Global Investment Opportunities in Ports and Terminals

Global Investment Opportunities in Ports and Terminals

Present scenario at Ports and Terminals

Around 90% of the trade is carried by the international shipping industry. Without shipping import and export of goods on the scale required for the present world would not be possible. Seaborne trade continuous to expand, bring benefit to customer across the globe through its competitive cost. Due to the increase efficiency of shipping as a mode of transport and increase economic liberalization, the prospect for the industry’s future growth continues to be strong. There are over 50,000 merchant ships trading internationally, transporting every kind of cargo.
 
The world’s busiest port is contested several ports around the world, as there is yet no standardized means of evaluating port performance and traffic. For the past 5 years the distinction has been claimed by the Port of Shanghai, based on both measurements of cargo tonnage and shipping tonnage handled.
 
If we consider top 20 ports in terms of total container volumes, they control 45% of the total trade of the world. They are not just the biggest ports but also the most congested port handling more than 1000 ships each day. On some of the ports like Shanghai there is an average waiting time of about 18.2 hrs. for getting berth at the terminal. Similar conditions are observed at the ports like Singapore, Shenzhen, etc.
 
Top World Ranking of Ports 2015
Source: - American Association of Port Authorities (aapa-ports.org)
 

Increase role of private investment

Until recently, the ownership of major ports and terminal was in the hands of the state for strategic as well as commercial reasons. Due to the emergence of the free trade agreements, remarkable expansion in trade volume over the past decade and decreased regulatory control of local and federal government has led to the private sector playing an increasingly importance and profitable role in marine terminal management.
 
This trend has proved particularly acute over the last decade, says Allstair Mackie, Head of Ports and terminal Group at Holman Fenwick Mackle. According to him the private participation in Infrastructure (PPI) as an important part of the port development in today’s liberalized trading environment. “PPI project helps to provide the financial support and expertise that many ports might need for their commercial and social objective,” he says, “And for the investor they can provide the opportunity to profit from rapid growth in international trade”
 
In practical terms it simply means improving performance. Many ports and industry players have realized that they need to reduce congestion and minimize delay if they need to earn profit from rising import and export. In this sense private capital has proved crucial.  Privatization is often considered as the best and most efficient way to simply increase port efficiency and throughput.

Source of finance by region

The mix of financing for PPPs varies by region. East Asia and Pacific had the most active private sector financing, with 83 percent coming from private sources (debt and equity). Similarly, commercial debt providers were also the most active in EAP, contributing to 61 percent of the upfront capital costs. In Malaysia, this figure was as high as 77 percent, while in Thailand, 75 percent. Only 13 percent of the investment commitments were funded by public sources and 4 percent by DFI sources.
 
Conversely, Latin America and the Caribbean had relatively low contributions from the private sector at 46 percent, with correspondingly high activity from the public sector at 39 percent. DFI sources made up the remaining 15 percent. However, public funding in 2015 includes the US$3.6 billion capital subsidy for the Lima Metro-Line 2 Project, which drove up the public sector’s totals.
 
With about 30 percent of total investment commitments from state-owned banks, South Asia (SAR) is notable for attracting the highest investments by state-owned lenders than any other region. This is because India’s public sector banks were the most active lenders in the country’s infrastructure sector. DFI sources funded 20 percent of capital costs in SAR, while private sources funded 48 percent—roughly, an even split between debt and equity.
 
In Europe and Central Asia (ECA), dominated by Turkey, private sources funded 64 percent of the total investment; public sources provided 28 percent (mostly from state-owned lenders); and DFIs, the remaining 8 percent. Sub-Saharan Africa (SSA) had healthy private sector financing at 66 percent, but very low public funding at only 12 percent. DFIs predictably filled the gap, comprising 22 percent of the investment commitments in the region—the second highest contribution by DFI sources after MENA. Finally, in the Middle East and North Africa (MENA), DFIs captured 65 percent of the investment commitments.
 
 Private sector resources provided 29 percent (mostly in the form of equity) and the public sector only contributed 5 percent. Of the 11 projects, eight received both multilateral and bilateral debt and two received only bilateral debt.
 
Source:- Holman Fenwick Willan Report on Annual Port Development 
 

Development of Chabahar Port

Chabahar Port is an ambitious plan of Iran government to have new and developed connection with the world. In their plan for development Indian government has been a great help for them. Tehran has recently proposed to India to manage phase one of the port built by Iran even as the two sides are still negotiating terms and conditions of Indian role in expanding phase two of the port where the government wants to invest Rs 150 crore, or USD 235 million. One the execution the port would handle about 2.1 million tons of cargo each year and have trade USD 500 million. This has been a great opportunity for both Iran and Indian government to get joined operation to main and run the operations and give boost trade relations between the government.

Increase investment opportunities in Infrastructure

Many countries like Singapore and India have come up with new way to invest in infrastructure for retailers. HNI, and institutional investors. One of them is the Infrastructure investment trusts (InvITs). InvIT is a mechanism that enables developers of infrastructure assets to monetize their assets by pooling multiple projects under a single entity (trust structure). InvITs are a first-of-their-kind really long-term instruments. At present, Government Securities or G-secs are the only other instruments with such a long life. InvITs too may be structured as funds with a very long tenure or open end structure.

Conclusion

Considering the expansion of the existing ports, development of the new, increase in trade and liberalization of the ports there is a good prospective growth in the port and terminal market. Increase privatization would help in reducing the cost and congestion at the different critical ports and help to reduce the turnaround time for the ships. With increase investment opportunities and ways to diversify the portfolio, port and terminal market is a good sector to invest for the next 10 years. 
 
 

About The Author

Sourabh Gundecha

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