The Rise of Global Terminal Operators: Business Strategies and Market Challenges.
By Theo Notteboom, President and Professor, ITMMA – University of Antwerp
6 October 2011
- Port of Anwerp, Number 2 in Europe (No.1 = Amsterdam), 175 million netric tons, 8.4 million TEU, 60,000 direct investment, 6 billion ero value added
- Very high level of competition of the port in that geographical area (European) i.e., MSC Home Terminal (Singapore) =4.5 millin TEU in 2010 and Deurganckdock (PSA, DP World) = 9 million TEU capacity.
- New development of Rotterdam port
- A Few observations
– Terminal operatior are continuously challenges physically and operationally.
– Shipping industry has been dominated by a few old giant companies
– Entry strategies proved to be crucial
– Container terminal activities are quite profitable
The emergence of Global terminal operators
- Typology of global port operators – Three sides of the same coin; Stevedores (PSA, HHLA, Eurogate), maritime shipping companies (APM, MSC, APL, Hanjin, Evergreen), financial holdings (primarily making money not the others i.e., DPW, Ports America, RREEF, Macquarie)
- Top twelve global container terminal operators in equity-based throughput
– PSA (45 Million TEUs), Hutchison Port Holdings (32.2), DPW (31.5), APM Terminals (31.1)
Entry and Expansion strategies in the terminal operator industry
- Entry supported by:
– Demand for new (large-scale) terminal faciliteis
– Privatisation, commercialisation corporation of ports,
– Introduction of competitive bidding processes in terminal awarding (cf. concessions)
-“Hyper” competition between local terminal operators in some port regions
“Deep pockets” of a member of terminal operators
– Take-over of merger
– Share holding
- In the past in EU, very fierce competition -> low tarif -> low profit -> everything went wrong
- Then, mergers & acquisitions (M&S) have been implemented largely since 2005. e.g.,
– 2005 DP world takes over CSX World with 14 times of price compared to EBITD
– Early 2006 – AIG acquires P&O POrts North America (24 times of price compared to EBITD )
– Mid 2007 – RREEF acquires Maher terminals (25 times)
Why do global Terminal operator have a competitive advantage?
- Financial Assets – Terminal and equity generating returns.
- Managerial expertise – Experience in the management of containerised operations.
- Gateway access – Established hinterland access, provides a stable flow of containersied shipments.
- Leverage and Scale effects – Developemt of related inland logistics activities in terms of both price and service due to economies of scales.
The limits to industry concentration and consolidation?
- Anti-trust – regulatory pressures and port authorities policies regarding intra-port competition
– e.g., Case ETC/HPH
– Contestability theory – Market should be contestable, market should be open enough to allow new players, barriers are low enough to do so.
- Splitting and phasing of new terminal developments + MES
- Minimum Efficient Scale (MES) the capacity beyond which there are no more significant unit cost advantages as economies of scale have been exhausted
- typical scale of terminal keeps increasing over time from 0.5-1 million TEUs in 1990s -> minimum of 2 million TEUs since 2004 -> 5.6 million TEU (HPH – Euromax terminal (2004/2008)
How ‘global’ are global terminal operators?
- Geographical coverage –
- Regional orientation – Some focus on a particular area e.g., Port America and Shanghai. Those of real global operators are Dubai Port World and APM Terminals, covering all continents around the world, The rest are in the mix.
- Equity sharing agreements –
- Global financial institutions –
From Diversification to Rationalisation
Potential rationalisation strategies followed by global terminal operators
- Intensified cost control
- Review, postponement and cancellation of terminal projects
- More selective investment decisions
- More Engage ownership strategies to reduce risk, Hedging the risk example of inter-firm relationship in the three Main container Port of the Rhine-Scheldt Delta (2010) including Hutchinson Port Holding, PSA, ECT and PSA (Antwerp/Zeebrugge)
- Divestment in terminals
- Revisiting inland strategies
- Four major terminal operators (PH, APM, PSA abd DRW) have a strong globally-oriented portfolio; regional orientation remains prevalent)
- MOre selective investment policy.
- Cancellation or postponement of terminal projects.
- Sale, equity swaps and divesture
- Rationalisation inevitably lead to concentration?
Q: Structure of Ports in America
A: 1. USA view ports differntly (from EU) as strategic assets national security. Hence there are owned and controlled by the governmental bodies.
2. US ports in the west and in the east are different historically. West = trade with East Asia (Japan & Korea) and Europe for the ports in the east coast.
Q (PM): Port capacity – if it still growing, do we need it?
A: In Europe, there are too much now. The existing terminal will loose 2 mil TEU just because the opening of the new terminals. Hence there is a complains to the port of amsterdam to slow down the growth of the new terminals