Logistics in foreign markets can be risky, increasing the end cost of turbines. This has prompted some developers and investors to take matters into their own hands.

By Emma Clarke

Moving wind turbines from factory to project site has never been easy. But with turbines getting bigger, and the distances they must travel getting longer, the costs of transportation are escalating. Consequently, developers are beginning to ask questions about how these logistics costs can be reduced. 

Shouldering the responsibility

The delivery and installation of wind turbines is usually the responsibility of manufacturers. They build the turbines; transport, install and test them; and then hand them over to the customer to operate.  

With nine projects in Taiwan, Spain, Croatia and Belgium, in addition to projects across Germany, German wind power developer, wpd, is no stranger to international turbine supply chain logistics.

“While the costs for delivery of these turnkey projects are manageable and transparent for our projects in Germany, greater distances present a different challenge”, explains Christian Schnibbe, a spokesperson for wpd.

“In foreign countries, manufacturers are adding an additional risk margin into their pricing for transport and installation. Transport in foreign countries is also more expensive,” he adds.

Increased risk margins mean that logistics costs can rise from an average of 10 percent of an overall investment to 15 percent or more for projects in areas such as Eastern Europe and the United States, according to Jan Hinrich Glahr, managing partner at transport logistics provider Glahr & Co.

In the current buyer’s market such price increases are viewed as unacceptable. “Since manufacturers are unable to deliver turbines to projects at a competitive cost and quality, customers are beginning to ask whether they could do it themselves by engaging logistics service providers, such as Glahr & Co, to manage transportation for them,” says Glahr.

These ex-works projects are currently in the minority. One of the first was German developer Wallenborn Projektentwicklung’s 42MW wind farm Senj in Croatia using Glahr & Co as transport provider. BP Alternative Energy also uses specialist transport companies to manage delivery of turbines to most of its wind projects in the United States.

Other examples are thin on the ground, but Glahr is seeing a growing interest from investors and developers. “There hasn’t been shift in the market yet, but there is certainly a discussion going on.”

One developer expressing interest is wpd, says Schnibbe. “We expect substantial savings if we are able to organise transportation on our own”. There are risks, in that developers lack the logistics experience and the necessary contacts for transport and crane providers, he acknowledges. “But anything is possible.” 

Those developers that do have this supply chain experience – BP for example – are readily making the switch. “We are accustomed to managing transportation of huge bits of kit, and we have got the supply chain contacts,” says Robert Wine, spokesperson at BP.

Glahr is adamant that developers will not face additional risk by tackling logistics themselves as long as they use the common transport handbooks. In fact, he says, “If the developer gives more emphasis on logistics planning and logistics risk management they can reduce risks such as waiting times of vessels, trucks and cranes.”

At the Senj project in Croatia, Glahr & Co negotiated a 10 percent lower price compared to the "best" offer from the market, and ex-post payments were at a minimum despite crane works being delayed for six weeks due to bad weather.

Collaboration an option

With growing dissatisfaction in the market, and the potential risk of developers taking control of logistics, the time has come for manufacturers to improve logistics co-ordination and transparency in the pricing structure for transport and crane operations, notes Glahr. “Instead of having this fight between customers and manufacturers, why don’t we have an open approach so that we jointly improve logistics systems?”

Schnibbe suggests taking an open book approach, where manufacturers provide details of the costs for transportation and installation of turbines.

Under such an agreement, owners would pay the real costs of the transportation, which would mean they shoulder the risks as reaping the savings benefit, says Schnibbe.

This would generate greater confidence in pricing and re-build trust and confidence in the market, concurs Glahr,

Gaining a vantage point

Better co-ordination is also needed between manufacturers’ international divisions to improve the efficiency of the end-to-end supply chain, says Chris Ball, managing director of TMO Global Logistics.

Currently, some manufacturers hand over the logistics responsibility to their US divisions once components reach American shores. Consequently, they don’t always choose ports that are logical in terms of freight to the final destination.

For example, it might cost $1,000 more per component to ship them to New Orleans compared to Houston, but the manufacturer could save $4,000 per component sending them on from New Orleans that provides easier access to barges that are cheaper and more efficient for transportation compared to roads. “This sort of decision is a no-brainer. But if the ownership of the supply chain is split, then it is not so clear,” says Ball.

With an overarching view of the supply chain, companies can also make better use of multi-modal distribution centres that can handle a range of transportation methods such as barge and train. These hubs are now appearing across the United States, operated by railroad companies such as Union Pacific, as well as TMO, that has centres in Illinois, Minnesota and Pennsylvania.

As Ball explains, these facilities relieve the dependence on road, thereby reducing costs and improving delivery reliability. “If wind turbine components arrive late, [manufacturers and ultimately the client through ex-post payments] can spend between $8,000 and $10,000 (£4,800 - £6,000) a day on cranes that aren’t being used,” says Ball. Consequently, TMO can save between 10-20% in logistics costs as a result of greater co-ordination in the supply chain.

The wind industry is growing fast, says Glahr, which means the logistics professionals working within manufacturing companies need to grow with it. As such, a sophisticated logistics management system needs top management support to ensure logistics needs are integrated in the strategic decision-making of the company.

Ultimately, co-ordinating logistics and reducing costs is in everyone’s interest. As Glahr notes: “We are all interested in the development and the growth of this new energy industry. But if it is not cost effective, it will not be successful.”