Terminal operators in the world’s largest ports face difficult choices if they are to continue as key hubs for shipping lines
2016 was a 'phoney war' for the global container port industry. The first half was characterised by weak volumes which made for a gloomy prognosis for the remainder of the year. There was a recovery in the second half of 2016, but overshadowing the entire industry was the ongoing reorganisation of the deep-sea operating alliances. The alliances dropped from four to three but had not yet published their port rotations.
Global container trade across the world’s box ports grew by 1.8 per cent to reach 555.8 million teu, marginally up from the 1.4 per cent growth recorded in 2015, according to Alphaliner.
While double-digit growth may have become a memory since the financial crisis affected the global container trades in 2009, Drewry Maritime Advisors director of ports Neil Davidson said that given how vast the worldwide trade currently is, even a small percentage gain can translate into a large increase in absolute container volumes.
“Even if you have just one per cent on 555 million teu, that’s still a growth of 5.5 million teu – and that equates to the annual throughput of a pretty large container port,” he said.
That level of throughput is similar in size to three ports – Ho Chi Minh City, Bremerhaven and Jakarta – which are listed just outside the top 20.
There is still considerable uncertainty hanging over the terminal industry as it seeks to keep up with the changing dynamics of the liner industry – in terms of both the consolidation among carriers and the move towards larger vessels on virtually every shipping lane.
As a result, investment decisions for the 20 largest ports were largely kept in abeyance – with shipping lines consolidated into larger alliances operating larger vessels, the amount of cargo for ports that serve their strings has become larger. In effect, the prizes have become bigger, although less in number.
Now that the three new alliances – 2M plus Hyundai Merchant Marine, THE Alliance and the Ocean Alliance – have begun operating, and the majority of port rotations settled, the make-up of the top 20 ports this time next year could look quite different from how it does today.
The top 10 ports in 2016 are still in Asia, despite the slowdown in Chinese exports. Eight of the top 10 ports are in China, with the final two, Busan and Singapore, dependent on Chinese cargo flows for much of their volumes. This means increasing levels of risk for the transhipment business, ports, and terminal operators.
Mr Davidson warned that operators are facing a perfect storm: there is softening demand growth, at the same time as higher operating and capital expenditure due to the advent of larger ships. There are also increased risks from larger liner alliances which is allowing carriers to press for lower prices and faster container handling rates.
These pressures mean that liner overcapacity has become a critical issue for the port industry, and although the prospects for achieving a balance in the supply-demand ratio have brightened over the past year – most industry analysts are agreed that this could take place in 2019 – it will only take place if certain conditions are met.
Lars Jensen, partner and chief executive of SeaIntelligence Consulting, told delegates at the recent TOC Europe Container Supply Chain event in Amsterdam: “Demand will catch up with supply in liner shipping if, and only if three conditions are met – there is no new ordering of vessels; scrapping of the existing fleet continues at current levels; and slow steaming continues at its present rate.
“This is the most positive structural scenario for the industry, and in reality that balance will probably come around later.”
However, Mr Jensen also warned port operators that consolidation in the liner industry is only set to continue through to 2025, and predicted a radically different commercial landscape.
“In 2025 we are going to face a market where there will only be six to eight large global carriers left – that’s it; no more than that, because in a global commoditised market you need a high degree of concentration to have a stable industry.”
He added that there will also be a large reduction in the number of regional niche carriers. “There are hundreds out there. There will continue to be niche carriers, but far fewer than there are today,” he said.
“Because of the phase in of bigger ships, every trade will have bigger ships rammed down their throat – the consequence of that is if I put in bigger ships and the trade doesn’t grow, the only way to compensate is to reduce the number of weekly services.”
He suggested that therefore there will be fewer services with a larger number of vessels. “Port operators have to ask themselves how to invest for that – ports’ customers are telling them they need to invest to handle bigger ships, which is true, but that investment might not actually result in ports handling any more containers than they presently do.”
He emphasised that it was a “huge conundrum” for ports. There are a lot of port capacity investments going on and “if you think the lines have had it bad over the last five years, watch what happens to the ports over the next decade,” he said.
The net result is an increasingly blurred distinction between the liner and terminal operating sectors, which has been exacerbated by the recent round of consolidation among carriers. Take Rotterdam for example. Its flagship capacity project was the reclaimed Maasvlakte II port area, where the new APM Terminals’ and Rotterdam World Gateway (RWG) facilities are located. In contrast to APM Terminals, RWG has a complicated shareholding – its founding partners were CMA CGM, APL, HMM and MOL along with DP World. The number of shareholders has been reduced following CMA CGM’s acquisition of APL.
That in itself is not a problem, but the plot thickens when seen in the context of the new alliance structure – now that CMA CGM has joined China Cosco in the Ocean Alliance – the consortium’s choice of terminal is complicated given Cosco’s investment in Hutchison’s Euromax facility in Rotterdam.
Hutchison’s motivation to sell that stake was to reduce its risk in the port – as more capacity has become available in Rotterdam, it assumed it could lock in Cosco’s volumes. That assumption looks less concrete today.
Mr Davidson argues that carrier-terminal partnerships are one way for terminals to partially offset risks attached to these enormous investments, and points to similar deals between PSA International and MSC, CMA CGM and Cosco for dedicated terminals in Singapore.
The CMA CGM-PSA Lion Terminal (CPLT) started operations with two mega container berths at PSA Singapore’s Pasir Panjang Terminal 5 (PPT 5) that had an initial annual capacity of 2 million teu in July 2016.
With the addition of two more berths under Phase 2 of its development, CPLT now has an operating capacity of 4 million teu. CPLT has achieved high service levels with an average gross berth productivity of more than 160 moves per hour for the mega vessels since the beginning of 2017.
The same process is taking place in Antwerp, which has seen the strongest growth among European ports, largely due to the consolidation of 2M alliance volumes at the port. This growth is behind the PSA-MSC joint venture MSC PSA European Terminal (MPET), which recently added four new cranes as the final stage of the terminal’s relocation and upgrading project. On its completion, MPET will have 41 quay cranes and lay a claim to be the largest container terminal in Europe.
This vividly demonstrates the problem facing ports – to proceed with the MPET project, the partners had to effectively abandon the Home terminal, illustrating what Mr Davidson terms “premature terminal obsolescence”.
“Another factor in the equation is the rapid obsolescence of perfectly good terminal capacity. Last year a terminal in Oakland closed down and there really was not much wrong with it. The same could be said of the MSC Home terminal in Antwerp, which was closed down and relocated – it had big cranes, deep water but is effectively out of the game.
“In the UK, Thamesport hardly does any container traffic these days while two modern, deepwater terminals in Zeebrugge have also been taken out of the game,” he said.
And that is the crux of the issue facing many of the world’s largest container ports – these terminals never had a chance to complete the 30-year lifespan necessary to provide an adequate return on investment.
Digitalisation of the world’s biggest ports
Investment in ports has traditionally centred on infrastructure – building larger quays, yard areas and deepening access channels – and superstructure, installing cranes and landside container handling equipment. There is now an increasing focus on improving the digital infrastructure that offers ports the chance to radically improve productivity levels.
Investment in terminals over the last two decades has primarily come from private sources, whereas the new era of digitalisation has led to a renaissance of publicly-owned port authorities, especially as a co-ordinator of how digitalisation progresses.
In recent months three port authorities – Hamburg, Busan and Los Angeles – among other supply chain partners, such as the Global Institute of Logistics, have come together to form chainPORT, an alliance of ports and the cluster that surrounds them “to enhance competitive advantages by sharing risks and resources, extend market access capability, improve product quality and customer service, and ultimately, increase profitability”.
Professor Carlos Jahn, head of Fraunhofer Center for Maritime Logistics and Services, said: “Digitalisation holds great potential for seaports to act even more efficiently and effectively. Once the possibilities of intense real-time data exchange are exploited, digitalisation will facilitate optimisation of the whole supply chain.”
This will eventually allow safer and more environmentally friendly processes. Besides safeguarding and strengthening the competitive position of seaports, digitalisation enables them to become more flexible in a rapidly changing market environment, Mr Jahn added.
Port authority executives argue that they in a unique position to play a pivotal role in leveraging digitalisation, as they are custodians of the maritime nodes in the global supply chain. They are increasingly relied upon by port end-users and modal operators to co-ordinate and communicate in their port communities.
Dr Sebastian Saxe, chief digital officer at Hamburg Port Authority, added: “Decision-makers within the maritime industry and the wider supply chain need answers to the looming question on what opportunities the digital shift offers seaports and to which of the innumerable possibilities attributed to digitalisation are best suited to provide much-needed efficiency gains.”
He said that Hamburg Port wants to stimulate the necessary discussion about future digitally induced scenarios in seaports. “Our minds need concrete images of the future to shape reasonable and intelligent paths towards this future,” Mr Saxe explained.
He adds that by becoming increasingly proactive in the digitalisation process, ports are also able to help prepare the global container shipping industry for the disruptive challenges that rapid technological development is creating for it.
“In the shipping business, new players from other sectors are already challenging the status quo increasingly successfully by implementing innovative, digital business models. It is time to shape the digital transformation along supply chains and networks of value creation hand-in-hand with the established actors,” Dr Saxe said.