The ever-increasing size of containerships and large scale vessel sharing alliances are causing more volatility in the industry, according to a report in the latest edition of Drewry’s Container Insight Weekly.
Is the bloom off the rose in the container terminal business?
“Investing in and operating container terminals has long been a highly profitable and resilient business sector,” London-based industry consultant Drewry noted in the latest edition of its Container Insight Weekly. “However, the global container port industry may be entering a new phase of its development, where several of the key variables are looking increasingly challenging.”
According to Drewry, those challenges include:
• Slower growth. While container port throughputs grew at a compound annual growth rate of approximately 11 percent between 2001 and the 2008/2009 financial crisis, since then growth has slowed to 5 percent. “In 2015, global container port growth was only around 1 percent and in 2016 it is not likely to exceed 2.5 percent,” said Drewry.
• Since 2009 ship sizes are increasing “in leaps and bounds” and “cascading of vessels from one trade lane to another means that all ports are seeing substantial increases in vessel sizes.”
• Capital and operating costs are on the rise, “while demand is relatively static.”
• When terminals negotiate deals, the parties on the other side of the table are larger carrier alliances with more bargaining power.
• The number of ports and terminals that can handle large ships is limited and alliances are likely to change in the near future due to carrier acquisitions, which could lead to increased volatility.
Drewry also said there is increased interest in port privatization and acquisitions.
“Purchase price multiples, which had come down to moderate levels after the excesses of the credit boom period in the mid-2000s, have begun to edge up again.”
“As a result, it is becoming increasingly challenging for terminal operators to maintain their typical historical levels of financial returns,” it said, as “costs are rising markedly while revenue is increasing much more slowly.”
Drewry suggests terminal operators and shipping lines can mitigate some of the negative impact of larger ships and alliance through closer cooperation and that some terminals may seek significant price hikes, even though shipping lines are likely to “resist strongly.”
On the other hand, some terminal operators may accept lower margins and returns, choose to leave the market entirely, or “choose not to invest in new capacity because the returns are insufficient for their shareholders.”
Recently a joint venture of Ports America and TIL Group decided to pull out of the Port of Oakland only six years into a 50-year concession, saying the companies wanted to direct their investments to other West Coast terminals.
Drewry: Container terminals facing slower growth, higher costs
