Stability and growth predicted for Baltic region

Figure 1
Figure 1. Source: WSP
Table 2
Table 2. Source: WSP
Table 1
Table 1. Source: WSP
DCT Gdansk
DCT Gdansk is under new ownership

DCT Gdansk sale, strikes in Gothenburg and cargo volatility for St Petersburg, but the Baltic port region is set for growth and expansion, says AJ Keyes.

Based on container volumes handled, 2018 was a good year for ports that comprise the Scandinavia-Baltic (Scan-Balt) region, as Associate Director for WSP’s Maritime Advisory
Group in London, Steve Wray, confirmed. “Total Scan-Balt volumes increased from 7.83m TEU in 2017 to 9.49m TEU in 2018, mainly a result of economic recovery at Saint Petersburg and Kaliningrad together with further growth at DCT Gdansk.

Poland and Russia recorded a 28% share of total activity each, with Finland seeing 12% and both Sweden and Lithuania providing 8% each.”

The Scan-Balt region is a large area consisting of a relatively high number of ports, but in terms of transhipment options over facilities in North Europe, such as Rotterdam and Antwerp, or German ports, the choice of a hub port option for shipping lines is quite low.

Table 1 compares the volumes of selected major ports in the North Continent region and Baltic that handle transhipment demand between 2014 and 2018. While not all the volumes shown will move to the Baltic via feeder, the throughput trends highlighted remain a useful marker for comparative purposes – including DCT Gdansk as a Baltic hub port.

The development of DCT Gdansk in the region market has become more focussed since it opened, as WSP’s Wray confirms. “When DCT Gdansk commenced operations, transhipment really helped launch the port, but Polish import-export demand is now a key factor in current development levels and projected growth.”

The impact of transhipment on volumes at the larger northern European ports in 2018 is shown in Table 2. DCT Gdansk still recorded an incidence of 37%, but this was much lower than the 57% and 77% for Bremerhaven and Wilhelmshaven, respectively.

With large-scale infrastructure and deep water for the larger ships, DCT Gdansk competes effectively as a transhipment hub for the Baltic and Russian markets against the German and Benelux ports.

However, recent growth from import/export Polish hinterland markets is also relevant, as endorsed by new owner PSA, with its corporate spokesperson adding: “Poland has a strong track record, and the country’s growth is above the European average. We strongly believe in the potential of DCT Gdansk to take advantage of this favourable economic situation to further position itself as the main hub to serve the CEE and the Baltic regions.”

DCT Gdansk has seen strong overall growth in its throughput, as Figure 1 shows. Between 2009 and 2018 the port recorded throughput increases of 26.2% per annum from 240,000 TEU to 1.95 million TEU.

Growth that was confirmed by a corporate spokesperson at new owner, PSA International: “Volumes have steadily grown over the past years to reach 1.9MTEU in 2018 and we expect the growth to continue in 2019 and beyond.”

By way of comparison, at Gdynia in Poland, the two terminals operated by ICTSI and Hutchison Ports still generated good growth of 7.3% per annum over the same period, with collective volumes rising from 378,000 TEU to an estimated 715,000 TEU.

Positive increases, but below the activity in Gdansk, although this is also partly attributable to not handling the larger ships on Asia-Europe trades and serving the Baltic with feeder demand.

Nevertheless, the Polish ports collectively do show continued and ongoing growth in recent years, with the 2011 total of around 1.35m TEU in 2011 surpassing 2.83million TEU in 2018.

The ability to receive larger ships remains an important factor to PSA International, as its Corporate Spokesperson confirmed: “DCT Gdansk is an ice-free location that has zero maritime restrictions, making it the optimal location to serve as a hub port and is the only terminal in the Baltic Sea capable of taking the largest vessels afloat.”

The current phased expansion at DCT will see the terminal increase capacity to around 3.0 million TEU per annum, with additional future investment seeing berths 3 and 4 developed in time, subject to demand.

With the background of growing volumes and investment in infrastructure, it was no surprise that when Macquarie Infrastructure Partners placed DCT Gdansk onto the market in
2018 that there was immediate, and strong, interest from a from a number of potential new owners and investors.

Ultimately, a joint venture of Poland’s sovereign wealth fund, PFR, and global terminal operator, PSA International, subsequently acquired the facility at a reported €1.5 billion ($1.7 billion).

Although DCT Gdansk is growing volumes and investment in infrastructure continues, there are developments at other Scan- Balt and competing ports too. The Scandinavian container port market comprises a mix of regional trades and not transhipment activity, some direct shipments via Gothenburg and a limited element of feedering into Baltic ports.

Despite the significant sailing distance from the main East-West shipping routes, APMT signed a 25-year concession at Gothenburg to operate the Skandia Container Terminal (SCT) in 2011, therefore endorsing potential that exists. The shipping line was already the principal customer, albeit originally with feeder ships rather than direct deep-sea calls.
Maersk Line clearly envisages that sufficient demand exists in Sweden to warrant consideration of a direct call, which can occur after the ship has discharged cargo at other key hubs enroute.

Concession-holder at Gothenburg, APM Terminals, is already underway with its investment that will see the port being able to provide a total annual capacity of 2 million TEU by 2019-2020, an increase over current levels of 1.7 million TEU per annum.

The investment plan of SKr250 million will introduce new straddle carriers to increase current yard capacity by 25% and build a second container yard, along with introducing
automated truck gates.

However, there was a serious workforce dispute in 2017 resulting in a large volume decline, as WSP’s Wray notes: “The 2017 total of 643,000 TEU was down on the 2016 figure of 798,000 TEU and well below the decade-high throughput of 900,000 TEU seen in 2012. There was a recovery in 2018 back to 753,000 TEU, but the prolonged labour dispute has severely impacted the port with throughput effectively falling by 30% and there could be potential for the expansion to slip back.”

It is also important to assess the deepening of the River Elbe and its impact on the Port of Hamburg. Although this port is not located directly in the Baltic Region, it has a strong, traditional role as a hub port for serving Russia and the Baltic market, but lack of water depth on the Elbe restricted larger container ships calling from Asia.

The dredging project has finally been approved and will enable the port to again target the larger vessels, although the time taken to commence has allowed other ports to advance their credentials for serving the Baltic region.

In addition to St Petersburg (see Russia, With Love panel), Kaliningrad is an example of a Baltic port where there has been recently development activity. In February 2018, dredging works commenced to deepen the port and approach channel to 14.5m and are expected to finish in 2020-2021.

The investment comprises straightening of port entrance to reduce wind and tug boat restrictions for large vessels, dredging of approach channel to 17m and KKT basin to 14.5m. Longer-term there could be construction of an Outer Port - a conceptual plan to reclaim deepsea container terminal (130 ha.) outside of the northern port entrance with development cost of €1.0bn is known, but unconfirmed.

In addition, the Southern Port development (adjacent to the KKT facility) is another conceptual plan to reclaim and expand southern area. It is very ambitious. The construction costs associated with the plans are significant.

Wray at WSP believes that there are better options. “There is room for further expansion within the existing port at considerably lower costs,” he confirmed, before adding, “The Klaipeda Outer Port project must be considered unlikely to be developed within the next 10 years. The development would then be subject to feasibilitystudies to value economic rationale of the project vs. capacity needs in the country.”

Of more relevance is Mediterranean Shipping Company requesting the Klaipeda Smelte facility to increase its capacity to 800,000 moves per annum – the equivalent of 1.2 million TEU - by 2020. The transhipment share at this facility has increased from around 40% in 2017 to 65% currently, with MSC seeking to see it rise further to 80% over time.

The main destinations for cargo being transhipped are St. Petersburg, Tallinn, Helsinki & Rauma. It is reasonable for the Port Authority to have offered its major shipping line customer, MSC, highly competitive port dues and handling rates to entice the cargo to be moved.

To satisfy the requirements of MSC and larger ships calling to the facility, a number of improvements are ongoing. For example, the lengthening of the STS crane rails with an
additional 100-150m in northern direction and new ship-to-shore cranes with an outreach of 21 containers (due in September 2019) and 10 additional RTGs will be added.

Collectively, the terminal capacity increases from 450,000 TEU per annum to 800,000 TEU per annum.

Longer-term, Smelte is planning to add a third berth of 347m (with 16m draft) by reclaiming the northern corner of the terminal. This new berth will be equipped with 4 ship-to-shire cranes, capable of handling 22,000 TEU vessels, while raising the terminal capacity from 800,000 TEU per annum to 1.3 million TEU per annum.

Approval by Port Authority for the project is pending, but the development could be operational by 2022. These developments indicate that Klaipeda is likely to be a transhipment hub for the Baltic Region.

This could impact existing hub ports, especially Antwerp where MSC already has a large-scale terminal operation. It further confirms that a hub port
in the Baltic area is a feasible prospect moving forward – though St Petersburg could see fewer direct calls with larger ships, with feeder activity remaining more prevalent moving forward.

So, this provides a good summary of the position from a competing port perspective, but what about the shipping lines?

There are a number of deep-sea container liner services calling to the Baltic market, including a combination of both global operators and major Alliance groupings.

WSP’s Wray provides clarity, “The 2M Alliance of Maersk Line and MSC are calling to the region with ships up to 20,500 TEU, while the OCEAN Alliance carrier group is also utilising very large ships of between 18,000 TEU - 21,000 TEU. So, we have scheduled regular calls from some of the bigger container ships calling in the region, most notably at DCT Gdansk (2M Alliance’s AE10 service) and also to both Gothenburg and Aarhus (on the 2M Alliance’s AE5 string).”

There are other deep-sea services using slightly smaller vessels than the largest as part of the Asia-Europe trades, with MSC the dominant shipping line service provider offering a further five services (in addition to its participation in the 2M Alliance). In fact, the operator links the Baltic region with the Mid East using ships in the 8,500 TEU to 13,000 TEU range, with Gdynia and Klaipeda on the rotation and a further two MSC services operate to/from Australia and provide regular scheduled calls at Gdynia and
Klaipeda, with vessels in the size range of 5,500 TEU to 8,000 TEU.

These deep-sea services are all in addition to feeder options that also exist into the region from the main transhipment hubs in North Europe. The limiting factor in the past had been quality of port infrastructure, notably water depth and crane sizes. The position is now changing, with DCT Gdansk, for example, enabling the larger ships. It means that any port wishing to compete for this tonnage will need comparable infrastructure.

Feeder services remain an important connection between the large deepsea port and the smaller outlying facilities in serving the Baltic region. The “hub and spoke” process is well established in the Baltic region.

There are currently an estimated 77 scheduled services that can be classified as feeder that are serving the Baltic region. This comprises a mix of specialist feeder ship operators, plus the regional activities of the main deep sea liner companies undertaking this method of serving the Baltic, including:

Unifeeder - a North European and Baltic specialist feeder operator, making 8,000 ports calls at 46 ports annually, using 32 vessels. Acquired in 2018 by DP World. Currently involved with 13 services in the region.

X-Press - world’s largest common feeder operator, global activities, with 100 vessels and 5.6 million TEU carried annually. Operates as part of seven regional Baltic services.

Seago - now part of Sealand, which is an AP Moller Maersk company. Offers 20 services in Europe & Mediterranean, with 11 directly to/from the Baltic.

Clearly, all major hub ports (Antwerp, Rotterdam, Hamburg, Bremerhaven, Gdansk etc) see a significant number of connections to the Baltic region - this is not surprising, based on their established roles in serving the markets in Russia and Scandinavia.

The sizes of ships employed can vary, from smaller units of under 600 TEU up to the largest vessels of 3,600 TEU. However, the more typical size of feeder ship currently being used is in the 1,500 TEU - 1,900 TEU range and likely to expand too, especially as larger vessels call to transhipment hub ports with bigger exchanges.

There are several key conclusions that can be drawn relating to the Baltic region and port activity – especially for the transhipment business.

The emergence of DCT Gdansk (in particular) is relevant for the German ports which have previously represented the tradition role of serving the Baltic region via transhipment.

Ports in Scandinavia and Russia represent former spoke markets to the largescale hub facilities (especially in Germany) and have seen some direct calls, such as in Gothenburg (as port infrastructure has improved).

Current port investment is largely focused on building out existing projects, rather than Greenfield developments, as well as projects to improve access to the largest vessels.

The level of infrastructure currently available is already substantial, with deep water, large-sized terminals, long container quays and many cranes – however the availability of the container volumes moving warrant the large-scale port offerings.

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