Shipping and Terminal Industry Trend (3/3)
We are going to share the last story of Shipping and Terminal Industry Trend. If you are curious about first and second article about industry trend, click the link please. If you are interested in Shipping and Terminal Industry Trend 1 and Shipping and Terminal Industry Trend 2, you can click the links and check them out.
1. Emerging markets focus by GTOs and ITOs
There has always been a disparity between the growth rates in container demand in the developed versus emerging markets, but since the global financial crisis, this disparity has been more pronounced. Demand growth in Europe and North America is currently very modest, if not flat-lining in the case of Europe. This has led most GTOs and ITOs to focus their attention on emerging market opportunities and seek to change the balance of their portfolios. This is the reason behind some of the disposals mentioned at article Shipping and Terminal Industry Trend 1 and Shipping and Terminal Industry Trend 2. This is not to say that GTOs and ITOs are abandoning the developed markets – far from it. Most are well entrenched, and in some cases investing heavily in greenfield developments for the long term. However, the overall trend is for a strong focus on emerging markets, and this is unlikely to change soon.
2. Lack of public money for port infrastructure investments
The economic problems evident in Europe and North America have put great pressure on public finances. This has in turn meant that there is limited public money for infrastructure investment. This is fuelling a greater interest in the private funding of port and terminal infrastructure, alongside the well-established private funding of terminal superstructure and equipment.
Public port authorities ought to be managed in such a way that they are self-financing – in other words port dues and concessions generate sufficient revenue to cover both operating costs and long-term investment needs. However, this is not always the case.
If it requires an investment of $350 million per million TEU of capacity(covering both terminal infrastructure and equipment), then accommodating all of the expected 190 million TEU of volume growth would require an investment of $65 billion over the next five years. Clearly this represents the upper end of the likely cost, as some of the growth will be absorbed by existing capacity, but the actual investment requirement will still be substantial.
3. Ports and terminals still profitable
Apart from the financial challenges faced by some port authorities, the port and terminal industry in general proved during the global financial crisis that it was remarkably resilient in terms of profitability. While virtually all GTOs and ITOs suffered reduced absolute profitability, their margins were largely maintained at the healthy level the industry has come to expect.
For an industry supposedly characterised by high fixed costs, this was all the more remarkable. Since 2009, most operators have successfully returned to their previous level of profitability, and indeed improved it. The container terminal industry remains characterised by EBITDA margins typically in the 35-45% range, with operators in lower-risk environments at a lower range of 20-30% while those in higher risk environments such as Russia are in the 60%+ EBITDA margin. The private port company industry, with its greater requirement to focus on capital investmentand infrastructure, and its landlord role, typically sees EBITDA margins in excess of 50%.
Drewry estimates that the world’s container terminals had a turnover of around $45 billion in 2012 and, taking a conservative profitability margin, would have generated a global EBITDA of over $10 billion.
4. Port and terminal valuations rising again
The resilience of ports and terminal businesses coupled with the aforementioned strong appetite by investors, particular from Asia, to acquire port and terminal assets has resulted in valuations starting to creep upwards. Of course, valuations are nowhere near the extraordinary levels of 20 or 25 times EBITDA seen in the peak of the credit bubble in the early to mid-2000s; instead they are more seen at 10 to 12 times EBITDA, but the general trend is for a slow upward tick.
5. Increasing requirement for higher productivity and trend to automation
Ever larger container ships will strain the operational capability of ports, with a requirement to deliver faster handling speeds in order to maintain turnaround times. The fact that the largest ships are not getting any longer is making this more challenging because simply deploying proportionately more cranes is not an option. The trend towards beamier ships is seen not just in the Asia-Europe trades, but also as a means of deploying larger, purpose-designed ships in other trades, for example the 4,500 TEU Wafmax ships for West Africa and the 8000 ~ 9,000 TEU widebeam ships for the East Coast of South America.
In addition, handling ever larger ships is not just about quayside performance. The yard and landside has to be able to keep up, including intermodal capacity. Faster ship turnaround times can only be achieved if the yard is able to support the quayside operation at a sufficient rate. Handling larger volumes from larger ships also creates more peaks, which can put pressure on intermodal rail capacity and truck gates.
Hand in hand with this need for higher productivity is a much greater take-up of terminal automation, particularly yard automation. Automated terminals are still rare in the industry, and most “automated” terminals are really only semi-automated (i.e. the yard only). However, an increasing number of new and planned terminals are using yard automation as a matter of course. This includes new terminals in the high-wage, developed world such as London Gateway and the Maasvlakte II terminals in Rotterdam, but also new terminals in lower wage locations such as the Khalifa port terminal in Abu Dhabi.
Chinese terminal operators are also increasingly looking at automation. One of the key reasons is that the technology is improving exponentially, certainly for yard automation. However, other technology is also moving fast, for example remote controlled gantry cranes.
The extent to which all this can and will support faster vessel handling remains to be seen.
This is the whole of Shipping and Terminal Industry Trend, if you are curious about first and second article about industry trend or have any questions, click the related posts below and leave some comments please.