What to look for in the ports and terminals industry in 2018

Here are five thoughts from me on what the key issues and trends will be in the ports and terminals sector in 2018. I’d welcome your comments.

Demand growth lower than 2017 but still healthy: It looks like global container port traffic growth in 2017 will be about 6% when all the data is in, the highest growth rate since 2011. But the 2017 growth rate was boosted by the poor 2016, and we can’t expect 2018 to emulate last year. Nevertheless, we’re looking at about 4.0-4.5% growth in 2018. This equates to more than 30 million more teu handled around the world and at a conservative $100 per teu average revenue, an extra $3 billion revenue for the ports industry in 2018.

More terminal M&A and port alliances: No prizes for saying that Chinese players are highly likely to acquire more port assets in 2018. They have the appetite and the war chest of funds. But their targets will increasingly be worldwide and not just restricted to One Belt One Route locations. There will also most likely be more JVs in terminals between terminal operators and shipping lines, and the trend towards hybrid terminal operators (terminal portfolios owned by shipping lines but pursued as businesses and profit centres in their own right) will continue. More port authorities are likely to strike up alliances and partnerships with each other, and in some cases full mergers.

Going digital: The myriad aspects of IT, AI and the internet will be occupying the minds of all involved in the industry. Blockchain, smart ports, big data, the Internet of Things – the list goes on. Without question there are some very significant opportunities to make a big difference to the way that ports and the wider supply chain function. The big challenge is finding our way through the minefield of options and getting focus on what really matters and what has the best potential. It’s like when the internet first came along – from all the thousands of ideas and start-ups, who could have predicted that the winners would be the likes of Google, Facebook and Amazon?

Ships, carriers and alliances: The alliances appear to be settled in their structure and membership, for the time being at least, and carrier consolidation has been rampant over the last 18 months to two years, with few opportunities remaining (hardly any major players left to buy). Maximum ship size has more or less reached a plateau (again, at least for the time being) but cascading still has some way to go in 2018 and beyond.

The profitability question: We know that bigger ships and alliances have been increasing opex and capex costs for ports and terminals, putting pressure on profit margins. That said, most of the major players have successfully maintained EBITDA margins so far, so may be the greater impact is hidden in the return on investment. It’s also the case though that terminal operators have been actively seeking to widen their sources of revenue beyond the terminal gates (e.g. in freezone and distribution activity). Much is said about the greater bargaining power of the big liner alliances and weakened position of ports and terminals. I’m not so sure. For transhipment business, yes, the alliances have great power (just look at the recent market share volatility of the hubs in Southeast Asia), but it’s always been the case that shipping lines have the upper hand with transhipment business. But for gateway ports, cargo remains king – and we mustn’t forget that as ships and alliances get bigger, their choice of ports and terminals gets more and more restricted.