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Box ports braced for challenging 2019

Global container port volume growth is expected to weaken in 2019, but by how much hinges largely on the outcome of the US-Sino trade war and other geopolitical plays. However, the sector is still expected to make a tidy profit, as industry players make the best of existing assets

Uncertainty clouds the outlook for container port throughput in the year ahead

THE container port sector’s golden years are firmly in the past, as more moderate growth levels become the ‘new norm’ and returns become harder to come by.

This year is set be another challenging one for the industry. Global container port demand growth is expected to soften against last year from an estimated 4.7% to just over 4%, according to Drewry.

Although this level of volume growth is perhaps not to be sniffed at on the face of it, this is still a far cry from the double-digit percentage gains of yesteryear. Indeed, a 4% rise adds a respectable 40m teu to the global teu tally.

There is every possibility, however, that growth forecasts could be quickly downgraded with — like much of container shipping — the sector looking at how ominously the current US-Sino trade war plays out. Then there are the repercussions of Brexit, but also geopolitical uncertainties in other parts of the world that could rapidly dampen trade sentiment.

This uncertainty raises the risk element when it comes to new port capacity and would-be investors, explaining why there is a reluctance to sign off on new greenfield sites.

Drewry raised the point in a recent commentary that even China’s players, which have been the main driver of new capacity, could be put off from expanding their global footprint if the Chinese economy slows.

Nevertheless, the analyst still expects global capacity in 2019 to rise by an additional 25m teu, requiring investment of around $7.5bn.

For the majority of port and terminal operators, the focus will remain on how best to utilise existing facilities.

The shrinking customer base, born as a consequence of incessant merger and acquisition activity among carriers — which has also led to just three liner alliances plying the principal trades — makes this feat increasingly problematic.

For carrier-affiliated terminals, the answer is to push through as much business via their respective lines where possible. But for standalone operators, creating value for the customer to ensure services continue to call will remain the priority.

DP World’s Unifeeder acquisition last year to enhance its European proposition grabbed the industry’s attention. Box carriers buying up terminals is a common affair; a terminal operator moving to acquire a shipping line is a rare sight.

It is, though, a smart move. Having its own feeder network will certainly differentiate DP World from the pack.

Whether others will follow a similar path remains to be seen, but it is a sign of a change of tack away from the activities of a traditional port operator. Amid an increasingly competitive port operator pool, others too may look to think outside the box to add to their value proposition.

Technology is one avenue. Drewry highlighted the myriad opportunities available to the port industry, whether digitalisation, automation, blockchain, smart ports or hyperloop, which will continue to be vigorously explored industry-wide.

The big challenge that remains, it says, is how to find the way through the minefield of options to focus on what will really work and what has the best potential.

As returns dwindle, the port industry is also looking firmly beyond the gate for additional revenue streams.

In 2018, there was a distinct trend among operators looking to expand their landside offering to get closer to the cargo owner and enhance their presence in the supply chain.

This movement shows little sign of slowing pace, however, and with seemingly all industry players, including the major carriers, eyeing similar strategies competition remains fierce. Some stand to lose.

But despite the various challenges for the port sector in monetising assets, the industry is expected to stay a profitable and stable business in 2019.

With box ports expected to move more than 800m teu across quays globally this year, Drewry anticipates the industry will generate earnings before interest, tax and depreciation of more than $25bn.

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