Home field advantage

Home field advantage Only one of the five major global terminal operators has a U.S. presence. What keeps the industry's biggest players away?

By Eric Johnson

      It's often said American companies wanting to expand overseas need local knowledge to combat the mysteries and vagaries of their chosen foreign markets.
      But the same could be said, inversely, about foreign container terminal operators' attempts to break into the U.S. market.
      Only one of the world's five largest operators, in terms of annual container volume, has a U.S. presence and that's APM Terminals, the Netherlands-based terminal operating subsidiary of the A.P. Moller – Maersk Group and sister company to Maersk Line. APMT's global competitors ' Hutchison Port Holdings, PSA International, DP World and COSCO Pacific ' are on the outside looking in.
      The reason for that development, however, can't be pinned on a single reason, like a simple lack of local knowledge. Instead, it seems there are different reasons why each of the world's major terminal operators manage nary a single terminal in the United States.
      The most infamous case is DP World, the Dubai-based operator that attempted to break into the U.S. market through its 2005 acquisition of P&O Ports, which had a network of U.S. terminals.
      The company's efforts were futile, as a Congress-led movement to keep DP World from acquiring P&O's U.S. assets ' on the grounds of port security ' forced it to sell off those assets to a U.S. entity. The Dubai company has not bid on a U.S. terminal project since.
      As for Hong Kong-based Hutchison Port Holdings (HPH) and Singapore-based PSA, the world's two biggest terminal operators, the reasons for their absence are not as clear.
      Both of the terminal-operating giants have footprints in the Americas. Two of PSA's 28 global terminals are in the Western Hemisphere, one in Argentina and one in Panama. HPH has seven such terminals, one in Argentina and six in Mexico, Central America and the Caribbean. Yet a presence in the United States, or even Canada, remains elusive. Both declined to comment for this report, citing internal policies about commenting on future developments.

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      COSCO Pacific, a Hong Kong-based subsidiary of Beijing-based and state-owned China Ocean Shipping Co., has no presence in the Americas. The world's fourth-biggest operator by volume, more than 90 percent of the company's volume comes from its terminals in China.
      Like APMT, COSCO Pacific is affiliated with one of the world's biggest shipping lines. COSCO Container Lines does have joint stakes in U.S. facilities, but is not involved in stevedoring. Neither COSCO Pacific nor DP World responded to requests for comment.

More Power At Top. The container terminal industry is increasingly being dominated by a cadre of powerful global operators. American Shipper reported on the topic as far back as 2001 ('Terminal operators consolidate,' www.AmericanShipper.com/links). The report suggested Hutchison, PSA, APMT and P&O Ports would begin to dominate the scene as power concentrated at the top. With DP World buying the global assets of P&O Ports, that prediction has come true.
      The top five global operators handle roughly half of the world's container volume. And the market share drop-off from the fifth-biggest (APMT, with 6.5 percent global share), to the sixth-biggest (Eurogate, with less than 3 percent) is pretty steep.
      Part of the reason for that concentration of power is the industry's high barriers to entry. Terminals operators have to operate demonstrably well in order to convince port authorities of their expertise and quality. Unlike, say, a startup shipping line, which could buy or charter vessels, negotiate space at some ports and start a service, terminal operators need local authorities to give them a stamp of approval.
      Yet the most powerful operators have largely been unable to crack the biggest container market in the world. Into that breach, two strong U.S.-based operators (Ports America and SSA Marine) have emerged, as well as APMT.
      Ports America is the largest operator in the country ' its current portfolio encompasses the U.S. terminals from the DP World-P&O Ports deal and those from Marine Terminals Corp.
      Peter Stone, chief commercial officer of Ports America, discussed with American Shipper the reasons why so few global giants have a U.S. presence.
      'Global operators prefer to standardize their options,' he said. 'They prefer a rectangular-shaped terminal where they can bring in their own systems as they do anywhere else in the world.'
      Stone said global operators prefer greenfield sites, upon which they can lay an established blueprint. But the problem in the United States is that very few projects fit within that concept. Terminals tend to be oddly shaped, constrained by some geographical limitation that often requires a customized ' and often more costly ' solution.
      'The ports today will generally be the ports in the future,' Stone said. 'We know how to work within the constraints of what we have.'
      Then there's the issue of growth. For the most part, the U.S. container market is mature and unlikely to see consistent double-digit growth in the coming decades. Indeed, what is more likely to develop, even if U.S. total volume increases, is a dilution of power from the traditional container gateways. In other words, it is tough to justify huge growth projections at all but a few U.S. terminals.
      'For the global operators, is this a place to go when there are so many other opportunities around the world?' Stone said. 'It's not one particular thing. It's a mix of issues that all go together and we basically have the home field advantage.'
      Stone said global operators may yet 'find an edge that we haven't. But it's not just Ports America. SSA is a competent operator too. It really is a commercial issue.'

APMT. The one global operator that is present in the United States is APMT.
      'In the U.S., there are a number of characteristics viewed as different from the rest of the world,' said Eric Sisco, president of APM Terminals North America. 'We have a labor environment generally not seen elsewhere, where the East and Gulf coasts are governed by a combination of region-wide and single-port collective bargaining, and on the West Coast, we have a single multiemployer bargaining unit covering all ports.
      'This bargaining environment creates the same challenges that have been seen recently in other industries, such as the automotive industry. Between labor costs, restrictive work practices and governmental regulation and fees, the cost of handling a container in North America is among the highest in the world.'
      Indeed the U.S. labor situation, with strong longshore unions on both coasts, might scare off potential investors. But for those already operating here, the vast experience of working with longshore labor can be considered a competitive advantage.
      'We know our market well,' Stone said. 'We have a strong relationship with longshore labor. We know their wishes and they know our wishes. There's also the question of who is the port authority. Sometimes it's the state. Sometime it's the city. It's very decentralized. Frankly, we work extremely well with port authorities.
      'Our competitive advantage and strength as a company is absolutely to operate terminals in the U.S., and all the aspects that go with that.'
      A Hong Kong-based consultant, meanwhile, said most operators would love to have a piece of the U.S. market despite its challenges.
      'I'm sure Hutchison would love to be in the U.S.,' said Jonathan Beard, managing director of GHK Hong Kong. 'I know China Merchants (a major domestic operator in China) would love to have a terminal in North America, whether that's in Canada or the U.S.'
      Even DP World Vice Chairman Jamal Majid Bin Thaniah told American Shipper in 2007 that the company still considers the United States an attractive market: 'If there is a change in the future, yes we would love to be in that big market operating. We did not close the door. We appreciated the international security sensitivities, and we appreciated the sensitivities toward foreign port operators, but it was a politically driven case, rather than a business case. When we took P&O over, we knew the U.S. market would be a sensitive one. We thought there would be some opposition, but we did not think it would get to the point where they would ask a prominent port operator to leave the U.S. I'm not sure why people didn't see how DP World would add value.'
      Beard said the treatment of DP World likely 'knocked people back,' but the U.S. port market remains attractive to international operators, not least because it's a huge cargo market, but because port charges are relatively low.
      'Of course, you also have relatively low productivity,' he said. 'You've got a powerful, entrenched union. And there are environmental barriers that drive your costs up. You also haven't got the growth rates of other areas.'

Foreign Lines Invest. Yet those factors haven't stopped international shipping lines from investing in U.S. terminals. A number of lines' parent companies wholly or jointly run terminals on U.S. soil. For those carriers, operating their own terminals gives them the advantage of assured capacity and priority berthing, not to mention healthy returns when container volumes are strong.
      'A fair number of lines are our partners,' said Stone, of Ports America. 'They do need the expertise that we provide.'
      For the lines' joint venture partners, Beard said, working with a line gives them an assured source of cargo to meet minimum volume requirements in terminal leases.
      Beard said the multiuser model can often be hard to accommodate in established U.S. gateways.
      'The challenge is that all the shipping lines are well-ensconced in their gateways,' Beard said. 'If you're a multiuser operator, you'll be looking to the key lines for volume and most have good terminal positions or stakes in terminals already.'
      Indeed, the U.S. terminal market for decades relied heavily on the model in which a single line called a single terminal.
      'The U.S. terminal operating market has developed out of two main concepts,' Sisco said. 'Historically these were smaller privately held companies that focused on a specific port, such as Maher, or region, such as SSA, which have more recently expanded to nationwide and international scope.

'Our competitive advantage and strength as a company is absolutely to operate terminals in the U.S., and all the aspects that go with that.'

Peter Stone chief commercial officer, Ports America

      'Second, there are terminal operating companies, like APMT, that have evolved from servicing related liner companies. These organizations have relationships and experience in the North American ports that span decades and are not easily replicated by a new entrant.'
      Though the global giants founded on the multiuser terminal model have not cracked the U.S. market, the multiuser model, as both Stone and Sisco put it, is becoming more common here.
      'It's worth noting that the largest players in North America (APMT, SSA and Ports America) all operate multiuser terminals,' Sisco said.

Blueprint For Success. As to the blueprint issue that Stone said keeps some terminal operators out of the United States, Sisco said APMT mixes its global best practices with a focus on local realities.
      'We do have a set of standards and best practices that we use to optimize the implementation process for projects,' he said. 'Over the years, a lot of effort has been put into creating tools and documentation during the startup of new terminals. However, as many projects and existing terminals have common denominators, a lot of information can be reused from these experiences.'
      He pointed to a new initiative APMT announced in late March in which terminal equipment will be standardized to consolidate equipment orders, streamline repairs and ease the transfer of equipment between terminals.
      'By standardizing as much as possible in terms of our assets, we can realize savings and efficiencies in a number of ways,' he said. 'While incorporating these common denominators and standardizing many aspects of our operations, we also have to make sure that our processes are applicable to specific sites and services. Our Virginia facility (in Portsmouth), and our newest terminal in Mobile are examples of how we have carefully tailored our projects to the market each serves.'
      The terminal in Virginia, incidentally, is a case in point of how moderate growth in U.S. container ports can affect investment decisions from global operators. APMT's terminal, by most measures the most state-of-the-art facility in North America, has been plagued by low volumes since it opened in 2007. APMT is actually in talks with the Virginia Port Authority to lease back the terminal.
      But Sisco said that for all the difficulties operators face in the United States, there are advantages.
      'We have a highly developed logistics infrastructure, which while in need of substantial repair and expansion, remains one of the best in the world,' he said. 'Also, in contrast to many places in the world, we have unified regulatory and legal systems making our interaction with state and federal stakeholders much more efficient.'
      Those advantages have yet to draw most of the world's most powerful terminal operators to American shores yet, as U.S. operators and APMT continue to take advantage of the home field advantage.