Ports and Terminals: Optimising Port Investment
Strong growth in many of the emerging markets including the BRIC states (Brazil, Russia, India and China) is reshaping the global economic landscape, changing traditional relations and shifting economic influence from West to East and North to South.
As such, new trade patterns continue to develop, namely intra-Asia-Pacific trade, intra-emerging economies trade (e.g. China-Latin America) and China-Africa trade. Such diversification is already raising questions and uncertainties in other parts of the world, particularly within European ports, many of which are struggling to remain resilient.
Dr Simon Su, Director and Chief Economist at BMT Asia Pacific, a subsidiary of BMT Group, highlights the opportunities, challenges and attributes ports around the world must consider in order to align with the changing landscape. Through extensive experience of providing investment and planning support throughout the initial stages of infrastructure development, Simon will also provide intelligence on the port investment hot-spots and the do’s and don’ts for investors.
In its latest World Economic Outlook, the International Monetary Fund (IMF) projected that long term growth will remain at a sufficiently healthy level in many of the emerging markets and developing economies. Most notably, real GDP growth in Latin America is expected to accelerate from 3.25% for the second half of last year to 4.75% in the course of the second half of 2013 with Brazil being the main driver for this increase. Developing Asia is also seeing growth accelerations due to a recent boost in approvals for public infrastructure projects in China.Expand to read the full article
These emerging markets are already influencing trade patterns arguably at the expense of other parts of the world - European ports, which currently find themselves in a somewhat precarious position are a prime example. As these developing economies become more prominent, port investors around the world must recognise the opportunities and challenges and respond accordingly to this changing landscape.
Brazil in particular is already becoming a hot spot for investors due to the Government’s recent drive to make it simpler for private investors to become involved in port infrastructure development projects. Supported by strong predicted rates of growth, both the wider Latin American and African markets would, on the surface also present a strong opportunity for port investors. However, it’s important to note that the strong growth prospects are very much long term and in the short term these economies still remain quite volatile, therefore investors must identify and take into consideration any potential risks.
Governments play a vital role in supporting these types of infrastructure projects where the scope extends beyond merely the development of the port facility itself. For example, in some countries, investors have backed the design and construction of state of the art port facilities only to find that the cargo cannot be effectively transported to and from the port, due to road congestion or poor external infrastructure.
In a bid to attract foreign investment, governments may also provide certain guarantees without duly considering the impact they may have on existing, local businesses. This in turn can create difficult, political situations where promises aren’t always kept. Port investors must therefore be cautious and ensure that they carefully research and plan the proposed site options which have been put forward.
Detailed market studies including economic analysis and investment planning which are conducted in the early stages of the process, before purchasing land or equipment, will undoubtedly provide investors with the longer term efficiencies and productivity they strive to achieve. Questions such as what is the economic prospect and industry trend and what is the marketability and the value of the targeted investment will allow investors to determine the local economic growth prospects. With any investment it’s vital to know your market. Carrying out due diligence on what type of cargo has the highest growth potential will help identify the types of services and facilities your port needs to offer/put in place to stay ahead of the competition.
Research should also include evaluating the current situation with regards to inland transportation links and competing ports, or other potential port sites. Furthermore, investors must understand the implications of policies affecting trade, such as cabotage, free trade zones or bonded port areas. As the industry develops it is likely that port development will become concentrated in bonded port areas because of the relaxed rules associated with taxation and customs clearance that exist.
By conducting a master plan, investors can also focus their efforts on the port layout, identifying the processes involved in cargo handling and looking at ways of streamlining those processes, in order to deliver greater efficiencies. Of course, in some nations there are certain processes which are beyond your control – such as customs. When faced with this situation, port investors may consider collaborating with the particular customs authority to identify a way of reducing waiting times for example.
To maximise the opportunities and present your port facility as an attractive option to shipping lines, investors need to offer flexibility in the range of vessels it can accommodate, as well as a quick and easy vessel turnaround time. With this in mind, planning and feasibility studies in relation to marine transport and traffic modelling must be carried out to help identify navigational risks and in turn, ensure the port’s resources are managed effectively.
When designing a port, flexibility is key. Within the master planning phase, three types of cargo may have been identified as the key markets for a particular port. However, what happens when one of those markets underperforms? Investors are then left with a particular section of their port where activity is slow. Ports can be designed in such a way where areas which aren’t performing as well as expected can be converted to accommodate a market that is generating income – such flexibility in the design phase will help to lower the investment risk.
While there are real opportunities for achieving sustainable and long term growth from port investment in emerging markets, all that glitters is not necessarily gold. Before committing to support a scheme it is fundamentally important to carry out a thorough assessment focussing on the three dimensions of Port Masterplanning. Economic Analysis and Investment Planning, Marine Transport and Traffic Modelling will ensure that all appropriate scenarios are considered and all relevant risks are mitigated against as part of due diligence prior to any formal agreement.
Dr Simon Su
5/F ING Tower
308 Des Voeux Road
Tel: +852 2815 2221