Drewry: Ports and Terminals Earning Less Money?

Image Courtesy: WSC

The formation and re-formation of larger carrier alliances along with the increase in average and largest ship sizes are turning up the heat on ports and terminals which might result in diminishing returns, according to UK-based consultancy Drewry.

Ports are not immune to the volatility of the market and the world economy, but have proven their ability to weather storms – even in 2009, a year where global port volumes fell by nearly 9% and the worst year the industry had ever seen, all of the main global container terminal operators maintained their EBITDA margins, at least in percentage terms.

Nevertheless, cascading of vessels from one trade lane to another means that all ports are seeing substantial increases in vessel sizes. In a low growth demand environment, the deployment of bigger ships results in lower frequency services and greater volume peaks. For terminal operators, capex and opex costs are increasing while demand is relatively static.

What is more, as ships and alliances get bigger, the choice of ports and terminals that can accommodate them reduces. The creation of alliances has resulted in market share volatility for many ports – and the makeup of the alliances is going to change again soon due to M&A activity in the liner sector.

The new nature of demand is for less fragmented terminal capacity (fewer, bigger terminals needed in each port) which requires consolidation of terminals, both physically and in terms of ownership. However, such consolidation is complex and expensive, and may not be possible, or may take a long time to achieve.

Drewry believes that the combination of the above factors indicates that it is becoming increasingly challenging for terminal operators to maintain their typical historical levels of financial returns.

Costs are rising markedly while revenue is increasing much more slowly

There are several possible scenarios, which might see terminal operators and shipping lines cooperate much more closely to mitigate the negative impact of larger ships and alliances, however this is unlikely to solve the problem entirely.

Another scenario might see significant price hikes to be obtained from shipping lines in order to balance higher costs and maintain margins. Nevertheless, as shipping lines are already feeling severe financial pain from overcapacity and weak demand, they will resist this strongly.

According to Drewry, the remaining two options include terminal operators accepting a new era of lower margins and returns, pushing some operators and investors from the market or a decision not to invest in new capacity because the returns are insufficient for their shareholders.

This is an extreme option that will in effect leave shipping lines with nowhere to berth their large ships.

“The global container port and terminal industry is on the cusp of a critical turning point. To safeguard the provision of suitable capacity and productivity for the long term, changes will have to take place to ensure sufficient returns on investment for port operators. Something has to give,” Drewry says.

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EEEGR’s flagship Southern North Sea conference is the most important event for the energy sector in the East of England. Taking place over two days at the Norfolk Showground Arena in Norwich, SNS2017 will be the largest conference and exhibition EEEGR has ever delivered attracting upwards of 700 delegates from across the industry and supply chain.

Key industry players will gather at this event to discuss and debate issues, network to make new business contacts and re-establish relationships with existing clients.

Why should you attend?

  • Generate fresh leads and meet new contacts in a time and cost-efficient way.
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  • Meet senior-level delegates looking to learn and seek out new partners.
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SNS2017 – 2 March

Day two of the conference is dedicated to ScottishPower Renewables Supply Chain Event for the East Anglia ONE Wind Farm Project.

ScottishPower Renewables is in the process of finalising its major contracts for the East Anglia One project, and is delighted to announce that these contractors will be attending the ScottishPower Renewables Supply Chain Event at the Norfolk Showground Arena on 2 March 2017.

Occupying the second day of EEEGR’s SNS2017 Conference and Exhibition, the ScottishPower Renewables Supply Chain Event will allow their contractors to engage with businesses and stakeholders in the East of England and further afield as quickly as possible to outline the skills they require and the business opportunities to be created by the project.

Information will be provided on the current status of the project by ScottishPower Renewables Managing Director, Jonathan Cole, and East Anglia One Project Director, Charlie Jordan. There’ll also be information on the scope of works to be carried out, explanations of how to get involved and the opportunity to meet representatives from Seaway Heavy Lifting, Navantia, Lamprell, Harland & Wolff, Roadbridge, Van Oord, Prysmian, VBMS, Nexans, DeepOcean, Peel Ports Great Yarmouth, Siemens and ABPorts.

Up to seven additional suppliers will also be attending, to be confirmed shortly. Opportunities will range from civil and electrical contractors, vessel and ports support, to technicians and logistics.

ScottishPower Renewables is starting construction this year, with the first turbines to be installed by 2019 and the project fully operational during 2020.

Full-access pass holders will be able to take full advantage of the presentations whilst there are also free exhibition-only passes which will give holders the opportunity to network with representatives from these suppliers at their stands. Delegates MUST register prior to the event to be allowed admission. Upgrades of exhibition-only passes may be permissible on payment of the appropriate fee.

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