Ringing the changes
What are the consequences of the world recession for the international container terminal operating sector? We've put together a rundown of a few that are manifest and some that are just emerging.
Prominent in the former category is a new emphasis on cost cutting. Interestingly, however, this is not cost cutting likely to result in any major reduction of efficiency levels, quite the contrary. It has an element about it of workforce reduction but this has been undertaken against a background of a reduction in trade and the ‘wake-up call’ that the reform of old style work practices is most appropriate in a competitive environment where ‘the guy down the road’ will always offer a lower price. Such changes promise to have a positive impact over the longer term not just as a ‘quick-fix.”
The adoption of modern systems right through from management to IT systems is another consequence of recession, and another change that bodes well for the longer term. The keynotes of this systems approach are the wider adoption of cutting edge technology and an upgrade of work practices. Again a new found flexibility in the workforce and among union representative bodies has played its part in waving these changes in.
The slowdown in investment in terminal infrastructure over 2009 is another “given.” The incentive to invest was simply not there with demand falling off and coupled with this the cost of borrowing rising. Major infrastructure works were mainly confined to essential works on existing terminals. Numerous newbuild terminal projects were cancelled and hardly any new BOT or similar style projects signed up. The pendulum is swinging today, however, with various projects now being reactivated, and even the spectre of port congestion reappearing being suggested in certain quarters.
On the emerging front, the days of inflated values being attached to port assets are gone for the foreseeable future at least and a much more realistic approach is now in play – where EBITDA multiples are closer to 8-12 as opposed to the highs of 20+. Those that did jump in at the higher multiple levels, notably pension and other funds, may also now be suffering from severe cases of burnt fingers. The experience of Deutsche Bank’s RREEF Infrastructure unit in conjunction with US-based Maher Terminals is notable in this regard.
Moving on, a number of industry analysts highlighted the increased potential for mergers and acquisitions both in the recession and in its aftermath. The potential for the acquisition of shipping line terminal assets has certainly been seen – it is known, for instance, that troubled container line CMA-CGM has been in discussions with a number of parties in this regard. Similarly, at the end of August it was reported that Spanish construction concern (ACS.MC) had agreed to sell its port services unit, Dragados Servicios Portuarios y Logisticos, to a group of institutional investors for more than E720m. There are also one or two big names such as that of DP World that may yet offer up some scope for acquisitions. At the end of 2009, the Dubai government's finance chief said the stricken conglomerate may sell off domestic and overseas assets to gain liquidity. It has also been said on a number of occasions that DP World is the “jewel in the crown” and that as such it was unlikely to figure in any asset sales. But when you are looking for cash what do you stand the best chance of selling for a reasonable return your best or worst assets? And the answer is…yes you guessed it!
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