Europe’s busiest container terminals are seeing their margins put under pressure as they expand to cater to the world’s largest box ships at a time when economic weakness is hurting volumes.
Shipping lines such as A.P. Moeller-Maersk A/S are seeking economies of scale through ever-larger ships. That’s pushed terminal operators in places such as Rotterdam and Felixstowe, U.K., to invest billions of dollars in deeper ports, bigger cranes, longer berths and larger container yards, or risk being locked out of the Asia-Europe trade route, the world’s largest.
“Ports won’t any time soon be able to get to back to profitability levels seen before the 2009 crisis because of moderate utilization, slow growth and the additional capacity coming on stream within the next 24 months,” said Henning Breiter, a Hamburg-based analyst at Hauck & Aufhaeuser, a private bank. “It’s getting more difficult for ports to pass on rising costs to their customers, and a weak economy is not helping at all.”
The average vessel capacity deployed on the Asia-North Europe trade route, where the world’s largest ships operate, rose to a record 10,279 20-foot containers in the first quarter of this year, according to London-based Drewry Shipping Consultants Ltd. That’s an increase of 7.6 percent from a year earlier and 53 percent from five years prior.
European ports have spent or are committed to spending up to 10 billion euros ($13.3 billion) on projects that will expand their ability to handle the world’s largest container ships, according to Drewry analyst Neil Davidson.
Rotterdam, Europe’s largest terminal, opened the 1.55 billion-euro first stage of its Maasvlakte 2 development in May, forecast to boost capacity by 4.8 million containers once completed. Last September, the 1 billion-euro JadeWeserPort terminal near Wilhelmshaven, Germany’s only deep-water docks, began operating.
U.K. terminals have spent about 1 billion pounds ($1.52 billion) to date on expansion for these kind of vessels, according to Richard Bird, executive director of the trade body The United Kingdom Major Ports Group Ltd. Hutchison Whampoa Ltd.’s Port of Felixstowe, Britain’s largest container harbor, added a 300 million-pound extension in 2011, while DP World Ltd. is building the 1.5 billion-pound London Gateway.
Hauck & Aufhaeuser’s Breiter has hold ratings on Hamburger Hafen & Logistik AG, which handles about 80 percent of containers at Germany’s Port of Hamburg, and German box terminal operator Eurokai KGaA. He estimates Hamburger Hafen’s margins on earnings before interest and tax will decline to 14.5 percent this year from 15.7 percent in 2012, and Eurokai’s will fall to 8.3 percent from 8.9 percent.
The size of the largest container ship in operation has quadrupled since 1992, according to Drewry, which estimates the average vessel size on the Asia-North Europe line will reach 11,200 20-foot equivalent units, or TEUs, by the end of 2013.
That’s apparent in landings at Hamburg, where the number of vessels with a capacity in excess of 10,000 TEUs increased to 349 last year from about 20 in 2008, according to Hauck & Aufhaeuser. Visits by boats with a capacity of between 6,000 TEUs and 7,999 TEUs fell by more than half from over 400.
Maersk Line’s Maersk Mc-Kinney Moeller, the world’s largest container ship, made its maiden voyage this month. The carrier has 19 more so-called Triple-E vessels, which can carry 18,000 20-foot boxes, on order over the next two years.
That record already looks set to be overtaken as China Shipping Container Lines Co. in May ordered five vessels, each capable of carrying 18,400 20-foot containers. The first is to be delivered in the second half of 2014. Drewry estimates the world could see a vessel with a capacity of 22,000 boxes by the end of the decade.
“The carriers are chasing economies of scale with these bigger ships and ports are having to respond to it,” said Ben Hackett, founder of maritime research group Hackett Associates LLC in Alexandria, Virginia. “Port developments are looking at 10 years, 20 years forward, and it’s inconceivable we’ll be in the doldrums for that long.”
The boats are too big to use any port in the Americas or negotiate the Panama Canal, restricting them to an Asia-Europe market where growth in cargo demand is sluggish at best.
Container port volumes in western Europe will grow 1 percent this year after rising 2.6 percent in 2012, according to Drewry. That compares with a forecast drop in global growth to 4.1 percent in 2013 from 4.5 percent last year, Davidson said.
“Competition between ports has really hotted up in the last few years,” Hackett said in a telephone interview. “Everyone’s out to try and be one of the base ports. Some will come to dominate volumes, with other ports relegated to being feeder ports. There’s a big game of musical chairs going on.”
With fewer larger ships calling at fewer terminals, ports also need to make sure they have the facilities and transport links to deal with the increasing concentration of volumes. Felixstowe opened a new 40-million-pound rail terminal in June that doubled its rail capacity.
“It’s certainly a very important issue to have enough landside capacity to cope with the volume, but it’s also a much more challenging issue because for the ports and terminals it’s something they’re much less able to influence,” Drewry’s Davidson said by telephone. “It’s more a government issue.”
And it’s not just ports on the Asia-Europe trade line. The introduction of ultra-large ships alongside stagnating volumes means carriers have to transfer smaller ships to other routes to avoid overcapacity. About 40 ships with 8,000 TEU capacity will be cascaded from the Asia to Europe trade line to other routes this year, according to Drewry.
“You’re seeing a lot of 6,000 to 8,000 TEU ships showing up in South America, which is new,” Hackett said. “You’re seeing on the trans-Pacific route ships getting bigger, as well as in West Africa. They need to build their new facilities to cater for these bigger ships.”