Changing face of global terminal operator business

With the terminal portfolio experiencing growing consolidation, a new dispatch of terminal investments from global terminal operators is observed. And one thing is very clear – the focus of expanding global terminal operators is on growth opportunities in emerging markets. Surya Kannoth…

The terminal and stevedoring industry has expanded substantially in recent years with the emergence of global container terminal operators controlling large multinational portfolios of terminal assets. 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.
With the terminal portfolio experiencing growing consolidation, a new dispatch of terminal investments from global terminal operators is observed. The challenge of terminal operators lies in the right choice of the right place, as the investment comprises risks, and is subject to local market features that the terminal operator must consider, like for instance, growth, and capacity. Some other crucial criteria must be part of the choice decision such as tariff uncertainty, fee structure, licenses and permits, nautical and inland accessibility.
PSA International, Hutchison Ports, APM Terminals and DP World remain the four big international players in equity twenty-foot equivalent units (TEU) and portfolio terms but with significantly varying levels of activity. DP World and APM Terminals are highly active in terms of acquisitions, divestments and Greenfield developments; Hutchison is moderately active and PSA less so. ICTSI and Terminal Investment Limited (TIL) are also particularly active in terms of portfolio expansion. One thing is very clear – the focus of expanding global terminal operators is on growth opportunities in emerging markets.
Most portfolio expansion are through greenfield or brownfield terminals in emerging market locations, led by APM Terminals, International Container Terminal Services (ICTSI), HPH and DP World, amongst others. Interestingly, it is the carrier portfolios that are seeing the least change, with several selling stakes in selected terminals.
According to the 12th Global Container Terminal Operators Annual Review and Forecast report published by shipping consultancy Drewry, global container port throughput will exceed 840 million teu by 2018, with the fastest growing regions projected to be Africa and Greater China. This represents an average annual growth rate of 5.6 percent over the next five years, an improvement on the 3.4 percent recorded last year. The overall growth in trade will boost average terminal utilisation to 75 percent in 2018.
“The sector’s strong financial performance and accelerating growth is encouraging new market entrants and renewed M&A activity in the container ports sector,” said Neil Davidson, senior analyst in Drewry’s Ports & Terminals practice. “Financial investors are particularly active at present, attracted by typical EBITDA margins of between 20 percent and 45 percent.”
In a recent development, DP World announced its agreement to acquire Maher Terminal’s Fairview Container Terminal (Fairview) in Prince Rupert, British Columbia, Canada from Deutsche Bank for C$580 million ($457 million), positioning the Dubai terminal operator as one of the fastest-growing gateways for Asia-North America trade.
The market of global terminal operators reveals geographically heterogeneous; the consolidation at the regional level is testified; in Western Europe and South East Asia, their shares represent more than 70 percent of total throughput and only 23 percent in Eastern Europe. In the Middle East and South Asia, the market is held by single global operators, and Latin America is run by local private-sector operators.
Many operators are still cautious to plan capacity increase, because of the recession, but the industry starts investing again in terminals, which they had previously postponed. Yet, in the five years to come, the forecasts plan a demand growth superior to the capacity evolution. Consequently, many ports’ activity will be positively affected in many regions.
This is particularly true in Far East and South East Asia, Latin America, the Middle East, and Africa, but of course with different degrees depending on forecasted growth. The demand in North America and North Europe is not expected to be high; these markets, already in a saturation position, are then less concerned by this trend.
According to Eslam Kheir, MBA Maritime, KBS France, terminal operators follow business cycle. The last mergers and acquisitions, the fast growth rate are all signs of a near maturation step, which will involve further change from an industry organization.
Holdings do have a global strategy, which is shown geographically with managerial and physical connections, even if global supply chains have a propensity to hide these interactions.
“Container terminal operators have to meet the emerging needs of growing volumes, imposed by the geographical change in sourcing, the slow steaming practice, the longer shipping routes and the deployment of larger and larger vessels. The new liner service pattern combined with new geographical dispatch require the terminal operators to deploy higher capacities, and more efficient coincidence in liner service and its connectivity,” Kheir added.