This week Drewry Maritime Research have held a webinar presentation of its Ports & Terminals Insight Report. The report is issued quarterly and supplements Drewry’s main Annual Container Terminal Operators report.
The 3Q 2017 report was presented by Neil Davidson, Drewry’s Senior Analyst, Ports and Terminals.
The report covers several questions. One of them is the dramatic rise of the overseas investments by the Chinese port operators. Thus, 15 years ago there were just a few of them, and even in 2012 they were not so many, but today more than half of the Chinese port investments are outside China. However, despite the wide international coverage, the volumes from the overseas terminals of the China based operators (COSCO, China Shipping, China Merchants, SIPG) make up only 15% of their equity TEU, indicating that the Chinese operators still have to grow before they become as truly international as the big four global operators (Hutchison Ports, PSA, APMT and DP World).
Analysing the recent M&A deals of Chinese and non-Chinese buyers, Drewry admit that the Chinese buyers are willing and able to pay a premium for port assets. For instance, their deals with the port authorities of Melbourne, Darwin and Piraeus were made with the enterprise value vs. EBITDA ratios over 20. COSCO paid 14.9 times EBITDA for 51% of Spanish Noatum Ports. This is quite high, as “traditional investors might be prepared to pay 12 times EBITDA”, according to Neil Davidson. But low borrowing costs of the national banks (with interest rates of just 2-3.5%) and a strong geopolitical motivation (One Belt One Road strategy) sustain this M&A activity of the Chinese players.
Commenting on the possible next steps of the Chinese investors, Neil Davidson admits that a further expansion can be expected, and not only along the OBOR route, but also in Africa and Latin America, with the idea “to fill more global gaps”. As an example, he mentions the recent acquisition of a container terminal in Paranaguá, Brazil by China Merchants Port, which happened to become the first entry of the Chinese investors into the Latin America market. And they may consider not only individual ports or terminals for their M&A activity, but also groups with large asset portfolios as well.
But obviously, not only China is interested in port and terminal acquisitions. Discussing the competition in this area, Neil Davidson highlights the interest on the part of the Turkish operator Yilport, as well as the traditional global players like DP World, Hutchison Ports, PSA, ICTSI, who have become more cautious recently but still have a desire for the suitable assets at the right price. And the EV/EBITDA value that the bidders are ready to pay for an asset will be definitely dependent on this competition.
Another question covered by the report is the global container port throughput trends. And here Drewry mark the positive signs that have continued for four quarters by now. The recovery of the container port volumes seen at the end of 2016 and into 2017 has been sustained through the second quarter of 2017 hitting a 5% growth rate on an annual basis, so that for the whole year 2017 the consultants predict the growth rate at the level of 5.5%. However, Neil Davidson warns “not to get carried away” with the current buoyant growth rate, as it will most probably not to be sustained and in 2018-2019 will return to 3-4%.
Drewry also mark that despite the recovery in volumes, the EBITDA margin of stock-listed port companies have fallen slightly in 3Q 2017, from 39.6% to 36.7%. The reason behind it is that although the revenues are affected positively by the growing throughputs, the cost side is still being hit by the impact of bigger ships. Discussing the future trends of vessel upsizing, Neil Davidson expresses the hope that the maximum ship size has been reached with the 18,000-22,000 TEU category, of which the latest order was made by CMA CGM just a few days ago. However, the cascading will still affect the ports in the years to come, with many large ships to be delivered into the Asia-Europe trade.