Port Terminal Operations Tomorrow. Port investment and operations in the era of mega carriers and contested markets

Transcription

1 Port Terminal Operations Tomorrow Port investment and operations in the era of mega carriers and contested markets EATON SMART HONG KONG HOTEL 19 October 2012 Dr Jonathan Beard, Eric Jin Xiaobin, Jolke Helbing, Jamie Simpson

2 Context Productivity squeezing the most from what you have Port reform What to measure Impact of market forces Meeting carrier requirements Infrastructure & service requirements Transhipment markets Financing expansion: adapting to uncertainty & risk Focus on efficiency and competition New sources of finance Securing the hinterland

3 Global performance metric: India Nhava Sheva BOT Port Performance Productivity 3x versus the state run alternatives Greater reliability & service levels South China Improvements across a range of markets 1960s 2000s Productivity ( 000 mt/m of quay/yr) ~1,000 20,000+ % of ocean going ship time in port 60% 25% Private sector negotiated concessions with international terminal operators (ITOs) Stimulate competition by multiple operators Most productive terminals in the world

4 The Global Port Sector Has Transformed..but Some Regions Still to Catch up Yesterday Labour Laws & union over manning & high labour costs State monopolistic ownership Low productivity High labour cost Low efficiency High entry barriers Loss making Destruction Drivers Technological change Containerisation Automation, IT Mega vessels Reform direction Reduce state monopolies Privatisation, deregulation, competition Industrial organisation Int l terminal operators Cultural shift in operators towards financial performance Leverage technology / management systems across markets Today Predominance of the landlord port model Better customer services Better access to private capital Higher productivity Lower costs High op efficiency More competition

5 The World is not Flat Port Performance (and Financial Performance) Vary Performance think local, act global: Variations despite globalised technology via International Terminal Operators: Culture / policy eco-systems Benchmarks: TEU/m of quay per annum: >2,700 (PRC) to 1,200 (Europe) to 550 (W Africa) to 1,600/1,900 N Africa TS terminals (Tangier) TEU/m 2 of Container Yard Far East 2x Europe/NA Moves / crane hour: <20 to moves per crane hour; 200 moves/ship berth for Premiership Ports Constraints: Market factors have an important influence on performance levels... But policy, regulatory and labour markets remain key determinants of the reform process

6 Comparative Performance: Productivity & Land-take US West Coast LA Pier 400 APM 484 acre Capacity 1.6m TEUs 3,300 TEUS / acre Hong Kong Kwai Tsing Container Terminals 704 acres Capacity 18.3m TEUs 26,000 TEUs / acre no assumed increase of in situ capacity

7 Terminal Productivity Sample indicators Approx 1mil TEU/Yr/340m berth CSCT* W Africa CSCT* (CICT) = Colombo South CT at design capacity (i.e. theoretical rather than achieved productivity) Notes: 2009

8 Trade & Vessel Mix are Key Port Performance Drivers

9 Capacity Impact of Market Factors E.g. Hong Kong: potential 5-7m TEU of additional capacity dependent on TEUs per call Within a given infrastructure footprint, capacity can vary Operational productivity; Ratio of 20ft to 40ft containers; Ratio of transhipped to direct (land or inland waterway) containers; Requirement for terminal space for river and inland waterway barges; Throughput variation during the year; Effects of working close to capacity on customer service and satisfaction; Vessel size mix; and Average number of container moves (containers unloaded and loaded) per vessel Total TEUs moved per Vessel Call Vessel Size (TEU) % Kwai Tsing Capacity Scenarios for Hong Kong Kwai Tsing Terminals Port Ocean Vessel Capacity M TEUs p.a. Average TEUs per move % Yantian < 3, ,000-6, > 6, Quay Crane moves per hour TEUs per metre of quay face p.a. 1, ,300 1, ,930 2, ,

10 New Technology / New Operational Approaches Smarter, Faster, Safer and Cleaner Decoupling of transport between the yard and the quay cranes Fully-automated Electric diesel driven Extend crane productivity frontier by % Implementation Maasvlakte II, APMT Rotterdam, 2014

11 Context Productivity squeezing the most from what you have Port reform What to measure Impact of market forces Meeting carrier requirements Infrastructure & service requirements Transhipment markets Financing expansion: adapting to uncertainty & risk Focus on efficiency and competition New sources of finance Securing the hinterland

12 What do Key Customers Want? Continued trend to mega vessels & economies of scale Decision of port choice: shipping lines are key (and largest cargo owners based on total through cost) Port customers financially stressed & restructuring of fleets & services downward pressure on port tariffs Vessel size: deployment of mega vessels fewer calls at larger volume / higher performing ports, hub / feeder & interline? Ideal size for North- South, Africa trades?...variety of approaches Maersk EEE Class 1st Generation 2nd Generation 3rd Generation 4th Generation Panamax* 5th Generation Introduced Capacity (TEU) 500-1,000 1,500-2,500 3,000 4,500 5,000 Length (m) Beam (m) Draft (m) th Generation 7th Generation Suezmax Triple E Introduced ** 2013? Capacity (TEU) 7,000 8,100 14,000 18,000 Length (m) Beam (m) (23 TEU) Draft (m) Maersk EEE Class

13 To Play the Game You Must Invest Build it and they will come? but no guarantees biggest vessels will call Major shipping lines demand performance gains 30+ moves per crane hour: 200 moves/ship berth for larger vessels Reliable berth windows and turnaround time CAPEX for mega-vessels 16-17m water depth long straight quays (1,200 2,000 m) outreach for 24 across land (25ha/400m berth) inland connectivity (for gateway ports) Major hub (and some gateway) ports must efficiently accommodate a variety of vessels sizes (e.g. from feeder / barges to mother vessels) - flexibility in design Risk/reward: investment requirements are higher but in the absence of significant Import/Export (I/E) cargo, incentives for largest vessels to call may be insufficient challenge for transhipment hubs

14 Requirements for a Successful Transhipment Hub* Some transhipment hubs at risk in the absence of baseload import/export cargo? Minimal deviation from major east-west route (close to trunk trades) Trade route cross-roads (close to the crossing of E-W and N-S trades) Dense network of connections No flag / cabotage restrictions on vessels or feeder on-carriage Streamlined customs (no customs intervention in TS cargo handling) Infrastructure to accommodate large mainline vessels Low cost operations (container handling charges, port charges / harbour dues, etc.) A local market cargo base import / export (IE) cargo baseload to attract direct calls (although there are several exceptions) Ability to serve a large number of small markets in the region Stable regulatory (labour, pricing, etc) and security environment (sin the port as well as in the region, especially piracy) Lines may want their own dedicated terminals.but adequate capacity for expansion & service quality may suffice without ownership - Continued dominance as Mega-vessel competitive lock-in, or - Decline in face of direct call ports in TS hinterland?...and remember it s very cost sensitive Note: *Typically two types of transhipment operation: - Hub and spoke transhipment where mother vessels connect with local, feeder services mostly operated with smaller vessels; - Relay transhipment - boxes transferred between one mother vessel and another (e.g. connecting West-East services with North- South services).

15 Transhipment Market Double the volume but not double the revenue - do the rewards justify the investment? Generally lower revenue per lift than O/D; Market is footloose / lines can switch; Capex requirements may be substantial (accommodate the biggest vessels); Good as top-up, but risky as a core market ICTSI versus PSA as a Proxy for OD Versus Transhipment Yield per TEU (USD) PSA ICTSI Notes: *International Container Terminal Services Inc. Source: ICTSI; PSA; UBS Research

16 Context Productivity squeezing the most from what you have Port reform What to measure Impact of market forces Meeting carrier requirements Infrastructure & service requirements Transhipment markets Financing expansion: adapting to uncertainty & risk Focus on efficiency and competition New sources of finance Securing the hinterland

17 Financing Expansion Maximise efficiency with existing infrastructure defer major capex where possible Old World: doing the deal, focus on financing structures, cheap debt, leverage and demand a one-way bet transactions: most excessive valuations went hand-in-hand with high portion of debt: Ontario Teachers Pension purchase OOIL N. American EV/EBITDA* RREEF purchase Maher Terminal (N EV/EBITDA New World (post global recession): more conservative valuations Brookfield Asset Management purchase PD 9-11 EV/EBITDA Market structures highly variable, micro foundations deserve greater attention in port investment decisions understand the market, understand the asset Average EBITDA multiples, Source: Industry news, ICF GHK Typical infrastructure fund 10-12% IRR** target Variable demand growth; Greater competition and policy reform (competitive concessions) Limit CAPEX; Innovation / automation where returns are justified Notes: *Enterprise Value / Earnings Before Interest, Taxes, Depreciation and Amortization **Internal Rate of Return

18 Crisis What Crisis? Terminal financial performance appears to have held up well Volume - Slower growth and in some cases dropped EBITDA - Fairly stable and in several cases increased Margins - Strong efforts in cost cutting - Optimizing current assets - Slow down CAPEX Results H1 results from most companies show a continuation of those efforts and modest 5-8% volume increases on a global basis

19 New Sources of Finance Pension funds / asset managers: e.g. Ontario Teachers Pension Fund, Brookfield Asset Management, Sovereign Wealth Funds, etc. Long investment horizons pensions seeking less volatility, inflation protection & diversification: infrastructure should be favoured. but still an immature asset class Institutional investors (including pension) 2009 alternative investment allocations* Hedge funds, real estate & private equity 86% Infrastructure 2% Infrastructure by 2012 plan to increase to 6% Full / majority investment or minority investors partnering world class operators? *Weisdorf: Infrastructure will be as big as real estate The managing director and chief executive of JPMorgan Asset Management s Infrastructure Investments Group says he believes infrastructure is the Holy Grail for institutional investors and could represent as large a slice of investor portfolios as real estate within 10 to 15 years. (Infrastructure Investor, October 2011) N American funds most proactive in infrastructure, but geographical focus on N America, EU and Latin America Asia, Gulf barely touched. Shipping lines returning to the fray (e.g. Cosco) long-term commitment? Chinese operators going global: Shanghai International Port Group, China Merchants Smaller international operators, e.g. ICTSI, Gulftainer Source: *Russell Investments 2010 Global Survey on Alternative Investing

20 You re only as good as the weakest link and terminal operators do not control all the supply chain links GOVERNMENT PARTNERSHIP LOCAL REGIONAL NATIONAL OPERATIONS AT PORT CUSTOMER FOCUS Quay IT Yard OPERATIONS NEAR PORT PUBLIC-PRIVATE PARTNERSHIP SEAMLESS CARGO MOVEMENT Infrastructure Logistics parks River-road centre Rail-road centre, etc. Maritime Navigation channels Piloting / towage Ship repair, etc. Support facilities Customs Bank, Insurance, Legal Freight forwarders, etc. Road Inland shipping shortsea feeder International trans-shipment (Pipelines) OPERATIONS AWAY FROM PORT SECURING THE HINTERLAND

21 Strategy: Reaching Out Hamburg - HHLA direct involvement in rail services to large part of the hinterland own trucking services network of inland depots Rotterdam ECT large inland depot network (focus on barges and rail connectivity) Cargo acceptance at the depots Direct investments Operational involvement no rail investments (but service agreements)

22 Strategy: Maximising External Economies (let s get together and feel alright) A Long Term Vision 2040 Port Cluster Global port hubs with strong inter-port connections Focus on containers, logistics, petrochemical and bio cluster Support through education platforms, information and connectivity 8 ports, a.o. Zeebrugge, Antwerp and Rotterdam 2010 throughput 732 million tons, 22.9 million TEU s Vision for cooperation as logistical centre / cluster by 2040 Courtesy: Erasmus University

23 Wrap: Improving Efficiency win-win Ports are lumpy investments; significant environmental foot-print Emerging economies require substantial new-build, but must also focus on improved efficiency within and outside terminal: win-win in terms of commercial and environmental performance Enhancing terminal productivity: systems and operations labour & regulatory regime is critical Enhancing efficiency of inland connectivity: trucking, barging.and rail (long-tem) Regulatory streamline labour, customs & trade regulations; stable & transparent operational regime Full allocation of costs to private sector wherever possible Level playing field terminal operators to compete / no collusion on price Supplement with higher environmental standards: e.g. higher quality bunker fuel, electrification of yard equipment, etc. Finance for acquisition / expansion increasingly focused on efficiency and better appreciation of market risks Remember the primary objective for gateway ports: reduce costs for importers & exporters

24 ICF GHK SERVICES & CLIENT GROUPS Clients Government, Regulators & (Air)Port Authorities Operator / Service Providers: Container Terminal Operators, Shipping Lines, Airlines, Rail Operator, 3PLs, etc. Finance: Project Financiers, Multilateral Finance Institutions, Asset Managers, Private Equity, Hedge Funds, Sovereign Funds, etc. Other Consultants: Engineers, PR, Marketing, Property, Legal, etc. Services Sector Mainly Public Mainly Private Mainly Private Private Strategic & Master Planning Forecasting & Scenario Planning Benchmarking & Competitiveness Assessment Independent Market Assessment Feasibility Studies & Investment Appraisal Asset Disposal & Investor / Partner Search Cost Benefit / Impact Assessment Environmental Planning & Mitigation Environmental Compliance, Monitoring & Evaluation Public-Private Partnership (PPP) Regulatory Advice, Pricing, Tariff, Concessions Listed Equity Growth Strategy Assessment Economic Development

25 ICF GHK - Selected Clients Tiger Global Management, LLC

26 Thank You Any Questions? Beijing China Overseas Plaza, Central Tower 20 th Floor, Suite 2001 No. 8 Guanghua Dongli Chaoyang District Beijing, China CN T F E david.hathaway@icfi.com Hong Kong 19 th Floor Heng Shan Centre 145 Queen's Road East Wanchai, Hong Kong T F E jonathan.beard@icfi.com London Clerkenwell House 67 Clerkenwell Road London, EC1R 5BL T +44 (0) F +44 (0) E jamie.simpson@icfi.com Boston One Main Street Cambridge, MA T F E eliot.lees@icfi.com Delhi M-66 GK II 2nd Floor Near M Block Market New Delhi , India T F E raja.venkataramani@icfi.com