Merge & Acquisition (M&A)-led growth strategies will propel leading regional terminal operators and container shipping lines into the global terminal operator rankings next year, according to Drewry’s latest Global Container Terminal Operators Annual Review and Forecast report.
While the position of the largest global terminal operators (GTOs) at the top of the rankings looks secure, the number of companies seeking to invest in the global ports market has increased in recent years. However, with global container port volumes increasing by just 0.5% in 2022, M&A has emerged as the quickest route to build market share.
Eleanor Hadland, author of the report and Drewry’s senior analyst for ports and terminals said, “Increased M&A and privatisation activity will see the number of GTOs increase – Hapag Lloyd, ONE, Adani and Abu Dhabi Ports Group are all set to feature in next year’s league tables.”
Figure 1: Forecast capacity additions due to M&A and privatisation, 2022-27 (mteu / % gross additional portfolio capacity)
In 2022, there was a net increase in the number of companies that qualified as GTOs from 20 to 21. While HHLA dropped out of the rankings due to the closure of its terminal in Odesa after the Russian invasion of Ukraine, MSC and Wan Hai entered the rankings in 7th and 19th position, respectively.
Annual growth in equity-adjusted throughput for the 21 GTOs was 0.6%, which is slightly above the 0.5% increase in global port handling recorded in 2022. The leading operators handled over 48% of the global port volumes on an equity-adjusted basis, stable on a like-for-like basis vs. 2021.
China Cosco Shipping gained ground on back of its increased stake in Tianjin Container Terminal, while China Merchant’s equity-throughput gains follow on from the uplift in shareholding in Shanghai International Ports Group and Ningbo Zhoushan Port Co.
In contrast, APM Terminals slipped down the rankings due to the full-year impact of the sale of Rotterdam Maasvlakte in 2021 and the sale of a minority stake in Wilhelmshaven in 2022. Similarly, DP World’s monetisation strategy, which has reduced its equity-stake in its flagship Jebel Ali terminal to less than 68% underpinned the 3.1% drop in equity throughput in 2022.
Table 1: Leading global/international terminal operators, equity-adjusted throughput, 2022
Revenue of terminal operators rose in 2022, despite a slowdown in volume growth. However, by 2H22 the widespread easing of congestion saw storage revenues plunge as dwell times quickly returned to pre-pandemic levels. The easing of port congestion led to recovery in terminal productivity, lowering costs on a per unit basis; for example, less requirement for overtime working and lower levels of rehandling in container yards. However, labour costs, which are partially fixed and account for the highest proportion of opex per unit, jumped in 1Q23 due to year-end salary increases.
In 2022, the Drewry Global Container Terminal Earnings Index dipped 16.3% YoY led by falling revenue and rising cost per unit. However, the pace of decline slowed in 1Q23 due to reduction in operating costs per TEU.
“We expect this downtrend to recede as the impact from reduced storage revenues weakens in 2H23,” pointed out Hadland.
In 2022, the sampled terminal operators’ capital expenditure (capex) grew by 18% YoY, marking the second consecutive yearly increase since 2020, when the industry opted to build onto their cash positions by delaying non-essential capex due to the pandemic.
In 2023, high-interest rates have already increased the opportunity cost of funds invested. We believe that interest rates will remain elevated in the short term, which will see operators reappraise business cases for capital investments as the hurdle rates of return move upwards.
Small-scale projects that can be funded from cashflow, especially those which generate productivity and/or sustainability gains are less likely to be delayed than greenfield projects and major terminal expansions.
Author of the report: Eleanor Hadland, Drewry's Senior Analyst, Ports and Terminals