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transcript
www.drewry.co.uk
Global Trends and their impact on the
Port Sector
June 2016
Aden Wong
Senior Consultant – Ports & Terminals
2 www.drewry.co.uk
About Drewry
From our origins in 1970 London to a 21st century maritime and shipping
consultancy, Drewry has established itself as one of the most widely used and
respected sources of impartial market insight and industry analysis. This in-
depth understanding and objectivity provides our clients with the actionable
advice and recommendations they need to achieve their ambitions and stay
ahead of the market.
We provide our services through four business units: Drewry Maritime
Advisors supporting the needs of the industry; Drewry Supply Chain Advisors
providing seafreight procurement support to retailers and manufacturers;
Drewry Maritime Research publishing market-leading research on every key
maritime sector; and Drewry Maritime Equity Research delivering an
Investment Research Service on listed companies operating in the industry.
Drewry is a leading international provider of research and consulting
services to the maritime and shipping industry with unrivalled
experience and expertise across all market sectors from containers and
ports to tankers and dry bulk.
Aden Wong
Senior Consultant
T: +65 6220 9890
M: +65 9665 1926
E: aden@drewry.co.uk
SPEAKER’S CONTACT DETAILS
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Part 1
Global Trends and Outlook
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0.0%
2.0%
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Glo
bal
Ave
rage
Po
rt V
olu
me
Gro
wth
Slowdown in Global Container Trade
Annualize
d Growth
in 2010
14.4%
Annualized
Growth in
2016
3.0%
After posting a minor growth of 1.7% for 2015, global port volumes grew by 3.0% last year. However, the
overall downtrend has persisted as factors such as sluggish global growth and saturation in container
penetration continue to weigh on growth in port volumes, while undercurrents like the changing nature of
China’s economy and rapidly ageing in wealthy countries transform the construct of world container trade.
Sluggish Global
Economic Growth
Saturation in
Container
Penetration
Near-Shoring &
On-Shoring
Miniaturization of
Goods
Demographic
(Expenditure)
Changes
Changing Nature
of China’s
Economy
Source: Drewry Maritime Research
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Severe Decline in Freight Rates
Unit rates for the East-West container market has fallen by about 34% since the beginning of 2013, with 13
of 16 quarters registering a negative growth. Global rates have trended similarly, as shipping lines continue
to battle declining revenue per teu with cost control measures. Excess capacity remains a major issue, one
which will continue to suppress freight rates as market share retention strategies prevail in the industry.
Historical Estimated Average Unit Rate for E-W Container Market
Source: Drewry Maritime Research
34% Decrease in Rates within 4 Years
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
USD per TEU % Change YoY
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Consolidation within Container Shipping
Amid unprecedented struggles, the container shipping industry has undergone a major transformation in
the past year: High profile mergers and an alliance restructuring that would result in 3 main global alliances
with at most 13 carriers by mid-2017. This consolidation between lines amid downward pressures in freight
rates largely points to an increasingly difficult operating environment for ports.
Shipping Line Alliance
Maersk 2M
MSC
CMA CGM
Ocean Three China Shipping
UASC
NYK
G6 Alliance
OOCL
Hapag Lloyd
APL
MOL
HMM
Cosco
CKYHE Alliance
K Line
Yang Ming
Hanjin
Evergreen
Shipping Line Alliance
Maersk (Hamburg
Sud)
2M MSC
HMM
CMA CGM (APL)
Ocean Alliance
UASC
Cosco
Evergreen
OOCL
Hapag-Lloyd
THE Alliance
MOL
NYK
K Line
Yang Ming
Previous Alliance Structure Post April 2017 Alliance Structure
2018: MOL, NYK and K Line to
merge as one commercial entity.
2017: UASC merged with
Hapag Lloyd, to be finalised in
2Q.
2016: CSCL merges with Cosco
Group. CMA CGM acquired
APL.
2017: Maersk acquired
Hamburg Sud, to be finalised
end of year.
2016: Hanjin went under.
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Larger Vessels
The prevalent adoption of cost leadership strategy within the container shipping industry have led to a rapid
escalation of average vessel sizes since 2010. While this has brought economies of scale to carriers when
certain utilizations are met, the phenomenon may have introduced inefficiencies in the supply chain. Ports
are forced to persistently upgrade their infrastructure and to operate with lower returns and higher
productivity pressures.
Average Vessel Size in Global Fleet
Increased call sizes and reduced frequency.
This leads to higher productivity pressures
arising from greater peaks.
Additional CAPEX to cater for deeper
berths, stronger infrastructure and higher
capacity/productivity equipment.
Additional OPEX to cater for deeper water
alongside, higher peak resource demands.
Difficulty in resource planning and maintain
resource utilizations.
Source: Drewry Maritime Research
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Gravitation towards Direct Services
While traditional arguments for a hub and spoke transhipment model still hold, emerging factors such as
consolidation among lines/alliances and low bunker prices have lent support to a gravitation towards direct
services. This trend is further backed by improving port infrastructure and increasing gateway volumes in
traditional feeder markets.
Hub & Spoke Direct Services
Support the usage of larger vessels
Consistent with global trends in vessel
sizes
Potentially lower costs and faster
delivery times/frequencies
Simplify flow management via enhanced
focused on hubs and reduced
permutations in services
Bigger alliances / shipping lines create
more direct port pair connections
Low bunker prices and excess ship
capacity favor direct services
Traditional feeder markets are improving
port infrastructure to handle larger
vessels
Prioritized growth for previously
neglected markets Growth in gateway
volumes
Bigger alliances and
vessels could increase
the deployment of relay
transhipment and
interlining.
Global Transhipment
Incidence is likely to
remain the same
moving forward as
opposing forces
reach a balance.
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Changing Outlook
The outlook for ports is less positive than before, as global trends ensure an operating environment that is
increasingly competitive, risky and mired in slower growth. While the port sector will largely remain as a
profitable business, margins are expected to decline from “exceptional levels” enjoyed in the past decades.
Slowdown in Global
Container Trade
Past Port Sector Future Port Sector
Severe Decline in
Freight Rates
Consolidation
within Container
Shipping
Larger Vessels
Gravitation towards
Direct Shipping
High Growth Environment
Terminals are low risk assets with
high margins and steady returns
Fragmented Customer base due to
smaller shipping lines and alliances
Less pressure to upgrade
infrastructure and superstructure.
Less crowded competition space
Softer Growth– Drewry predicts
global container volume growth to
be at a modest 2.7% for the next 5
years.
Terminals are increasingly risky
assets with declining margins.
Fewer, but larger customers.
Customers enjoy higher negotiation
power?
Immense pressure to upgrade
infrastructure and superstructure,
due to increased competition and
rapidly changing customer
demands.
Crowded competition space.
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Part 2
Regional Focus: Southeast Asia & South Asia
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Outlook for Asia
Despite the tepid global outlook, several regions in the world do provide greater cause for optimism. In the
period of 2015-2020, Drewry projects growth in container volumes in Asia (inclusive of ISC) to be 2.8%,
slightly ahead of global averages. Within Asia, South Asia is expected to have the highest near term growth
of 5.0%.
2.8%
1.8%
3.0% 2.6%
5.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Asia North Asia Greater China South East Asia South Asia
Source: Drewry Maritime Research
Projected Regional Container Handling Annual Growth (2015-2020)
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Focus: Southeast Asia
Country Port Development
Indonesia
Kuala Tanjung
Kalibaru
Patimban
Makassar
Bitung
Sorong
Myanmar Thilawa
Kyaukphyu
Vietnam Lach Huyen
Thi Vai Cai Mep
Malaysia Port Klang
Tanjung Pelepas
Singapore Tuas Port
Cambodia Sihanoukville
Philippines Davao
Thailand Laem Chabang
Key Current & Future Capacity
Additions
With the exception of Singapore and Malaysia, Southeast Asia is generally behind the curve in terms of
modern port development. When coupled with untapped markets and a rising middle class, this presents an
opportunity for comparatively high growth port investments. However, investors must be cognizant of the
accompanying risks in the operating environment.
Prospects
Untapped markets provide significant
upsides for gateway ports: Eastern
Indonesia, Myanmar, Cambodia etc.
Upside for container penetration rates
Huge populations with good
demographics and emerging middle
class
Intra-ASEAN trade trending upwards
Shift in manufacturing from China to
Southeast Asia
Port infrastructure still relatively
backwards
Risks
Changes in political leadership
Ease of doing business: Processes,
delays
Greater uncertainties in operating
environment: governing policies,
supporting infrastructure development,
immature manufacturing sectors
Absence of skilled labor in certain
regions
Potential overcapacity
Forex issues
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Focus: South Asia
Country Port Development
Sri Lanka Colombo
Hambantota
India
Mundra
JNPT
Visakhapatnam
Krishnapatnam
Tuticorin
Colachel
Vizhinjam
Cochin
New Mangalore
Ennore
Bangladesh
Chittagong
Matarbari
Payra
Pakistan Gwadar
Key Current & Future Capacity Additions
IMF and the World Bank believe that South Asia presents a bright spot amid the gloomy global economic
outlook. With huge populations and rising private consumptions in its hinterlands, the region is poised to be
fastest growing in the next few years. There is also upside in production driven growth, although the risk of
overcapacity lurks in the background.
Prospects
Amid the global slowdown, IMF has
retained the 2016 GDP growth forecast
for Bangladesh and India while
downgrading most countries.
South Asia has 3 countries – India,
Pakistan and Bangladesh - in World
Bank’s top 6 fastest growing economies
in 2016-18.
Huge populations with good
demographics and emerging middle
class
Low TEU per capita (World: 0.092,
India: 0.0093, Bangladesh: 0.010)
Port infrastructure still relatively
backwards
Risks
Ease of doing business: Processes,
delays
Speed of pushing through reforms
Greater uncertainties in operating
environment: governing policies,
supporting infrastructure development
Potential overcapacity
Political and security issues
Concentration in textile industry
Source: IMF, World Bank
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Part 3
What’s next…
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Thinking Points
Terminal Operators
Port Investors Ministry of Transport / Port
Authorities
Enhance Management of
Port Development
(Capacity Planning,
Fragmentation)
Relook at
Risks, Re-
evaluate
Prospects
Strengthen the
Hinterland Advantage
Remain
Grounded on
Valuations
Dig Deeper to
Uncover Niches
JV with Key
Shipping Lines
More
Collaborative
Partnership
Higher Level of
Transparency
Continuous Process
Improvement
Source: Drewry Maritime Advisors
www.drewry.co.uk enquiries@drewry.co.uk
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