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UK ports need realism, not optimism
01 Sep 2007
The UK Government delivered its port policy interim review document in mid- July and this raises a number of interesting issues. One in particular appears worthy of comment. The point is made that the UK ports sector is thriving and profitable. Following on from this, structural changes in port financing are noted and specifically the entrance of infrastructure investors and pension funds into the marketplace.
The underlying impression is conveyed that financing major new developments will not be a problem. In reality, however, in the UK container sector at least there are big question marks as to whether theory will go into practice quite so easily, and particularly with regard to the construction of new container terminals at Felixstowe South, Bathside Bay and London Gateway, schemes that have received the green light from government.
The big picture here is that collectively these new schemes will more than double the existing capacity. It is also the case that they are expensive schemes to realise in a mature market with consistent but relatively low growth prospects year-on-year – double digit growth per annum is not on the agenda. They have also become more expensive with UK Government insistence that the respective developers finance interfacing road and rail system development.
Internally, it is highly likely that these developers are asking themselves some serious questions about whether they will achieve required rates of return. Coupled with this, there is the issue of too much capacity potentially coming onstream too soon and handling charges plummeting. With two developers involved across these three projects there is big element of risk in this respect – if one starts building and then for the other problems will definitely loom.
Last but not least, financiers are not naive; the memory of Thamesport delivering too much capacity to the market too soon and then effectively failing lingers on.
Government may be well advised to revise its rather optimistic view of the financial picture in the ports sector, and certainly of the UK container sector.
Mike Mundy
