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Look to the Far East for the next terminal developers

I FIRST became aware of the affinity between modern stevedoring and property development during the 1980s, when, underwriting terminal risks for the TT Club, I was presented with a series of risks related to the transportation activities of one Peter Savarys, a UK entrepreneur who assembled a singular collection of waterside operations from Falmouth in the south to the Manchester Ship Canal in the north.
This was a time when the balance of cargo handling was shifting rapidly to the containerised systems and many traditional port locations were in flux, or indeed in operational decline. Container terminals required deeper water, bigger hardstands, more expensive cranes, far less labour and more fluency. Often the only way forward for the modernisers was a greenfield site with a suitable hinterland. Thus, from the start the marriage between real property and working cargo was apparent, and it prevails today in many if not all the leading terminal groups in the world. The tensions of this liaison are never far from the surface. A modern terminal works all night producing noise, smells and light scatter as byproducts. The quiet enjoyment of people in residence in waterside apartments is not always easy to ensure. The derelict waterfront at Dibden Bay near Southampton has been mooted as a place for port expansion more than once in recent times. The notion sits uneasily with the residents of Hythe, a quarter filled with townhouses with their own yacht moorings outside their back doors. You do not have to go far to identify the most accomplished realtor/stevedore in the world. Li Ka Shing’s Hutchison Whampoa has written the book on how to combine a mighty property and industrial portfolio with a massive international collection of terminal risks. In this group the terminal business is a minority activity; it is dwarfed by the interests in real estate, power generation, communications and retailing. The expansion of the group is of relatively recent vintage. Go back to the mid 1990s and this mighty international player was operating in Hong Kong and a few other not particularly eye-catching locations in the Pearl River Delta and a smallish venture in Shanghai. It is quite a challenge to ensure the assets and liabilities of this kind of leviathan and the halls of London marine insurance are populated by people who have volunteered for the challenge. At roughly the same time a rather talented group of ex-mariners based in Sydney under the leadership of Richard Setchell were assembling a collection of new terminals with less capital to call upon. PO Terminals set up interesting new operations in Russia, Shekou, Irian Jaya and Mozambique to name but a few. Here the model was more in the nature of build-operate-transfer or joint venture. Back in the headquarters of the mother company, interest in these operations was not exactly intense and far more excitement was being generated at the time by the group’s property ventures and, of course, its liner shipping operation. In insurance terms, the insurer able to offer building bonds captured more attention than the ordinary purveyors of cargo handling insurance for stevedores. So it should not come as too much of a surprise that the mighty DP World has become a somewhat uncertain catspaw in the story of financial overreach in Dubai, a relatively bright stone in a crown of property debt in the UAE, assembled from existing locations in the Gulf and the acquisition of the P&O portfolio of ports (excepting always those North American ports which caused so much political trouble in the post-9/11 US). It is possible that this great terminal group will have to go on the block as part of the solvency measures being worked out in Dubai. It is unlikely that a disposal of Dubai real estate will be efficacious in what is a tanking property market.
This could be a test of the ports market in the morning-after-the-great-banking-crisis market. The appetite for container terminals has hitherto been apparent in markets as diverse as Canada and the Philippines. All the eye-watering deals of the past decade were concluded in a world of ample money chasing understandable projects in the real economy with proper long periods of amortisation and payback. Who is in the market these days? Many containership owners who might in the past have been keen to expand may have other calls on their capital. The great modern terminal groups have on the whole operated on an acquisition by acquisition basis, Mr Li and DP World excepted. Yet, as always, the terminals seem to do better financially over time than the ships. The choices available to the great lines are limited and the ability of shippers to strike a very hard bargain is blunted at the terminal gate. Within the ports sector the globalisation process is very well advanced. Operations in one place only, such as Rotterdam or Antwerp, would struggle to prevail as the singletons they once were. My money would be on Far Eastern interests as the shift in the centre of industrial and shipping gravity to the producer economies of the Asia-Pacific continues into the decades ahead.

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