> Maritime Research

As the original wave of container terminal privatisations from the 1990s and 2000s approach the end of their initial terms, Drewry finds that changes in market forces have shifted the risk/reward balance for Port Authorities towards retendering the concession in certain market conditions. However, globally the general preference is to renew or extend with the incumbent operator.

While the majority of container terminal concessions are extended or renewed, a small but growing proportion have been allowed to expire, according to recent research published in Drewry’s Ports and Terminals Insight.

Drewry reviewed 27 concessions that were renewed, extended or had expired over the past three years. While the majority (21 out of 27) were awarded to the incumbent operator via renewal or extension of the initial concession, six were allowed to expire.

In the intricate web of global commerce, ports are the gateways through which goods flow between nations, shaping economies and connecting distant markets. At the heart of port operations lie port concessions, a contractual arrangement that marries private sector expertise and financial capability with public sector oversight, to manage and develop these critical hubs of trade and transportation.

Looking back to the first wave of port concessions from the 1990s and 2000s, there was considerable variation in risk between emerging and developed markets. However, while political and economic risks in emerging markets remain high, other risks such as labour reform, infrastructure and market are now much lower.

Port authorities should decide well in advance of concession expiry whether to extend, renew or retender the terminal concession. A formal public tender is an expensive and time-consuming process and there is no guarantee it will result in the best outcome overall. The received wisdom suggests that port authorities are better off following the ‘if it ain’t broke, don’t fix it’ philosophy – meaning that they should look to renew or extend with the incumbent if they are performing adequately.

Port authority end of term options for container terminal concessions

Source: Drewry’s Port and Terminals Insight

However, recent market dynamics should make them pause to at least consider whether a new competitive tender could result in a better outcome.

Drewry believes that retendering a port terminal concession in a mature market, with competing terminals either within the same port complex or serving the same hinterland, is unlikely to achieve significant gains for the port authority. Therefore, given the costs of running a public tender, the uncertainty surrounding the process and the inherent risks involved in changing a terminal operator, it is more sensible to approach these concessions with an extend/renew framework. This enables the port to obtain commitments to reinvest and upgrade the terminal asset over the extended timeframe.

However, in less mature but still proven markets with more growth potential, a formal retender process is much more likely to achieve significant gains and, importantly, the rebalancing of risk and reward compared to the original concession - signed when the market was less certain. This is especially the case for those terminals with no direct competition in the same port.

While the majority of concessions are expected to be extended or renewed with the incumbent operator, emerging global terminal operators are anticipated to show strong appetite for those that are re-tendered, particularly given the paucity of new concession opportunities.

However, market fundamentals remain key, and only those concessions with growth potential and realistic expectations from the port authority will result in a win-win for both public and private sector partners.

To access the full briefing on port container terminal concessions subscribe to Drewry’s Ports and Terminals Insight.

About Drewry's Ports and Terminals Insight

Ports and Terminals Insight is a quarterly report (PDF) covering the latest developments in the container ports and terminals market.

Included is a monthly update providing regular port congestion and performance monitoring. It looks behind the data and topical issues to answer both the ‘cause’ and ‘effect’ questions that matter most to senior industry stakeholders.

The monthly analysis of port performance and congestion (across global and 8 regional port markets), powered by Drewry AIS analytics, includes:

- Monthly port throughput growth trend analysis
- Port call analytics and development trends
- Port performance monitoring, broken-down by:
  - Pre-berth waiting time
  - Terminal time
  - Other time
- Port congestion heatmaps by region
- Pre-berth waiting time analysis comparisons across selected ports

Find out more

Global Container Terminal Operators Annual Review and Forecast 2023/24

Drewry's annual review of Global Container Terminal Operators provides the most comprehensive and thorough analysis of the container port and terminal industry. This report remains the “definitive reference” for the port and shipping industry as well as government institutions, banks and other financial institutions.

Find out more

Ports and Terminals Advisory Services

Drewry provides expert advice to Financial Institutions, Port Authorities, Terminal Operators, and Governments covering the full spectrum of commercial and technical aspects of ports and terminals. Our team includes industry professionals, economists and technical experts who bring together rich experience and practical understanding of the global ports industry.