Drewry says economic fundamentals are likely to win out over tariffs and trade war fears.
The medium-term outlook for global container port demand growth “is positive thanks to strong underlying economic momentum across the world’s major economies,” says Drewry.
“While there may be clouds on the horizon in the form of tariff and trade war fears, economic fundamentals are likely to win out in the long run,” said the London-based consultant, which has just released its Global Container Terminal Operators Annual Review and Forecast 2018.
Drewry’s latest five-year container port demand forecast is based on average global growth of just under 6 percent per annum. Drewry expects world container port throughput to grow by almost 240 million TEUs, from about 745 million TEUs today to about 985 million by 2020.
“The global container port industry is now of such a scale that 6 percent annual growth equates to around 45 million additional TEU each year, broadly equivalent to the size of the world’s largest container port, Shanghai,” said Drewry.
Neil Davidson, the senior analyst for ports and terminals, said the projected growth rate is less than the double-digit growth the terminal industry experienced in the early 2000s.
Growth slowed, then went backward in 2009, and was “sort of bubbling along” at around 3 percent to 4 percent per annum growth in between 2012 and 2014.
“And it looked as if that would be kind of the way it was going to be for the future. But then the last couple of years it’s really picked up again into sort of the 5-6 percent growth band. It’s sort of had a second lease on life, and our latest projections reflect that,” he said.
That’s Drewry’s “top-down” projection, based on its view of overall economic and container growth.
But, Davidson said, owners of container terminals and investors are taking a cautious approach.
Drewry said, “Bottom-up capacity projections on a terminal-by-terminal basis present a more conservative picture, with global container port capacity projected to increase by around 125 million TEU by 2022, a growth rate of just over 2 percent per annum. This is clearly well below projected demand and reflects the cautious investor sentiment towards greenfield projects over the last few years.”
As a result, Drewry is projecting average terminal utilization at the global level “to increase significantly from 68 percent in 2017 to around 80 percent by 2022. Average regional utilization levels are projected to increase most sharply in Greater China, North Asia, Southeast Asia and West Coast South America.”
Davidson cautioned that utilization may be higher at particularly popular terminals or terminals designed to handle the biggest ships.
“All the capacity is not the same,” he said, adding that there are fewer terminals that are large enough, have deep enough berths and cranes to handle the very largest containerships.
He said that is not a big issue today. Whether it becomes one in the future will depend on the investments terminal operators make. Davidson also noted that increasing capacity or the capability to handle larger ships can take several years of planning and construction.
Traditional port operators have “become very cautious in terms of expansion,” he said. “The exception to the rule has been the Chinese players, who have remained very bullish and aggressive and buying assets and building more capacity. … A lot of the new capacity that’s around or coming on stream is driven by Chinese investors and Chinese money.”
Davidson said the kind of returns that were being generated five to 20 years ago from the terminal industry are very different from what they are today. That has led to a change in attitude by the traditional terminal operators and “over time will lead to a change in the nature of the investors in the industry.”
“In the early days it was the risk-takers, the people who were looking for double-digit returns and would take the risk. Now we’re moving much more toward safer investors who are happy with 5 or 6 percent return on invested capital.”
That said, he believes traditional terminal operators will invest in new capacity after “weighing every project on its merits and seeing if it ticks the boxes.”
Davidson noted there are already many financial investors in U.S. terminals who are happy with moderate rates of return.
“I think the big challenge, certainly for the U.S. West Coast — Los Angeles and Long Beach — is this whole question of having a large number of terminals in the ports when in fact the market wants fewer, bigger terminals. This need to consolidate terminals, I think, is one of the big challenges, particularly for the U.S. West Coast, going forward.”
Outlook for global container port demand positive
