blockchain technologies to be hyped by the media in particular. The important thing is not to allow your view to become clouded and to keep a close eye on developments. A responsible entrepreneur will not invest in something just because it is “in”. Nor will a responsible scientist propagate concepts or technologies just because they are being hyped by the media. The Institute for Transport and Logistics Management in Vienna always evaluates new developments carefully. In the case of drones, it quickly became clear that there was only a limited scope of application in logistics. We made a number of proposals in the field of humanitarian logistics, for example. As far as blockchain technology is concerned, we have developed a framework concept for companies to check whether they need to use blockchain technologies for a particular application. This is often not the case, but under certain conditions, e.g. food safety or international supply chains, it can be advisable to use blockchains.

Many commentators believe that Donald Trump’s protectionist economic policies, the simmering trade conflict between the US and China, and the never-ending Brexit saga will cause a slowdown in the global economy. Do you share this view or is this groundless and excessive alarmism?

I do think there is a certain risk of an economic slowdown, but I am relatively sure that after the general election in Britain we will see an end to the never-ending Brexit saga and that Britain will leave the EU. This will be bad for Britain because it will lead to the risk of the United Kingdom breaking up. The effect on Europe will be negative but, in my opinion, not terribly severe. Donald Trump’s protectionist economic policy is a last show of strength from a declining global power. It is a pity, but again it is clear that the Chinese are ready to take a leading role in the world. Unlike the Americans, they are less interested in military strength than in economic strength – which I personally find more appealing.

What topics do you think will be of interest to the transport and logistics industry in 2020?

The digital transformation will gain momentum and we will be seeing more governments around the world taking action to protect the environment and increase CO2 taxes. I also believe that the transformation in the automotive industry may have a strong impact on the transport and logistics sector, especially if there is a decline in overall demand, so it is important to keep a close eye on economic developments.

Thank you for the interview and best of success with your upcoming projects.