Seaports & Shipping in a Changing Environment March
Seaports & Shipping in a Changing Environment March 15th, 2017 1 GLDPartners Team Participants Adam Wasserman Brendan Dugan Lois Yates Eric
Peterson Managing Partner, Feasibility, Finance Ports and Terminals Market/Competitiveness & Econ Devt Political & Trade Policy 2 About GLDPartners Purpose-built international investment and advisory Two main business areas: Advise
on supply chain strategy and facility site selection requirements Clients: Global manufacturers Projects at and around airports, seaports and strategic inland trade and logistics hubs Clients: Investors, public and private asset owners, economic development organizations, MPOs, States Offices in US, Canada, Mexico and the UK 3 GLDPartners Approach: Story Behind Whats in the Box Demand-centric
focus Market direction/sector intelligence Supply chain and trade lanes Competitive forces are requiring seaports to understand their market sweet-spots Some examples later on 4
Ports Webinar Outline 1. Challenges and resulting consequences of current state of container shipping industry, on Ocean Ports carriers and terminal operators Beneficial cargo owners 2. Current overview of Breakbulk Shipping 3. Political climate affecting trade, ports, and related infrastructure for both Container and Non-Container ports & shipping 4. Potential forward-thinking strategies
Ocean Carrier Financial Challenges Create Container Industry Uncertainty Overcapacity-too much new vessel capacity ( too many large container ships chasing too little freight Slowdown of Chinese economy = decreased demand Decreased demand = lower container freight rates = lower ROI Vessel construction cycle ( around 3 years) lags faster-paced economic developments
Freight demand increased steadily following 2009 recession, leading vessel owners to start this latest cycle of overbuilding capacity Capital cost hurdles for existing ocean carriers & for new entrants become steeper, make it more difficult to stay afloat Consequence 1: Container Industry Consolidation CMA-CGM Hapag acquires APL Lloyd Acquires UASC Cosco
& China Shipping Merger Hanjin Bankruptcy Merger of Japanese Container Carriers (NYK, MOL, K-Line) Consequence 2: Carrier Alliance Consolidations Three major ocean carrier alliances will control approximately 95% of capacity on the major EastWest trade lanes = potential cost control and desired upward readjustment of freight rates: 2M Alliance: Maersk & MSC (potentially plus HMM)
The Alliance: Hapag Lloyd ( incl. UASC) + 3 Japanese carriers + Yang Ming Ocean Alliance: Cosco, Evergreen, CMA-CGM ( incl. APL), and OOCL Consequences 3: Disruption - Port & Container Terminal Industry Realignment of what carriers/alliances call at what terminals Creating challenges for leases, operating agreements, and for committed and projected terminal investment Based on container carrier bankruptcies and consolidations, carrier-owned terminals are on the market, creating further uncertainty Ocean carrier financial challenges result in carriers
putting added pressure on ports and terminal operators to renegotiate the financial and operating terms of leases and agreements Consequences 4: Challenges for Beneficial Cargo Owners (BCOs) Carrier consolidations & formation of fewer/larger alliances result in BCOs having fewer carrier negotiating choices Potentially higher freight rates put cost pressers on BCOs BCO logistics managers face corporate pressures, Limited boardroom understanding of industry challenges BCO logistics managers are frustrated by results of ocean carrier cost-cutting measures, e.g. Increased on-line booking/customer service systems, instead of being able to speak to a Breakbulk vs. Container Shipping
Break Bulk Shipping Mostly unscheduled Usually port to port Container Shipping Scheduled (fixed day of the week) Significant degree of specialization in subsectors
Often includes intermodal Little specialization Consequently, capability is typically more important than size Consequently, economizes of vessel size are important
Panama Canal expansion effect small Panama Canal expansion expected to have a material (not dramatic) International Breakbulk Shipping Industry Profile Approximately 20,000 vessels - Vary significantly: size, type, capability & age Highly fragmented overall-100s of companies Many one vessel corporations High concentration in selected industry subsectors Vehicles
Reefer Heavy Lift Project Cargo Overall low growth Current Status of Breakbulk Shipping & Port Industry Commodities Forest products Iron & steel Vehicles Industries Construction Manufacturing Economic drivers (similar to container business) GDP Population Consumption
Income Breakbulk Market Segments Basic RoRo Reefer Project Iron & Steel Forest Products Ag Products Passenger, new & used Trucks Buses Ag & Construction
Vehicles Fruits Meat Vegetables Machinery & Heavy Lift Power Generation Plant & Equipment Oil & Gas Yachts Key Commodity Market Drivers Iron & Steel Products have driven US Breakbulk Import Demand -Iron Ore imports to China increasing for domestic production, but steel exports from China to Europe Asia, and US decreasing. This is beneficial for US
steel producers, but will that mean increased exports? Forest Products have driven US Breakbulk Export Demand - But how will slowdown in Chinese economy affect demand? Breakbulk Market Summary Each segment is unique Technologies Structure Market drivers Port requirements Market characteristics vary significantly by region, country, coastal range, port and terminal There are multiple customers Carriers BCOs (importers, exporters) Third parties: 3PLs, forwarders, brokers
Breakbulk Supply Chain Similar to Container Supply Chain (req. just as much attention) BCOs - Importers/Exporters & Buyers - Overseas Suppliers & Consignees Transport Providers - Ocean Carriers - Overseas & Domestic terminal operators - Truckers and Railroads Agencies - Customs - DOA - Coast Guard Third Parties - 3PLs Breakbulk Multipurpose Terminal Strategy Same facility can be flexible enough to handle multiple cargo types Common berth and terminal area facilitates ability to
maximize berth and terminal utilization, thereby amortizing facility capex easier Fosters both cooperation and competition across multiple stevedoring companies Some Examples: - Baltimore Dundalk - Houston City Docks - Jacksonville Blount Island Examples of Political, Trade, & Infrastructure Issues Affecting Ports Pacific Merchant Shipping Association warns that Trump Administration trade policies could have negative affect on US trade and ports Trump Adminsitration instructs USTR to pursue trade cases against China, both in the US and in WTO. Chinas Trade Minister Gao Hucheng warns that a US-China trade war should not be a serious option. Demise of NAFTA & threat of increased tariffs threatens agricultural trade between US-Mexico, as well as
automotive trade between US, Mexico, & Canada Florida Governor threatens to withold funding for Florida ports doing business with Cuba ASCE rates US transportation insfrastructure a D+ Trade Issue Effects NAFTA demise affects Breakbulk, particularly RoRo (automobile), reefer, trades & forest products China trade disputes affect both container and noncontainer trades Tax Reform affects infrastructure investment, which in turn is important to both container and noncontainer ports Any trade restrictions (ex. Florida/ Cuba) affect potential of business development for potentially competitive US ports 20 Supply Chain Food For Thought: Pharmaceuticals Disruptive Influences in the Pharmaceutical Industry:
Pharmaceutical companies switching from air freight to ocean freight Air cargo share of global pharma products has declined from 17% in 2000 to 11% in 2013 Seabury Consulting reports that every year 0.5 million tons of pharma products are transported by air, compared to 3.5 million tons by sea 8 out of 10 pharma shipments will require cold chain services $34.1B in losses associated w temperature excursions: air freight
Many are doing it, others are evaluating it, but it is not for everybody Consolidation hubs in the future? 21 Supply Chain Food for Thought: Automotive Radical evolution in the automotive industry: Largest and most sophisticated global production supply chain Asia is the focus of global production unit growth China is now the largest domestic consumption market in the world China is becoming a major production-for-export center (to NA and Europe) Mexico: risen to global production top-tier, dependent on trade agreements
Technology is main driver to innovation & competitive advantage Commodity production patterns will remain relatively consistent, but with far more emphasis on China, SE Asia Automotive technology is redefining the sector: new entrants, types Autotech research, development, & production will have own separate hubs US will be the main focus in autotech for the next five years, and then increasingly Europe and Asia - estimated approx. 10 hubs globally 22 Demand-Driven Business Strategy At the end of the day, it is all about the requirements of specific supply chains Critical to define your seaports competitive proposition In our opinion, many seaports are missing-out on opportunities resulting from supply chain changes in the market
Those assets that do not understand the market and their sweet spot will fall behind 23 GLDP: A Trusted Partner Were To happy to have a confidential conversation vet and review Concept Feasibility Bureaucracy and political appetite Discuss probable competition, development &
refinement of business plan and application GLDPartners can help you develop the project from concept to successful implementation 24 GLDPartners Webinar Series Future Webinar Program Topics Washington May UK Update @120 Days 17th 2PM EST and Europe Outlook Post Brexit
June 25 GLDPartners|Global Logistics Development Partners www.gldpartners.com 623.341.1383 26
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