Gregory Rusovich recently resigned from his post as president and chief executive at Agility Project Logistics. The project forwarding division of the massive, Kuwait-based transportation company Agility Logistics, was founded as Transoceanic Shipping Co. by Rusovich's father in 1947. Rusovich sold Transoceanic in the spring of 2005 to PWC Logistics, a group of Kuwaiti businessmen who last year changed the PWC company name to Agility Logistics and the Transoceanic name to Agility Project Logistics. Rusovich stayed on as head of the projects logistics division, but found himself torn between his business responsibilities in Houston and his desire to help his hurricane-tattered hometown of New Orleans in its slow and painful rebuilding. While he will remain with Agility until the end of the year on a consulting basis, Rusovich has turned over the company reins to Thomas J. Griffin, an industry veteran and 10-year executive at Transoceanic. The following conversation with Senior Editor Janet Plume reveals some of Rusovich's thoughts on the state of the industry in which he was raised.
Q. How has the project-cargo industry changed in the past 20 years?
A. Project cargo is a cyclical business, so it has to be viewed in that light. The 1980s was the bust period, and now we are in a boom period. I think this current surge will continue for several years. Project cargo swings are tied to economic market factors such as the price of oil. When oil is up and the global economy is prospering, the project-cargo sector does well because these conditions create opportunities for investment in the infrastructure. I expect a lot of dollars to be spent on energy project development for many years to come. Our industry was doing well until 9/11, which set us back. Investors were skittish for several years after. Now that skittishness is gone amid growing oil demand. But being part of this upward cycle isn't a guarantee of success. You have to have the stomach and the nerves to survive. Today's project forwarders deal with billion-dollar investments that run off high client demand and tight time constraints with little margin for error.
Q. What will be the biggest challenges in coming years?
A. There are many big challenges ahead. One of the most serious is the supply-demand imbalance, which is forcing rates to spike. When a project is financed, the freight component becomes part of the bottom-line number. But the cargo may not move until after financing is complete a year or two later, and freight rates are going to have changed by then. This is exacerbated by the limited supply of project carriers. The project-cargo sector is growing too rapidly and the supply cannot keep up with it. There continues to be tremendous pressure on freight rates. The supply chain doesn't work if any of its links are unprofitable. When one link doesn't work, you have breakdowns in the supply chain. These are serious issues that connect back to shipper budgets. Shippers are now reaching a point where they are having trouble finding ships to carry cargo. The second-biggest challenge is the labor challenge. There is an industrywide shortage of capable personnel. There are experienced people who have been around a long time, but there is not enough of the next generation coming up. There must be a focus on training and mentoring and teaching. Project cargo is too specialized to be handled by managers of general freight.
Q. What do you see for the future of the project freight forwarding industry? Are we going to end up with two or three big companies?
A. There will always be the smaller independent specialists. There will always be a spot for companies that can perform. The issue is that financial companies have financial backing. Contracts between shippers and forwarders today involve performance bonds. When cargo is not at the destination on time, bonds must be submitted to guarantee that. The challenge for smaller project forwarders is to ensure they have the financial wherewithal to service their clients' contractual requirements. A $15 million performance bond is not unusual these days. Smaller forwarders that can get the right financing will survive. There is a downside to this consolidation trend. When you start taking away the small-company specialization and treat it as a generic part of the supply chain, then the industry overall will suffer.
Q. What will happen to project cargo without any vessel capacity?
A. I can't answer that. I don't see the financials or the balance sheets of the carriers. We have seen this coming for the past four years. Rates are being driven up, and the service is just not there. Forwarders are trying to move cargo; they are ready to pay premiums for ships, but cannot find the ships. EPCs (engineering procurement contractors) are having to rely on the spot market because fabricators are all backed up, and it's hard to place an order a year in advance and book a ship for a specific date. When the fabricator has had a delay and the cargo isn't ready for the scheduled shipping date, then the carrier starts assessing dead freight.
Q. What other changes do you see happening in the industry?
A. One change is local procurement for project cargo. If there is an infrastructure project in China, at least 50 percent of that equipment will be purchased from Chinese sources. A Saudi project will see about 25 percent of content from local sources. Procurement is taking place close to the project destination, creating less reliance on ocean and airfreight. As confidence continues to erode in the ocean cargo sector, you will see more procurement locally. That impacts the forwarder by making it imperative that he have a global reach. You have to handle the truckloads from Saudi to the site. That doesn't mean smaller independent forwarders have to have 50 offices around the world. They just need to have offices at some of the major points to enable them to have some global reach.
Q. How is technology changing the project forwarding industry?
A. There has been much sophistication in documentation and tracking. This once totally paper-driven industry now is totally paperless; it uses EDI and tracking technology such as bar coding. There will continue to be dramatic changes as the technology evolves that is totally unique to the project-cargo industry. Because of this technology, project cargo now has a transparent supply chain, and the result of that is a better ability to plan for clients and a better ability to execute for forwarders. It has made the industry more efficient and will continue to do so.
Q. Your focus is now geared toward helping New Orleans recover. What do you think the future holds for this beleaguered city?
A. The recovery of New Orleans is proceeding slower than we would like. There is a common contingent of grassroots citizenry who want to see it go faster. These groups must work with the political leadership. Many New Orleans' institutions are badly broken, but they are fixable. Being part of these citizens' groups and working with the city council, the mayor's office, the education system, the infrastructure system, I can help implement and bring change where it is needed. I plan to spend my time with these groups revising strategies on recovery needs, making them happen, getting more money from the government. We are identifying what we need in our criminal justice system and working with Congress to ensure those funds are committed.
Q. What are your political ambitions?