To invest or…?

Does this sound obvious – well it is not rocket science but there again not everyone signs up to this simple code of conduct when making decisions about investing in new port infrastructure. Nowadays,it pays to dig deep into the issue of market need and to consider investment in this respect as a foundation stone of project development.

Indeed, not only can it answer the basic questions of how much infrastructure, in what timeframe, and to meet what traffic need, it can play a major part in optimising the take-up of use of a given facility. It can identify non-traditional or new areas of business development – transit traffic for example – that serve to bring profits closer after start-up.

Market justification is now high on the list of bankers exacting requirements in terms of giving the green light to financing, and equally important providing financing on the right terms. Make no mistake whatever the efforts of government to improve the availability of finance to business the banking sector is taking a very cautious and markedly conservative approach to opening up its coffers. The project that is successful in obtaining financing is invariably one that has proved the case of market need through comprehensive and targeted studies.

Against this background it was interesting to hear recently the European Sea Ports Organisation (ESPO) new Chairman Victor Schoenmakers making the point to his organisation’s members that, “There is indeed no reason to panic” and that “it would be short-sighted for governments, port authorities and private investors to give in to the attitude of some interest groups who claim that the crisis is a good reason to stop or postpone vital investment projects.” He certainly has a point that infrastructure projects have to be looked at in a long-term context but this is perhaps easier to say when public funding comes into the equation as happens on mainland Europe but not in the UK.

Where it is entirely the private sector undertaking a given development, and where there are often shareholders to satisfy, then it is understandable that projects may be postponed or scaled down.

Of course sensible investment has to be maintained but also into this equation comes the fact that port volumes are falling, a trend that has become particularly notable since the beginning of the year.

Many ports expect cargo volumes in 2009 to significantly underperform 2008 throughput, which also contains an element of decline. If there is an upside associated with this trend then perhaps it is that it does provide some breathing space as regards new investment – why invest when demand has fallen off?

Looking at development programmes and taking this into account is sensible and prudent housekeeping. Interestingly, history also shows, however, that the counter approach – to continue investing is one that can deliver significant results over the long term. The port of Valencia, Spain, for example, continued with the development of new generation container terminal capacity during the last recession and this approach ultimately helped it leapfrog its old rival the port of Barcelona and secure increased market share. Bottom line, however, it will have to be a wealthy entity and a brave one that fields such an approach in this current vicious recession.