When Ports Finally Ditch Fax Machines, Cargotec Plans to Profitby
Finnish company bets software will replace outdated technology
CEO in Helsinki expects to sign contracts in second half
Finland’s Cargotec Oyj is vying for new contracts later this year to modernize ports as the equipment supplier to maritime hubs from London to Los Angeles promotes technologies rendering fax machines and even workers redundant.
Cargotec is aiming to ride a wave of investment in digital communication and automation set to transform maritime trade and boost its own profits, Chief Executive Officer Mika Vehvilainen said in an interview. After joining the company from flag carrier Finnair Oyj in 2013, he said he was shocked by the rudimentary state of technology for exchanges between ports and giant cargo ships.
“It’s surprisingly old-fashioned,” he said at the company’s headquarters in Helsinki. “In many cases these people are actually sending faxes to each other, or making phone calls, and they only share the information a few hours before docking.”
The Finnish company, which had sales last year of 3.7 billion euros ($4.2 billion), is seeking to expand further in services and software from its traditional businesses of making cargo handling equipment like cranes and forklifts. Carved out of elevator manufacturer Kone Oyj in 2005 and built up through acquisitions, Cargotec is also trying to win back investor confidence battered by past profit warnings. With just a tiny proportion of global ports now equipped with some form of automation, it expects that market to be worth almost 1.5 billion euros annually in the coming years.
“We are talking to about 70 ports about automation capabilities,” Vehvilainen said. “Ultimately, all container ports in the world will be automated.”
Cargotec’s port-equipment unit, Kalmar, has already taken part in about half of these types of projects in the world, and Vehvilainen expects to sign “a few” more deals in the second half of this year. For an industry that hasn’t always greeted change with open arms, the switch is slow-moving, he said.
Globally, around 5 percent of the estimated 680 container terminals in operation are at least semi-automated, with around 10 new automated ones in the pipeline, according to consultancy Drewry Maritime Research.
“The tipping point has been reached,” Daniel Schäfer, a market analyst at DS Research, said in a phone interview. The biggest container terminal operators like APM Terminals, DP World and PSA have now automated some installations, which are working reliably, so a “second wave” is expected, he said.
For its part, Cargotec’s Kalmar supplied software-controlled machinery for container terminals like London Gateway port on the north bank of the River Thames and TraPac LLC’s facility in the port of Los Angeles. It raised research and development spending by almost 25 percent last year in a bid to stay ahead of competitors like China’s ZPMC, Austria’s Palfinger AG and U.S.-based Terex Corp., the world’s largest provider of unmanned container transport vehicles.
Still, automation faces opposition from labor organizations seeking to protect workers from being replaced by equipment, harking back to the container revolution in the 1960s when hundreds of thousands of jobs were lost at ports around the world because the goods-packed metal boxes could be loaded onto ships by crane.
Demands for automation are rising along with global trade volumes and larger ships, like Mediterranean Shipping Company’s MSC Oscar vessel which can carry up to 19,224 twenty-foot containers.
Four of 10 analysts surveyed by Bloomberg have a sell rating on Cargotec, and shares are trading at about 13 times estimated earnings this year, lower than most Finnish industry peers, in part due to a series of earnings misses and profit warnings that had analysts questioning the previous management’s strategy. In October 2012, Cargotec cut profit guidance for the second time in four months due to cost overruns in terminal projects. The stock has risen 5 percent since the start of the year, giving it a market capitalization of 2.4 billion euros.
“There were too many negative surprises,” Vehvilainen said. “People have long memories.”
Cargotec’s three business areas including Kalmar get slightly more than 20 percent of revenues from services, far below the levels at other Nordic manufacturers like Konecranes Oyj, Metso Oyj, Atlas Copco AB and Wartsila Oyj. By 2020, Cargotec wants to get 40 percent of revenue from service and software businesses, which Vehvilainen said could provide hundreds of millions of euros in additional sales.
“We have done a very poor job in the past in terms of developing our services,” he said. “That’s a sad story.”