© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
Web: www.witpress.com Email [email protected]
Paper from: Maritime Engineering and Ports III, CA Brebbia & G Sciutto (Editors).
ISBN 1-85312-923-2
The effects of the market concentration in the
maritime transport on the strategies of the
container terminal operators
R, Midoro & F. Parola
Dipartimento di Tecnica ed Economia delle Aziende,
Genoa Universi@, Italy.
Abstract
The aim of the present paper is to show the first results of our research about the
strategic behaviour of the global stevedoring companies over the last few years.
Our investigation will particularly focused on the strategic decisions of the top
management of the main container terminal operators such as Hutchison Port
Holdings, PSA Corporation, AP Moeller Terminals and P&O Ports,
We will try to evaluate the impact of the strategies of the global terminal
operators in the different markets and geographical areas, highlighting on the one
hand the burden of investment in assets, focused on the increase in productivity
and in the terminal capacity, and on the other hand the influence on the traffic
flows, especially referred to the transshipment terminals.
As regards the main container terminals we will also underline weak and
s&ength points related to the operating activities and to the management
problems,
Moreover a particular attention will be dedicated to the study of the vertical
integration of some global carriers along the transport chain.
1 The strategic alliances
During the last few years, thanks to the advent of the globalisation, the market of
the sea transport has shown radical changes largely due, on the one hand, to the
formation of the strategic alliances among the top carriers and on the other hand
to the achievement
of growing economies
of scale, referred both to
oxganisational aspects (mergers and acquisitions) and to the “vessel” as technical
© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
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Paper from: Maritime Engineering and Ports III, CA Brebbia & G Sciutto (Editors).
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asset,
The global alliances can be considered as a breakthrough with the previous
forms of co-operation as they are not limited to a single trade lane but aim to
cover every major routes, as well as a number of relevant north-south trades and
regional feeder links. At the same time alliances extend their area of influence
beyond vessel operations towards the shared use of container terminals, joint
equipment management, intermodal transport, logistics and j oint purchasing and
procurement [1].
The factors that drove lines together 30 years ago, namely the need for risk
sharing, cost control, and a capability to increase service frequencies, have to be
re-analysed in conformity with the new needs of mobility induced by the
globalisation and, in a different point of view, by the protracted poor profitability
of the market.
During the 1990’s the economic system changed, passing from a multitude of
distinct markets separated by trade barriers, distances, time and culture, to one
that is increasingly converging and integrating. In particular two main factors
underline this trend towards globalisation: the decline in barriers to the free flow
of goods, services and capitals and in the last two decades the dramatic
development in communications, information and transportation technology,
This means a substantial growth in the scope of activities performed by carriers,
in terms of extended geographic coverage, higher frequency of services, faster
transit times, supply chain management and provision of value added services.
The second force pushing container carriers towards new forms of co-operations
is the protracted unsatisfactory financial performance of the maritime industry as
a whole, The demands for massive investments required by the globalisation are
unfortunately not met by shipping rates. On the contrary, rates on every major
routes have dropped faster than have gained in productivity.
Since 1993, the average index for major trades has fallen by more than 35% and,
consequently, 1996 financial results of the leading carriers showed poor returns
on investments, with ROI’s unlikely to exceed 7-8°/0.
..Yf
.,...,..,,,-,
.,.,
Figure 1: The evolution of the forms of co-operations.
These circumstances have generated the need of new forms of co-operation
which, differently ilom the experiences of conferences and consortia (Figure 1),
are agreements not only referred to a single trade lane but, as mentioned above,
© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
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Paper from: Maritime Engineering and Ports III, CA Brebbia & G Sciutto (Editors).
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283
they include all major east-west routes, in certain cases extending to feeder links
and to other phases of the intermodal chain (container terminal management,
inland transport, joint ship purchasing, etc.).
Over the last few years, together with the advent of global alliances, we have
seen a multitude of mergers and acquisitions which have caused a fhrther supply
concentration in the sea transport.
2 The market concentration
in the sea transport
The need of financial resources required by the pressure of the competition
arranges that container maritime transport is referable to a market based on
services volume, in which the control of high market shares and the acquisition
of traffic quotas represent the main tool of competition among global carriers.
On the basis of these considerations we can analyse and explain the advent of the
increasing market concentration [2], In fact over the last few years merger and
acquisition operations have been several.
In particular, in the European environment, there have been numerous cases of
mergers and acquisitions among liner operators; Hapag Llyod is born from the
merger between Hamburg America Line and Norddeutscher
Llyod, while
DSIVSenator from the merger between Senator Linie and Deutsche Sereederei
Restock, P&O Container Lines, recently merged with Nedllyod, is born from the
merger between P&O and OT&T.
Certainly the most famous event is represented by the acquisition of the
American Sea Land on the part of the Danish Maersk which, thanks to this
financial operation, has consolidated its world leadership in terms of offered
slots.
The majority of top 20 carriers is born either from the merger or the acquisition
ofpre-existent companies.
In a competitive market like liner shipping, where the control of freight rates is
almost impossible, the opportunity of profit or, in the worst cases, of survival,
has to be looked for in the area of cost control, It is necessary the achievement of
economies of scale, in finance, logistics, organisation, and technology, related to
the use of ultra large container vessels and information technology resources,
and this is the main cause of the growth of the market concentration [3].
Moreover the market of carriers is global and it imposes a good organisation and
the ability to act on a world-wide scale. The acquisition of other companies
answers the need to enter in new markets, previously ignored.
Over the last decade the market concentration has grown, choosing as parameter
the fleet capacity in terms of TEUS. Top 20 carriers have considerably increased
their quota passing in the last ten years from 39,6’% to 62,2%, as regards the slot
capacity of the world fleet, and from 74,6’XOto 83°/0, as regards the capacity of
the cellular one (Figure 2),
This has implied an increase in the contractual strength of carriers against the
other players of the transport chain and, in particular, of shippers and stevedoring
operators, partially balancing the impact of the freight rebate induced by fleet
overcapacity,
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I~ % cellular fleet ;,,,% world
Figure 2: The concentration
Consultants.
of sea transport
fleetl
market; source: Drewry Shipping
3 The birth of the “global stevedores”
The advent of the so-called “global stevedores” in the 1980’s has had a
fimdamental impact on port facility financing and management.
Terminal
operators have focused their activities from a national basis to an international
one, Port privatisation in particular has encouraged this course to the adoption of
strategies which have induced some “top players” to hold stakes (usually
majority) in the share capital of several terminals in their strategic portfolio [4],
This trend has obtained fi.u-ther strength from the advent of the globalisation of
the production systems, from the relentless pursuit of economies of scale within
the container shipping industry and, consequently, from the increased contractual
strength of global carriers caused by market concentration [5],
The introduction of Post-Panamax vessels in the, 6.000 to 8,000 TEUS range and
the probable use, in a near fwture, of over 10.000 TEUS IM1-containerships,
requires larger scale port facilities, more onerous and difficult to manage.
Global stevedores
are increasingly
meeting these requirements
and the
“landlord” port model is becoming the model that the public sector is adopting
within the international port community.
The first stevedores, still today among the top players, which have expanded
their operations
on a geographical
basis, have been able to catch the
opportunities offered by the boom of port privatisation, These companies are
P&O Ports and the American
Hutchison
Port Holdings, the Australian
Stevedoring Services of America,
PSA Corporation, nowadays the second operator in the world and owner of some
Mediterranean terminals, belongs to the so-called “second wave”, together with
© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
Web: www.witpress.com Email [email protected]
Paper from: Maritime Engineering and Ports III, CA Brebbia & G Sciutto (Editors).
ISBN 1-85312-923-2
Maritime Engineering & Ports III
285
the German BLG and the American CSX,
These companies have basically been attracted to the international theatre of
operations after witnessing the success of the investment made by their
predecessors
in the first wave and by the growing momentum
of port
privatisation worldwide.
In 1999 BLG of Bremen has merged with Eurokai of Hamburg, creating the
most important European stevedore, Eurogate, while CSX after the acquisition of
Sea Land by Maersk emerged as e new market force, as some Sea Land
terminals remained to the parent company CSX Corporation.
The third wave of terminal operators is composed by some “ocean carriers”,
entered the port business as part of an effort to support their core activity, i.e.
shipping operations, These players, such as the Danish AP Moeller Terminals
associated company of Maersk-Sea Land, Evergreen, the Chinese COSCO, APLNOL, thus represent an example of vertical integration along the transport chain,
On the one hand these operators try to catch the important opportunities offered
by this business, as potential profit margins in the international port sector are
much higher, on the other hand this strategy represents a tool to strengthen their
competitive position against global stevedores of the previous waves,
4 The present competitive scenario
Nowadays the stevedoring market shows the leadership of four great global
operators namely HPH, PSA Corporation, APM Terminals and P&O Ports which
move 31, 10/0of the world throughput (Figure 3), In the last five years the market
concentration has been increasing after some acquisitions, such as for example
that of ICTSI by Hutchison in 2001, and thanks to the entry of a new operator,
that is AP Moeller, which has passed from 7,5 million TEUS handled in 1999 to
18 million in 2001, Graph 1 clearly shows the evolution of this trend which, in
accordance with a research made by the company West LB Panmure, should lead
the top four operators to move about 43% of the world throughput in a 2010
vision [6].
It is clear the gap between 1999 and 2000, period during which AP Moeller
almost doubled its throughput
and Hutchison
acquired further container
terminals in the world. According to the carried out evaluations, AP Moeller is
destined to become, in some years time, the second operator in the world,
overcoming PSA Corporation, market leader until 1998.
Interesting considerations could be made analysing the geographical positioning
of the terminals of these operators (Table 1). Both PSA and Hutchison have their
core business in a port, respectively Singapore and Honk Kong, where handle the
greatest part of their overall volumes, In particular PSA, realises in the Asian
port of Singapore over 80% of its throughput, handling in only one terminal
about 25% of containers transshipped in the world. Hutchison is not so bounded
to a single terminal, as it owns several facilities in other areas of Asia, in Europe
and, differently from PSA, in America too [7],
© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
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ISBN 1-85312-923-2
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Maritime Engineering & Ports III
1997
1998
M Hutchison Port Holdin~
L’JP&o Ports
1999
2000
PSA Corporation
SSA
Figure 3: The concentration
Global Stevedore
Asia
Europe
Hutchison Port Holdings
PSA Corporation
AP Moeller Terminals
P & o Ports
21
9
6
4
4
4
7
5
Table 1: The geographical
2001
2010
f~ AP Moeller Terminals
❑ Eurogate
in the stevedoring market.
Africa
1
5
8
1
distribution
;e;t;e;
Total
7
22
-
33
18
40
4
4‘“
America
i
21
of terminals (2001).
P&O Ports is the only operator to be present in all continents and, particularly, it
shows a strong activity in three countries, namely Great Britain, Australia and
Indonesia, where it handles about 45% of the overall throughput. Differently
from other “top players” this company is not present in any hub port of the FarEast [8].
Over the last few years AP Moeller Group has been protagonist of a process of
© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
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Paper from: Maritime Engineering and Ports III, CA Brebbia & G Sciutto (Editors).
ISBN 1-85312-923-2
Maritime Engineering & Ports III
287
vertical integration which has caused the born of a new entity, Maersk Ports,
with the aim of managing and moving containers of the associated company
Marsk-Sea Land, Two years later, keeping its captive market, it became an
independent operator, with the focus to work for other carriers too.
Thus we can foresee a revolution which will lead AP Moeller Terminals to hold
a greater market share, with probable disappointment not only of the stevedoring
operators but also of the other global carriers which, to escape from Maersk
attack, in a fiture could fight to obtain iirther port concessions. Nowadays
Maersk-Sea Land represents about 90’?4.of volumes handled by this company of
the group and in the next ten years this quota should probably decrease up to
80Y0.
Uswc
USEC
Europe
Middle
East
Far East
Figure 4: AP Moeller terminals on east-west route.
This strategy of vertical integration has implied the escape from Singapore and
the consequent acquisition of a quota of 30’%. in the Malesian terminal of
Tanjung Pelapas and of 49% in that of Salalah, in Oman. As we can see in
Figure 4, at the moment AP Moeller has at its disposal a group of hub terminals,
strategically
located along the east-west route, which permits to manage
operations of hub and spoke, relay and interlining. Consequently the advantages
deriving from this policy are several, both in terms of economies of scale, thanks
to the introduction of over 6.000 TEUS vessels, and in terms of efficacy of the
service offered to customers.
References
[1] R. Midoro, A. Pitto, A Critical Evaluation of Strategic Alliances in Liner
Sh@ping, Maritime Policy and Management, vol. 27 pp. 31-40,2000,
[2] R. Midoro, Le Strategie degli Operatori Transpotistici Globali, ECIG:
Genoa, pp. 109-177, 1997
© 2002 WIT Press, Ashurst Lodge, Southampton, SO40 7AA, UK. All rights reserved.
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Paper from: Maritime Engineering and Ports III, CA Brebbia & G Sciutto (Editors).
ISBN 1-85312-923-2
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Maritime Engineering & Ports III
[3] Drewry Shipping Consultants, Annual Container Market Review and
Forecast, 2001.
[4] Hans. J. F. Peters, Development in Global Seatrade and Container Sh@ping
Markets: Their effects on the Port Industry and Private Sector, International
Journal of Maritime Economics, vol. IIIn.1,2001.
[5] Drewry Shipping Consultants, World Container Terminals: Global Growth
and Private Pro@s, 1998
[6] Containerisation International,
[7] Containerisation
[8] Containerisation
International,
International,
The Big Four, March 2002.
Big Three on Global Trail, March 2001.
Big in the World, July 2001.