Europe’s top container ports face a glut in capacity that’s set to crimp profit margins as new terminals ordered prior to the 2008 slump open for business.
Harbors in northern Europe including Antwerp, Hamburg and Rotterdam, the continent’s top three, will increase annual capacity 21 percent to 62.2 million standard 20-foot containers by 2015, according to data compiled by M.M. Warburg & Co.
Handling fees charged by port operators including Hamburger Hafen & Logistik AG and DP World Ltd. (DPW) may fall as new docks come on stream, Warburg analyst Christian Cohrs said. Europe will be hit harder than other regions as the sovereign debt crisis weighs on economic growth, stunting demand for imported goods.
“We’ll have a capacity surplus in the short-term and as in other industries an imbalance in supply and demand often leads to pressure on prices,” Cohrs said by telephone from Hamburg. “The relevant players are now bargaining for volumes.”
Like shipping lines, the world’s port operators made huge investments in terminals prior to the credit crisis and subsequent global slump at a time when container volumes were growing faster than 10 percent a year.
Container throughput is likely to increase only 6.4 percent this year and 7.5 percent in 2013, according to research from DNB ASA (DNB), the No. 2 ship financier, and Paris-based consultant Alphaliner. European demand may be slacker still, with Hamburger Hafen forecasting volumes in the north of the region will increase no more than 2 percent in 2012.
“I’m convinced port-capacity growth will exceed container- volume growth in coming years,” said Rico Luman, an economist at ING Groep NV in Amsterdam. “Given the current recession in different European countries this effect has probably been strengthened. All major terminal projects were decided even before the economic turmoil of 2008 and volumes have now slowed again compared to the initial forecasts for 2020.”
Among shippers, an oversupply of vessels led to a price war on routes between Asia and Europe, which compounded by soaring fuel costs caused losses last year at major lines including A.P. Moeller-Maersk A/S (MAERSKB) of Copenhagen, Hamburg-based Hapag-Lloyd AG and France’s CMA CGM SA. They’ve since raised rates in an attempt to restore profitability.
While Hamburger Hafen expanded faster than most rivals last year, increasing its share of the north European market almost 2 percentage points to 19.3 percent, container-volume growth may slow to 5 percent in 2012 from 21 percent in 2011, the company, whose stock has gained 7.3 percent this year, said March 30.
“Fierce competition in handling and transport services looks set to shape HHLA’s market environment in 2012,” it said. “As volume trends are expected to prove modest, surplus handling capacity can also be anticipated in northern Europe. This will place corresponding pressure on earnings potential.”
In the worst-case scenario of an escalating debt crisis, increased instability in the financial sector, delayed dredging of the River Elbe and “ruinous” price competition, sales may even fall this year and margins shrink, Hamburger Hafen said.
The company, which handles almost 80 percent of boxes moved via Hamburg, Europe’s second-largest container harbor, posted earnings before interest and tax equal to 17 percent of sales last year, according to its annual report, down from 18 percent in 2010 and almost 27 percent in 2008.
Hamburger Hafen dropped as much as 16 cents, or 0.7 percent, to 24.37 euros and traded 0.3 percent lower as of 3:54 p.m. in Frankfurt.
Rotterdam, Europe’s largest port, is developing the Maasvlakte 2 dock to add capacity of 4.9 million containers by 2015, according to Warburg’s Cohrs. Dubai-based DP World, the No. 3 port operator, and Maersk’s APM Terminals are involved in projects at the site, which is being constructed by dumping 240 million cubic meters of sand on the seabed, protected against the ocean by 20,000 concrete blocks and 7 million tons of rock.
DP World also operates terminals in Antwerp, Belgium, Le Havre in France and Southampton, England, and is spending 1.5 billion pounds ($2.4 billion) on the new London Gateway port.
The Gulf company, whose stock has advanced almost 16 percent this year, is in “detailed negotiations” with shipping lines before the first phase opens next year with three berths and a capacity for 1.6 million boxes, spokesman Xavier Woodward said. Three more bays will be added “in line with market demand” to take capacity to 3.5 million boxes, he added.
Some 190 miles northeast of Rotterdam, Eurogate GmbH is building the JadeWeserPort deep-water terminal in Wilhelmshaven, Germany, which opens in August and will be able to handle 2.7 million boxes. APM owns 30 percent of the operating company.
Eurogate is also expanding capacity at its Hamburg terminal by one-third to 6 million boxes, and Hamburger Hafen is lifting capacity to 12 million units. All told, the city of Hamburg reckons its port volumes will triple to 25 million boxes by 2025 after it dredges the Elbe’s navigation channel to allow larger vessels in and builds a new terminal at Steinwerder.
ING’s Luman said that even in the longer term the jump in north-European capacity, which Warburg estimates at more than 35 percent to 70 million boxes by 2020, may not be taken up, and that ports from Le Havre to Hamburg will struggle to reach the 60 percent level of utilization required for breakeven.
“I think overcapacity will continue beyond 2020,” he said. “Competition among terminals will be stronger, hurting prices, and they’ll be challenged to keep flow rates above this level.”
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