International Logistics Challenges and Developments with Eddie O’Flanagan

Patrick Daly:                     Hello, this is Patrick Daly and welcome to Interlinks. Interlinks is a program about connections, international business, supply chains, and globalization, and the effects these developments have had on our life, our work, and our travel over recent times. Today, we will be talking to Eddie O’Flanagan, who is an international logistics specialist, and works with a range of clients, such as ports, maritime and logistics providers, providing business development and asset optimization advice on projects that are both in development and scheduled for completion. Eddie was formerly managing director of Hapag-Lloyd Ireland for nearly 20 years. And Hapag-Lloyd, for those of you who don’t know, is one of the major maritime freight carriers operating worldwide. So delighted to have you with us today, Eddie. You’re very welcome.

Eddie O’Flanaga…:         Thank you, Patrick. And thanks for asking me.

Patrick Daly:                     You’re very welcome. Delighted to have you here. So to kick off, Eddie, maybe could you give us a brief overview of your background and career to date and how did you come to be an independent consultant working in this field?

Eddie O’Flanaga…:         Absolutely. I suppose like a lot of others, I fell into the business rather more by accident than design. When I left school in the mid ’70s, I had a vague interest in studying to be a copywriter in advertising. And whilst I was learning a little bit more about that, I took a temporary clerical position with CAE, not knowing where I was going or what division of CAE I might be with. And on that first day, I was picked up by a small van and taken down to the docks to a place I’d never seen or been in before. And the job was actually in a company called Irish Ferryways, which was a company that ran the first LoLo container service in Ireland, to and from Preston.

                                           And from that, really, I suppose the bug took me. I got interested in the business. And from there, I worked in a number of shipping agents and including liner shipping, including LEP International, who were agents for a shipping company called Sea Train. And eventually ended up in Jenkinson Agencies in 1981, who were the agents for Hapag-Lloyd. I was there for a period of 16 years at which stage in 1997, Hapag-Lloyd saw that the business had grown to a level that it was more appropriate for them as a principal to run the operation. So I, and 16 other colleagues, moved to the new company. And in the following year, I took over as MD and I was there as MD until the end of 2017. And it’s an interesting business, very interesting business.

Patrick Daly:                     Complicated business. So since 2017, then, you’ve been operating independently. So you work with a range of different clients, I guess?

Eddie O’Flanaga…:         Yeah. I mean, at the end of 2017, I sort of said, well, I’m not going to retire yet. I mean, it was a kind of an early retirement situation, potentially, but I sort of decided that maybe I’ve got something else to do and to give. So yeah, I became involved in the port sector. I assisted a number of BCOs in relation to strategic advice about freight management. I’ve assisted one of the large financial houses in relation to Brexit. And then more recently, I was involved with Unifeeder, which is a subsidiary of DP World, who entered the market last year. A very big company, but they hadn’t been involved in the Irish market before. So when they were coming here, I had some interaction with them. They’re a very well known company to Hapag-Lloyd, so it’s like a lot of things. Actually, it seems to be a very big industry, but when it comes down to especially locally, it’s a small business.

Patrick Daly:                     So in your current role, then, as an independent consultant, what are the range of services that you provide to these types of clients and how would you say, or how do they say to you that they’re better off after having worked with you?

Eddie O’Flanaga…:         Well, I suppose what I say about myself is that I provide insight and overview of the industry in general and core inter dependencies because in the port sector, for the ports themselves, they see the customers as the people who bring in the ships, but there’s a lot more going on behind that. Because obviously the ships themselves are carrying for perhaps the deep sea shipping lines. The deep sea shipping lines are involved very strongly with 3PLs. And then by extension, they’re involved with the BCOs, which are the beneficial cargo owners, who are the actual exporters and importers. So it’s trying to sort of explain how it all knits together and who actually controls the business. Because it’s not necessarily just the people, just the ship that comes in, there’s more to it than meets the eye. And you sort of have to have an understanding and a relationship with all the parties for it to work.

Patrick Daly:                     Yeah, it’s something I’ve been coming across recently because of a particular project that I’m working on. And I work a lot with the BCOs, but on other aspects of their business. But I was struck by how sometimes removed they are from the international logistics side of their business and how agnostic they are often in terms of where their stuff is going or how it’s going. And they seem to have kind of… I won’t say washed their hands of it, but they outsource that to freight forwarders and others. And I wonder whether that’s going to be able to continue giving, for example, the environmental agenda and so on. So am I right in what I’m saying? Do you see it changing?

Eddie O’Flanaga…:         To be honest, Patrick, what we’re dealing with today in terms of the dynamic today is a massive shift in what it was going back to the 1980s. And at that stage, I’d say that 70 plus percentage of your business was done directly with shippers. But it’s gone totally and utterly the other way around now. Yeah. I think you’re right in relation to the whole climate aspect. Companies are becoming far more aware of that and they want to ensure that the carriers that are used… But they either do it via their 3PLs and they’ll talk to the carriers directly.

                                           But I mean, you can call it the downside, I suppose. If you’re dealing with third parties then for the shipping lines, they don’t quite know if what they’re told is always the case. And for the actual shippers themselves, do they actually fully control the business once it leaves their door? Do they actually manage it? Do they see if something’s going wrong? How quickly do they learn of it? How quickly can they react to it? Do they lose a level of expertise because the people who have that kind of thing in the past aren’t there anymore?

Patrick Daly:                     Yeah. Yeah. You sometimes hear stories about… Sometimes you wonder whether they’re true or not. Managing director of a company and he’s notified that his cargo was turned over on a road someplace and he goes, “Well, I don’t even know why it’s there. I thought it was going somewhere else by a different route.” So those types of things seem to be happening and you get… The way companies are so jealous of guarding their reputation and their green credentials and so on, I guess that kind of thing probably can’t really continue into the future. Can it?

Eddie O’Flanaga…:         No, because I think you’ll be legally bound to ensure that your cargo is looked after. And if you’re becoming very focused on carbon emissions, you want to know how your cargo is handled. You want to know the routing it takes. Is it going by the most effective way, either from a pricing point of view, but from a protecting the environment point of view as well.

Patrick Daly:                     Yeah. We know as well during COVID and maybe it actually comes from before that, but it was certainly exacerbated in COVID and not getting any easier now with the war. But what are some of the issues in ocean freight that companies in Ireland have been experiencing over the last year, year and a half, given all of these supply chain disruptions? What’s been going on in that space? We hear stories of rates having increased by four, five, six times. Is that true? And what’s been going on there?

Eddie O’Flanaga…:         Oh, absolutely. I mean, I can honestly say in my 45 years in the business, I’ve never seen anything like what’s happened since the COVID situation hit. And the rates have gone crazy. Absolutely. They’ve [inaudible 00:09:12] than more, and increased dramatically. I mean, a lot of this initially was led in the States and on the Trans-Pacific trade where I suppose significantly increased consumer activity in the States meant that any kind of vessel was being sent in that direction and deployed in that direction. And huge pressure on the ports in the States who couldn’t handle the increased level of business that was coming in. And it wasn’t unknown for people to be paying to $20,000 a container. And those kind of rates, eventually, were hitting the European side as well. And it wasn’t only a question of the vessels or the limiting space on vessels, the actual port infrastructure couldn’t handle it. Warehousing facilities can’t handle it because obviously with so many people being sick and so many people being ill, the availability of workforce to handle all of these situations, either overseas or here, just hasn’t been there.

                                           So it’s been a really, really mix of things that’s contributed to this situation. It’s not a bad time to talk about the whole… I mean, I don’t know whether you remember, Patrick, when there used to be shipping conferences? That’s a long, long time ago, but they were actually effectively banned back in 2008. And now that shipping lines are able to work within what’s called consortia… So there’s a number of different groups of carriers that work together and they’re allowed. There’s block exemption, EU block exemption, that allows them to work in certain ways and to manage them. I suppose the best thing to do is to just refer to what they’re actually allowed to do.

Patrick Daly:                     Are these like the alliances, obviously, with the airways?

Eddie O’Flanaga…:         Yeah. Yeah, yeah. I mean, I’ll just tell you who the alliances are. One of them is 2M, which is Maersk and MSC. The two biggest carriers. Another one is called THE Alliance, which consists of Hapag-Lloyd, ONE, Yang Ming, and Hyundai. And then the Ocean Alliance, which is CMA, Costco, and Evergreen. So all of these people are allowed to work together to operate joint services and engage in certain types of operational cooperation, leading to economies of scale and a better utilization of the space on vessels, which all seems perfectly reasonable.

                                           So they can coordinate time tables, ports of calls, slot exchanges, pooling of vessels, and certain infrastructure. And they can also use joint operations office. They have the ability to make capacity adjustments in response to fluctuations in supply and demand. So that means they can remove vessels. They can blank sailings at seasonal times when there’s a lack of demand. So these blank sailings are usually in response to seasonal slowdowns, but it does beg the question can blank sailings be used as a means to remove capacity, to keep rates at a high level? I mean, the industry, like most industries, is in the situation that if you have excess capacity, the rates come under pressure and they often reduce. And if you have more demand than capacity, then the reversal would hold true.

Radio Announcer:           93.9 Dublin South FM.

Patrick Daly:                     Faced with all of this, and now we have lockdowns in Shanghai and other parts of China again. We’re not quite sure what the effects of those are, but what would you say are some of the measures that companies here in Ireland might adopt to mitigate, if not eliminate, some of those challenges and the instability with regard to rates? What can they do about it?

Eddie O’Flanaga…:         Well, I mean, what I said is that for those who have good relationships with some of the large 3PLs or with large forwarders, they need to actually make sure that they stay close to those people. Because a lot of them had contractual agreements in place that kind of avoided them getting stuck into having to deal in the spot market. Because it’s the spot market which is actually where the huge rates were. And where there was contractual agreements in place, people were protected to a large degree.

                                           If you’re large enough to have relationships directly with the shipping lines and you had contractual agreements again in place, you need to make sure that you continue to use that and foster those relations. Because there was no silver bullet response to this. You couldn’t say, “Well, we’re going to charter our own vessels,” which are off the chart in terms of costs, or, “We’re going to try and do our own thing.” It’s too complicated to try and do that as an independent. Although, some people have done it. The Walmarts and even Ikea have got involved in that business of vessels to kind of circumvent and get over the problems. But it’s a very, very complicated issue to resolve with.

Patrick Daly:                     The value of good business relationships has come into its own.

Eddie O’Flanaga…:         Absolutely.

Patrick Daly:                     They were always valuable, but they’re worth their weight in gold now.

Eddie O’Flanaga…:         Yeah. And that, I suppose, factors into what you were saying before. Having an understanding of how this works, having relationships with these important… it’s funny, I suppose shipping was probably way down the totem pole in terms of importance for board level people in the past. But for obvious reasons, over the past two years, it’s become front and center for many companies to that level. So they suddenly say, “What the hell is going on with our cost base here? It’s going through the roof.”

Patrick Daly:                     It was surprising to me as well. Worked with a number of clients about this time last year and did convince them, but it was quite difficult to convince them, to give up playing the spot market and to actually get into arrangements with freight forwarders and make certain commitments. There was a certain reluctance to do that. But those that did it have benefited greatly over the last year. But it is, yet, strange to see how much resistance there was to that.

Eddie O’Flanaga…:         Yeah. Well, it’s a hard lesson to learn, this one.

Patrick Daly:                     Certainly is. Maybe coming up a level now, looking at our country, Ireland. So we’re a trading, Ireland, nation. Quite an open economy. I guess we’ve got that geographical fact of being an island off an island and we face certain infrastructure and environmental issues. So from, say, an Ireland ink point of view, what do you think, 10, 15 years down the line, what should Ireland look like from an international logistics point of view?

Eddie O’Flanaga…:         I would imagine, to be honest with you, that’s going to continue in the same way in terms of being an island that’s served in trans shipment. The level of business that’s done, say, for certain destinations is pretty insufficient, really, to attract shipping lines to put a direct vessel in here. The vessels themselves are getting bigger and bigger. It’s not unknown now to have these very large container vessels carrying up to 25,000 TUs each when the market here is probably… If you found, it’s sort of 1,100, 1,200 TUs. That’s kind of the normal size that you’ll expect to see here. So you want very large volume to actually justify bringing in a vessel. I mean, having said that, the ICL service goes into Cork every week and it’s going-

Patrick Daly:                     So it goes to the US, does it?

Eddie O’Flanaga…:         Yeah. It’s a kind of a niche carrier, but it gets sufficient cargo out of there. And the fact that once it leaves, it goes directly to the States, so it’s an attractive proposition. But again, are you going to be able to bring in a lot of services going to Asia from Ireland? Unlikely. I think we’re going to be still in a situation that, “God, I need use feeder vessels.” Whether the port rotations will change, whether they’ll be going back into Liverpool, back into South Hampton, I don’t know, but I can see that this business will continue in the same way in terms of cargo will need to be trans shipped at either UK or Northern European ports. Though, maybe, some of the carriers will start a hub in different places. So therefore there’d be different services operating to connect there.

Patrick Daly:                     I wonder whether Foynes could ever be some sort of an international hub, but maybe with an advanced freight clearance to the US? Or like we have for passengers in Shannon and Dublin.

Eddie O’Flanaga…:         I’ve heard it being said. I even have spoken to the people in Unifeeder about that. That they see that this was a… because obviously with the DP world they’re very much involved in the port sector, but their view is that it’s unlikely. And I know they’re actively involved trying to develop and attract services into Foynes. And there was a period of time where they had a LoLo service operating for a period, but it was very difficult to attract people in there. I mean, obviously I’ve been involved in trying to get shipping lines to act express an in an interest outside of the incumbents that are there already, and it’s quite difficult to do there because they want to see the level of business. They want to sort of have a commitment that there’s going to be X amount of business available if we come in.

Patrick Daly:                     Another chicken and egg question.

Eddie O’Flanaga…:         Absolutely. And to say, “Oh, build it and they will come,” you sort of say, “Well, if they actually start a service, then the business would follow.” Easier said than done. Trust me.

Patrick Daly:                     Yeah. I ask almost everyone who comes on this show. I ask them this question about globalization, not presupposing that they’re experts in the field, although they might be, but not presupposing that they are, but just to get their layman’s perspective. So there was a period, for a long period, a couple of decades, where we had growing globalization were benefiting from low inflation and good competition and so on through the ’90s and all the way up to probably 2010. So it’s slowed since then. So we had the recession, then we had COVID, now we’ve war in Europe. We had Brexit and it looks like things that are not advancing in the way they were. International goods trade and globalization of business. So what do you think? What’s your own take on it? Do you think it’s a blip or a fundamental change in form or an actual reversal? What would be your take on it?

Eddie O’Flanaga…:         Yeah, I wonder will people learn from just what’s gone on recently. I mean, obviously when you see the situation in Ukraine now, nobody knows what the impact of that is going to be. To some extent, if vessels aren’t calling to Russia anymore, is there’re going to be some capacity will come back into the market? I mean, one thing that we haven’t touched upon is that there’s huge number of orders we’ve gone in for new vessels, which will only start to arrive in 2023 and 2024. This is going to have a… There could be the potential for a significant over capacity. How will that be managed? We touched on the whole question of consortia being able to manage in response to whatever the market might be. So they’re going to have to not deploy some of these vessels to keep the market at a certain level.

Patrick Daly:                     Will some of those new vessels be coming on as more environmentally friendly?

Eddie O’Flanaga…:         Oh, yeah.

Patrick Daly:                     And therefore old capacity will actually be taken out?

Eddie O’Flanaga…:         You would like to think that there’ll be a high degree of scrap vessels that were actually at that age level. I mean, that’s the irony about it. In the last couple of years vessels have actually, maybe 10, 12 years, were actually changing hands for phenomenal money. In fact, nearly anything that boat was being put on the water. So the level of scrap that has taken place in the last two years is negligible. So that will obviously ramp up again. And you would expect that the new vessels that are been deployed are going to replace old, tarnished and they will have to be obviously very much environmentally friendly.

Patrick Daly:                     All right. So maybe as we get into the last few minutes, leaving the whole kind of business thing to one side, I might just ask you a little bit about yourselves. So when you’re not thinking about these types of questions or working with clients, what do you do in your spare time?

Eddie O’Flanaga…:         I play tennis. I’m a member of our tennis club and I’m the vice president there this year. So that keeps me fairly busy. I try to play two or three times a week. So yeah, I have an interest in sport in general. So I like to watch rugby and football and so on.

Patrick Daly:                     I guess you were disappointed with Leinster’s defeat to La Rochelle, yeah?

Eddie O’Flanaga…:         Yeah.

Patrick Daly:                     Good. Good.

Eddie O’Flanaga…:         Yes. Not a good weekend for sport.

Patrick Daly:                     And are you reading anything or listening to anything like eBooks or podcasts that you would recommend to listeners?

Eddie O’Flanaga…:         Yeah. Brian O’Donovan’s, the former RTE Washington correspondent, his book Four Years in the Cauldron, is what I’m looking at at the moment. Pete Tura’s Fight or Flight to Follow.

Patrick Daly:                     Yeah. I’ve seen that. Yeah. He had quite a turret time as a young person, didn’t he? Didn’t quite know what was going on with him, but he eventually worked it out.

Eddie O’Flanaga…:         He sure did. And then I have Fintan O’Tool’s We Don’t Know Ourselves, which is Ireland’s personal history since 1958, which is kind of struck at the time I arrived. So yes, it’ll be interesting enough. Yeah. I like sports autobiographies or biographies. So one particular one, if you’re into those kind of things, is Andre Agassi’s book, Open, which is reckoned to be one of the best ones there is of any of the sports biographies.

Patrick Daly:                     Excellent. And where can people find out more about you or find you if they want to contact you about some of these issues to see how maybe you can help them?

Eddie O’Flanaga…:         Well, you can find me on LinkedIn or, by all means, you can get me at email on eddie.oflanagan@gmail.com.

Patrick Daly:                     Excellent. So thanks very much. It’s been an absolute pleasure talking to you today, and I wish you the very best for the future, both personally and professionally.

Eddie O’Flanaga…:         Thank you, Patrick. Thank you. Enjoyed it.

Patrick Daly:                     Thanks to our listeners, also, for tuning in. Any comments or questions, just drop me line on pdaly@albalogistics.com. That’s pdaly, P-D-A-L-Y, @albalogistics.com. Keep well and stay safe until next time.