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Invest overseas to diversify risk

Invest overseas to diversify risk
MAINLAND container terminal operators facing slower economic growth with a slowdown in cargo volumes at Chinese ports, especially those focusing on Asia-North America and Asia-Europe trade lanes.

MAINLAND container terminal operators facing slower economic growth with a slowdown in cargo volumes at Chinese ports, especially those focusing on Asia-North America and Asia-Europe trade lanes, are being encouraged to expand overseas to diversify risk.

Most notably, Cosco Pacific and China Merchants Holdings International (CMHI) have recently acquired assets in overseas markets. In Cosco Pacific's case, its acquisition of assets in Greece (Piraeus) has already borne fruit with a turnaround in container volumes, according to Drewry Maritime Equity Research.



Port Authorities looking to tender container terminal management concessions now have these two Chinese players with overseas aspirations to assess, said the Drewry report.



China has seen its economic growth moderate from 14.1 per cent in 2007 to 7.8 per cent in 2012, according to the International Monetary Fund. Even though there are early signs of the economy bottoming out, it is anybody's guess as to when it will rebound to pre-crisis levels, given the protracted debt crisis in Europe and muted recovery in the US, said Drewry. 



China Merchants has expanded into Africa and Sri Lanka and it has just acquired a 49 per cent stake in CMA CGM's Terminal Link, which has terminals spread across the globe. CMHI's problem is that nearly half of its equity throughput is derived from the Pearl River Delta, where growth has been stunted due to an unfavourable economic environment and high labour costs. This means that if it is to continue expanding rapidly, overseas investments will be important.



CMHI's overseas assets will account for 20 per cent of its equity, compared to negligible levels in 2011. Its net profit from overseas assets will be 12.4 per cent of the total by 2015, said the report. 



But expansion entails large capital expenditure, which stresses the company's cash flow. The company will require US$1 billion during 2013-2014. including $525 million for the acquisition of a 49 per cent stake in Terminal Link, according to the report.



Overall, expansion in overseas markets could surely garner additional revenues and diversify the business risk, but execution and integration of new operations are a big challenge, which port operators will need to handle successfully.

 

http://www.turkishmaritime.com.tr/

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