Data recently published by Singapore-based research and consultancy group Alphaliner points to a strong recovery in the liner trades and particularly global container handling activity this year. This is important as it follows a disappointing 2016 when global port throughput is thought to have grown only 2% to 2.5%.

According to the group, and based on their monitoring of traffic volumes handled at key ports across the globe in Q1 2017, box volumes were up by 5.8%. The strongest rises were reported in Africa (over 11%), South Asia (8%) and China, including Hong Kong, (+7%). In contrast, ports in South East Asia, Mediterranean Europe and the Middle East, previously a region posting strong growth, posted rises of only 1.8% to 2.5%. 

The positive start to the year has led to Alphaliner raising its growth forecast for container handling activity in 2017 from 2-3% at the end of 2016 to at least 4.6% now.       

Immense challenges

While higher levels of growth are welcome news, global terminal operating companies (GTOs) still face immense challenges, and there is every likelihood that profit margins will fall. Ocean carriers, for instance, are putting increasing  pressure on their terminal vendors to reduce prices, and at the same time provide additional services. 

Moreover, they are in more powerful positions, given the rising share of traffic controlled by the larger alliances and the fact that merger and acquisition activity is reducing their number. They are also deploying more large vessels, which means larger exchanges per vessel call.

The above is leading to several terminal operating companies reviewing their operations. PSA Corp, which owns/ operates the world’s second largest port, Singapore, for instance, is looking at moving more services to its newer  terminals at Pasir Panjang, at the expense of older facilities, such as Tanjong Pagar, as it believes this will improve its efficiency levels. 

Ong Kim Pong, CEO of PSA South East Asia region, explained: “Consolidation has been a key driver in the industry, and we have to adapt and respond. We are working closely with our customers and partners in established joint-venture terminals, including Cosco-PSA Terminal, CMA CGM-PSA Lion Terminal and MSC-PSA Asia Terminal, to come up with the best solutions.”

Longer-term, PSA is planning to develop a 65M TEU mega terminal in Tuas, and all container handling activity will be transferred there, with the first set of berths due to become fully operational in 2021.

Shaped by uncertainty

At the same time as the market consolidates, the investment climate is becoming more uncertain as the liner shipping industry is reshaped further, historic and once thought proven GDP/trade multipliers no longer apply to cargo projections, and concessions become less straightforward and (it appears) more litigious. 

To some extent, first-quarter results posted by leading GTOs highlight the challenges faced. It was also clear that niche players and those running smaller ports/terminals generally performed better than companies running large terminals servicing the main east-west carriers. 

At APM Terminals, for instance, net profit in Q1 2017 declined by 15.7%, with the US$91M earned comparing with US$108M in the corresponding period of 2016. The company also suffered because of its heavy exposure to West Africa
where low oil and gas prices impacted consumption patterns and led to a further weakening in exchange rates. Containerised imports suffered as a consequence.

The group also pointed to rationalisation in the Latin American trades as leading to fewer services calling at APMT controlled facilities in the region. 

Fall in rates

Partly as a consequence of these factors, net utilisation of the company’s facilities slipped to 67%, and average revenue per move across the portfolio fell by 5.5% to US$189/container, which was down from US$200/move in the corresponding period of 2016.

The fall in rates may have been partly due to APMT’s changed business approach since parent group AP MøllerMaersk undertook a strategic review of its own business and Kim Fejfer was replaced as CEO by Morten Engelstoft.

The terminal operating group is now entirely focused on supporting Maersk Line and its associated companies (MCC Transport, Safmarine, Seago, SeaLand) to reduce their costs and route more cargo through its facilities. In line with this strategy, APMT’s management is fully concentrated on improving efficiency levels at existing terminals, and not on evaluating and investing in new projects. Consequently, in Q1 2017, the company pursued no new ventures, and achieved a positive free cash flow of US$88M as a result.

There were certain other positives, too, as volumes, calculated on an equity share basis, climbed by 8% to 9.4M, and revenues rose to just over US$1B, up from US$962M in the corresponding period of 2016. Principally, this was
due to APMT’s takeover of Barcelona-based Grup Marítim TCB.

9.5% increase

Elsewhere, in Q1 2017, Manila-based ICTSI posted higher revenues and improved operating profits as container volumes handled at its terminals, mainly based in emerging markets, rose just over 9.5% to 2.3M TEU. The growth in traffic was attributed to important contributions from the company’s expanded operations in Matadi, DRC, and Basra, Iraq.

Gross revenue of US$297.2M and net profit of US$52.7M were up 12% and 23%, respectively, on the corresponding period of 2016. Meanwhile, the company spent US$33M on various capital projects during the first quarter, with most of the funds targeted at completing initial phase development programmes in Matadi and Basra, and on terminal ventures in Australia (Melbourne), Mexico (Tuxpan), Honduras (Puerto Cortes) and its flagship container handling complex in Manila. For the full year, ICTSI’s planned capital expenditure programme totals US$240M. 

Hamburg-based HHLA also had a good start to the year, posting turnover, operating profits and net profit levels well ahead of the corresponding period of 2016. The respective figures were €305.1M (+7%), €45.2M (+10%) and €24.4M (+34%), and reflected the strong increase in container volumes handled in Q1 2017. A total of 1.8M TEU was handled, a 10.3% rise on the previous year, with the group’s operations in Hamburg and Odessa both reporting
rises in their cargo volumes. 

“We remain confident about our future development,” said Angela Titzrath, chairwoman of HHLA’s Executive Board. “HHLA has solid foundations, due in part to the successful progress of negotiations held so far with shipping  companies about their new schedules. We believe we have succeeded in securing steady demand for our container terminals from our customers.” 

At the time of writing, financial information for Q1 2017 was not available for DP World, but a trading update released in late April suggested a resilient performance was achieved. 

The group handled 16.4M TEU, a rise of 5.7% on the same period of 2016, with Sultan Ahmed Bin Sulayem, chairman and CEO of DP World, pointing to a gradual improvement in the trading environment. 

“Our portfolio has had an encouraging start to the year, delivering ahead-of-market growth, and this robust performance was delivered across all three of our regions [Europe/Middle East/ Africa, Americas/Australia and Asia Pacific/Indian subcontinent], which once again demonstrates that we have the relevant capacity in the right markets.”

The past 12 months have seen considerable progress achieved in terminals opened within the past three/four years, with Bin Sulayem expecting Rotterdam World Gateway, London Gateway, Yarimca (Turkey) and Nhava Sheva (India) to help drive growth this year. 

At London Gateway, this year has seen THE Alliance schedule two of its Asia/Europe/Asia service strings and two transatlantic loops via the port, a move that could result in as much as 0.5M TEU of additional traffic being handled annually.

CSP and CMP

In China, the country’s main container terminal operating companies have been restructured as the government sponsored mergers between the country’s largest liner shipping and logistics groups, notably Cosco Shipping Co and  China Shipping Container Lines, and China Merchants Group and Sinotrans & CSC Holdings. 

This resulted in:

• Cosco Pacific Holdings and China Shipping Terminal Development merging their operations as Cosco Shipping Ports (CSP). 
• China Merchants Group’s port division, formerly grouped under China Merchants Holdings International, now trading as China Merchants Port Holdings Company (CMP).

These two companies handle significant volumes of cargo, and could qualify as among the largest global port/terminal management companies in the world, but over 80% of their throughput is domestic in scope. 

In 2016:

• CMP handled 95.8M TEU, up 14.5% on 2015’s volumes – just 19.5% (18.7M TEU) was generated outside of China, including from its 49% stake in Terminal Link.
• CSP handled 95.1M TEU, up 5.1% on 2015’s volumes – just 14.3% (1.6M TEU) was handled by its investments outside of China.

However, this is changing and each company is aggressively chasing overseas projects, particularly those that will support the Chinese Government’s ‘One Belt, One Road’ (OBOR) initiative.

 

One of CMP’s most important projects has been the recent completion of the Doraleh multipurpose terminal in Djibouti. CMP is a 23.5% stakeholder in the port, and the new facility complements its other activities in the complex, especially its container handling operations. The new development also gives it a larger and more diversified presence in the Horn of Africa.

 

Dr Bai Jingtao, managing director of CMP, explained: “Our goals are to solidify our port network in Asia, improve our network in Africa, expand our footprint in Europe, and establish a presence in the Americas. In addition, we will follow the ‘Belt and Road’ initiative, and are focused on studying and exploring investment opportunities in the emerging economies of Africa and South East Asia.”

In the past 12 months, CSP has:

• Purchased a majority stake in the Piraeus Port Authority.
• Acquired a 35% stake in the Euromax terminal in Rotterdam.
• Signed a concession agreement with Abu Dhabi Ports Co to develop and operate a second container terminal at Khalifa in the UAE.
• Finalised a deal with APM Terminals Vado Holding BV to acquire 40% of the group, which is developing and will operate reefer and container handling facilities in Vado, North West Italy. 
• Entered into an agreement with Hutchison Port Holdings Trust, whereby Hongkong International Terminals Limited, COSCOHIT Terminals (Hong Kong) Limited and Asia Container Terminals Limited in the port of Hong Kong are jointly managed.
• Taken a strategic shareholding (16.8%) in Qingdao Port International Co (QPI). The deal involves QPI investing in Khalifa 2 and the parties cooperating in domestic and overseas ventures where appropriate.

CSP’s acquisition of a majority stake in the Piraeus Port Authority complements its predecessor’s (Cosco Pacific) investment in Piraeus Container Terminal. The 51% shareholding was acquired for €280.5M, and gives the Chinese  company a management concession that extends until 2052.

 

CSP aims to make the Greek port one of the most important maritime centres and transport hubs in the Mediterranean, and a key western node for the OBOR project.

 

Review – withdraw? 

At all of the main GTOs, management teams are more focused than at any time in the past on reviewing, assessing and cleansing their existing portfolios. This means that the next two/three years will see disposals of facilities no longer deemed as being strategic enough, generating sufficient profit and/or that require substantial investment with little return envisaged.

 

The past two years has seen a pick-up in merger and acquisition activity, and this will continue, with financial entities, such as pension trusts, equity groups, infrastructure funds and second tier GTOs, expected to figure more  prominently in the future (see p42).

 

Financial entities including Macquarie, Borealis Infrastructure, Arcus, Brookfield, IFM Investors, the UK’s Universities Superannuation Scheme and the Ontario Teachers’ Pension Plan are all looking at opportunities in he ports/terminals sector. “A large number of infrastructure and pension funds, with huge amounts of capital, are looking at the sector,” Steve Rothberg told delegates at the recent Liner Shipping Conference held in Hamburg. He described  ports/terminals as offering these companies low-risk and profitable infrastructure asset investments, but suggested a combination of rising capital and operating expenses were increasing risk levels.

 

He said: “But are they going to be as profitable as years past? The answer is in many cases they probably won’t, but that doesn’t mean they will not still make good investments. In particular, the APL Terminals’ portfolio is of interest 
to several groups.” 

 

These assets comprise: Dutch Harbor (Alaska) and Global Gateway South (San Pedro Bay) in the US, Port Island PC 13 Terminal (Kobe), Honmoku Terminal D4 (Yokohama) and Terminal 3 (berths B68/69) in Taiwan’s largest port, Kaohsiung.

 

In the minority

 

In addition, APL is a minority shareholder in:
?

• Qingdao Qianwan United Advance Container Terminal – Qingdao, China (24%).
• Laem Chabang International Terminal Co Ltd – Laem Chabang, Thailand (14.5%).
• Vietnam International Container Terminal – Ho Chi Minh City, Vietnam (47.3%).
• Rotterdam World Gateway Terminal – Rotterdam, Netherlands (20%).

CMA CGM, which finalised its acquisition of APL in the summer of 2016, is selling the portfolio as it looks to raise US$1B and pay down debt.

 

Second-tier operators, such as Yilport, Gulftainer and Adani Ports and Special Economic Zone, are certainly keen to expand, and are known to be pursuing ventures outside of their home markets.

 

“Last year [2016] was one of the golden years for Yilport Holding in the ports industry, as we resolutely implemented both our medium-term and long-term strategic plans,” said Robert Yildirim, chairman of the group. “Our global

growth programme took steady steps forward, and we will progress this further this year. We will embrace both organic and inorganic growth opportunities, advancing step-bystep to rank among the top 10 international terminal operators by 2025.” 

 

In 2016, Yilport handled 3.93M TEU at its terminals in Turkey, Portugal, Sweden, Spain, Norway, Malta, Peru, and Ecuador. This was up 5% on 2015’s figures. 

 

Rather than outright sales, there may be more incidents of terminal operators withdrawing from concessions, as PSA International did with its 1.1M TEU capacity facility in Zeebrugge in 2015 (see p45- 47), Ports America Group did in Oakland and ICTSI did in Portland (Terminal 6). 

 

GTOs are also taking steps to diversify their activities, with investment in landside depots, inland transport services and noncontainer-handling activities increasing. 

 

Logistics focus

 

The past 12 months have seen UAE based DP World make significant progress on all of these fronts. Arguably, its most strategic venture has been the signing of a Memorandum of Understanding with India’s National Investment and Infrastructure Fund (NIIF) to help develop the country’s logistics infrastructure. 

 

DP World is interested in a number of opportunities, which are thought to include projects within:

• The huge Sagar Mala port development complex.
• The Delhi – Mumbai Industrial Corridor programme.
• River transport ventures.
• The perishables storage and distribution sector.
• A range of ventures in special economic/free trade zones, inland container depots and intermodal rail.

“We have been a part of India’s growth story for nearly two decades, and we are delighted to further strengthen this relationship with the National Investment and Infrastructure Fund,” said Sultan Ahmed Bin Sulayem, chairman and CEO of DP World.

 

Cold chain focus

 

WorldCargo News understands that the DP World/NIIF venture could lead to more than US$1B being invested in several projects in India. In particular, the DP World CEO highlighted the importance of improving and reducing losses in India’s cold chain.

 

He elaborated: “One of the key priorities of the Indian Government is to prevent the loss of agricultural produce, a situation that can be achieved through adequate marine and warehousing infrastructure, including cold storage, as well as development of inland waterways. We are proud to partner with the government and share our expertise and experience in these areas and the global supply chain to provide cost-effective logistics and warehousing solutions to India’s growing export and import trades.”

 

China’s CSP also sees opportunities inland and, in a joint deal with Jiangsu Lianyungang Port Co, acquired a 49% shareholding in an inland port located in the Khorgos-East Gate special economic zone, which is on the border between
Kazakhstan and China. 

 

Khorgos is an important rail interchange hub and cargo volumes have been expanding very quickly as the number of trains scheduled between China and Europe, and vice versa, has increased. The Chinese companies, which will each own 24.5% of the inland port, have acquired their stake from Kazakhstan’s national railway company.

 

Multipurpose market

 

DP World is also making more progress on the multipurpose cargo front than its competitors, having secured major deals in Limassol (Cyprus) and Berbera (Somaliland) over the past 12-18 months. The latter investment also meets the company’s objective of expanding its footprint in Africa, where it already has a presence in Djibouti, Egypt, Senegal and Rwanda. 

 

“This deal is part of our vision to act as an enabler of trade, and to facilitate growth by helping African countries develop their infrastructure that connects them to global markets,” said Bin Sulayem. “These are exciting times for our
industry and for Africa, and we’re grateful for the opportunity to be an integral part of Somaliland’s development. Investment in this natural deepwater port and free zone will act as a catalyst for the growth of the country and the region’s economy.” 

 

In all, DP World will invest up to US$442M in a phased project that will initially result in the development of a 400m berth, a 250,000 m2 yard extension and a free trade zone. Meanwhile, in other developments, P&O Ports, which is fully owned by the UAE Government’s Ports, Customs & Freezone Corporation (PCFC), is also investing in the Horn of Africa. The group is close to DP World and shares the same chairman, Bin Sulayem. 

 

Niche specialist

 

P&O Ports specialises in managing general cargo/small container terminals, and recently secured a 30-year concession to develop and manage the port of Bosaso, Puntland (Somalia). The company will invest approximately US$136M on constructing a 450m wharf with a draught alongside of 12m, developing a cargo storage/container stacking yard of 5-ha, and purchasing mobile harbour cranes and yard equipment capable of handling both containerised and breakbulk cargo. 

 

Elsewhere, in Africa, APMT is moving ahead with its projects in Tema (Ghana) and Tanger Med, Morocco, but ICTSI has withdrawn from a development/management contract at the port of Lekki, Nigeria. Citing long delays in  implementing the project, Manila-based ICTSI terminated a 21-year concession agreement it had for the port in May. 

 

The deal between Lekki International Container Terminal Services LFTZ Enterprise (LICTSE), a wholly owned subsidiary of ICTSI, and Lekki Port LFTZ Enterprise (LPLE) had been signed in 2012. 

 

The original schedule had called for the port to be completed in 2016, but, at the time of writing, it was still unclear as to whether its construction had started. 

 

If the general purpose port is built and the design remains the same, the container terminal will be one of the largest in Africa, featuring a 1.2 km berthing line and an ability to accommodate neo-Panamax ships. Its design hroughput capacity will be in the 2.5M to 3M TEU range. 

 

The problems encountered by ICTSI are not unusual in emerging markets, as projects are often delayed, while details, commitments and clauses in concession agreements can change, be interpreted wrongly, and/or simply  misunderstood.

 

DP World, Hutchison Port Holding and APMT have all been embroiled in legal disputes of one sort or another in recent years, with the latter currently facing legal challenges in Callao (Peru) and Puerto Moin (Costa Rica). 

 

Potentially, the increase in disputes could put off investors, and is another reason why companies are having to face up to a harsher operating environment.

 

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This complete item is approximately 3000 words in length, and appeared in the May 2017 issue of WorldCargo News, on page 39. To access this issue download the PDF here.