Could the development of alliances between ports or terminal operators meet some of the operational challenges posed to the container supply chain by the arrival of increasingly larger ships and consolidated carrier alliances?
Investment challenges for port and terminal operators have been magnified by the arrival of ultra-large container vessels (ULCVs) and the consolidation of volumes into larger alliances and bigger carriers in the container shipping industry.
Mr. Neil Davidson, senior analyst of ports and terminals at Drewry, told delegates at a TOC Container Supply Chain conference 2016 in Hamburg that the primary concern of terminal operators was that volatility had worsened dramatically.
If we look at the transhipment market in south-east Asia – Singapore’s volumes were down 9% last year while TanjungPelepas and Port Klang were up significantly, almost entirely due to alliance reshuffling.In June 2016 – CMA CGM had done a deal with PSA which will see some volumes going back to Singapore – so there are huge chunks of volumes that can move between ports, which lead to great uncertainty and higher risk.
|WORLD ‘S LARGEST TERMINAL OPERATORS||2013 Volume (in Million TEUs)|
|HUTCHINSON PORT HOLDINGS||78.3|
|(Source: Drewry, Sino Ship News)|
|Note: COSCO & China Shipping terminal merged into China Merchant Holdings – combined volumes were 38.5 million TEU in first half 2015|
This volatility was no longer just restricted to the more “inherently volatile” transhipment ports. If we look at the North European gateway market in the last year – Rotterdam was more or less the same, Hamburg was down 9.3%, Zeebrugge down 23.3% while Antwerp was up 7.5%. Again, a big factor in this was the alliance reshuffling having a big impact on volumes in a short space of time, and in a long-term business it’s pretty hard to deal with that.
In response to such conditions, terminal operators have a number of strategies at their disposal, particularly the idea that they could look to form alliances of their own.
- Alliances between terminal operators : There could be more alliances between terminal operators – finding ways to work together is a natural response to the way big carriers have come together, and perhaps that might go a step further and result in more M&A between operators and merging,
- Learning and sharing best practice: Terminal operators can talk/discuss with neighbouring terminals about how they do things and learn/share best practices.
- Sharing resources & terminal consolidation: Terminals may share labour and equipment. In Oslo there were two terminals competing but the market was not big enough and meant neither could afford the capital to optimise their operations, so terminal consolidation was felt to be the best way forward. There are other smaller ports in Norway looking at it as well, in terms of sharing equipment and labour costs.
- Joint-ventures with shipping lines : Also joint-ventures with shipping lines for terminal investment was another option.
We will look at an example of a JV between MSC and terminal operator:
Increased collaboration between terminal operators within a particular port, or between different port authorities may be one antidote to the “triple-whammy” of larger ships, larger alliances and the cascading effect of larger ships deployed on secondary trades.
It is the terminal yards that are really feeling the pain of the peaks caused by large amount of boxes being exchanged in the single call of an ultra-large container vessel (ULCV) – that’s where the pressure is felt, and where we are seeing a terminal that was built 10 years ago with a quay length and yard size now not fit for purpose.
The relationship between the quay and yard is changing, but you cannot always extend the yard, or you may not want to – land is expensive or may not be available – so there is much more obsolescence of terminals.
There had always been a certain amount of terminal obsolescence – at any well-established port and the older terminals are not fit for purpose. Therefore newer terminals are established more downstream” – but this process was happening much more quickly. Mediterranean Shipping Co (MSC) ‘s new facility at Antwerp is an example.
The existing MSC Home terminal behind the locks is a modern 5 millionTEU facility, which, although very well equipped and efficient, is now considered not fit for purpose. The physical fragmentation of terminals in ports, as well as their ownership, particularly where carrier themselves had a stake, also contributed the problem of increasing port congestion.
BENEFITFOR TERMINAL OPERATORS
One possible benefit from the larger chunks of volume is that it may allow terminal operators to increase terminal handling rates, which traditionally have been resistant to inflationary forces.
Terminal operators could charge more for terminal handling. Also with bigger ships and bigger alliances, there is actually less choice of ports and terminals to use and that means terminals operators have a chance to reflect that in their pricing.
Unless operators rise to these challenges, Mr. Neil Davidsonsuggested the investment in new capacity could be withheld and the ownership profile of the sector could change dramatically.
Terminal operators could simply refuse to invest, and certainly at the moment a lot of major operators are reviewing their expansion plans carefully. There could also see a shift in the nature of investors in the industry.
(Raghunandan Ramachandran is a senior Shipping Professional)