INVESTMENT STRATEGIES PORT / TERMINAL SECTOR JOHAN-PAUL VERSCHUURE TECHNICAL DIRECTOR, GLOBAL MARITIME TOC EUROPE, ROTTERDAM June 2018
INTRODUCTION What s happening? Oversupply and cascading, shaping of alliances Pressure on terminal operators to upgrade facilities and provide high service levels Consolidation on port operator side and pressure on stevedoring prices Low growth but demand is picking up Low interest rates and interest from financial sector remains
INTRODUCTION What s happening? Trend 1: Increased differentiation in investment strategies between types of operators Trend 2: Consolidation of terminal operator ownership increases Trend 3: Port sector is maturing Trend 4: Port investments focus on peripheral markets in terms of commodities and regions. Trend 5: Attractive market conditions could see increasing number of port portfolio deals
WHAT S HAPPENING? 2013-2016 2017 2018 next large activity by strategic investors, investing in assets around the main East-West trade lane. increased consortium shaping to realise investments/deals by sharing risk and expertise. increasing consolidation on the terminal operator side, including shaping of large portfolios industry players focussing more on noncontainer and peripheral markets large investment activity around shipping line mergers / bankruptcy (Hanjin assets, APL assets) some terminal operators linked to shipping lines face problems due to cash constraints on the shipping side / change of strategy high activity by traditional industry players and strategic buyers in more peripheral markets. terminal operators linked to shipping lines mixed picture. Investment in the sector by financials so far relatively quiet, but much activity on the horizon. interest rates and inflation set to reboot refinancing continued pressure on terminal operators and further terminal operator consolidation political risk and strategic considerations back on the agenda growth in logistic chain integration and hinterland logistics favourable conditions for sale of port portfolios. next shifts in shipping alliances?
WHO ARE INVESTING IN PORTS? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Which parties are buying port terminal assets? 8% 8% 11% 13% 4% 16% 11% 13% 32% 40% 28% 31% 6% 38% 0% 47% 31% 22% 50% 32% 32% 13% 20% 28% 12% 16% 13% 12% 13% 0% 2013 2014 2015 2016 2017 2018 Terminal operator linked to shipping line Shipping Line Industry Player Financial Player Consortium Tracking some 200+ port transactions over the last 5 years, looking at who was investing, when and where. Activity increasing in the last two years. Demand picking up, low interest rates and changing requirements (due to larger vessels and liner consolidation). Fewer players dominating the port investment scene. Industry players increasingly active, as well as terminal operators linked to (Asian) shipping lines. So far this year, little activity from financials and consortia, but this may well change in the second half. Over half of deals in the last 5 years completed by a major player from Asia.
PORT INVESTMENT STRATEGIES? Overall investment activity Trend 1: Increased differentiation in investment strategies between type of operators Regions Commodities Issues Independent global port operators high interest in emerging markets & inland distribution diversified interest no secured cargo / riskier attracting financing under competitive conditions global brand difficult for noncontainers Terminal operators linked to shipping lines low around main trade routes & inland distribution mainly containers question marks on link to liners some liners have cash constraint and divestments needed vertical integration Strategic terminal operators/investors (possibly linked to shipping line) high along East-West main trade lane mainly containers high valuations with unsure returns Financial investors / infrastructure funds medium established markets containers, oil and portfolios limited industry knowledge and risk averse New entrants: contractors low often emerging markets diversified interest building up experience Consortia between the above medium established markets mainly containers, oil and portfolios good mix of expertise but difficult to align
CONSOLIDATION OF TERMINAL OPERATORS? Trend 2: Consolidation of terminal operator ownership increases Pressure on high service levels and best operating standards increases around the globe. This pushes terminal consolidation. Strong consolidation of shipping lines takes place shaping of alliances. This results in fewer clients for the terminal with increased bargaining power. To counter this, terminals can also consolidate terminal ownership and negotiate deals with the liners on a global level. Volumes at terminals may be volatile as alliance links may be weak and short-lived. Diversification over regions and terminals can deal with this risk. Maturing industry puts pressure on stevedoring tariffs and operating margins. Economies of scale is becoming competitive advantage. Next step is standardised global tariff setting?
MATURING INDUSTRY? Trend 3: Port sector is maturing Fewer major players in the port market. Thresholds to enter the market are very high. More data on performance, productivity, service levels and tariffs available. Increased transparency results in terminals moving closer to each other. Focus on cost reduction is a threat for the industry as new investments are postponed and this may result in reduced service levels in the future. Terminal operators should protect tariff levels to ensure available funds for future port investments. Dynamic pricing models and profit sharing could be way out to increase revenues while delivering better service to shipping lines. But, there are markets and sectors which are not in the mature stage but effective screening and market understanding is needed.
Greenfield developments are scarce in Europe 3% 9% 14% 23% Where are developing new greenfield developments the last decade? 20% 31% 6% 3% 3% 49% Africa Asia & Oceania Central America Europe Middle East South America Who are developing new greenfield developments the last decade? 6% 26% 3% 6% Consortium (Financial - Port Operator) Consortium (Port Operator - Logistics company) Consortium (Port Operator - Shipping Line) Diversified Assets Manager Logistics Company Port Operator Terminal operator linked to shipping line Shipping line Based on 33 realised greenfield developments in the last 5 years Trend 4: Port investments focus on emerging markets in terms of commodities and regions. Greenfield port investments relatively scarce in the last few years and in particular in Europe. The few opportunities around are mainly in Africa and Asia. Increased interest in South America. Focus on capacity improvement, expansion and increased productivity. How long will this be sufficient to meet demand? Almost impossible to develop a port without involvement of a major shipping line or major port operator. Over 90% of the greenfield developments had either of these two involved. With port investments increasingly being scrutinised and less manoeuvring space for the port developer, greenfield projects are often too difficult to realise. Ties to local public sector set to increase in importance again.
PORT PORTFOLIO DEALS ON THE HORIZON? Who were the buyers of large port portfolios? 3% Trend 5: Attractive market conditions could see increasing number of port portfolio deals Many large port portfolio transactions took place up to 2009 at relatively high multiples. This caused a rapid wave of consolidation. However, these investments resulted in limited returns after the crisis caused lower demand. Financial investors remain the most active party with regard to port portfolios, covering almost half of the transactions in the port sector. 13% Financial Player Last two years: more interest for smaller to mid-size portfolios. 31% 53% Industry Player Terminal operator linked to shipping line Consortium Multiple port portfolio s are expected to come up for sale for further consolidation and benefit from low interest rates. This could help the sector realise new investments and shipping lines with additional cash. Based on 35 port portfolio transactions since 2005 However, ports are not utilities or toll roads. A proper understanding of the assets and local market conditions are crucial for a good valuation.
COMMERCIAL & OPERATIONAL EXPERIENCE IN OVER 250 CONTAINER TERMINALS GLOBALLY Johan-Paul Verschuure Technical Director Maritime WSP +44 (0) 7980 685434 +44 (0) 20 7093 6656 Johan-Paul.Verschuure@wsp.com WSP House, 70 Chancery Lane, London, WC2A 1AF, UK