Do your homework

22 Apr 2013
Liebherr does not expect port manufacturer equipment leasing to dominate financing any time soon

Liebherr does not expect port manufacturer equipment leasing to dominate financing any time soon

While finance is still out there for equipment purchases, only the diligent and persistent will secure it, finds Alex Hughes

One of the surest indicators that port authorities can look forward to a healthy revenue stream in the future is to assess how easy it is for their existing terminal operators to secure equipment financing.

According to Juha Vanhanen, Konecranes' financial director, financing is still available for equipment purchases, but more rigid background and feasibility studies are being carried out by financial institutions and a lot of emphasis is being given to the making of a solid business and investment case.

“Good projects should be able to find finance, but more homework is required,” he says. Asked whether Konecranes is being asked for more help in this area, he notes that financing often forms part of the overall negotiation and that financial institutions are often involved in those discussions.

Liebherr Container Cranes (LCC) says its order books are healthy across all product lines, which sales and marketing manager Gerry Bunyan suggests means that its customers are experiencing significant growth. The company is also not seeing any defaults on payments for equipment, he says.

Mr Vanhanen notes: “Despite difficult trading conditions for almost everyone, we are not currently seeing more defaults on payments for equipment, nor are we unduly worried that finance options we offer might become increasingly risky, thereby undermining them.”

 

Good case

He observes that, primarily, terminals should finance purchases using their existing financial arrangements. However, development banks and export credit agencies might also be supportive when putting finance in place, while in other instances there might be government funding available, so there is always a possible range of funding alternatives open, if an operator can make a good business case.

Asked whether we might eventually see a situation whereby most of the risk will pass to the manufacturer, with leasing becoming the major way of selling equipment, he says that this might already be happening with some smaller products, which, by their nature, are more suitable for a leasing arrangement.

“Bigger, project type deliveries aren't typically so suitable for leasing,” he says, adding that manufacturers prefer to stay out of the leasing side of the business, which tends to be handled by specialised companies working in this field.

Mr Bunyan adds that its customers do not rely on manufacturer-aided finance. Indeed, he suggests that a properly run terminal in a good location with a solid business plan is generally seen as a sound investment. “This is something that will always appeal to investors,” he says. “As a result, we cannot foresee a situation whereby most of the risk involving equipment will pass to the manufacturer, with leasing becoming the main way of placing it in the market.”

 

Strategic thinking

Asked whether LCC had detected a pattern among its customers of re-thinking port investment strategies, favouring quick return investment projects over those with more difficult, longer term return on investment, he points out that most of the company's customers are, in fact, taking a long-term view and looking at the entire lifecycle cost of port equipment.

 “They are looking beyond the initial purchase price and evaluating the overall cost and potential of any crane in terms of overall availability, spares and maintenance cost, cost of down time, productivity and associated earning potential,” he says. For his part, Mr Vanhanen stresses that “everybody” is taking a closer look at the solid fundamentals of each investment case, with the less riskier projects being preferred.

However, in respect of whether smaller operators are being squeezed out of the market as finance does get harder to find, he notes that there are still a lot of markets and operations that are not necessarily well suited to be taken on by global players and there will also be a role for smaller companies well into the foreseeable future.

“Financing will naturally play a significant role,” he says, noting that smaller operators are an important customer group, especially for smaller port authorities and serve markets which are not the main focus of the large operators.

In Mr Bunyan's view, “smaller, local operators are still providing an invaluable service. While there is undoubtedly a move towards larger ports and larger equipment, smaller ports with high quality productive equipment will always have a vital role to play in the supply chain.”

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