Market stress on global terminal operators leads to new strategies

Posted by PortVision


Port terminals around the world are feeling an economic squeeze from a number of directions. Port Technology indicates that these pressures could lead to shutdowns, lower profits for terminal operators, and decreased port investment in the future unless operators figure out a way to change strategies to stay viable.

Citing a recent report by the shipping consultancy firm Drewry, the stress is due to four major factors.

Softening economic growth worldwide. No industry is immune to the dangers of lower market demand. In August, major shipper Hanjin Shipping collapsed. Events such as this one threaten the ports that are seeing demand for their services fall.

Demands by carriers for lower port handling charges. Drewry's recent Ports and Terminals Insight report has identified an additional stress for terminals. Ever increasing shipping line pressures for a reduction in cargo handling costs. These pressures are difficult to counter if ports have little leverage.

Higher opex and capex costs to handle larger ships. Drewry estimates that these costs increase by 10-20% when it is necessary to handle the cargo load from bigger vessels.

Risks associated with shipping firm alliances. Alliances, highly integrated vessel-sharing agreements, can add to port costs because cargo handling becomes more complicated when vessel assignments change and require movement of containers between cargo terminals. As well, the larger the alliance, the more leverage it has to negotiate more favorable rates with ports.The two largest alliances are Ocean Alliance and 2M Alliance.

Port mergers are now taking place that mirror some shipping line alliances in hopes that having shippers as partners will lessen the port's business risk. According to Port Technology, Cosco and China Shipping have merged; CMA CGM has acquired APL; APM Terminals has purchased Grup TCB. However, individual shipping alliance members may not be able to designate specific port terminals due to the nature of these alliances.

[Ocean Alliance, includes France's CMA CGM (the world's third largest container ship line), Cosco and China Shipping, Taiwan's Evergreen line, and OOCL from Hong Kong. Next month, Singapore's Neptune Orient lines Ltd will become part of this massive alliance which will begin operating in 2017. The Ocean Alliance will control 23.5% of global container ship capacity.

Maersk Line and Mediterranean Shipping Company (the two largest container lines) have created the 2M Alliance. This alliance controls 27.7% of all container ships and it is growing. In December 2016, Maersk announced the acquisition of Hamburg Süd, the world's seventh largest container line.]

This complex integration of terminal ownership and members of various carrier alliances may uncover the growth and opportunities that are now lacking, but substantial risk remains. Drewry recommends in its report cited above that terminal operators need to focus on organic growth in higher demand markets such as South Asia and the Middle East. As well, they recommend that port terminal operators buy market share through acquisitions as Cosco Shipping Ports, China Merchants Port Holdings and Yildirim Group are now doing.

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Posted on Dec 20, 2016, 1:52:22 PM

Topics: ports, Terminals, Shipping