The Hindu Business Line : Container terminal operators

India has emerged as a major market for terminal operators, thanks to privatisation of the port sector and opportunities for rapid growth. Also, government encouragement to competition among international operators has helped the country secure perhaps the best price and menu of services.

FOR over a year, shipping and port circles keenly watched the world's major container terminal operators, some in partnerships with local firms, compete to grab the contract for the third container terminal in Jawaharlal Nehru port. Finally, the Maersk-Concor combine emerged the winner. Several of the world's big names in the field were involved some time or the other in the competition and these included P&O Ports, CSX, Marubeni, Evergreen, Port of Singapore Authority and Hamburg Port Authority.

The developments surrounding the contest brought into focus several important issues. First, the major shipping lines, so far only running movable assets, are also becoming operator of immovable assets. Second, India has emerged as a major market for terminal operators, thanks to privatisation of the port sector and opportunities for rapid growth. Finally, the government encouragement to competition among international operators has helped the country secure perhaps the best price and menu of services.

The container terminal operating industry has almost become an exclusive club of a Hutchison Port Holdings of Hong Kong, P&O Ports of London, Stevedoring Services of America in Seattle; PSA Corporation of Singapore; APM Terminals, part of the AP Moller-Maersk A/S Group of Denmark; Eurogate GmbH in Germany; and CSX World Terminals of Charlotte, US. These companies, even as they compete fiercely for port concessions in Asia, Latin America and West Asia, share one common trait — flexibility. They are adept at changing business plans to meet the requirement of a diverse marketplace and move fluidly across the borders as they are not tied to a single business model. Also, as a general rule, these companies bring the two most important ingredients which most developing nations lack most in port operations — access to capital and expertise in developing and managing a modern port.

The international terminal operators, even as they adjust themselves to local business requirements, also learn to become flexible in pricing services so as to receive an adequate return on investment. And the pricing strategy has to be different in different countries depending on the local condition. For example, the pricing strategy in a booming market such as China, where the annual growth in cargo volume is in excess of 20 per cent, will be different from the one to be pursued in a high-risk country where a larger return is needed to compensate for political and financial uncertainties.

The Maersk-Concor combine clinched the deal for the JNPT's container terminal by quoting a revenue share of 35.503 per cent but considered "rather high" by its competitors.

Last year CSX World Terminals won a concession to operate in north China by agreeing to a 50:50 partnership with the local government. But the hottest market could also be one of the most difficult to penetrate. The terminal operators that won the initial concessions in Hong Kong 30 years ago — Hutchison Port Holdings and CSX World Terminals — got a jump on the competition by moving across the border to south China and then up the coast to Shanghai and ports in the industrial north.

To break into the Chinese market, a terminal operator has to first gain a foothold among the Chinese officials. Once that is achieved, rapid growth, it is felt, is almost guaranteed. One of the hardest markets for the terminal operators is North America, especially the west coast, where the major shipping lines prefer to have their own terminals and the port authorities would like to deal directly with the lines for guaranteed throughputs.

The growth opportunities in Europe and America being limited, the global terminal operators are able to secure concessions in Asia and Latina America by bringing different assets to the market. In some cases, they team up with an affiliated shipping line to guarantee container volume to the port while in other cases they will form joint ventures with unaffiliated liner companies seeking not only to retain the control of the terminals but also looking for an experienced operator to reduce over overhead, improve productivity and achieve better management of the labour force. In case of JNPT's third terminal, Maersk has teamed up with the state-owned Container Corporation of India (Concor), a transporter of containers by rail.

For some terminal operators, transshipment can be the major attraction depending on where it is operating. For example, P&O Ports in Colombo targets transshipment traffic where the same terminal operator in Chennai, which is close to Colombo, concentrates on the hinterland traffic. CSX Terminals has a different strategy for transshipment regions such as Latin America and South-East Asia. Located at the centre of the north-south and east-west trade lanes of the Americas, the ports of Latin America offer significant transshipment opportunities between the two trade lanes. In South-East Asia, the focus is on indigenous traffic while transshipment is considered "gravy".

Sometimes, ports also require that terminal operators deal with the high cost of modernisation or completely rebuilding facilities. For example, P&O Ports had to spend over $100 million on an extensive renovation of the Port of Newark Container Terminal.

Independent terminal operators often feel that terminals owned and operated by shipping lines are vulnerable to leverage applied by the unions to their costly vessels. As a result, the liner-owned terminals tend to have more restrictive work rules, higher overheads and overall higher operating costs.

At times a terminal operator could be a victim of its own success. The Port of Yantian, across the border from Hong Kong, opened in 19995 with a cargo volume of 256,000 TEUs, is now handling more than five million TEUs throwing up the same congestion and other related problems for which the shippers and shipping lines had left Hong Kong. Nearer home, Nhava Sheva International Container Terminal is a case in point.

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