International Association of Maritime Economists (IAME) 2010 Conference, Lisbon, Portugal

The Corporate Geography of Global Terminal Operators

Paper no. 2.03.01

Theo NotteboomITMMA - University of Antwerp and Antwerp Maritime Academy, Belgium

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

The Corporate Geography of Global Terminal Operators

1) An Overview of Global Terminal Operators2) Typology and Market Strategies3) Consolidation and Scale Increase4) The Spatial Expansion of Terminal Operators5) How “Global” are Global Terminal Operators?6) Vertical Integration Strategies in the Hinterland

Container yard, Port of Yantian (HPH), China

Changing Role and Function of Transport Terminals

Conventional ContainerSmall terminal surface Large terminal surface

Direct transshipment possible Indirect transshipment (modal separation in time and space)

Limited mechanization and automation Advanced mechanization and automation

Improvisation in terminal operations Organization and planning

Capital and managerial intensiveness

Labor Intensiveness

Top 12 Global Port Operators in Equity-Based Throughput, 2007

PSA

Hutchison Port Holdings

APM Terminals

DPW

COSCO

Evergreen

Eurogate

MSC

HHLA

APL

SSA Marine

Dragados

0 5 10 15 20 25 30 35 40 45 50

Million TEUs

Container Terminal Surface of the World's Major Port Holdings, 2009

N = 405

Number of Terminals and Total Hectares Controlled by the Ten Largest Port Holdings, 2009

HPH

PSA

DPW

APM

PAM

SSA

COS

SIPG

ERG

HAN

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

0 10 20 30 40 50 60

47

36

51

43

16

16

14

7

10

12Number of Terminals

Total Hectares

Hectares

Terminals

Depth and Surface Characteristics

NA Less than 8

8 to 10 10 to 12

12 to 14

14 to 16

16 to 18

18 to 20

0

20

40

60

80

100

120

140

160

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FrequencyCumulative %

Depth Range (Meters)

Freq

uenc

y

NA 10 20 30 40 50 60 70 80 90 100

110

120

More th

an 12

00

10

20

30

40

50

60

70

80

90

100

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%FrequencyCumulative %

Hectares

Typology of Global Port Operators

Stevedores Maritime Shipping Companies

Financial Holdings

Horizontal integration Vertical integration Portfolio diversification

Port operations is the core business; Investment in container terminals for expansion and diversification.

Maritime shipping is the main business; Investment in container terminals as a support function.

Financial assets management is the main business; Investment in container terminals for valuation and revenue generation.

Expansion through direct investment.

Expansion through direct investment or through parent companies.

Expansion through acquisitions, mergers and reorganization of assets.

PSA (Public), HHLA (Public), Eurogate (Private), HPH (Private), ICTSI (Private), SSA (Private).

COSCO (Public), MSC (Private), APL (Private), Hanjin (Private), Evergreen (Private).

DPW (Sovereign Wealth Fund), Ports America (AIG; Fund), RREEF (Deutsche Bank; Fund), Macquarie Infrastructure (Fund), Morgan Stanley Infrastructure (Fund).

APM T (Private)

Factors behind the Interest of Equity Firms in Transport Terminals

Asset (Intrinsic value)

Globalization made terminal assets more valuable.Terminals occupy premium locations (waterfront) that cannot be substituted.Traffic growth linked with valuation.Same amount of land generates a higher income.Terminals as fairly liquid assets.

Source of income (Operational value)

Income (rent) linked with traffic volume.Constant revenue stream with limited, or predictable, seasonality.Traffic growth expectations result in income growth expectations.

Diversification (Risk mitigation value)

Sectorial and geographical asset diversification.Terminals at different locations help mitigate risks linked with a specific regional or national market.

Consolidation and Scale Increases: Major Port Terminal Acquisitions since 2005

Date Transaction Price compared to EBITDA

2005 DP World takes over CSX World Terminals

14 times

Early 2006 PSA acquires a 20% stake in HPH 17 timesMid 2006 DP World acquires P&O Ports 19 timesMid 2006 Goldman Sachs Consortium acquires

ABP14.5 times

End 2006 AIG acquires P&O Ports North America 24 times

Early 2007 Ontario Teachers’ Pension Fund acquires OOIL Terminals

23.5 times

Mid 2007 RREEF acquires Maher Terminals 25 times

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

The Strategies of Port Operators

Financial Assets Large financial assets and the capacity to tap global financial markets. Terminals as equity generating returns.

Managerial Expertise Experience in the management of containerized operations.IT and compliance with a variety of procedures.

Gateway Access Establishing hinterland access.Creation of a “stronghold”.Provides a stable flow of containerized shipments.Development of related inland logistics activities.

Leverage Negotiate with maritime shippers and inland freight transport companies favorable conditions.Some are subsidiaries of maritime shipping companies.

Traffic Capture Capture and maintain traffic for their terminals.

Global Perspective Comprehensive view of the state of the industry.Anticipate developments and opportunities.

Inter-firm Relationships in the Three Main Container Ports of the Rhine-Scheldt Delta, 2010

DP World

PSAHUTCHISON PORT HOLDINGS

APM Terminals(AP Moller Group)

ANTWERP

Antwerp Gateway

PSA (Antwerp/

Zeebrugge)

MSC Home terminal

CHZ

APM Terminal

ZEEBRUGGE

ROTTERDAM

Rotterdam World Gateway(Maasvlakte 2)

Operational by 2013

ECT

APM Terminal Maasvlakte CMA-CGM

MSC

NYK

Terminal 1(Maasvlakte 2)

Operational by 2014

Minority Shareholding

Waal- and Eemhaven

Delta Terminal

Euromax phase 1

Majorityshareholding

ZIM Line

DP World Delwaidedock

North Sea Terminal

Europe Terminal

Deurganck Terminal

New World Alliance

CYKH Alliance

Antwerp International Terminal (AIT) Shipping Line

(Global) Terminal Operator

Terminal

Shanghai International Port

Group (SIPG)

Albert II-dock north (under construction)

Cosco Pacific

100%

20%

50%

100%

100%

50%

50%

50%

60%

30%

10%

100%

100%

100%

50%50%

100%

42.5%10%

20%

10%

35%

100%

65%

75%

25%

PORT

Financial Holding

Partnerships of multiple stakeholders

Inter-firm Relationships in the Three Main Container Ports of North America, 2010

LONG BEACH

LOS ANGELES

NEW YORK

APM Terminals Port Elizabeth

Port Newark Container Terminal

Maher Terminal

Global Terminal and Container Services

New York Container Terminal

APM Terminals(AP Moller Group)

Maher Terminals

Ports America

100%

100%

Global Container Terminals

100%

Pacific Container Terminal

Total Terminals International

California United Terminals

Pier G Berth

Long Beach Container Terminal

Terminal A

Terminal C60

Global Gateway South

APM Terminals Pier 400

Evergreen Terminal

TraPac Los Angeles Berth 136

Yusen Terminals

West Basin Container Terminal

Stevedoring Services of America

Ontario Teachers' Pension Plan

100%

Cosco Pacific 51% 49%

100%

Hanjin

AIG Highstar Capital

Deutsche Bank RREEF

Macquarie Infrastructure

60% 40%

50%

Hyundai

100%

100%

K-Lines 100%

OOIL 100%

MSC 50%

APL

Evergreen 50% 50%

Yangming

100%

40% 60%

Mitsui OSK 100%

NYK 100%

100%

Shipping Line Terminal Operator Terminal PORT Financial Holding

100%

Japanese, Taiwanese & Korean(Export-oriented strategy) “Financialized” Stevedores

ZHUHAI

Inter-firm Relationships in the Main Container Ports of the Pearl River Delta, 2010

HONG KONG

Asia Container Terminals

DP World Hong Kong

Hong Kong International Terminals

COSCO-HIT Terminal

Moderns Terminals

Asia Port Services

SHENZHEN

Chiwan Container Terminal

Shekou Container Terminals

Da Chan Bay Terminal One

Yantian International Container Terminals

Zhuhai International Container Terminals

GUANGZHOU

Dongguan Container Terminal

Guangzhou South China Oceangate Container

Terminal

Nansha Container Terminal

Guangzhou Huangpu Xingang Terminal

Guangzhou Huangpu Xinsha Terminal

Nanhai International Container Terminals

HUTCHISON PORT HOLDINGS

PSA

DP World

Cosco Pacific39%APM Terminals(AP Moller Group)

20%

China Shipping Group

40%

50%

50%

50%

ModernTerminals China Merchants

Holdings International

49%

70%

49%

55%

66% 33%

67% 20%

100%

33%10%

10%

80%20%

Shipping Line Terminal Operator Terminal PORT Financial Holding

75%25%

65%

Guangzhou Port Group

Shenzhen Municipal Government

41%

60%

35%

Shenzhen Yantian Port Group

30%

Joint Ventures (TO / Local Government)

Container Terminals of the World's Four Major Port Holdings, 2009

Importance of ‘home port’ (2009)PSA: Singapore = 44.2% of global non-equity based throughput. DP World: Dubai = 25.3% of global non-equity based throughput. HPH: Hong Kong = 16.5% of global non-equity based throughput.

Regional Share in the Terminal Portfolio of the Four Main Global Terminal Operators (Hectares, 2009)

APM

DPW

PSA

HPH

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AfricaAustraliaNorth AmericaSouth America / Car-ibbeanPacific AsiaSouth Asia / Middle EastMediterraneanEurope Atlantic

Container Terminals of the World's Regional Port Holdings, 2009

Regional Share in the Terminal Portfolio of Some Regional Terminal Operators (Hectares, 2009)

ERG

EVG

HAN

ICTSI

SSA

PAM

Cosco

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AfricaAustraliaNorth AmericaSouth America / Car-ibbeanPacific AsiaSouth Asia / Middle EastMediterraneanEurope Atlantic

Vertical and Horizontal Integration in Port Development

Commodity Chain

Port Holding

HorizontalIntegration

Intermediate hub

InlandPortPort

PortRail / BargeDistribution Center

Inland Modes and Terminals

Distribution Centers

Maritime Shipping

Port Terminal Operations

Terminal

Maritime Services

Inland Services

Port Services

VerticalIntegration

World’s Main Intermediate Hubs, 2008

17.2%62.0%

18.6%

2.2%

Liner Shipping Port Calls, 2009

DirectOne TransshipmentTwo TransshipmentsThree Transshipments

Conclusion

■ The “four sisters” (HPH, APM, PSA and DPW)• Analogies with the oil industry (oligopoly).• Strong multinational portfolio; each market is regional.• Standardization of management practices.• Multiplying effects to the functional and operational benefits

brought by containerization.■ Two major and complementary roles• Gateways:

• Linking global and regional freight distribution systems.• Complex stake holding at the port and in the hinterland.

• Intermediary hubs:• Connecting different systems of maritime circulation.• Single GTOs played a preponderant role.

• Both account for terminal growth and profitability.

Conclusion

■ Vertical integration, horizontal integration and portfolio diversification• Maritime shipping companies:

• Secure traffic for their networks.• Profitability of both seaside and landside operations.

• Stevedore companies:• Expanded from their base port or region.• Diversify and replicate their business model.

• Financial holdings:• Valuation and revenue generation.

• Organic growth (new terminals) and M&A of existing facilities (and operators):• Common strategies.• GTO differ little from their manufacturing and retail counterparts in

view of globalization.

Conclusion

■ Future expectations• Part of business cycles.• Diminishing returns.• Fast growth, mergers and acquisitions:

• Underlines that the industry may be close to achieve a level of maturity.

• Convergence towards a common business model?• Shift in the corporate geography of GTOs:

• Then: Dynamics oriented towards expansion.• Now: Rationalization, performance improvements and the search for

niche markets (segmentation).