The right time to invest

Bank finance is thin on the ground, particularly in Germany, banks can think of better places to put their money than in ship owning these days.

The industry remains highly volatile with rates of return averaging less than 4% over the long run, and much less in the last four years. Terminal capacity is growing in leaps and bounds in most continents and there has to be a question mark on excessive investments in that field.

The fundamentals are not exactly positive. At the macro-economic level, the Euro zone has negative GDP growth, the US growth rate is stalling at 1.5% and China has ‘dropped’ to near 7.5% which is causing its Asian trading partners to experience similar weakness.

Looking at supply and demand, there remain far too many ships across all sectors and with weak global trade, this is not going to change for another couple of years. CIMC, the largest container manufacturer in the world recently announced that its container production in the first half of 2012 was down nearly 43% viz 2011 and European container terminals are also seeing declining numbers, which will be even more pronounced in the coming months.

Despite all these ‘minor’ details, the large terminal operators continue to invest in existing and new facilities. The largest investors are the big five (PSA, HPH, DP World, APM Terminals and Cosco) who control nearly 30% of recorded global throughput. All have new investments and expansion plans which will add significant capacity to the global container handling capability.

In addition, the major ports in Asia and North Europe will need to invest in new cranes to cater for the 18,000 teu ships coming as well as for the 20,000 plus that are rumoured to be under discussion. We can only hope that these patterns are those of lemmings headed for the cliff.