Is there an Independent in the room?

Hands up the independent international terminal operator! The recent round of deals, mergers and acquisitions that have taken place make it an interesting question as to who nowadays is really an independent international terminal operator.

Is it Hutchison? No, the recent deal with PSA whereby PSA International has acquired a 20 per cent effective equity and loan interest in Hutchison Port Holdings Limited (HPH) and Hutchison Ports Investments S. a. r. l. (HPI) respectively gives it a linkage that in real terms disqualifies it from this title. The earlier deal Hutchison agreed to whereby PSA purchased 10 per cent of COSCO-HIT and 20 per cent of Hong Kong International Terminals (HIT), the original power base of Hutchison also took it in this direction.

DP World, which in the last few weeks has acquired P&O Ports, is another organisation that is technically disqualified from the label of truly independent – it too has linkage to PSA international through the two companies joint ownership of Asia Container Terminals (ACT) in Hong Kong. PSA China is the vehicle that PSA has employed in this respect. DP World acquired ACT as part of its acquisition of the CSX Terminals Group.

APM Terminals – well we know APM Terminals talks up its independence but we also know that APM is part of the Moller Group and has links to Maersk Line, which in at least some peoples’ minds makes it not quite independent enough. It raises the old debate of whether a terminal operation spun out of a shipping group can really satisfy other shipping lines that it is truly independent?

Stevedoring Services of America (SSA) – yes, bingo, it is a truly an independent terminal operator. There is no shipping line or other entity that has a share in the parent company – it has only made alliances in the terminal sector with shipping lines such as the Mediterranean Shipping Company (MSC) and Matson on an opportunity basis, something all the “players” in the sector tend to do.

On the other hand, SSA is up for sale with a reported price tag of $2 billion dollars – an interesting price as it wasn’t so long ago, rumour has it, that SSA was offered for sale to a select few parties for $1 billion dollars, half the price. This has to be a testament to how ports have come of age as an investment vehicle. Another barometer of this is that it is three investment houses that are reputed to be in the frame to acquire SSA Marine; Macquarie, Babcock and Carlyle.

So how long will SSA Marine retain its independent status, perhaps not too long if it is “turned” at a premium by one or more of these parties.

Patrick Corp of Australia did, of course, up until recently have an independent status, albeit that it was part of a diversified group. Now it is part of the Toll Group. In mid-April Patrick Corp accepted a A$5.81 billion (US$4.23 billion) takeover offer from transporter Toll Holdings that will create one of the world’s largest transport and logistics groups. While Australia-based Patrick never really spread its wings abroad it may well do so now under its new management.

The merger of Toll and Patrick will create an integrated logistics group valued at around A$10 billion.

Eurogate is another name that has to be considered in this context. Up until recently, it was considered to be a business focused on pan-European operations. It has spread its wings a little recently, however, and is now in North Africa and generally there are indications that it is prepared to look beyond Europe if the deal is right. As far as its independence is concerned, it is notable that Eurogate does have strong links to Maersk/APM Terminals. It is “in bed” with this group on its “doorstep” in Bremerhaven, has recently announced that it will partner with it in the new Wilhelmshaven deepwater container terminal project and some time back sold a minor equity stake to the Moller group in its Gioia Tauro container transhipment terminal at the foot of Italy.

So who is independent in the full sense of the word?

Only one name really springs to mind among the independent International container terminal operators, International Container Terminal Services Inc (ICTSI), the Philippines headquartered group.

ICTSI, which has just acquired a new terminal in Indonesia, a country where the Government seems to be issuing warming signals to Hutchison and P&O Ports that they might consider taking back their operating concessions if they do not lower prices and raise their game generally.

ICTSI operates a million TEU+/yr container terminal in Manila but is basically focused on medium to small container terminal businesses with its network including terminals in Suape, Brazil, Gdynia, Poland, Toamasina, Madagascar and other locations.

It not only remains an independent but also Enrique K. Razon, Chairman and C.E.O. of the company has recently acquired a significantly lager shareholding in the group reflecting his confidence in its future direction and prospects.

There are also a few independents remaining at a more local level – Gulftainer being one notable example in the Middle East. This company has comparatively recently started to look to deploy its expertise across the region it is based in on a selective basis.

JUST THE WAY OF THINGS?

It is perhaps hardly surprising that what has happened in the container shipping sector – mergers and acquisitions – is now progressively being mirrored in the container handling sector among the various international terminal operators. There is a culture to these things and when it becomes flavour of the month it is hard to stop the ball rolling. And all the more so when new investors appear that see dollar signs – and for this, ironically, the industry can thank to a large extent DP World who in a few short weeks raised the bar on the visibility of the port industry as a result firstly of its generous bid for P&O Ports and secondly for the resulting fuss over a UAE organisation being left in charge of US marine terminal assets.

This was used by the Democrat party as an opportunity to get in a few body blows to Bush and the Republican Party and DP World decided quite quickly to step out of the arena and sell the P&O US port assets. This was something of a noble decision as clearly in the land of common sense it was the wronged party. In all probability, it will lose financially on the mooted sale of these US assets but whatever happens the visibility of the port business will always remain much higher than it was prior to this debacle.

Bottom line, does industry consolidation, merger and acquisition activity make sense? There has been a lot said about synergies between different groupings etc but at the end of the day the opinion held by PS is that putting two port groups together by no means brings the economies of scale and other benefits that can be enjoyed by uniting two shipping lines either partially or wholly. Invariably, different port businesses require vastly different treatments and it is only in a few secondary areas that positive scale benefits can be achieved – equipment purchase, maintenance and other activities of this ilk. In short, a lot of the “spin” we have heard recently following port entity mergers and acquisitions is precisely that, just hot air – there is nothing to back it up.

The real acid test of going down this road, however, will be the reaction of the client base over time. Some shipping organisations like Hapag Lloyd have come out and said early on that they don’t mind but do we really believe them or is this more spin?

Lets face it there are fears on collusion and why shouldn’t there be? There is the also the reality that if you are now looking for an independent terminal operator as say a partner that basically you will end up with two for the price of one.

It will be interesting to see how this trend works itself through in terms of meeting customer needs and delivering real benefits, particularly if the view is right that the benefits available to pass on will be much fewer than those that can be achieved in the interfacing sector of container shipping operations.