2009 Terminal Operators Conference (TOC) Americas,
Buenos Aires (Argentina), Nov 9-11
The First Crisis of
Globalization:
Legacy Scenarios for Maritime
Container Trade and Ports
Jean-Paul Rodrigue
Associate Professor, Dept. of Global Studies &
Geography, Hofstra University, New York, USA
Turbulent Times for Ports: From a Credit Storm
to a Macroeconomic Storm
Credit Storm
Macroeconomic
Storm
Transactions and investments.
Difficulty of clearing international
trade transactions.
Undue drop in freight volumes.
Decline in aggregate demand.
Clearing excess capacity.
The First Crisis of Globalization: Reaping the
Consequences of Misallocations
CAUSES
Monetary system (fractional
reserve banking, fiat
currencies)
SYMPTOMS
Debt, asset inflation
CONSEQUENCES
Misallocations (bubbles)
Production
Consumption
Distribution
Business Cycles: The Trend that Time Forgot
Demand
Transfer of future demand into the
present.
Supply
Misallocations because of distorted
expectations about the future.
Asset price distortions.
Credit-Driven Boom
Peak
Credit-Driven Bust
Trough
Expansion
Recession
Expansion
Depression
Blowing Bubbles and Compounding Distortions:
From Technology to Commodities
500.0
450.0
400.0
NASDAQ (Jan 1998=100)
350.0
TOL (Jan 2003=100)
300.0
BDI (Jan 2006=100)
250.0
200.0
150.0
100.0
50.0
0.0
Jan-98
Tech / Stock Bubble
Jan-99
Jan-00
Commodities / Trade
Bubble
Housing Bubble
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Impact of Recessions on Consumption, Production
and Trade
Significant
Consumption
A – Basic Goods
B – Discretionary Goods
C – Durable Goods
D – Capital Equipment
E – Luxury Goods
Severity
Decline
None
Low
Value of Goods
High
Trade and Production
Significant
1 – Futures Indexes
2 – Production
3 – Seaborne Freight Volumes
4 – Value of Trade
Decline
None
Sequence
Globalization 2000-2008: A Bubble?
14
2
13
Seaborne Trade (billions of tons of goods loaded) - Left Axis
12
Exports of Goods (trillions of current $US) - Left Axis
11
Ratio Exports / Seaborne Trade - Right Axis
10
1.8
1.6
1.4
9
8
7
6
1.2
1
0.8
5
4
0.6
3
0.4
2
1
0
0.2
0
Diffusion Cycles in Containerization: Towards
Maturity
Niche markets
Massive diffusion
Network complexities
Peak Growth
Network development
Productivity multipliers
New (niche) services
Productivity gains
Adoption
Acceleration
Maturity
World Container Traffic and Throughput, 1980-2008.
Reaching Peak Growth?
500
Million TEU
400
World Traffic
World Throughput
Full Containers
Transshipment
Empty Containers
300
200
100
0
1980
1985
1990
1995
2000
2005
2010
150
120
60
Jan-05
Mar-05
May-05
Jul-05
Sep-09
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Paradigm Shift or “V” Shaped Recession?
Monthly Total Container Traffic at Selected Ports (Jan 2005=100)
140
Los Angeles
New York
130
Busan
Hong Kong
110
100
90
80
70
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Jul-97
300,000
Jan-97
350,000
Jul-96
400,000
Jan-96
Jul-95
Jan-95
Monthly Container Traffic at the Port of Los Angeles,
1995-2009
450,000
In Loaded
Out Empty
Out Loaded
In Empty
250,000
200,000
150,000
100,000
50,000
0
Reassessing Global Trade and Neomercantilism
225.0
200.0
175.0
150.0
Monthly Value of Exports or Imports (Jan 2006=100)
China (Exports)
Japan (Exports)
Korea (Exports)
Germany (Exports)
USA (Imports)
UK (Imports)
125.0
100.0
75.0
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
50.0
Reassessing Global Trade and Neomercantilism
300.0
275.0
250.0
225.0
200.0
Monthly Value of Exports or Imports (Jan 2006=100)
Argentina (Exports)
Argentina (Imports)
Brazil (Exports)
Brazil (Imports)
Chile (Exports)
Chile (Imports)
175.0
150.0
125.0
100.0
75.0
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
50.0
15
-15
10
-20
5
-25
0
-30
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
20
Jan-89
25
Jan-88
Jan-87
Jan-86
Jan-85
Monthly Trade between China and the United States,
Billions of USD (1985-2009)
35
5
30
0
Exports
-5
Imports
-10
Balance
Factors behind the Interest of Equity Firms in
Transport Terminals
Asset (Intrinsic
value)
Terminals occupy premium locations (waterfront) that cannot be
substituted.
Globalization made terminal assets more valuable.
Traffic growth linked with valuation.
Same amount of land generates a higher income.
Terminals as fairly liquid assets.
Source of income
(Operational
value)
Income (rent) linked with the traffic volume they handle.
Constant revenue stream with limited, or predictable, seasonality.
Traffic growth expectations result in income growth expectations.
Diversification
(Risk mitigation
value)
Sectoral and geographical asset diversification.
Terminals at different locations help mitigate risks linked with a
specific regional or national market.
Shipping Equity and Equity-linked Offerings in
Public Markets (2000-2007)
18,000
16,998
16,000
14,000
12,000
10,000
8,000
6,999
5,757
6,000
3,513
4,000
2,000
0
313
395
2000
2001
855
1,056
2002
2003
2004
2005
2006
2007
Port and Maritime Industry Finance: Who is
Leveraging Whom?
Investors
Financial
Markets
Brokers
Corporations
Money Markets
Commercial
Banks
Private
Investors
Capital Markets
Mortgage
Banks
Investments
Managers
Equity Markets
Merchant Banks
Private
Placement
Finance Houses
•Insurance Companies
•Pension Funds
•Banks
•Trust Funds
•Finance Houses
Leasing
Companies
Shipping
Companies
Port
Operators
Earnings
Here Comes the Bankers: The Double Edged Sword
of Leveraging and Deleveraging
Leveraging
Deleveraging
Capital
intensiveness
Intermodal transportation highly
capital intensive (modes, terminals
and equipment).
Amortization over longer periods.
Overcapacity (compounded by
economies of scale).
Redundancy.
Financial firms
involved in
ownership and
operations
Intermodal transportation as an
investment class.
Capital scale factor.
Disintermediation (dumb money)
Lower returns.
Renegotiation of contracts?
Consolidation of ownership?
Financing
international
transactions
Letters of credit.
90% of international trade
transactions.
Inventory stuck in transit (drop in
demand and financing).
More stringent conditions.
Shipping
derivatives
Hedge against risk of fluctuations
(rates, bunker prices, vessel
prices, scrap prices, interest rates,
and foreign exchange rates).
Unwinding positions in a frozen /
deflating market.
Reviewing Assumptions: The Impacts of
“Financialization”
Disconnection
Financial sector less aware of the operational and strategic reality.
Physical assets are seen and managed strictly as financial assets.
Rent seeking
strategies
Assets are less perceived as they are (port terminals) but simply
from their potential (or expected) level of return.
Chasing return without understanding well the fundamentals.
Low contestability
of entry and exit
Perceived liquidity.
Capacity to enter and exit the terminal market on a short notice.
Herd behavior.
High amortization
Expectations that capital investment will be quickly amortized.
Expectations about future growth and the corresponding volumes.
Segments of the maritime and terminal operation industries have been subjugated by
very smart people lacking wisdom. The financial sector has recently provided ample
evidence about the amount of damage very smart people can do when hubris,
obfuscation and fraud replace common sense and realistic perspectives.
Dumb Money at Work?
Date
Transaction
2005
DP World takes over CSX World
Terminals
Early 2006 PSA acquires a 20% stake in HPH
Mid 2006
DP World acquires P&O Ports
Mid 2006
Goldman Sachs Consortium acquires
ABP
End 2006 AIG acquires P&O Ports North America
Early 2007 Ontario Teachers’ Pension Fund
acquires OOIL Terminals
Mid 2007
RREEF acquires Maher Terminals
Price compared to
EBITD
14 times
17 times
19 times
14.5 times
24 times
23.5 times
25 times
EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization
The Double Squeeze on Ports and Maritime Shipping
“Cruel” Overcapacity
New terminals coming
online
New ships coming
online (+
cancellations)
Contestability for
gateways
Contestability for
hubs
Rebalancing
Lower profitability
Less pressures on terminal resources
Less financial appeal
Fallacies of Forecasting: 2020 Throughput Forecast,
Selected Large Ports, Linear and CAG Scenario
Port / Traffic
2007, M TEU
R2 / CAG (19982007)
Traffic 2020 (Linear
Scenario) / CAG
Traffic 2020 (CAG
1998-2007 Scenario)
New York / 5.3
0.996 / +7.9%
9.6 M TEU / +4.7%
14.2 M TEU
Savannah / 2.6
0.968 / +13.5%
4.9 M TEU / +5.1%
13.6 M TEU
Los Angeles / 8.3
0.966 / +9.5%
16.6 M TEU / +5.4%
27.1 M TEU
Antwerp / 8.2
0.974 / +9.6%
14.5 M TEU / +4.5%
26.9 M TEU
Algeciras / 3.4
0.961 / +6.5%
6.0 M TEU / +4.4%
7.7 M TEU
Busan /13.3
0.983 / +8.4%
24.3 M TEU / +4.8%
38.1 M TEU
Shanghai / 26.1
0.948 / +23.9%
56.5 M TEU / +6.1%
423.8 M TEU
From under estimating to over estimating trends
Linearity prevalent in growth trends (1998-2007)
Compound annual growth common in forecasts
Non-contestability assumption
So, What are the Prospects for Terminal Operators?
Liner Shipping Connectivity Index and Container
Port Throughput
Container Terminal Portfolio of the four Main Global
Terminal Operators, 2009
Container Terminal Portfolio of Other Global
Terminal Operators, 2009
The Americas: Gateways, Corridors and
Transshipment
Gateway Port Region
Transshipment Port Region
Containerization Growth Factors: Which
Opportunities are Left?
A
Derived / Organic
(A)
Economic and income growth.
Globalization (outsourcing and global sourcing).
Fragmentation of production and consumption.
Substitution (B)
Functional and geographical diffusion.
New niches (commodities and cold chain)
Capture of bulk and break-bulk markets.
Incidental (C)
Trade imbalances.
Repositioning of empty containers.
Induced (D)
Transshipment (hub, relay and interlining).
B
C
D
Anchoring Traffic: The Inland Port / Empty Container
Depot
Storage
Accommodate container storage
demand.
Storage before reutilization and
repositioning.
Container exchange market
between different supply chains
(neutral location).
Terminal Flexibility in opening hours and gate
extension access.
Shuttles between the terminal (port
or rail) and the depot.
Buffer for the terminal (reduce
congestion).
Favorable Closer to main freight distribution
location activities (periphery).
Reduce the frequency and distance
of repositioning (cargo rotation).
Better response to freight
distribution requirements.
Port
Port
Terminal
A
Importer
Shuttles
Inland
Port /
Depot
B
C
Exporter
Importer
Exporter
Continuous Commodity Index and Baltic Dry Index,
2000-2009 (2000=100)
900
800
700
600
500
400
300
200
100
0
Continuous Commodity Index
Baltic Dry Index
Continuous Commodity Index and Average
Container Shipping Rates, 1994-2009 (1994=100)
250
Continuous Commodity Index
Container Shipping Rates
200
150
100
50
The Calm after the Storm: Legacy Scenarios for
Maritime Container Trade and Ports




Rebalancing of the global economy
From growth to rationalization
The regionalization of globalization?
Anchoring Freight Through Inland
Strategies