Part 2: The future direction of terminal network
Part One of this series on ‘Global Networks in the Container Terminal Operating Industry’ (see edition 49 of Port Technology International) discussed the internationalization and consolidation in the container terminal industry, the nature and history of global terminal operators and the extent to which global terminal operators show a truly global presence. In Part Two we focus on strategic issues and the future direction of these terminal networks.
In recent years the container terminal industry has been confronted with several challenges, including economies of scale in maritime shipping and competition from new entrants, in particular from container carriers, logistics companies and investment groups.
The year 2008 was a turning point for the container terminal operators as the final quarter saw unprecedented volume declines due to an emerging world economic and financial crisis. The contraction in global container port throughput in 2009 amounted to approximately 12%. In the recent financial/ economic crisis, terminal operators have done better than shipping lines as they faced fewer difficulties in managing their assets during the economic downturn. Also, early entrants like PSA and HPH have performed better than late entrants who have had to pay premiums to be in the game (e.g. DP World). The changed economic situation means that terminal operators have adopted a more cautious assessment of future prospects. In spite of expected future growth, global container terminal operators are involved in a range of rationalization strategies and show a much greater rationality in choosing where to make new investments.
Changing to a lower gear?
Terminal operators are now more open to consider cancellation or postponement of terminal acquisition or construction projects, which tend to be the most capital intensive and risky decisions. This is the most straightforward strategy as a global terminal operator stops its geographical expansion and portfolio diversification strategy to reassess regional growth potential. While there is a lack of transparency about global operator plans, as it remains a highly competitive business, press releases make clear that quite a number of capacity expansion projects were being shelved, deferred or cancelled as a result of the economic crisis. For instance, in 2009 the Philadelphia Regional Port Authority postponed the bidding process for the design and construction of a new container terminal in the former Philadelphia Navy Yard. Shanghai International Port Group (SIPG) decided to postpone the taking of a minority shareholding in the APM Terminals facility in the port of Zeebrugge in Belgium.
The economic crisis has also served to delay the second phase expansion of Tanger Med (the proposed TC3 and TC4 terminals) in Morocco. TC3 was planned to be used by Maersk and operated by its sister company APM Terminals, but the group decided to keep it under review. The plan for TC4 is still on track albeit with a timeline pushed back from initiation in 2012 to 2014 and with some structural changes in terms of management (i.e. PSA International has withdrawn from the project).
The London Gateway deep-sea port and logistics park on the banks of the Thames, which was originally due to open in 2010, is now set for completion in 2014. The construction of the new Jade Weser Port in Wilhelmshaven is proceeding according to a revised plan with a delayed opening date in August 2012. Rotterdam World Gateway, a 4 million-TEU terminal now under way at Maasvlakte 2 and also led by DP World, incurred a small delay of six months for completion expected in 2014. In view of minimizing risks, a growing number of large terminal projects are set to open in phases according to market demand. The market also witnesses outright divesture where a holding or terminal operator is forced to relinquish parts or the whole of its assets, mostly because of bankruptcy. Assets are therefore sold to other holdings or operators, particularly those judged to be profitable. For instance, in 2009 the financial holding Babcock and Brown went into receivership. Part of its portfolio included container terminal assets, some of which were acquired by Euroports.
Renegotiation of existing concession agreements has become more common practice as terminal operators seek to renegotiate terms with a port authority in view of traffic expectations failing to materialize. This particularly concerns minimum traffic clauses where a global terminal operator pays a penalty if the terminal fails to handle a specific annual volume. The latest concession agreements try to anticipate to future tensions in this field by including variable throughput guarantees (i.e. the imposed volume guarantees are adjustable subject to a number of factors), or by replacing fixed throughput guarantees with minimum investment levels.
A rational expansion and consolidation of the terminal portfolio
Terminal operators more than ever pay attention to the careful selection of good locations. Terminal investments are subject to a thorough risk assessment taking into account the characteristics in the regional market (capacity situation, market growth, and so on), tariff uncertainty, fee structure, licenses and permits, and nautical and inland accessibility. Commercial banks remain cautious and have become more demanding on terms and project characteristics. Only very good projects will raise the needed funds. Many of the hot spots are in emerging markets, as these port systems offer a higher growth potential and are further opening up to international interests. Ample examples are found in South America, Africa, India and Southeast Asia.