Port terminals will be hit by cost-cutting measures that will likely impact modernisation and technology investments.
This is the view from Dinesh Sharma, Director, Drewry Maritime Advisors, who spoke during the TOC Americas Trade Outlook about how the changing global economy has impacted terminal investment, with the COVID -19 pandemic having a key impact on developments.
“A lot of terminals have seen an impact on trade growth since 2009. It’s already added a number of years to their original business plans. Further compression in growth rates is likely to further impact the terminal operators’ business plans and could add a number of years to business plans,” Mr Sharma said.
He added: “Going forward, there will be a greater focus on cutting costs at terminals and this is likely to impact investments in terminals as a whole.”
CapEx analysis
At the start of the COVID-19 pandemic, a lot of expansionary CapEx was withdrawn by terminal operators and put on hold, said Mr Sharma. “A common theme is likely to be a slowdown in CAPEX. There has been scaling back. Anything that is non-essential CAPEX has been pushed back.”
He added: “If revenue is not growing there is certainly bound to be pressure on making sure that costs are controlled which is why I say there will be a greater focus on costs going forward.”
However, he commented that there will be a CapEx for any investment that is justified, such as a project that contributes to lowering operating costs.
Brazil impact
Brazil’s economy has fared relatively well since the pandemic started, despite COVID-19 having a significant impact on trade volumes on the east coast of America.
Andrew Lorimer, CEO of Brazil-based Datamar, said food exports have gone up 10% and cotton exports by 40%, although volumes are smaller. Soya beans, and containerised sugar has also grown significantly from last year. Currency devaluation and demand for swine meat from China has driven exports.
Mr Lorimer said: “The US-China trade war has benefitted Brazil. Year to date exports up 40% and we expect these numbers to rise as a direct effect of the trade war.”
Imports have dropped 12.2% and exports have risen 5% on the east coast of America as a whole due to the exchange rate. Trade volumes were hit hardest in the second quarter.
Exports will likely continue growing and recovery of imports is now in progress. September figures show that there will be a continued V shape recovery, although shippers are fighting to find available containers.
China rebound
Jan Hoffman, chief logistics branch, UNCTAD, noted that before the pandemic a key long-term trend was bigger ships and fewer companies, services and direct services, while at the beginning of the year there was more port calls than the previous year and a drop in the number of ports included in the global liner shipping network. In response to COVID-19, carriers managed to assign less capacity - enabling them to make money, he said.
China is already back to where it was before COVID-19 struck. The rest of the world is now trying to catch up. Mr Hoffman said a -3.5 projection for trade and commodities was made on 12 November.
A key focus is now digitalisation and automation. “Those in the past that wanted paper documentation now agree it’s better to digitalise,” said Mr Hoffman. An action plan starting with ships leading the ports has begun and these measures, digitalisation, electronic payments etc., protect trade and people, not one or the other, he stressed. Technology will “facilitate trade and its transport, and protect us from the virus,” he said.
Looking at the potential privatisation pathway, he emphasised the need to create the best setup for public-private projects, including working with trade information organisations, analysing the measures, making them transparent and identifying potential for further simplification.
Mr Lorimer pointed out that terminals need to increasingly interact with government foreign trade systems. Those systems do change and develop and every time they do terminals need IT and automation services, he said, but questioned how coordinated supply and demand is currently. “A lot of startups are trying to provide these services. There’s definitely a race on for supplying and acquiring technology.”
Mr Sharma shared this view about a disconnect between technology providers and port and terminal operators. “If you look at the private sector, what is lacking is a clear business case for individual tech investments. What we see is a great push by technology companies, lots of great products being launched. Tech from a ports and shipping perspective is very different from the consumer sector. I think these are disconnects that I see.
“There isn’t really a clear business case technology companies can make, some of these products are not what terminal operators require. The technology sector needs to understand clearly what the needs of the industry is and perhaps tune the products to better match what the industry needs.”
Panama spotlight
Panama Maritime Authority (PMA) is one example of an industry stakeholder that plans to focus more on digitalisation and electronic information, confirmed Flor Pitty, General Director of Auxiliary Ports and Maritime Industries at PMA. Ms Pitty said PMA is also making a concerted effort around sustainability measures. Legislation for guaranteeing compliance of regulations on IMO fuel has been implemented. PMA also benefits from the Panama Canal Authority’s ‘Green Connection Environmental Recognition Program’ to help the shipping industry mitigate the environmental impact of their operations. The Canal Authority is supporting environmental management on a global level, explained Ms Pitty. It works with the IMO-founded Global Industry Alliance to focus on energy efficiency and reduce industry environmental impacts.
Bleak economic outlook
Ricardo J Sanchez, senior economic affairs officer – regional expert on infrastructure and ports, United Nations Economic Commission for Latin America and the Caribbean, presented a bleak economic outlook.
Several countries in the region have become the epicentre of the pandemic., he said. Prior to the pandemic, growth was at 0.4%. “Data suggests that recovery will be slow. GDP in 2020 is expected be that that of 2010 and poverty levels could reach that last seen in 2006.” 2020 has seen the largest fall in output for Latin America since the second world war. Return to pre-crisis level of GDP will take several years, he added.
Unemployment could reach 44m people. The largest increase since the previous global financial crisis. Poverty could reach 2005 levels , 231m people. This a reversal of 15 years. Extreme poverty could reach levels last seen in 1990, affecting 96m people. This is a setback of 30 years.
Container trade more positive
The outlook for container trade offers some hope. 2020 shows Latin America exports were highly volatile, but with an evident recovery between July and August. Imports behaved in a similar way with a slight recovery since June. However, the figures compared to the end of August show that the end of 2020 figures are still 10% lower than 2019. Exports already show a modest recovery, but with deviations throughout the region.
