Old obstacles require new partners
WSP’s Johan-Paul Verschuure sees potential in new investors taking an interest in ports.
Access to finance and the right (pragmatic) skill-sets to develop port projects are still the main obstacles for developing new port infrastructure, especially in developing and emerging markets.
New entrants in the sector are trying to overcome these hurdles. These new entrants have been particularly active in the last one or two years in kick-starting shelved projects or initiating new projects. This was especially the case where public sector or local port authorities had failed to get their projects rolling. These new port developers each bring in their own new specialist skills and team up in consortia to develop port projects. This model should deliver more new projects and has potential for further advancement.
The most interesting new entrants in my view are the international dredging companies. In the last couple of years, there has been a growing number of instances where these companies take part in the port development and put the dredging work in as equity. Approach channel fees are subsequently levied during the operational phase to pay back the dredging costs. This way, the dredging companies are exposed to the market risk of the public port. Marine contractors have applied this business model more frequently with offshore wind parks, but this often includes relatively low levels of market risk.
In recent years the major marine contractors have all increased their activities in this direction — with the majority of it noted in the last 12 to 24 months. This indicates a clear diversification from their traditional dredging model. However, assessing the exposure to market risk is a new area of expertise in comparison with dredging up soil. One could wonder when landside contractors, or even equipment suppliers, will follow the example of the dredging contractors.
Investment in non-core activities exposes the company to a high degree of political risk that is way outside the normal concerns of dredging companies. However, they have good access to Western Export Credit agencies via which they can insure themselves for these development risks. Furthermore, this has also opened up new areas of (private) insurance activity, with major insurers tailoring products to these markets.
Port international incorporated
Having been established for longer, the international branches of some western port authorities have become more active in developing ports abroad. These semi-public port infrastructure providers are exporting their port development and management expertise around the world and locking in their foreland. When domestic activity is limited or constrained, it seems that port authorities are keen to export their business model and brand.
The Port of Rotterdam has been developing this strategy the longest with its involvement in the port of Sohar, Porto Central, and with its presence in China. More recently, Pecém also became part of Port of Rotterdam’s international port network. The Port of Antwerp International has also announced more international ventures in the last two years with their presence in Cotonou and Cote D’Ivoire. Interestingly enough, the smaller Port of Amsterdam recently announced the setting up of its international branch. It is likely that in the coming years more port authorities will join this trend, if only in order to keep track of new developments, or achieve a strategic foothold.
Private companies outside the traditional maritime domain are jumping in on port development opportunities as well. For example, commodity trading companies are picking up opportunities for ports which are handling commodities beyond the need of the commodity trader itself. An interesting example of this is the development in Gabon, where commodity-trading company Olam has developed the main public multipurpose terminal for Gabon, as well as a dry bulk export facility. Although the company would obviously benefit from good infrastructure in the countries where it is active, the mainly grain and palm oil exporting company developed more than it needed for its own benefit. The company leapt at the opportunity when the national government was not able to attract further financing to deliver the project.
Interest in ports as strategic assets with national importance has been growing, driven particularly by the Chinese approach to the Belt & Road initiative. Brexit has also shown the importance of the ports as a strategic node rather than a purely logistical one. Most politically-driven developments used to be the result of aid work by Western governments, or in an attempt to secure business for the private sector (via export credit agencies). However, in the current political climate, it seems that the strategic and political value of port infrastructure is back in the picture. This may result in a partial reversal of the privatisation trend of ports witnessed in the previous decades.
When the (almost) autonomous vessels are developed and blockchain technology makes supply chains more transparent, port infrastructure will have different requirements too. Combining these future logistic chains with fully automated terminals will allow for the full automation of warehouses. This will be very attractive for the future Amazons and other large importers Although their need will be limited for developing dedicated terminals and ports and therefore their participation in high tech and innovative new port developments seems unlikely for at least a couple of years.
Inviting dredgers and contractors, foreign port authorities, or even global acting companies to take on an equity stake, results in more effective port development consortia, where all parties take on the risk they can observe and manage best. Overall, the risks involved in each development will be better managed, thus increasing the likelihood of successful developments. It is all about finding the right partner with the right skill-set. Correct identification of risk and matching with entities with the correct appetite for these risks will get more projects developed more efficiently.
Johan-Paul Verschuure is technical director, maritime, at consultant WSP.
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