Ports and the Economic Crisis - Future Structural Changes

The difficulties of credit in 2008 and the subsequent economic crisis ended a period of
growth that lasted more than two decades, during which the ports have experienced
volume increases of double digits.Annual growth was such that the concerns of
congestion were the main focus in recent years before the crisis.
Containers illustrate the issue, as the relocation of production and the increase of goods
manufactured in China in 1990 and 2000 resulted in a boom in commercial impressive,
with impact on shipping and ports.The shipping industry was growing at a faster rate than
that to which the ports could build terminals.
The economic crisis reversed the picture. Strongly affected by the committee,
consumption and trade entr aram collapse.The peak load by sea fell sharply in 2009,
trade rose to levels 20% below 2008 and pictures of ships and stationary cranes were
used to view the crisis in newspapers.
In late 2009, váriasvários signs indicated the recovery of freight rates, but stagnation in
the trade may be temporary (we see), this crisis has profound consequences on the
structure of shipping and ports.
It is well known that the demand for port is, in principle, derived from the demand of
international trade. It is therefore important to analyze the effects of the crisis in various
sectors port: (a) container, (b) crude oil, (c) iron ore and (d) coal.
The main products transported in containers are food, including fruits, canned foods,
beverages and dairy products.These products are 20 to 25% of all flows of containers,
making sure that these volumes grow substantially in most ports, partly because the fruit
is increasingly containerized.The impact of the crisis on these flows is very limited, as the
final consumption of food is not hit hard by the recession, and although there is a
supermarket brand switching to cheaper products, global sales of food will remain fairly
stable (Mintel International, 2009).
The main driver of chemicals, the second substantial category of containerized cargo, is
the industrial production. The chemicals are intermediates, which are used in the
production of paints, automobiles, plastics, medical equipment, among others.Industrial
production shows the variation of these products.A growing number of consumer
products manufactured is produced abroad and sent to Europe. Consumption goods
(excluding food) is about 20 to 30% of all incoming flows to Europe.
Quantities of consumer goods shipped to Europe are related to consumption in the center
of the continent, which declined, reflecting the reduction of stocks to reduce risk of
logistics.
The last category of containerized cargo are the other intermediate products, which are
brought to Europe, to be used in the production of capital goods or consumption.These
flows are also strongly related industrial production has been affected by the crisis.
The indicators show the depth of the economic slowdown in Europe, although the
production of non-durables and energy has decreased moderately, the production of
intermediate goods (chemicals and parts), capital goods (machinery) and consumer
durables (cars and televisions) collapsed. In most p orthos, breaks in the movement of
containers in 2009 was about 20 to 30%: Hamburg -29%, -20% Bremen, Rotterdam -13%,
-19% Antwerp.The Spanish ports in particular have suffered major shortfalls in containers:
Algeciras -8% -29% Barcelona, Bilbao -20% -21% Vigo, Valencia remained.
Crude oil is the second more substantial burden on the pattern of European ports.The
demand for refinery products has declined, at least in Europe.However, the effect on
reducing the demand did not lead to a similar reduction in production, as refineries in
Europe have increased the export quota.
The third major flow of goods in Europe is the iron ore, which is a flow of imports to
supply steel mills. Its major customers are industrial production of vehicles and parts
producers. Now the production of automobiles in Western Europe ð Registration sharp
drop as a result of the crisis.A similar decline was observed in the activity of the
construction industry in Europe. 15 to 20% is the best estimate of the fall.
Goods also with substantial volumes in Europe is coal. Some of the imports of coal, about
one-third, are called Coking coal, which are used in the production of steel and
cement.Most are used in the production of electricity.The construction and energy
demand have been affected by the economic crisis in most industries, the energy
consumption decreases too, that in households.This explains why the movement of coal
port in the ports of Europe is in decline
In an economic crisis in industrial production and trade are especially affected, leads to
an unprecedented reduction in the volume of ports, with implications on the strategies of
port authorities, shipowners, terminal operators and other stakeholders.
Before the crisis, ports and container terminals and gateways that require specialized
infrastructure had developed at a rapid pace, especially with international operators
through concessions.The capital resources and capabilities of the operators were the
main reasons for the increased involvement of private ports. Due to the specific skills,
and substantial financial resources, these operators were in a better position to meet the
high capital requirements and the capabilities required in bidding for concessions.
However, the crisis and its effects on shipping, led to the decline in growth expectations,
and the expansion of capacity may not be necessary in the immediate future. Thus,
operators are facing an oversupply, making the return on investment, due to demand for
cost savings by the owners, the focus of the lines on major routes, enhancing strategic
partnerships in the shipping and reducing the cost of logistics and ports.All major
shipping companies and the major alliances have suspended services and changed
routes.Even the market leaders reconsider the cooperative sharing of services and use of
fewer vessels.
Moreover, it is expected that future volumes of cargo at the ports can grow in a lower
rate than previously observed for several years, leading the owners to reconsider their
transmission in the medium term.
Notteboom and Rodrigues (2010) argue that the answer is in the process defined as
"foreland -- based regionalization.That is, the integration of ports in the hub of regional
transport networks, through the hub to act as intermediary ports hinterland. This position
of the ship could reduce the ports of call and have important impacts on other ports.
Due to the crisis, the owners are now more willing to work together with the operators of
the port to improve the use of investments, ie to maximize the use of existing facilities
without major investments in new facilities, reducing costs, focusing on the efficiency of
the terminal, instead of building new terminals.
Reflecting on these trends, most port authorities have reworded the capacity for growth,
looking for a growth rate slower than expected two years ago. S The terminal operators
have also taken measures to cut costs.Hutchison Port Holdings and APM Terminals have
carried out a comprehensive review of its projects.DP World also suspended nearly half of
its projects capacity expansion, including the London Gateway terminal.
The port authorities are under pressure to reduce port costs, port charges but represent
only a small percentage of the cost of transit through the port.There is a freeze on tariffs
or temporary low price (Rotterdam, has a discount of 7% due to the crisis and Antwerp
was a reduction for breakbulk, steel, paper, wood and fruits).
They are also introduced into port charges depending on the volume at the expense of
fixed rates, which is more appropriate the economic situation.For example, Hamburg
implemented lower rates per TEU, but only for vessels with large quantities, and other
ports reduce rates for new lines in the hope of taking business from neighbors.
Requests to reduce port charges have been more widespread than requests for
renegotiation of concession fees, leading port authorities to respond using a variety of
instruments, including bilateral negotiations with operators.In the worst cases, some
operators gave the operation of terminals to the port authorities.
As port expansion projects to be delayed due to financial difficulties, national and
regional authorities have been granting permission for large public funds for port
development, which today is no longer viable without state intervention.In Italy, the port
authorities have proposed a "Marshall Plan for the ports. In France the ports were seen as
public investments in priority environmental response to the crisis. This can seriously
disrupt the balance between the competing ports and lead to excessive public financing
in the port sector in Europe, according Pallis, 2010.
Moreover, before the crisis, it turned out the scarcity of land for the development of
terminals (particularly in developed economies), given the excellent growth prospects
and high returns on investment (often 15% or more) attracting many investors.
Date Major acquisitions of Purchase
terminals since 2005 price
compared
with EBITDA
2005 DP World buys CSX World 14 times
Terminals
Early 2006 PSA buys 20% of HPH 17 times
Mid 2006 DP World buys P & O Ports 19 times
Mid 2006 Goldman Sachs buys Consortium 14.5 times
BPA
End 2006 AIG buys P & O Ports North 24 times
America
Early 2007 Ontario Teachers' Pension Fund 23.5 times
purchase OOIL Terminals
Mid 2007 RREEF Purchase Maher Terminals 25 times
Note: EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization
Source: Notteboom and Rodrigues (2010)

An important factor for the acquisition of companies by the financial agent is the
assumption of liquidity, which means that it is possible to sell assets quickly. In a market
where the flow of containers are growing, the terminals are very liquid assets, but the
situation can turn quickly if conditions change.
But companies that operate terminals of how to adjust your strategy to deal with the fall
in volumes of containers since late 2008. G rand companies such as HPH and DPW are
reviewing their strategies hinterland which can lead to a reversal of their direct
involvement in the services of barges, rail and inland terminals.
During the peak year prior to the economic crisis investors, financial speculators and
pension funds, with little or no knowledge of the business of operating terminals of
growing importance in global business operation of terminals and shipping lines.
Moreover, governments and port authorities began to get very greedy in bidding for the
operations of its port facilities (container terminals in general).As a result, rents have
been set extremely high for the facilities and the expected returns on investment and net
IRR of the projects (internal rate of return) were grossly overvalued based on the idea
that the numbers of containers continue to rise.
Not only the private operators have committed to large investments, but also accepted
excessive risks.The crisis led to a sudden drop in the attractiveness of the terminals as a
result of problems existing cash s many businesses and a fear of excess capacity in the
market.
Currently, most terminals are frantically seeking new customers, ships and cargo.The
argument that the container's movements back to acceptable levels in the short term
ignores the fact that consolidation is inevitable in low, medium and long term, on the
supply of maritime transport and that many carriers may not leave specific segments of
the market.
Today, terminal operators m adopts a more cautious assessment of future prospects.It is
observed a clear slowdown of investment of global operators, owners and financial
institutions in container ports worldwide.The evidence suggests that the multiple of about
8-12 times on EBITDA is the new standard in acquisitions of terminals.The funding of
large terminal has become a more difficult task than before.

Vitor Caldeirinha

Note - Developed from papers of A. Pallis, Peter De Langen and Theo

Notteboom, Jean-Paul Rodrigue and Gustaaf De Monie, 2010.