Chinese port operators expand with unprecedented aggressiveness

Prospects for global demand growth in container ports are are now more optimistic and Chinese market players are moving forward aggressively with high-level purchasing of terminals.

In that sense, major shipping mergers and acquisitions are changing the landscape, marking a better future, according to the Global Annual Report on Container Operator Terminals 2017, in its fifteenth year of publication by Drewry.

Drewry’s forecast of demand of container terminal operators is more positive than that reported in last year’s report, showing 4% of CAGR (Annual Composite Growth Rate) adding 152 million TEUs of port transshipment to the total total for 2021. This comes as a consequence of the improvement of port transfer rates in the second half of 2016 and during 2017, in addition to a more positive global economic perspective.

Cosco Shipping Ports y China Merchants Ports have boosted mergers.

Cosco Shipping Ports y China Merchants Ports have boosted mergers.

Threats in the panorama

Despite this, there are still numerous risks and uncertainties today, such as tensions in the Middle East and in Korea, the protectionist and unpredictable stance of the US administration and the impact of Brexit.

This is perhaps one of the reasons why port capacity for global containers is projected to increase at a CAGR of 2.7%, based solely on confirmed additions. This figure is considerably lower than expected, and therefore, average levels of employment are expected to increase.

Terminal of Noatum.

Terminal of Noatum.

Neil Davidson, senior analyst at Drewry for ports and terminals, said: “While there are certainly encouraging signs for demand growth prospects, the risk profile for terminal operators has increased for most traditional global players. The exception is made up of those Chinese port companies that are pursuing expansion and investment, both in their home country and abroad, in an unprecedentedly aggressive manner.”

The activity of mergers and acquisitions in the port sector is at a high level. Nearly $3.1 billion in deals have been reached so far in 2017, boosted by operators such as Cosco Shipping Ports and China Merchants Ports. Over the past year more than half of global operator acquisitions of international terminals have been carried out by Chinese actors. This is how the valuation of port and terminal business ranges from 13x to 26x EV / EBITDA. It should be considered that Chinese companies are usually prepared to cancel a premium.

Cosco Shipping Ports has risen in the league table of port operators as a result of the merger of Cosco and China Shipping and will advance further in the coming years due to the acquisition of the terminals of Noatum and OOCL. The China Cosco Shipping group is projected to add more capacity than any of the global operators of international terminals in the next five years.

“Chinese companies are more comfortable with the risk than the global operators of international terminals established at this time, and have a geopolitical strategy rather than purely financial. They are gaining assets and opportunities. They also have the appetite and the financial influence to take many more in the next few years,” Davidson added.

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