A much needed correction

The answer would probably be clear cut if you worked for someone like the Royal Bank of Scotland (RBS), clearly the good old days were not all they were cracked up to be – as the British taxpayer knows to his/her cost in the case of RBS.

How about in the international terminal operating business though? It was plain to see in a large part of 2008 and 2009 that a significant amount of pain was endured – reduced turnover and profits being primary indicators of this.

Another prominent indicator was the much scaled down approach to business development – while they are reluctant to admit it big names such as Hutchison, DP World and PSA international all but shelved the idea of terminal network expansion for a while. Hutchison even went so far as to virtually remove its entire business development department or that bit of it focused on new terminal acquisition.

The business climate had gone sour, money was tight and in this environment it made sense to batten down the hatches.

In 2009, International Container Terminal Services Inc (ICTSI) was virtually alone in announcing a new container terminal build, operator, transfer scheme, for Manzanillo, Mexico.

Confidence is returning now, however, this is not to say that there is a return to the old ways and in some quarters there may still be a price to be paid for past excesses. A lot has been learnt.

On the upside, as tougher times inevitably do, they have generated significant internal company reviews which have resulted in significant cost cutting and streamlining. Net result, leaner and keener organisations at all major levels.

Even port labour has taken onboard the need to adapt to changing times – a myriad of recent labour agreements show more flexibility and the willingness to be paid in line with performance.

Deals in Algeciras and Malaga, Spain, where port labour traditionally has had a hard nosed attitude to working with their respective employers, are particularly indicative of this new attitude.

There is also the fact that the market for disposals has got more sensible – a very necessary adjustment. The valuation of existing businesses has come down from unrealistic highs and generally there is a reassessment of the value to be obtained from port infrastructure.

At the same time, those parties that did go in for the higher end deals of two years ago or so are doubtless to some extent kicking themselves – a hard lesson learnt, principally by pension funds, private equity and infrastructure fund interests.

On the international terminal operator front, less hurt is visible but the potential for it can be seen in events such as Hutchison deciding not to go ahead with its high price Thessaloniki container terminal concession and the ditching of its Manta, Ecuador container terminal concession. Both “opportunities” did not fit with the onslaught of the credit crunch.

As international terminal operators begin to come out of their shells – except individual companies like ICTSI who weathered the storm comparatively well and were still very much in the business of looking for new opportunities – they do so with something of a new culture set.

Typically, for instance, where a new BOT scheme is proposed, if they are interested they will examine very critically the cost basis of such a project looking to achieve major reductions to reduce risk and bring the profit line closer.

Equally, much more work will be done on evaluating an opportunity – no one wants to end up with either a dud or marginal business. Healthy profit potential is the order of the day. The speculative “buys” that sometime happened no longer happen. They don’t even happen any more with infrastructure funds some of which who have been known to get involved with some fairly unattractive deals for what now can be regarded as fairly spurious reasons – gaining a foothold in a given market sector for example.

MacQuarie’s backing of the DCT Gdansk project with the advantage of hindsight looks like an expensive mistake. For all the terminal’s shouting regarding increased volumes, is it anywhere near to making the return on investment that MacQuarie would like to see?

Generally, it is true to say that there is a new sensitivity afoot in the sphere of port investment and this “correction” can only be a good thing for international operators and other port investors. Equally, this has to be recognised by those parties that wheel out new investment opportunities – it takes two to tango.