Moodys flags Chinese port pressures

It is concerned that this will lead to margin pressure, the conclusions were detailed in China Ports — Slower Economic Growth Is Challenging the Sector, which followed on from Moody’s report on port operators across Asia.

“Although manageable capex plans over the next three years will alleviate some of the pressure on their financial profiles, weak liner profitability will limit the port operators’ ability to raise handling chargers,” said Osbert Tang, Moody’s vice president and senior analyst.

He added: “In addition, export-oriented ports such as Shanghai and Shenzhen will be particularly affected by slowing container throughput amid muted export growth in China.”

Overcapacity in the liner industry is said to be exacerbating this pressure on the operators’ margins. Moody’s forecasts global containership capacity will increase by 4.5%-5.5% in 2016, outpacing the expected demand growth of 1.5%-2.5%.

Shipping lines are also facing significant pressure on freight rates, which is expected to make it increasingly difficult for port operators to negotiate higher container handling chargers.

These pressures are somewhat mitigated by the manageable capex plans for the port operators, as most have sufficient capacity to handle mega containerships. This is in contrast to many other Southeast Asian ports, which will still see relatively high capex in the next two years.

Moody’s notes headroom is narrowing in the ratings of the port operators, which it says will likely prompt them to preserve cash flow through stringent cost controls and discipline in overseas expansion.

In that context, China’s One Belt, One Road initiative is set to increase M&A capex for the port operators as they expand overseas, although most operators have so far been selective in their investment decisions.

The full report can be accessed on the Moody’s website.