Against the odds: Mærsk, MSC, CMA CGM & Hapag – 'Houston, we've a problem'
Too much money to handle
A rapid increase in the size of containerships and the formation of larger vessel-sharing alliances is creating “unprecedented challenges” for container terminals around the world, according to a new report.
But the box handling facilities themselves remain a good bet for investors.
Shipping consultancy Drewry has just published its 2015 Global Container Operators Annual Report, in which it says that the rising port demand associated with “ever-larger vessels” is the driver for terminal operators to make significant investments in additional handling capacity.
Drewry predicts that global port demand will grow at an average of 4.5% a year through to 2019, equating to an additional 168 million teu, bringing the annual global total to almost 850m teu.
And, according to the consultant, Asia is set to be the star performer accounting for more than 60% of the forecasted growth during the period.
The response from the major international operators is to make “significant investments” in additional capacity over the next five years, says Drewry, albeit noting that some operators, being part of shipping line portfolios, “have little or no expansion plans”. Indeed, some ocean carriers have sold terminal assets to raise cash to prop up under-pressure balance sheets.
One of the report’s authors, Neil Davidson, senior analyst for ports and terminals, said owning and operating international container terminals remained a profitable business despite the “significant challenges ahead”.
“The typical EBITDA (earnings before interest, taxes, depreciation and amortisation) margins for international terminal operators remain in the range from 20-45% and the 2014 financial results were much in line with previous years, illustrating the consistency and reliability of container terminal operators’ profitability,” he said.
“However, maintaining these margins will become increasingly challenging in the face of the demands created by bigger ships and alliances,” he added.
APM Terminals and DP World are the most active terminal operators in terms of the number of new projects scheduled, but Singapore’s PSA International is adding the most capacity, particularly in its home port, says the report. Hutchison, CMA CGM, TIL and ICTSI also have significant plans, with the latter’s expansion representing a 40% increase over the current capacity of its portfolio, notes Drewry.
Moreover, there are future contenders for the ranks of the world’s top terminal operators, including Ports America, Yilport, Gulftainer and Shanghai International Ports Group.
Shares in terminal and port companies remain attractive to financial investors who see their business model stability and land assets as a much better bet than the boom and bust volatility of container lines.
But there are a final few words of caution from Mr Davidson on the impact of ultra-large container vessels: bigger ships and the increased size of alliances will have “far reaching consequences, driving up operating costs and capital expenditure requirements”.