Alliances, uncertainties and opportunities
The European ports sector is full of diversity, with opportunities and challenges to match finds Felicity Landon
Crystal ball, anyone? With the major container line alliances in shake-up mode yet again, European regulation back on the menu, the green agenda continuing to have its impact, and the obvious uncertainty in terms of economies and trade, these are times of shifting sands for Europe's ports.
In the run-up to the introduction of the English Channel, North Sea and Baltic Sea Sulphur Emission Control Areas (SECAs) last year, the doom mongers were predicting a modal backshift. This year, there are dire warnings of a modal backshift due to the new SOLAS rules on container weighing. And there is much else to keep strategy managers' minds occupied.
“European ports are very diverse and operating in different markets and different situations,” says Isabelle Ryckbost, secretary general of the European Sea Ports Organisation. “However, I think one of the big challenges for certain ports is the decarbonisation of the economy. Certainly, if a port is very active in coal, they may have to work to get alternative business. They will have to develop a strategy, but it is a challenge. At the same time, ports are working to 'green' their operations and asking their users to lower their carbon footprint.”
Another issue she highlights is the new Union Customs Code (UCC), which entered into force in May. Recognised as the biggest shake-up in EU Customs rules and regulations for 20 years, it significantly changes what is and isn't allowed in import, export and storage procedures. “There is concern about the impact of the UCC and ports have a lot of questions,” says Ms Ryckbost.
In terms of the overall picture, she says uncertainties on both the economy and trade are the big issue. Clearly the days of predictable, large jumps in trade are gone.
“We still think worldwide trade will increase, maybe less spectacularly; but it is very difficult if you are looking towards investments in infrastructure, to make a decision on what to do,” she says. “The process for big investments is quite slow for both the financial part and the environmental impact assessments and the state of the economy can suddenly change in one direction or the other - it is challenging. Overall, the picture isn't very clear. Some ports have very good figures, others are facing more difficult times.
“There is also the question of what will happen with fuel prices. When the SECAs came into force, the impact was very low because fuel prices were so low. Will this remain? We don't know.”
Financing of ports and the thorny issue of state aid is also up for debate once again. “The EC wants to bring clarity in certain categories of state aid - which is good if it is well done,” says Ms Ryckbost. “There is also discussion about corporate tax.”
And what of the long saga of the Port Services Regulation? “Initially this was a big problem for ports and there was panic about what would happen. But a compromise has been found. No one thinks the text will be fantastic but it is an acceptable framework for ports with some acceptable levels of transparency. We are certainly a fair way from the burdensome and nitty-gritty proposals put forward at the start, so I think in the end this isn't too much of a challenge.”
Finally, there's the UK's in/out referendum on June 23, which will doubtless be a topic of hot conversation at ESPO's conference in Dublin in early June.
“Ports that are doing business with the UK are waiting to see what will happen. We don't know what would happen if the UK says 'no' - would it be the same as Norway and Iceland, where the UK would be subject to all the same rules but just can't have any say in deciding them? Would a Brexit be a game stopper both for British ports and ports on the continent? It's very difficult to assess because we don't know what 'no' would mean.”
The north-south tussle has always been a factor in European ports, with a particular element of competition for overlapping markets in Austria, southern Germany and elsewhere, says Neil Davidson, senior analyst, ports and terminals, at Drewry.
“With low bunker costs and too many ships, maybe there is a bit more temptation right now for carriers to operate more direct services to southern Europe to use up ship capacity; that might be a benefit to the Adriatic ports, and to Genoa and Marseilles.”
However, he says: “Cargo decides ultimately, or owners and forwarders, where the ships will call based on a whole lot of factors. The big Northern European ports have a very large hinterland very close to them and very effective transport networks to serve further into the hinterland. It isn't just a question of distance, but also service frequency and the benefits of critical mass. If you are a very big port, you can offer many more services by train or barge. But the Southern European ports keep chipping away at it.”
Mr Davidson says the massive shake-up of alliances represents the biggest test of all for any, north or south. “Whatever efforts you are trying to undertake to invest or attract customers, it's clouded by the uncertainty of the alliances, where there are so many moving parts. There is a degree of notice for a port - so everyone is really looking at 2017 for some clarity when the new alliances are all in place.
“All the ports can do is keep in close contact with the alliances and shipping lines and hope they can persuade the new alliances to choose them, emphasising whatever fundamental attractions they have got.”
The big port development story in 2015 was the opening of the APM Terminals and DP World terminals at Rotterdam's Maasvlakte 2, together adding more than 5m teu of container capacity at the port. “They are still ramping up and both in the process of trying to win traffic in the midst of the alliances shake-up,” says Mr Davidson.
On the list this year are the opening of DP World London Gateway's third berth, the opening of Liverpool2 deepwater container terminal, ongoing investments at Antwerp and new logistics developments at Felixstowe. With volume growth slowing, ports are holding fire and being more cautious on big investments, says Mr Davidson: “They want to see what happens to the market in the next few years, particularly with uncertainty because of the Chinese slowdown.
“The weakness in demand growth is very clear. The only thing they can be certain about is that bigger ships are coming and the orderbook is still bulging.”
However, the reaction to the prospect of larger ships is no longer so clear-cut, he says. “Terminals are owned by investors and shareholders who don't just react and jump when told to jump - clear-thinking owners want a return and they weigh things up.”
With little or no growth and margins being squeezed, he says: “There is a growing recognition that shipping lines have to be more circumspect if they are considering the next round of bigger ships. The players involved in serving these ships are starting to wonder whether they even want to play the game anymore.”
Luc Arnouts, chief commercial officer at Antwerp Port Authority, says the arrival of 2M (MSC and Maersk) and other changes recently have put Antwerp in a stronger position. The port's container throughput rose by 7.5% to 9.65m teu last year, and there was another 4.6% year-on-year increase in the first quarter 2016, to 2.46m teu.
“It looks like 2M is not going to be affected [by changes],” he says. “The only thing we can do as ports and players in the chain is follow very closely what is going on and keep close contact with all the players.”
The aspect of cargo generation is crucial for carriers and alliances, he points out: “They are going to the ports where cargo is available, and smaller ports with less cargo generating power are being called less frequently or even being put aside. Antwerp is in a position of having cargo generating industry inside the port and also being well connected to the hinterland. Added to our high productivity, that gives us certain confidence - but nevertheless, we are aware that it's a volatile market and things can change overnight.”
Antwerp is working very hard on establishing further port expansion at Saeftinghe, on the left bank: “But in a very phased approach as we don't want to create overcapacity,” says Mr Arnouts.
At the same time, the port authority is investing in hinterland connectivity, with a recent example being the direct rail connection set up with Duisburg. This, he says, is all part of the port's ‘supply chain thinking’.
“You can be a great port but if you work as an island, you will not win the competition with other ports. You need excellent maritime connections but also good connections to the hinterland. We are prepared to give limited financial subsidy in the start-up phase of projects where private intermodal operators start new or additional links - for example, the new link to the Czech Republic, and an additional barge service to the southern part of the Netherlands last year. This is part of our proactive role as a port authority.”
This is particularly vital as big ships get bigger, he says. “It is a challenge to get huge quantities of containers in and out of the port in a decent time without creating congestion and a negative impact on mobility in the whole area.
“We should sit and talk with all the players in the chain. In our opinion, the time is over when one player - in this case the carrier - can unilaterally do its evolution. You can't just drop 8,000 teu in port and expect the whole infrastructure to handle it. The size of the ship isn't the issue. It is about its impact on the infrastructure - road, rail, barge. We have to have economic and social viability of handling; it has to be a sustainable supply chain.”
DEPRESSED OIL PRICES 'GOOD FOR BUSINESS'
Rotterdam, the largest port in Europe, saw cargo volumes stay roughly level in the first quarter of 2016, totalling 116.9m tonnes in the three-month period. Increased crude oil and oil products offset a decrease in dry bulks and containers.
“Shipping of crude oil and mineral oil products are the main drivers in the increasing volumes, both last year and the last months,” says spokesman Sjaak Poppe. “The low oil price is quite a stimulant for the downstream business. Last year saw a 4.9% rise in volumes [to 466m tonnes], and we hope to reach the same total volume this year.”
Coal imports rose last year and also in the first quarter 2016, due in part to re-routing coal for German steel production via Rotterdam. It is not clear what will happen to coal volumes in the coming years, says Mr Poppe. “At the same time, all plants from the 1980s are closing in the Netherlands and the government is investigating closing two more Dutch power plants from the 1990s. One of them, at Amerongen, gets its coal via Rotterdam. The other is in Amsterdam. In general, it is not clear yet what the Paris 2015 Climate Treaty means for the policies of the Netherlands and Germany.
“The gap, or at least part of it, might be very well filled with biomass, which is being used and will be used much more for energy production biofuels and bio-based chemical industry.”
In the container sector, both the new terminals at Maasvlakte 2 are operational but not yet handling the volumes they have been designed for, says Mr Poppe. “At both new terminals, the number of containers handled increases every month. It is generally expected that they will run at full speed by the end of the year.”
BREAKING RECORDS IN ANTWERP
Antwerp broke records in 2015, easily passing the 200m tonne mark for cargo volumes for the first time. In total, the port handled 208.4m tonnes, which was up 4.7% on 2014. Within this, containers were up 7.5% and liquid bulks were up 6% to 67m tonnes.
“The growth in liquid bulks continued in the first quarter 2016 with another 10% increase,” says Luc Arnouts, chief commercial officer at Antwerp Port Authority. “This is, of course, to do with the presence of big chemical operators - Antwerp is the largest integrated chemical/petrochemical cluster in Europe. That generates feedstock and finished and semi-finished products. But that is not the only growth factor - the other one is independent tank storage for trading.”
The past few years have seen huge investments by private companies investing in tank storage purely for trading, he says. “This isn't immediately related to production plants in the port but business develops here because of the presence and know-how and expertise of people who know about petrochemicals, chemicals and logistics, and it has been growing tremendously.
“We are still getting requests for new investment proposals in liquid bulks and this is somewhere we will absolutely see further growth.”
Two key areas of focus for the port authority are the former MSC terminal at Delwaide Dock, earmarked for cargo handling and logistics, and the Churchill Industrial Zone. “Antwerp has its strong position but also has capacity for growth,” says Mr Arnouts.
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