Staying out of market share fray
ICTSI has taken its Manila blueprint to ports on four continents, but no plans to challenge industry's big boys.
By Eric Johnson
Market share. Volume growth. Global domination.
Those are the terms you might envision being scrawled on blackboards at some of the world's biggest container terminal operating companies. With the top five companies controlling more than half the world's container volume, it's sometimes hard to see where smaller operators fit.
In the case of Manila-based International Container Terminal Services Inc., the idea is to be a money-making company, not a global giant. That means the comparisons between ICTSI and powerhouses Hutchison Port Holdings, PSA International, APM Terminals and DP World just don't happen.
'We don't think of it that way,' said Edgardo Abesamis, ICTSI's vice president of operations, in an April interview with American Shipper. 'We don't think of growing for growth's sake. We don't think of market share. Those are companies with high capital bases. We look at port by port profitability. We don't consider ourselves in a contest for volume. We just want to be profitable at what we do.'
And profitable the company has been. In 2008, it hauled in profit of $60 million, a 13 percent drop from 2007, attributed mainly to the sharp fall in currency compared to the dollar. In any case, revenue in 2008 grew 37 percent, aided by a host of new international terminals that came online in the last two years.
The profitability mantra has allowed ICTSI to grow steadily and surely, but on a global basis. The company, whose flagship operation is in Manila, operates terminals in disparate locales as Ecuador, Georgia and Madagascar.
'We have always kept in touch with what is going on in terms of new ports being developed,' Abesamis said.
The company has a point person in South America, the Middle East and in Asia, each of whose job revolves around looking for prospective ports in which ICTSI can invest.
'Sometimes we find the opportunity and sometimes we get an invitation, but we always have a pipeline of projects,' he said.
In the past two years, ICTSI has taken on two projects in South America, one in the Middle East and one in Eastern Europe.
'We look at medium-size ports ' preferably import/export berths, not transshipment ' in countries that have potential for quick growth,' Abesamis said. 'We don't have large capital to invest, so we look at ports where we can raise the capital.
'We like to run our own terminals,' he continued. 'We look for local partners, but we like to be the terminal operators, not just a passive investor. We like to think we bring in a certain element ' the ability to work in a relatively underdeveloped facility.'
The company honed its craft at the major terminal in Manila, the largest container facility in the Philippines. The idea for global growth has been to take the formula that allowed ICTSI to transform Manila from an inefficient, government-run facility to one that boasts of world class productivity, and export that formula.
|ICTSI's flagship terminal in Manila, the Manila International Container Terminal, handles more than two-thirds of the country's throughput.|
'In Manila, we took over a government port that was not efficiently run, needed investment, and served a trade that was lacking sophistication,' he said. 'We changed that. This is something we like to do.'
Global growth has been a key facet of the company's volume and revenue growth. Even though it has no designs on competing with the big boys, it consistently eyes hidden value in underdeveloped ports.
'Recent experience shows us that in Latin America there are a number of potential properties,' he said.
ICTSI recently introduced a sizable batch of modern equipment at the Ecuadorian port of Guayaquil, one of three terminals it operates in South America (the other two are in Brazil and Colombia). There are also terminals in Syria, Poland, Japan, even one in China.
But ironically, ICTSI's backyard is a tough place to compete.
'The most modern, efficient terminals are found in Asia,' he said. 'The number of ports within our parameters are few.'
He said Indonesia, where ICTSI already has a small presence, is one growth market. 'The many islands there can almost be considered their own market, since they can be isolated and need outlets for cargo.'
But other areas in Asia are either already developed or overwhelmed by investment from the world's biggest terminal operators.
'Vietnam is interesting, but everybody is there already and they probably have more than what they need,' he said. 'Thailand, we looked at, but found a similar situation. There's very little left in Asia.'
Despite ICTSI's global growth, which includes investment in 11 countries on four continents, six of its 16 total terminals are in the Philippines. And roughly 40 percent of its throughput in 2008 came at the company's flagship terminal in Manila.
The company saw record global volume of 3.8 million TEUs in 2008, including 1.5 million TEUs in Manila, but its terminals haven't been immune to the economic downturn over the last six months.
Volume has slid about 15 percent in Manila in the first two months of 2009, and Abesamis said none of the company's terminals have seen a rise in volume so far this year. Even a terminal that had been a bright spot, the small port of Davao in southern Philippines, has lost volume more recently.
'It's worldwide,' he said. 'Manila has seen a volume drop like most of the ports in Asia. All terminals will see a drop in volume, it's just a question of how severe.'
To weather the storm, ICTSI said it plans to take a conservative, but not draconian, approach to expansion this year.
'Our reaction has been to conserve our cash,' Abesamis said. 'We think this will pass. But we're not being aggressive this year in terms of expansion. I won't say we'll not be doing anything, we'll just be selective.'
Though ICTSI operates six terminals in its home country, Manila is its first and most important.
In 1988, it won a 25-year concession (extendable by another 25 years) from the Philippine government to run a terminal in Manila, the first privately operated terminal in the country. The Manila International Container Terminal has 1,300 meters of straight quay, with five berths, and 10 quay cranes and 32 rubber-tired gantry cranes. Another 375 meters of berth are scheduled to be added by 2010, with three additional quay cranes.
Along with two other terminals managed by other operators, Manila handled roughly 2.2 million of the Philippines' 2.5 million TEUs during 2008. ICTSI's terminal handled more than two-thirds of Manila's throughput.
That means the rest of the country's terminals handle less than 10 percent of its containerized goods, a situation that makes sense since Manila is far and away the largest and most developed population center in the country.
That scenario doesn't sound too different from other Southeast Asian nations, which tend to have one or two major hubs of container activity.
But Abesamis explained the difference lies in that the Philippines is primarily an import-oriented market, with far less production capacity than its Southeast Asian neighbors.
'We have small manufacturing output,' he said. 'Throughput is driven by imports, and the consumption power of the cities. There are 13 million people in the Manila region, depending on where you draw the line, but that population is what dictates the size of throughput.'
|'In Manilla, we took over a government port that was not efficiently run, needed investment, and served a trade that was lacking sophistication. We changed that. This is something we like to do.'|
The Philippines' other port cities have relatively small populations, and thus their potential for container growth is somewhat limited given the country's lean toward imports.
'In export countries, a small population city of 500,000 people might give you 1 million TEUs,' he said.
But since the Philippines is oriented the other way, a port in a city that same size will content itself with 100,000 TEUs or less.
To underscore the import-export gap, Abesamis said that while Manila sees a 50-50 breakup in total throughput, 10 percent of the import volume is empty boxes while 30 percent to 35 percent of the export volume is empties.
The upside of that situation, in the current environment, is that the Philippines should (in theory) be less susceptible to a huge drop-off in container volume.
'We had thought that the Philippines would be very stable,' Abesamis said. 'Unlike export-oriented countries, we thought our import-driven volumes would be less volatile. We have some companies that are suppliers or subcontractors to manufacturers in Taiwan who have felt the recession, but the effect of the recession hasn't been widespread.'
But there is some concern that a key facet of the country's economy ' foreign remittances of money from workers abroad ' might yet be severely affected by the recession. Filipinos have gone to Taiwan to work in electronics plants, to the Middle East to work in construction and to many corners of the world to work in the health care industry.
While those in health care might be less affected, those in the other industries are being sent home as work opportunities dry up. That affects the amount of money sent back to residents in the Philippines ' an amount pegged at $12 billion to $16 billion annually ' which has a knock-on effect on consumption power. And less consumption means less demand for imports.
'We're waiting for the second wave,' Abesamis said.
One area that ICTSI can bank on is a high level of containerization. Abesamis estimates that about 85 percent of goods that could be containerized in the Philippines are containerized. He compares that to a rate of about 60 percent to 65 percent in Vietnam.
'It's a fairly mature market in terms of containerization,' he said. 'There are goods that might be potential sources of new volumes, like goods that go in bulk reefer vessels switching to reefer containers. Or grains. We import wheat in bulk vessels, but from time to time we hear about a container of grain. It's not a trend, but it shows the possibilities.'
For now and the foreseeable future, Manila is largely a feeder port. Two-thirds of the port's throughput is trade with the United States, Europe and Japan. Therefore, two-thirds of the vessels that arrive are feeders headed to the transshipment hubs of Kaohsiung, Busan, Yokohama, Hong Kong or Singapore.
The only mainline vessels that arrive are those plying the north/south trade between Japan and Australia, but even those vessels are relatively small by today's standards.
The largest vessel ever to call at ICTSI's Manila terminal was 4,500 TEUs. The average vessel is about 2,500 TEUs.
While volumes are likely to fall across the board in 2009, the company is buoyed by its global footprint, an increasingly important facet of successful terminal operators ' especially those based in Asia.
ICTSI's volume grew 24 percent in 2008, helped by a 10 percent boost at Manila, an 18 percent increase in domestic volumes and a 31 percent hike in volumes at its foreign terminals.
'We do not expect to be immune to the deteriorating economic situation and the resulting pronounced downturn in global trade, and thus we expect 2009 to be a more difficult year,' Enrique K. Razon Jr., the company's chairman and president, said in March.