1. The Ramifications of the Crisis: Revising Future Expectations Theo Notteboom ITMMA - University of Antwerp and Antwerp Maritime Academy Jean-Paul Rodrigue Department of Global Studies & Geography, Hofstra University Terminal Operators Conference - Europe Valencia (Spain), June 8-10 2010

2. Outline 1.Towards an economic recovery in Europe? 2.Towards a new hierarchy in the European container port system? 3.Towards a paradigm shift?

3. 1. Towards an economic recovery in Europe? World trade and manufacturing output Source: EU

4. GDP growth (q-o-q) in EU Source: EU GDP growth (index) in EU 1. Towards an economic recovery in Europe?

5. Industrial production - EU Source: EU Industrial production - world 1. Towards an economic recovery in Europe?

6. Private consumption in EU Source: EU Investments in capital goods in EU 1. Towards an economic recovery in Europe?

7. Increased need for factoring in uncertainty/risk in business strategies

8. Outline 1.Towards an economic recovery in Europe? 2.Towards a new hierarchy in the European container port system? 3.Towards a paradigm shift?

9. How serious is the throughput issue? The European case The bubble effect?

10. Container throughput development and various forecasts, Antwerp Source: Notteboom

11. Top 15 European container ports = port gained places in ranking (2008-2009) = port lost places in ranking (2008-2009)

12. Taking a medium-term view on traffic development: Winners and losers during the period 2006-2009 THE MAIN WINNERS THE MAIN LOSERS Source: ITMMA – own compilation

13. Med and UK succeeded in reversing recent decline in market share

14. Changes in Container Traffic at Some Major European Ports, 2008-2009-Q1 2010 Volume in 2008 (1000 TEU) Volume in 2009 (1000 TEU) Volume change 2009 vs. 2008 Volume change Q1 2010 vs. Q1 2009 EUROPE Rotterdam – the Netherlands Antwerp – Belgium Zeebrugge - Belgium Hamburg – Germany Bremerhaven – Germany Le Havre – France Marseille - France Algeciras - Spain Barcelona – Spain Valencia - Spain St-Petersburg – Russia 10,784 8,664 2,209 9,742 5,448 2,501 851 3,324 2,569 3,597 1,970 9,743 7,309 2,328 7,008 4,565 2,230 877 3,043 1,800 3,654 1,323 -9.6% -15.6% +5.4% -28.0% -16.3% -10.4% +3.0% -8.5% -29.9% +1.6% -33% +16% +15.9% +23.9% -4% +12% - +17% +8.8% -5.7% +6.7% - Growth differences mainly explained by: Consolidation of volumes on trunk lines End of capacity constraints in some ports Major inter-port shifts in transhipment business Russia effect Source: statistics individual port authorities

15. Trade volumes per route to/from Europe: Mixed results Source: based on data EELA Inventory replenishment or an underlying recovery in demand ?

16. Revisiting transshipment in Europe Algeciras Sines Cagliari Gioia Tauro Malta Taranto Piraeus Le Havre Rotterdam Antwerp Zeebrugge Bremerhaven Hamburg Valencia Barcelona Tanger Med

17. Market shares of ports in the West-Med according to diversion distance from the main route

19. The immediate hinterland as the backbone for port volumes Containers: challenge of co-modality and cargo bundling on short distances Containerized cargo by road, rail and barge

20. The immediate hinterland as the backbone for port volumes Competition but also synergy between regional ports Increasing role of inland/dry ports

21. Ports increasingly compete for more distant hinterlands

22. Keeping Track of the Big Picture: Emerging Global Maritime Freight Transport System

23. Outline 1.Towards an economic recovery in Europe? 2.Towards a new hierarchy in the European container port system? 3.Towards a paradigm shift?

24. The Double Squeeze on Ports and Maritime Shipping Overcapacity New terminals coming online New ships coming online (+ cancellations) Overcapacity New terminals coming online New ships coming online (+ cancellations) Lower profitability Less pressures on terminal resources Less financial appeal Lower profitability Less pressures on terminal resources Less financial appeal Contestability for gateways Contestability for hubs Rebalancing Contestability for gateways Contestability for hubs Rebalancing

25. M&A activity in terminal operating industry Expected net returns on investment grossly overrated on assumptions that: -container throughput figures would go through the ceiling -container handling facilities would be in short supply -prices would rise steeply. Since 2008: no major terminal transactions Max 8 to 10 times EBITBA Shipping lines’ divestment in terminals?

26. A more prudent approach to plot sizes of capacity extensions? Deurganckdock -5.3 km quay wall, -326 ha, 44 GC -8m TEU Rotterdam: Euromax -5.5m TEU, 2.3m TEU in 1 st phase Rotterdam: Maasvlakte I & II Le Havre: Port 2000

27. Rebalancing risk Globalization and the growth of the shipping industry appear to have skewed the perception of risk downward. Source: Rodrigue, Notteboom and Pallis (2009)

28. The “Calm” after the Storm: A Paradigm Shift for Maritime Container Trade and Ports 1) Risk Allocation Desire to allocate greater risks onto private sector in PPPs: Requires clear policy goals and stable regulation. Moral hazard risks will continue to be tested. More demanding capital markets and less access to (cheap) credit: Focus on performance to meet financial metrics. New projects more critically assessed. Greater consideration of cost recovery of port infrastructure investment: From the deal / financial structure to quality of the asset. 2) Reviewing False Asymmetries The assumption that larger players have more information than smaller players: The larger players appear to have lost the most.

29. The “Calm” after the Storm: A Paradigm Shift for Maritime Container Trade and Ports 3) Growth Story: Time for realism Abandoning the compound annual growth paradigm Port traffic assumptions likely to be less backward looking. Stronger cyclical effects than perhaps first assumed. Greater attention on market fundamentals: Globalization or regionalization? 4) Barriers to Entry: Competition matters Paying attention to competition drivers: Growth may no longer mitigate competitiveness as it did previously. Transshipment a particularly vulnerable segment. 5) Amortization: Modest times Volume & pricing assumptions more modest: Longer amortization periods. PPP rent sharing more probable.

30. Will we get back to a ‘business as usual’ scenario? No: the ‘business as usual’ practices between 2002 and 2008 were highly ‘unusual’. Medium-term perspective (3-5 years): -Sustained pressure on terminal rates due to restructuring/consolidation of shipping services and memory effects in terminal overcapacity situation. -Actors will continue to show cautious in competitive bidding processes. Long-term perspective (>5 years): -Strategic port sites remain scarce goods. -Terminals will regain status as interesting investment objects, but with a more realistic risk assessment.

31. CONCLUSIONS Mid-term problems to a ‘recently enlarged port sector’ with investors rediscovering risk Provide opportunities: -to develop corrective actions as good days will be back. -to revisit growth expectations as trade growth is not exponential.

32. Topics for Discussion How solid are the growth fundamentals for the shipping industry? Which sectors and regions are the most vulnerable? Who is likely to default next? Signs of divesture? What could be the “new normal”?

33. Thank you for your attention ! theo.notteboom@ua.ac.be jean-paul.rodrigue@hofstra.edu