M&A radar: Port mergers whet the appetite for further deals
The exciting prospect arguably is how terminal operator mergers could lead to a wider port ...
The logic behind port mergers is more obvious in some cases than others. Of course the universal that connects the varying rationales is geography – whether that is about the ability of two ports to more efficiently serve a deeper hinterland together than either is able to independently, or a response to demographic developments, such as the emergence (or should that be mergence) of a nearby megacity which demands more effective coordinated port operations and policy.
In the second part of The Loadstar’s think-piece on the future of port mergers, we look at cases where the former is the determining factor.
Trieste and Koper
For the Italian and Slovenian ports, located just 15 km apart in the north of the Adriatic Sea, the idea of a merger is not just an idea, it has actually been formally proposed at some of the highest governmental levels. It was first mooted in 2000, several years before the ex-Yugoslav republic of Slovenia joined the European Union, when the two respective port authorities signed a letter of intent to begin merger talks. Although nothing came of it then, in 2007 a second attempt was initiated when then-Italian prime minister Romano Prodi and his Slovenian counterpart Janez Jansa held a joint press conference in which they once again proposed the two ports be merged.
The reasoning behind both was the same – together, the two ports could present a serious alternative for shippers and consignees in central Europe which are reliant on northern European ports for their ex-Europe seaborne trade, particularly in respect to traffic to and from Asia. The potential remains for significant savings in distance to be made for vessels with cargo between Asia and destinations such as Austria and Hungary via Suez if they were loaded on vessels in Trieste or Koper.
Perhaps it was Mr Prodi’s subsequent fall from grace, or the constant turnover of container terminal operators in Trieste that has hampered any progress on this. Nonetheless, the potential remains – back in the 1990s Dutch operator ECT, which prior to its takeover by Hutchison had won the concession to run the container terminal in Trieste on the strategic basis that it wanted container ports at either end of Europe. And with an 18-metre draught at its box terminal, the port is theoretically able to handle the largest container ships.
Another obstacle is the different legal structures of the two ports – Koper is run entirely on a privatised model, with both operations and the port’s statutory powers managed by a private company, while Trieste has the classic port authority landlord model. But in the shape of the North Adriatic Port Association, which also includes Venice and the Croatian port of Rijeka, they are perhaps further down the merger path than most.
Gdynia and Gdansk
At the other end of Europe lies the burgeoning port complex of Gdynia/Gdansk, where merger discussions are also understood to have taken place in the past, but to little avail. Currently the three container operators across the two ports – ICSTI and Hutchison in Gdynia and DCT Gdansk – are locked in a bitter battle to capture shipping services in the Baltic, with overall cargo growth amongst the highest in Europe – not that that is a particularly difficult task given the moribund state of business in other parts of the continent.
Although two separate urban areas, prior to WWI the only port facilities were to be found in Gdansk. However, after the war, with the creation of Poland, Gdansk became a German-held enclave – not dissimilar to the status today of the Russian enclave of Kaliningrad further east along the Baltic coast – at which point its authorities refused to let Polish businesses use its port facilities. They built the wharves at Gdynia in response.
All of that is of course history today. The present situation is that with the launch of Maersk’s Triple E series of vessels and the development of DCT Gdansk’s deepwater berths, the port has now become the first in the Baltic to serve a direct Asia-Europe call in the shape of Maersk’s AE10 service, and handled the 18,000teu Maersk McKinney Moller on its maiden voyage to Europe. Although many of the containers unloaded at Gdansk is transhipment cargo for Russia, the fact that these vessels are now calling in the Baltic represents a considerable step change – previously all containers were brought on feederships originating from Rotterdam, Hamburg and Bremerhaven
ICTSI was on the verge of signing a G6 alliance deepsea Asia-Europe call to Gdynia shortly before the Eurozone crisis hit volumes and forced the alliance to abandon its plans. It has an expansion plan to deepen its approach channels to 15.5 metres, but its key advantage is in its already well-developed rail infrastructure that would allow it to access the markets of central Europe.
A combined Gdynia-Gdansk port complex could ultimately be the Baltic’s answer to the Dutch and German hub ports, working as a year-round staging post for Russia – unlike St Petersburg they are not ice-bound for a significant part of the year and also provide another entry point to the vast Moscow market; and giving exporters and importers in central and Eastern Europe an alternative gateway to Rotterdam and Hamburg.
Charleston and Savannah
Of all the fanciful merger ideas proposed in this series of articles, this is possibly the most politically explosive, as it exposes not just competition between neighbouring ports, but a bitter inter-state rivalry. The container growth in Savannah in the state of Georgia over the last couple of decades has been one of the port success stories outside of China, mostly based on a portcentric strategy of luring major cargo owners such as Walmart and Home Depot with offers of land on which to build huge warehouses close to its container terminals, with all the operational and cost efficiencies that that inbound supply chain entails.
And while Savannah’s success has not completely been at the expense of the much more established Charleston, it is fair to say that South Carolina’s premier port has not seen anything like the same levels of growth over the corresponding period, and although it has been hampered by the location of its Wando Welch container terminal it is now easily the smaller of the two ports.
The question is what happens in the future. With all the talk of an explosion of volumes following the opening of an expanded Panama Canal – notwithstanding present difficulties – both ports are facing a capacity crunch. Savannah due to the fact that the Savannah River needs dredging to take larger vessels, while Charleston needs larger terminals, and has identified the Jasper Island, at the mouth of the Savannah River, but in South Carolina state.
And there’s the rub – Savannah needs South Carolina’s approval to dredge the river which, if given, could kill the economic argument for Charleston’s expansion. The fact is that both ports are focused on serving a US hinterland that stretches surprisingly far into the Midwest, while the development of a coastal deepsea terminal would also give a combined port entity the opportunity to start making a bid for the transhipment opportunities that will come with larger ships coming through the Panama Canal operated by larger, more concentrated carrier alliances.
We make no prediction on the chances of this happening, though.