Slower growth, higher risks fuel new trends in box terminal operations

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zicht_op_het_delwaidedokContainer terminal operators are shifting gears as they start to feel the adverse impact of slowing growth, mega vessels, and broader carrier alliances on their profit margins and rates of return, according to a just-released Drewry report.

The Global Container Terminal Operators Annual Review said the industry is buckling against the onslaught of a “perfect storm”—driven by a significant softening of demand growth, higher opex and capex costs due to bigger ships, increased business risks from larger liner alliances, and loss-making carriers pressuring for lower terminal handling charges—forcing terminal operators to rapidly change strategies.

This year, Drewry said, 24 companies qualify as global/international terminal operators, even as the list keeps changing due to major merger and acquisition (M&A) activity. Cosco and China Shipping have merged, CMA CGM has acquired APL, and APM Terminals has bought Grup TCB—all moves that partly show terminal operators mirroring the coming together of shipping lines in alliances, said the report.

In the face of such challenges, one clear strategic trend to emerge is the slowdown in greenfield terminal projects undertaken by port operators. Compared to a decade ago, the total number of active greenfield projects at present has fallen by almost half to 39 from 64 back in 2006.

Significantly, the number of projects being developed by the carrier category of terminal operators—companies with container shipping as core business, but with a network of terminals to serve their liners—has fallen to near zero, as carriers have retrenched and become more and more cash-strapped.

Carriers with terminal portfolios are clearly shying away from greenfield investments, but are very active in M&A and joint ventures. Some have been selling assets to raise cash but others, notably China Shipping and Cosco, have been buying terminal stakes.

Another potentially significant trend is how “stevedore” terminal operators—companies that have container terminal operations as core business and invest in container terminals for expansion and geographical diversification—are making joint venture deals with shipping lines.

The establishment of the three mega liner alliances in 2017 will increase business risk for terminals run by operators not affiliated with carriers, especially those focused on transshipment, and terminal operators are seeking to mitigate this, explained Drewry.

“Having a shipping line as a shareholder can be seen as a way of trying to tie in alliance volumes, although the choice of terminal by an alliance is never down to a single carrier’s wishes.”

Drewry noted how both Hutchison Port Holdings and PSA International have recently made deals with major carriers in key ports. They probably hope that the shipping lines have sufficient influence in their alliance to ensure that the joint-venture terminal is the one the alliance uses, said Drewry.

In the case of Singapore, PSA has done deals with the two leading members of the Ocean Alliance, presenting a clear challenge to Port Klang, where the existing O3 Alliance carries out much of its hubbing in the region.

In Rotterdam, Hutchison faces a challenge from the two new terminals in Maasvlakte II and so has entered a deal with Cosco at Euromax. However, one of the two new terminals, DP World’s Rotterdam World Gateway, has as a shareholder CMA CGM (now including APL’s stake in the same terminal), also a member of the Ocean Alliance.

“Global/international terminal operators have understandably taken their foot off the pedal when it comes to greenfield projects, carriers especially so. In its place, the key players are looking for growth, risk mitigation and opportunities through M&A activity. This is leading to more joint ventures, co-shareholdings, and more complex inter-linking of terminal ownership,” said the review.

Photo: Arminius from nl