When global port privatisation first took off in the early 1990s, many of world’s large stevedoring companies took advantage of favourable concession terms to quite literally buy market share. Martin O’Neil, Chief Financial Office of Philippinesbased International Container Terminal Services Inc (ICTSI) is clear that port authorities and governments are a lot smarter nowadays.<\/p>\n
“What we find now is that they are trying to squeeze more out of deals, either by insisting on low tariff rates or more cash upfront. So, things that we would have absolutely bid for ten years ago are today much more unattractive. As a result, we have to be more selective in the type of project that we get involved in.”<\/p>\n
ICTSI Senior Vice President, Tom Falknor, is therefore clear that to justify bidding for new port concessions, certain criteria have to be met. In terms of their own company, both Falknor and O’Neil insist that their shopping list is mainly composed of established terminals handling 100,000TEU-500,000TEU, but where there is still significant growth potential. While these types of concessions do draw some interest from other global stevedoring groups, shipping lines tend to eschew them in favour of higher volume operations, which ICTSI tends to avoid especially where a high proportion of transhipment traffic is involved. It should be remembered nevertheless, adds Falknor, that ICTSI’s Manila International Container Terminal flagship operation is a million TEU+ operation confirming that it can compete in this league if it chooses to.<\/p>\n
The Baltic Container Terminal (BCT) in Gdynia, Poland, one of two current ICTSI overseas container management operations, is a good example of what the company is trying to achieve vis-a-vis its terminal acquisition policy. Essentially a feeder port, BCT acts as a gateway terminal serving a distinct hinterland market and has significant development potential. From a throughput of 250,000TEU in 2002, it reached 304,000TEU last year and is on course to beat 350,000TEU this year, with annual growth of 20%-25% predicted thereafter.<\/p>\n
Re-engineering work processes means that from a profit of US$1m in 2002, Falknor remains confident that the fundamentals are sufficiently strong enough to allow BCT management to significantly improve upon this over the coming years, thereby providing the funds to support the doubling of BCT’s annual handling capacity from 400,000TEU upon acquisition to over 800,000TEU within the next five years At Suape, Brazil, ICTSI’s other international holding, a deal with the unions to employ dockers directly, rather than hiring them from the port authority has proved the springboard to enable major growth potential to be finally realised. New labour contracts scrapped payments to stevedores on a per-box-handled rate, thereby boosting productivity. As a result, the terminal company has been cash flow positive throughout 2004, as well as net income positive. “From a market point of view, Suape has been very successful, ” insists O’Neil, adding that with a throughput of 150,000TEU, the terminal is well above its original forecast on volume.<\/p>\n
Effectively, these two terminals draw on and build on ICTSI’s hardearnt expertise in terminal development, management and operations in locations such as Argentina, Mexico, Pakistan, Saudi Arabia, Thailand and Tanzania, all locations where there is a significant degree of risk but also a higher profile of reward.<\/p>\n
MEETING NEW NEEDS AND COPING WITH BID BLIND SPOTS In other parts of the world, ICTSI is also involved in most major container terminal tenders, although Falknor reiterates that the terms and conditions associated with most recent port privatisations are indicative of a shift towards a much tougher attitude adopted by maritime authorities around the world. Some contracts, he notes, are being negotiated on what amounts to a private invitation basis, which is a fairly new phenomenon in the industry.<\/p>\n
“In addition, there are some tenders that simply do not make economic sense, so we do not get involved, ” he emphasises. “For example, we looked at Cochin, but concluded the best return on investment that could be made was in the region of 10%, but that implied paying the port authority nothing. However, we only really bid when we believe we can make a minimum return of 15%, which was not possible in Cochin because the whole contract was based on revenue sharing with the port authority.”<\/p>\n
Falknor therefore confesses his astonishment that Dubai Ports International (DPI) was willing to part with 33% of its future revenue to secure the concession. “Such a figure is impossible to justify on pure economic terms, ” he stresses, adding that DPI’s foray into Constantza, Romania, can have also only been prompted by a desire to establish a global presence, rather than seeing the concession in purely economic terms.<\/p>\n
The dependence on revenue sharing with the Jawaharlal Nehru port trust also ruled out an ICTSI bid for the third container terminal concession there. Indeed, Falknor also believes that the eventual award to a Maersk\/Concor joint venture could not be justified on pure ROI. “The two partners can clearly generate secondary revenue streams from this project, which is not something we could have done, ” he observes.<\/p>\n
Falknor’s previous experience with both Sealand and APL has also made him extremely wary of current shipping line involvement in terminal management projects. “We have done a lot of work trying to convince governments that allowing shipping lines to manage common user terminals is not ultimately in the best interests of their economies, ” he stresses, “and especially where those terminals are the only gateway terminals to their respective countries as is often the case in the emerging world. In the latter instance in particular, ” he continues, “governments are becoming ever more aware that shipping lines tend to use terminals to dominate the local market, effectively reducing competition and pushing up rates.<\/p>\n
“Certainly, ” he concludes, “this is a point that was debated by South African and Nigerian delegations at the recent Port Finance and Investment Conference held in London and thus the many issues surrounding this subject do appear to be percolating through to the right quarters after the initial blind spot, much of which can be attributed to a desire to anchor cargo to a project through a line’s involvement.<\/p>\n
Increasingly, “he suggests, “this short term gain is being recognised as a path to long term pain, and perhaps all the more so given the hugely negative experiences of the award of common user terminal concessions to shipping lines in locations such as the Ivory Coast and Angola.” Neither of these concessions are working properly and the Angola one where APM Terminals\/Maersk is involved is the focus of a legal dispute.<\/p>\n","protected":false},"excerpt":{"rendered":"
The ICTSI game plan to acquire new terminals overseas has a niche orientation that plays to the companys strengths. Alex Hughes reports.<\/p>\n","protected":false},"author":8,"featured_media":7511,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[67],"tags":[],"sponsor":[],"class_list":["post-7510","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bulk-handling"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/7510","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/comments?post=7510"}],"version-history":[{"count":0,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/7510\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/media\/7511"}],"wp:attachment":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/media?parent=7510"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/categories?post=7510"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/tags?post=7510"},{"taxonomy":"sponsor","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/sponsor?post=7510"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}