Booming ports set to embark on new era

Date: 09/11/00

By Bruce Barnard

THE EU is about to launch an assault on the remaining bastion of protectionism and cronyism in the transport sector: the waterfront.Transport Commissioner Loyola de Palacio plans to table proposals to open up cargo handling, storage and distribution and other port-related services before the end of this year.

The plans have been a long time coming. The European Commission began gathering information on the industry more than ten years ago amid widespread scepticism that it could ever change one of Europe's most conservative and politicised business sectors. Now there is a good chance that EU governments will support De Palacio's proposals, not least because market forces already are opening up the industry.

To be sure, France will try to water down the reforms to prevent a backlash by its militant dockers' unions. As a result, deregulation will pass French ports by - but so too will cargoes, which will divert to more efficient, liberalised rivals.

Ports have suddenly become an attractive investment, outperforming more glamorous businesses. British shipping and transport group P&O is more enthusiastic about its ports division, which is in line for a 2 billion euro-plus investment, than its recently de-merged ocean cruise division, which is facing the industry's first downturn. The Hong Kong conglomerate Hutchison Whampoa is getting as much out of its port assets as its higher-profile real estate and telecoms interests.

These companies are spearheading the globalisation of the ports industry, assembling a network of container terminals from Argentina to Indonesia. This is a massive change in one of the world's most fragmented and parochial industries: ten years ago, stevedores did not stray from their home port, much less cross borders. But now Hutchison accounts for 10% of global container handling, a figure which is likely to double within three or four years thanks to surging growth at its Chinese terminals.

Hutchison and P&O are being chased by a second tier of global port operators, including PSA Corp. of Singapore, Eurogate of Germany and Stevedoring Services of the US. These top five players, which control around 25% of the world market, are poised to tighten their grip because another global operator, Manila-based International Container Terminal Services, wants to offload its foreign operations, mostly in Asia and Latin America.

The competition is hottest in Europe because of the sheer size and potential of the market. Drewry Shipping Consultants in London forecasts that container traffic through north European ports will grow from 24.6 million 20-foot units in 1997 to 38.8 million in 2005. For Mediterranean ports, the figure is expected to double from 17.56 million to 35.6 million by 2010.

The big players are active throughout the continent. P&O is building a terminal and distribution centre in Duisburg, the world's biggest inland port; Hutchison is the biggest shareholder in ECT of Rotterdam, Europe's leading terminal operator; and Eurogate runs terminals in Italy and Portugal.

The big companies are fighting head on in some markets. P&O recently unveiled plans to build a brand new container port, the UK's largest, on the site of a mothballed Shell oil refinery on the River Thames at a cost of €800 million. Hutchison, which owns two British container ports, Felixstowe and Thamesport, hit back with plans for a container facility at the east coast port of Harwich; while the privatized ABP group wants to boost capacity at Southampton.

There are more opportunties for private investors. Ireland is considering privatising its main ports, the Maltese government is seeking buyers for the state-owned Marsaxlokk trans-shipment hub, and Germany is close to deciding the site for a new deepwater port.

The terminal companies are also plugging other gaps in their global networks. P&O Ports last week signed a 30-year concession on a US container terminal in Newark which will involve an initial investment of €180 million, rising to €700 million over the lifetime of the contract. The firm is also negotiating for a stake in a development in New Orleans.

Europe has a long way to catch up with the UK, where the industry - from port authorities to cargo-handling firms - is almost entirely in private hands. Several port companies are quoted on the London Stock Exchange and there is a lively merger and acquisition market. Prestige Acquisitions, an investment group backed by Japan's Nikko Securities, has just agreed an €868 million take-over of ports and marine engineering group Powell Duffryn.

The presence of these massive global terminal operators is forcing change on the European waterfront. Antwerp, which was tightly controlled by a small group of Flemish stevedores only five years ago, is a top target for foreign companies. P&O has snapped up two large cargo handling firms in the Belgian port, Seaport and ATC. Equally significantly, the company has just won a concession for a giant new container terminal.

PSA and Eurogate are bidding for a majority stake in a company formed by merger between two top stevedores, Hessenatie and Noord Natie, while four foreign financial institutions are seeking minority holdings. This would have been unthinkable a few years ago when Antwerp regarded the Belgian seaport of Zeebrugge as a foreign threat.

There are fewer distortions to competition in many ports, especially in northwestern Europe, thanks to deregulation in other transport sectors. Deutsch Bahn - which was fined 11 million ecu by the Commission in 1994 for discriminating against Rotterdam and Antwerp in favour of Hamburg and Bremen - is pitching for traffic at all ports now following its merger with the Dutch rail freight company NS Cargo, which gets most of its business from Rotterdam.

The tugboat cartels which have traditionally forced prices up are crumbling and port authorities are also getting more commercially savvy. For example, the Rotterdam Port Management has won limited commercial freedom from City Hall.

The leading container shipping lines are pressing ports and terminal operators to improve their productivity, usually by threatening to move their business to rival ports. The recent decision by the world's largest carrier, MaerskSealand, to move its Asian trans-shipment traffic from super-efficient Singapore to the port of Tanjung Pelepas in neighbouring Malaysia sent a chill across the entire Le Havre-Hamburg range.

Against this market-driven backdrop, De Palacio will urge EU governments to boost competition on the waterfront and help drag the ports industry into the 21st century. It is a low-profile campaign, but it will be just as important to business as liberalisation of the telecoms and energy sectors.

Major feature on Transport Commissioner Loyola de Palacio's plans to open up cargo handling, storage and distribution and other port-related services.