Reference Library – Dutch Logistics
Brussels Airport has revealed that it is hoping to lure back Ethiopian Cargo s freighter services after the airline was was forced to move to Dutch hub Maastricht-Aachen in November because of traffic rights.
In its monthly traffic update, the Belgian airport revealed that thanks to the amendment of a bilateral agreement with Ethiopia, the federal government has created the possibility of Ethiopian Cargo moving services back to Brussels.
The airport is consulting with the company about a return, it said in a statement. Last year, Ethiopian Cargo s volumes helped the airport to record an increase in cargo demand. Brussels was one of the fastest growing European Airports as it recorded a demand increase of 7.8% on 2014 levels to 489,000 tonnes.
However, towards the end of the year, the airline was forced to switch services to Maastricht-Aachen after it was not able to obtain the necessary traffic rights to enable it to continue its activities at Brussels Airport. This resulted in full-freighter volumes dropping by 25% in the last two months of the year compared with 2014
The switch had an almost immediate effect on Brussels cargo volumes and in January the Belgian hub saw cargo demand decline by 2.4% year on year in January to 36,964 tons. This was followed by a 1.8% decline in demand to 37,771 tons in February, although it was helped by the extra day during the month.
Thanks primarily to the leap day, belly cargo rose by 4.3% and the volume of integrator cargo rose by 2.9% in comparison with February last year, it said.
Tokyo-based shipping line NYK Group (Nippon Yusen Kaisha) has decided to establish a new company, Symphony Creative Solutions (SCS) in Singapore, to develop and market new solutions in the shipping and logistics fields.
NYK, along with its subsidiaries, the Monohakobi Technology Institute and NYK Business Systems, has teamed up with Weathernews and Kozo Keikaku Engineering for the new venture to further the development of the Symphony Project. The project, a jointly developed effort formed in July 2014, is aimed at promoting solution services centering on the auto logistics business in Asia. According to NYK, the new company will incorporate NYK Group s capabilities and the global network accumulated in the shipping and logistics businesses with Weathernews infrastructure network and weather forecast technology, along with Kozo Keikaku Engineering s simulations created through advanced operations research techniques and data-analysis technology.
On Friday, Goldman Sachs upgraded Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) from Buy to Conviction Buy. The sell-side firm was extremely optimistic over the oil market in general, with several other upgrades. Cenovus Energy Inc. (NYSE:CVE) also made it to Goldman s conviction Buy list, while Chevron Corporation (NYSE:CVX) and Diamond Offshore Drilling Inc. (NYSE:DO) were upgraded from Neutral to Sell. Shell recently completed a $52 billion merger with BG Group plc. (ADR) (OTCMKTS:BRGYY). Following the plunge in crude oil prices, the companies hold the diversification dear, and continue to reduce reliance on the upstream exploration and production (E&P) business segment. The acquisition of BG would help Shell meet this objective. Chevron has also resorted to similar moves, for instance, heavily investing in liquefied natural gas (LNG).
In the following, we look at the factors Goldman Sachs cited for the upgrade.
The Shell-BG merger is a historic milestone, especially for Shell. CEO Ben Van Beurden faced stiff criticism in relation to the deal, but was determined to see it through regardless, most likely because of his understanding of the benefits from the diversifications. Several analysts say BG possesses world class assets, but it seems the company has not been able to put these to full use. Shell on the other hand, brings solid industry expertise to the table, and is probably in a better position to exploit and develop them. In a low price scenario, mergers such as this one help companies benefit from economies of scale or lower average cost. Shell believes the combined entity could save $3.5 billion in costs annually, and enable it to ramp up total oil and gas production by 20%.
The merger will also pave the way for Shell to emerge as a major player in the overall LNG market. Shell has had its eyes on Brazil’s offshore assets for a very long time now, and the country is bound to open up new opportunities. Brazil is currently investigating a major corruption scandal, with Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) at center stage. The Brazilian government is also considering moving to change laws that made it obligatory for Petrobras to take ownership of new projects in the country. Most of the criticism over the deal pertained to how Shell had severely overestimated the safety and value of BG’s assets, which have lost substantial value over the past year. In a low oil price environment, companies prioritize the protection of balance sheets and the maintenance of liquidity, but the amount Shell had paid is likely to put an undesired financial strain on its balance sheet.
Goldman Sachs was also satisfied with the company s cost-cutting strategies. Shell is planning to divest $30 billion in assets over a three-year period. The crude price decline decline and the BG merger, have posed significant financial problems for the company. Bloomberg suggests current conditions have led to $10 billion in cash being wiped out at Shell. Asset divestitures have therefore been rendered increased importance. According to sources at Reuters, Shell has hired Lazard to advise it on its $30 billion asset sell-off program. Reports suggest it has also called on the likes of Morgan Stanley and Bank of America Merrill Lynch, for support.
In its fourth-quarter fiscal 2015 (4QFY15) earnings, Shell mentioned it had succeeded in reducing capital investment and operating costs in 2015, compared to 2014. Full year capital investments came in at $28.9 billion, recording a $8.4 billion decline from last year. Operating costs on the other hand, declined $4.1 billion, to fall to $41.1 billion.
Goldman Sachs is satisfied with Shell s growing dividend yield, which will materialize through its cost-reduction initiatives and synergies, from the BG merger. Like most of its peers, Shell had decided against cutting its dividend. This is perhaps the most prudent choice for now, since a reduction will create panic among shareholders, and could encourage a severe decline in stock price.
Shell s 12-month gross dividend yield stands at 7.95%, with three-year growth at 3.01%, and a 5-year growth at 2.28%. During pre-market trading today, Shell was up 1.63% at $48.05.
Crude oil Prices
Goldman Sachs is bearish on crude prices in the short-term. The US inventory keeps setting records for storage and utilization, and prices could therefore witness a decline in the short-run. Its position of the long haul is quite different, since it expects no production growth on the part of the Organization of Petroleum Exporting Countries (OPEC) and Russia. Goldman Sachs also believes demand for oil will regain momentum.