6 minute read
Terminal Valuations
Source: Rebel 8 Which parties
are buying port terminal assets?
6.5 per cent (following the 1.5 per cent increase in base Source: Rebel interest rates since the beginning of the year) will result in a reduction in valuation of up to around 30 per cent. Part of that will be compensated by the inflation affecting cash flows, but a relatively small increase in interest rates can result in large INCREASED REVENUES? variations in valuation.
Typically, infrastructure funds and financial investors by using larger amounts of debt with low rates at the acquisition stage could ultimately achieve higher valuations on exit.
Many industry players are more focused on equity based financing or corporate financing for their investments. The rising interest rates will impact their investment appetite to a lesser extent than it will the financials. However, rising interest rates also have implications for operators with business models reliant on high levels of debt when they need to refinance. The credit rating agencies recently lowered Adani’s rating due to its exposure to increasing interest rates. Other terminal operators relying on leveraged deals will also face different financing conditions when their debt matures.
Another group which may be affected in the medium term if rates stay up are the funds which need to find an exit for their assets. Although valuations will likely exceed the acquisition price in many cases, the achieved returns may disappoint if interest rates do not come down again.
STRATEGIC VALUE
So far in 2022 no real drop in appetite and valuations has been witnessed. Valuations like those for Haifa and more recently for Mumbai are indications of this. Naturally, the cash flooded shipping lines are partly helping to keep up prices for particular strategic assets supporting the shipping network of the lines. In addition, the typical time which it takes to prepare a bid for a port asset will influence the lag in price reaction to the liquid bond markets. A typical transaction will take more than half a year to complete and, in most cases, even longer. The new financial conditions will take a while before they work through in the valuations for port assets. Thirdly, port assets and infrastructure in general are typically good hedges against inflation. With, as a rule, sufficient space to increase tariffs when costs are rising, there is little exposure to inflationary woes.
Another key reason for port valuations staying up is reappraisal of the strategic nature of port assets. The last few years underlined that having secure access to berthing windows is valuable to shipping lines and alliances. In combination with the liners’ and GTOs’ shift in focus to integrating the entire supply chain, the container terminal is a must have asset rather than a profit centre by itself. The value of controlling the entire supply chain will be incorporated in future bids, more than was the case pre-COVID-19. Financials and smaller operators will struggle to incorporate this value component. The shipping lines focusing on this strategy and who have cash to burn are in pole position to benefit with nobody close behind them.
LINER RESHUFFLE?
The container lines are under intense scrutiny over high freight rates and policy makers are openly targeting the alliance structure and block exemptions. In an attempt to bring down rates and thereby inflation, it is possible the shipping markets will be reformed to reintroduce competitive market forces. An end to the alliances may reshuffle the container terminal industry after years of increased focus for terminals serving mainly their own alliance. For liners anticipating these moves the strategic value of port assets coming on to the market will be even greater. Just in case policy makers are successful, it may prove wise to have secured alternatives.
If it can be proven that the shipping market has indeed become too concentrated for healthy market dynamics, one can wonder whether the same would hold for the terminal business in some places? In several locations alliance partners control the majority of the terminal market. After MSC acquires Bollore, the 2M alliance will have an extremely strong foothold in the terminal business in Africa, for example. Also, greenfield projects are increasingly difficult to finance without the involvement of one of the major shipping lines. In this case, the strategic value may be for port authorities and local governments to select multi-user-operators and not become too dependent on a single major player. This way smaller liners are also able to secure the right conditions for running a profitable shipping line and optimising the connectivity of a port.
IN CONCLUSION
Even though current macro-economic conditions seem to suggest that port asset prices will drop, this is not noted – so far. The strategic value of port assets has been proven in the last few years and it is likely that this will be increasingly recognised rather than a narrow focus on financial expectations. It is, however, likely that other industry players will be more in a position to capture this than has been the case in the past few years. The stock prices of listed terminal operators have mostly moved sideways. Perhaps in an uncertain overall market this should be viewed as a healthy performance with a positive outlook?
NO SUMMER OF LOVE IN EUROPE
A combination of system congestion further aggravated by strikes present a challenging scenario for container ports in the Hamburg-Le Havre range. AJ Keyes assesses the situation and what the rest of 2022 will bring
The North Continent port region is well established and remains a key element in Asia-Europe liner schedules, but if the ports thought the position would return to normality quickly after COVID-19, they were very much mistaken. There are now challenges with system congestion and industrial unrest, with the latter brought on by a growing energy and cost of living crisis. Add in strong competition from DCT Gdansk, collapse of the Russian feeder market and uncertain UK traffic flows then there is certainly, no “Summer of Love” for the container port industry in this port range. So, can the major ports recover, and if so, over what timeframe?
While page 31 addresses the position in more detail for German ports, notably Hamburg (plus a consideration of the development of DCT Gdansk), and pages 32-33 cover the Antwerp & Rotterdam issues (with the expansion of Le Havre included), the recent and ongoing challenges being faced can be summarised as follows.
The importance of the Hamburg-Le Havre port range in North Europe is undeniable to the container industry. It drives demand on the Asia-Europe container trades, which services the largest vessels in operation on a global basis.
This port range is not a single market but instead a series of intersecting markets, hence French ports compete with Antwerp and (to a lesser degree) Rotterdam for northern French cargoes and Antwerp and Rotterdam directly compete for local and transit markets to the Ruhr and southern Germany. At the same time, German ports are competing for domestic cargoes with Rotterdam and Antwerp, with DCT Gdansk also now of note.
Figure 1 over the page provides a summary of the location of the ports in this region.
…the last thing the industry needed were continued bottlenecks across the logistics ‘‘ supply chain. Little relief was expected, and this is exactly what has been occurring
THE BIG THREE
Figure 2 offers a summary snapshot of total container volumes by country, for facilities included in this competitive port range. It can be seen that between Belgium, Germany and the Netherlands there is a reasonably consistent split, with little difference between the 30 per cent retained by German ports up to 33 per cent by the Netherlands – with Belgium sandwiched in between the two on 31 per cent – making up the “Big Three” container port volume countries.
A tough 2022 is underway for the major ports in the region. For H1 2022, Rotterdam handled 7.3 million TEU (down 6.2 per cent on H1 2021), with Antwerp seeing 6.8 million TEU
8….poor vessel
