Outline

The Ramifications of the Crisis:Revising Future Expectations

Theo NotteboomITMMA - University of Antwerp and Antwerp Maritime Academy

Jean-Paul RodrigueDepartment of Global Studies & Geography, Hofstra University

Terminal Operators Conference - EuropeValencia (Spain), June 8-10 2010

Outline

1. Towards an economic recovery in Europe?

2. Towards a new hierarchy in the European container port system?

3. Towards a paradigm shift?

1. Towards an economic recovery in Europe?

World trade and manufacturing output

Source: EU

GDP growth (q-o-q) in EU

Source: EU

GDP growth (index) in EU

1. Towards an economic recovery in Europe?

Industrial production - EU

Source: EU

Industrial production - world

1. Towards an economic recovery in Europe?

Private consumption in EU

Source: EU

Investments in capital goods in EU

1. Towards an economic recovery in Europe?

1. Towards an economic recovery in Europe?

Increased need for factoring in uncertainty/risk in business strategies

Outline

1. Towards an economic recovery in Europe?

2. Towards a new hierarchy in the European container port system?

3. Towards a paradigm shift?

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European port system

Exponential trendline total traffic

Till 1993: Fairly linear development of total container traffic

Since 1993: traffic path becomes exponential 2008: Stagnation

2009: - 14% compared to 2008

Throughput gap of 18 million TEUnobody anticipated in early 2008

Setback of three years(volumes of 2006)

How serious is the throughput issue?The European case

The bubble effect?

Container throughput development and various forecasts, Antwerp

Source: Notteboom

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Actual throughput

Antwerp Port Authority (1990)

Cost-benefit analysis Second Scheldt terminal (1992)

OSC and Marconsult (1993)

OSC (1995)

OSC (1997)

Verbeke et al (1996)

Cost-benefit analysis container dock west - working strategy 1 (1997)

Cost-benefit analysis container dock west - working strategy 2 (1997)

OSC - Deurganck Study (2001) - Base Case

OSC - Deurganck Study (2001) - Low Case

Strategic Plan (2004)

Bubble?

Top 15 European container ports

in 1000 TEUR 1985 1995 2000 2005 2008 2009 R1 Rotterdam 2655 Rotterdam 4787 Rotterdam 6275 Rotterdam 9287 Rotterdam 10784 Rotterdam 9743 12 Antwerp 1243 Hamburg 2890 Hamburg 4248 Hamburg 8088 Hamburg 9737 Antwerp 7310 23 Hamburg 1159 Antwerp 2329 Antwerp 4082 Antwerp 6488 Antwerp 8664 Hamburg 7008 34 Bremen 986 Felixstowe 1924 Felixstowe 2793 Bremen 3736 Bremen 5448 Bremen 4565 45 Felixstowe 726 Bremen 1518 Bremen 2752 Gioia Tauro 3161 Valencia 3597 Valencia 3654 56 Le Havre 566 Algeciras 1155 Gioia Tauro 2653 Algeciras 2937 Gioia Tauro 3468 Algeciras 3043 67 Marseille 488 Le Havre 970 Algeciras 2009 Felixstowe 2700 Algeciras 3324 Felixstowe (*) 2900 78 Leghorn 475 La spezia 965 Genoa 1501 Le Havre 2287 Felixstowe (*) 3200 Gioia Tauro 2857 89 Tilbury 387 Barcelona 689 Le Havre 1465 Valencia 2100 Barcelona 2569 Marsaxlokk 2330 910 Barcelona 353 Southampton 683 Barcelona 1388 Barcelona 2096 Le Havre 2502 Zeebrugge 2328 1011 Algeciras 351 Valencia 672 Valencia 1310 Genoa 1625 Marsaxlokk 2337 Le Havre 2234 1112 Genoa 324 Genoa 615 Piraeus 1161 Piraeus 1450 Zeebrugge 2210 Barcelona 1801 1213 Valencia 305 Piraeus 600 Southampton 1064 Marsaxlokk 1408 Genoa 1767 Southampton (*) 1600 1314 Zeebrugge 218 Zeebrugge 528 Marsaxlokk 1033 Southampton 1395 Southampton (*) 1710 Genoa 1534 1415 Southhampton 214 Marsaxlokk 515 Zeebrugge 965 Zeebrugge 1309 Constanza 1380 La spezia 1046 15

TOP 15 10450 TOP 15 20841 TOP 15 34698 TOP 15 50067 TOP 15 62697 TOP 15 53951TOTAL Europe 17172 TOTAL Europe 33280 TOTAL Europe 51000 TOTAL Europe 73729 TOTAL Europe 90710 TOTAL Europe 78011

Share R'dam 15% Share R'dam 14% Share R'dam 12% Share R'dam 13% Share R'dam 12% Share R'dam 12%Share top 3 29% Share top 3 30% Share top 3 29% Share top 3 32% Share top 3 32% Share top 3 31%Share top 10 53% Share top 10 54% Share top 10 57% Share top 10 58% Share top 10 59% Share top 10 59%Share top 15 61% Share top 15 63% Share top 15 68% Share top 15 68% Share top 15 69% Share top 15 69%

(*) Estimate

= port gained places in ranking (2008-2009)

= port lost places in ranking (2008-2009)

Taking a medium-term view on traffic development: Winners and losers during

the period 2006-2009

THE MAIN WINNERS THE MAIN LOSERS

Source: ITMMA – own compilation

TEU gains - 2006-2009 (in 1000 TEU) % traffic gains - 2006-2009Valencia 1042 Tarragona 1580.0%Marsaxlokk 845 Gdansk 207.1%Zeebrugge 675 Sines 107.9%Antwerpen 291 Gent 82.1%Tarragona 192 Marsaxlokk 56.9%Gdansk 162 Koper 56.7%Sines 132 Bordeaux 46.4%Koper 124 Zeebrugge 40.8%Bremen 120 Valencia 39.9%Tilbury 103 Teesport 34.2%Southampton 100 Szczecin 29.6%Le Havre 96 Trieste 25.7%Leghorn 83 Ravenna 22.6%Leixos 76 Leixos 20.1%Cagliari 66 Varna 19.7%Trieste 57 Venice 16.6%Rotterdam 53 Tilbury 13.9%

Venice 53 Leghorn 12.7%Napels 51 Savona 12.3%Teesport 46 Napels 11.5%

TEU losses - 2006-2009 (in 1000 TEU) % traffic losses - 2006-2009Hamburg -1854 Ventspils -97.3%Piraeus -743 Piraeus -52.9%Barcelona -517 Vlissingen -50.0%Constantza -443 Constantza -42.7%Algeciras -202 Burgas -40.0%Malaga -175 Malaga -37.6%Taranto -151 Hamina -37.5%Felixstowe -130 Amsterdam -33.6%Genoa -123 Bahia de Cadiz -31.5%Kotka -112 Rouen -26.7%St-Petersburg -106 Stockholm -26.0%Amsterdam -103 Kotka -24.7%La spezia -91 Cuxhaven -23.6%Gdynia -83 Barcelona -22.3%Gioia Tauro -81 Thessaloniki -21.4%Bilbao -80 Hamburg -20.9%Thessaloniki -74 Malmö -20.3%Marseille -70 Helsingborg -18.6%

Med and UK succeeded in reversing recent decline in market share

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Hamburg-Le Havre range

Mediterranean range

UK range

Atlantic range

Baltic

Black Sea

Changes in Container Traffic at Some Major European Ports, 2008-2009-Q1

2010Volume in

2008(1000 TEU)

Volume in 2009

(1000 TEU)

Volume change 2009 vs. 2008

Volume change Q1 2010 vs.

Q1 2009

EUROPERotterdam – the NetherlandsAntwerp – BelgiumZeebrugge - BelgiumHamburg – GermanyBremerhaven – GermanyLe Havre – FranceMarseille - FranceAlgeciras - SpainBarcelona – SpainValencia - Spain St-Petersburg – Russia

10,7848,6642,2099,7425,4482,501851

3,3242,5693,5971,970

9,7437,3092,3287,0084,5652,230877

3,0431,8003,6541,323

-9.6%-15.6%+5.4%-28.0%-16.3%-10.4%+3.0%-8.5%

-29.9%+1.6%-33%

+16%+15.9%+23.9%

-4%+12%

-+17%+8.8%-5.7%+6.7%

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Growth differences mainly explained by:• Consolidation of volumes on trunk lines

• End of capacity constraints in some ports• Major inter-port shifts in transhipment business

• Russia effect

Source: statistics individual port authorities

Trade volumes per route to/from Europe: Mixed results

Source: based on data EELA

Year on year change in trade volumes (basis = TEU)

Q1-2009 Q2-2009 Q3-2009 Q4-2009 Q1-2010 Q1-2010 vs. Q1-2008Europe-SSA Northbound -4.2% -4.3% -7.1% 3.5% 8.2% 3.6%Europe-SSA Southbound -1.3% -3.1% -1.8% 2.6% 4.6% 3.2%

Europe-Asia Westbound -22.1% -22.2% -13.2% -0.2% 20.4% -6.2%Europe-Asia Eastbound -15.6% -1.6% 9.2% 29.1% 21.6% 2.7%

Europe-North America WB -16.9% -21.6% -15.0% -6.5% 10.8% -7.9%Europe-North America EB -29.0% -35.0% -25.6% -6.6% 14.1% -18.9%

Europe-India/Middle East WB -12.1% -7.4% -0.5% 4.7% 17.7% 3.5%Europe-India/Middle East EB -4.1% -0.6% 1.7% 6.4% 11.7% 7.1%

Europe-South/Latin America NB -12.9% -12.3% -18.6% 2.7% 5.9% -7.8%Europe-South/Latin America SB -27.4% -26.4% -22.5% -0.8% 45.9% 5.9%

Europe-Oceania NB -6.8% -9.1% -14.0% -12.9% -19.4% -24.9%Europe-Oceania SB -14.7% -26.4% -8.5% -6.0% 11.7% -4.7%

Inventory replenishment or an underlying recovery in demand ?

Revisiting transshipment in Europe

Algeciras

Sines Cagliari

Gioia Tauro

Malta

Taranto

Piraeus

Le Havre

Rotterdam

Antwerp

Zeebrugge

Bremerhaven

Hamburg

Valencia

Barcelona

Tanger Med

Market shares of ports in the West-Med according to diversion distance from the

main route

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West-Mediterranean ports with one-way diversion distance 100-250 nm

West-Mediterranean ports with one-way diversion distance < 100 nm

Middle East – Far East

Main shipping route

Americas

Americas

Transhipment/interlining port (transhipment incidence >75%)

Logistics core region

Multi-port gateway region

Inland corridor

Main shipping route

Gateway port

Gateway port also handlingsubstantial transhipment flows

Multi-port gateway regions1. Extended Rhine-Scheldt Delta2. Helgoland Bay3. UK SE Coast4. Spanish Med5. Ligurian Range 6. Seine Estuary7. Black Sea West8. South Finland9. Portugese Range10. North Adriatic11. Gdansk Bay12. Kattegat/The Sound

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Main stand-alone gateways

Profile map of European seaport system CONTAINERS

© 2010 T. Notteboom – ITMMA, Universityof Antwerp

The immediate hinterland as the backbone for port volumes

• Containers: challenge of co-modality and cargo bundling on short distances

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Antwerp

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the Netherlands

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Containerized cargo by road, rail and barge

The immediate hinterland as the backbone for port volumes

• Competition but also synergy between regional ports• Increasing role of inland/dry ports

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Zeeland SeaportsANTWERPZeebrugge

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Logistics corridors

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Growth region EuropeanDistribution (outside seaport system)

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Middle East – Far East

Main shipping route

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Multi-port gateway region

Main shipping route

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Gateway port also handlingsubstantial transhipment flows

Multi-port gateway regions1. Extended Rhine-Scheldt Delta2. Helgoland Bay3. UK SE Coast4. Spanish Med5. Ligurian Range 6. Seine Estuary7. Black Sea West8. South Finland9. Portugese Range10. North Adriatic 11. Gdansk Bay12. Kattegat/The Sound

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Ports increasingly compete

for more distant hinterlands

Keeping Track of the Big Picture: Emerging Global Maritime Freight

Transport System

Outline

1. Towards an economic recovery in Europe?

2. Towards a new hierarchy in the European container port system?

3. Towards a paradigm shift?

The Double Squeeze on Ports and Maritime Shipping

Supply Demand

OvercapacityNew terminals coming onlineNew ships coming online (+ cancellations)

Lower profitabilityLess pressures on terminal resources

Less financial appeal

Contestability for gatewaysContestability for hubsRebalancing

Maritime Shipping

Port Operations

M&A activity in terminal operating industry

• Expected net returns on investment grossly overrated on assumptions that: - container throughput figures would go through the ceiling- container handling facilities would be in short supply- prices would rise steeply.

• Since 2008: no major terminal transactions

• Max 8 to 10 times EBITBA

• Shipping lines’ divestment in terminals?

A more prudent approach to plot sizes of capacity extensions?

• Deurganckdock- 5.3 km quay wall, - 326 ha, 44 GC - 8m TEU

• Rotterdam: Euromax- 5.5m TEU, 2.3m TEU in 1st phase

• Rotterdam: Maasvlakte I & II

• Le Havre: Port 2000

Rebalancing risk

• Globalization and the growth of the shipping industry appear to have skewed the perception of risk downward.

Source: Rodrigue, Notteboom and Pallis (2009)

The “Calm” after the Storm: A Paradigm Shift for Maritime Container Trade and

Ports

1) Risk Allocation

Desire to allocate greater risks onto private sector in PPPs:• Requires clear policy goals and stable regulation. • Moral hazard risks will continue to be tested.More demanding capital markets and less access to (cheap) credit:• Focus on performance to meet financial metrics.• New projects more critically assessed.Greater consideration of cost recovery of port infrastructure investment:• From the deal / financial structure to quality of the asset.

2) Reviewing False Asymmetries

The assumption that larger players have more information than smaller players:• The larger players appear to have lost the most.

The “Calm” after the Storm: A Paradigm Shift for Maritime Container Trade and

Ports

3) Growth Story:Time for realism

Abandoning the compound annual growth paradigm• Port traffic assumptions likely to be less backward looking. • Stronger cyclical effects than perhaps first assumed.Greater attention on market fundamentals:• Globalization or regionalization?

4) Barriers to Entry: Competition matters

Paying attention to competition drivers:• Growth may no longer mitigate competitiveness as it did previously.• Transshipment a particularly vulnerable segment.

5) Amortization: Modest times

Volume & pricing assumptions more modest:• Longer amortization periods.• PPP rent sharing more probable.

Will we get back to a ‘business as usual’ scenario?

• No: the ‘business as usual’ practices between 2002 and 2008 were highly ‘unusual’.

• Medium-term perspective (3-5 years): - Sustained pressure on terminal rates due to

restructuring/consolidation of shipping services and memory effects in terminal overcapacity situation.

- Actors will continue to show cautious in competitive bidding processes.

• Long-term perspective (>5 years): - Strategic port sites remain scarce goods.- Terminals will regain status as interesting investment

objects, but with a more realistic risk assessment.

CONCLUSIONS

• Mid-term problems to a ‘recently enlarged port sector’ with investors rediscovering risk

• Provide opportunities:- to develop corrective actions as good days will be

back.- to revisit growth expectations as trade growth is not

exponential.

Topics for Discussion

• How solid are the growth fundamentals for the shipping industry?

• Which sectors and regions are the most vulnerable?

• Who is likely to default next?• Signs of divesture?• What could be the “new normal”?

Thank you for your attention [email protected]

[email protected]