CAN BIG CONTAINER TERMINAL PARTNERSHIPS ANSWER THE CHALLENGES OF BIG CONTAINER SHIPPING ALLIANCES ?

Could the development of alliances between ports or terminal operators be the answer for challenges from big ships and big alliances?

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 dilemmas and 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.

Neil Davidson, senior analyst of ports and terminals at Drewry, told delegates at last week’s TOC Container Supply Chain conference in Hamburg that the primary concern of terminal operators was that volatility had worsened dramatically.“There’s much more volatility in market share that operators have to deal with as a result of the alliances,” he said. “Look at the transhipment market in south-east Asia – Singapore’s volumes were down 9% last year while Tanjung Pelepas 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 leads to great uncertainty and higher risk.

This volatility was no longer just restricted to the more “inherently volatile” transshipment 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.

1. 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,
2. Learning and sharing best practice: Terminal operators can talk/discuss with neighbouring terminals about how they do things and learn/share best practices.  
3. 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.
4. Joint-ventures with shipping lines : Also joint-ventures with shipping lines for terminal investment was another option. (like the Adani – MSC JV investment in Mundra container terminal - India)

We will look at one of the best examples of a JV between shipping line 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.

MSC Home port terminal - Antwerp

There had always been a certain amount of terminal obsolescence – @ 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. 

MSC Home port terminal - Antwerp

The existing MSC Home terminal behind the locks is a modern 5m teu facility, which, although very well equipped and efficient, is now considered not fit for purpose,” he said, adding that 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.

BENEFITS GALORE FOR TERMINAL OPERATORS

One possible by-product of the larger chunks of volume is that it may allow terminal operators to raise 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.

The prospect of terminal operators forming alliances has previously been mooted, but has so far gained little traction. There could also be grounds for the sector to approach competition authorities.
While terminals cannot cooperate on prices, there are exemptions such as the sharing of slots on ships, which is common capacity management. Lines can cooperate and have an exemption to do so, which could be extended to terminal operators.

Unless operators rise to these challenges, Mr Davidson suggested 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 greenfield expansion plans very, very carefully. There could also see a shift in the nature of investors in the industry. Certainly the institutional investor might change in nature as the risk profile changes.