Are we entering a new period where the money to be made from ports and terminals is markedly less than it was in the past?
Investing in and operating container terminals has long been a highly profitable and resilient business sector. Underpinned by strong historic growth in demand, the nature of the industry, with its high barriers to entry and limited local competition in each port market has consistently translated into healthy profit margins and returns on investment. Typical EBITDA margins for global container terminal operators have remained in the range of 20-45% year after year, for example.
Ports are not immune to the volatility of the market and the world economy, but have proven their ability to weather storms – even in 2009, a year where global port volumes fell by nearly 9% and the worst year the industry had ever seen, all of the main global container terminal operators maintained their EBITDA margins, at least in percentage terms.
However, the global container port industry may be entering a new phase of its development, where several of the key variables are looking increasingly challenging.
In the period running up to the global financial crash in 2008/09, container port throughputs raced ahead averaging double digit growth each year (~11%). Since then, the new normal has been much lower growth (~5% p.a.). This in itself is not surprising (the double digit growth could not last forever), but more worrying is the recent hard slowdown in growth triggered mainly by economic and political changes in China. In 2015, global container port growth was only around 1% and in 2016 it is not likely to exceed 2.5%. These are the lowest growth rates ever seen by the industry (apart from in 2009). The industry has adjusted to a new normal of ~5% growth p.a. but what if the new “new normal” is less than half of this?