The Silver Lining For Shipping: Dredging Firms
Dredging firms are best placed to reap the benefits of the ongoing trend of 'bigger is better' in the global shipping market. Dry bulk vessels are reaching a new benchmark with the Valemax fleet steadily coming online and container vessels set to get even bigger in 2013 with the launch of Maersk Line's Triple E Class ship offering a capacity of 18,000TEUs. The world's premier ports are presently investing to keep ahead of the curve in terms of their ability to cater for these ships. BMI highlights two trends to watch over the medium term, which will benefit dredging companies. The first is that major ports have to invest to keep up with these new mega ship demands and the second is that ports further down the supply chain also have to invest as vessels are displaced by the influx of this new class of mega vessel and a cascade effect plays out. BMI expects this to be a global phenomenon and so globally diverse dredging companies like Royal Boskalis Westminster are best placed to benefit.
Trends To Watch: Ports Seeking To Retain Their Positions
The premier ports that are key hubs for dry bulk, liquid bulk and containers are already keeping pace, with the 'bigger is better' trend having already expanded and utilised dredging firms. Now BMI expects to see a pick-up in demand for dredging companies' services from second-tier ports.
In the container shipping sector, for example, ports that have been added to major trade routes such as the Asia-Europe service in the last few years must keep pace with vessels getting larger or risk losing their coveted position as a direct port of call.
Examples of these are Sweden's port of Gothenburg and Poland's port of Gdansk, both of which have been added to Maersk Line's Asia-Europe services in the last five years. Both have stated that they are preparing to cater for Maersk Line's 18,000TEU capacity ships and although no specific dredging projects have been announced, BMI expects at the least the purchase of new equipment.
In BMI's opinion, ports will not entice carriers to make direct ports of call on their Asia-Europe trade routes in the medium term unless the facilities are deep enough to handle this new class of mega vessels and the goal of being a direct port of call on this major route holds a considerable lure for ports and the markets they cater for.
|Company||Current Largest Vessel Size (TEUs)||Largest Vessel Newbuild Plans (TEUs)||Date Due Online|
|Already Operating 13,000TEU+ Vessels||Maersk Line||15,550||18,270||from 2013|
|13,000TEU+ Vessels on Order||APL||8,110||14,000||from 2013|
|NYK Line||9,300||13,000||from 2013|
|Evergreen Lines||7,024||13,800||from 2014|
|Yang Ming||8,626||14,000||from 2015|
Trends To Watch: The Cascade
BMI highlights that it is not only at the front end of the market, where major ports are dredging to keep pace with market demands, but also further down the supply chain. A new vessel size leads to a trickledown effect, with ships once used on the Asia-Europe trade route cascaded to other services as bigger ships come online to take their place. For example, 8,000TEU ships, once the main stay of the Asia-Europe trade route, have now been displaced and are featuring on transpacific services. This in turn has displaced the smaller tonnage once utilised on this route. BMI highlights that in the last 18 months we have witnessed larger ships than have traditionally been used on routes linking Asia-Africa, Asia-Middle East, Asia-Latin America and intra-Asia.
We also highlight changing trade trends, which are also having an impact on where larger vessels are placed, thereby placing pressure on ports to be able to handle them. On the US West Coast, for example, a mixture of strengthening demand, as the US's recovery has been stronger than that of Europe, and survival, with ports on the West Coast seeking out ways to mitigate the threat of the Panama Canal expansion and the potential loss of business, have led to expansion projects that have enabled the ports of Long Beach and Los Angeles to handle larger capacity ships. For example, the port of Long Beach has set a new milestone in terms of box ships that it can handle, catering for its first 13,000TEU vessel in 2012.
Asia remains the major investment region for port development. According to BMI's Key Projects Database port developments in Asia are currently worth US$191.5bn, 43.1% of the global port developments currently underway or in the pipeline.
Although we are witnessing the steady increase in investment in the ports sectors of Indonesia and the Philippines, both of which are underperformers both in terms of regional throughput and port infrastructure, it is China that remains the driving force in port investment, with Chinese port development projects accounting for roughly 27% of the global total.
|Asia Investing The Most|
|Port Investment % of Global Total|
As the world's key container export point (with China's port of Shanghai the largest container port globally), the world's largest importer of iron ore (the main commodity shipped by the dry bulk sector) and most recently becoming the world's largest oil importer it is understandable why China continues to invest such large sums in its port sector in order to not only expand in order to keep pace with demand, but also to ensure its ports are at the forefront of being able to handle the influx of larger ships.
In terms of where the majority of investment in the port sector is being made BMI highlights it is emerging over developed, with Asia leading the pack in terms of current investment projects in the port sector, Latin America is ranked sector accounting for 20.6% of the total global investment in the port sector currently pledged.
Developed states however are continuing to invest, with upgrade and modernizations always required in this sector. We also highlight that it is the developed nations which the key container routes of Asia-Europe and the transpacific cater for and so the US and European states are investing in their ports in preparation for the influx of even bigger ships on these major container shipping routes.
Europe is ranked third in terms of investment globally, as its ports invest and expand to be able to cater for CMA CGM's Marco Polo, the 16,000TEU capacity vessel, which is currently the largest box ship afloat and Maersk Line's new fleet of 18,000TEU ships.
Investment in the US port sector is being driven by spending connected with the preparation for US ports in the lead up to the US Panama Canal expansion, which will enable larger ships to pass through the waterway and into US East Coast ports.
Who Will Benefit?
The Asia region may dominate port investment, but there are opportunities globally, with dredging firms with global coverage set to benefit.
BMI therefore believes that the world's largest dredging firm Royal Boskalis Westminster will be a major beneficiary in the demand for dredging services, as its operations are global in nature. In the first quarter of 2013 the company has already won contracts in Germany, Australia and Vietnam.
|Royal Boskalis Westminster||China Communications Construction Company (CCCC)|
|Country||2013 Awarded Projects||Country||2013 Awarded Projects||CCCC Subsidiary|
|Germany||Dredging of River Elbe between Wedel and Cuxhaven||China||Qingdao Cruise Terminal dredging||CCCC First Harbour Engineering Co|
|Australia||Port of Melbourne dredging||China||Tangshan Port dredging||CCCC Shanghai Dredging Co|
|Vietnam||Approach channel and port basic for the Nghi Son refinery||China||Yancheng Port dredging||CCCC First Harbour Consultants Co|
|China||Liuzhou Port dredging||CCCC Third Harbour Engineering Co|
|China||Lianyungang Port dredging||CCCC Third Harbour Engineering Co|
|China||Zhenjiang Port dredging||CCCC Second Harbour Engineering Co|
|China||Caofeidian Terminal dredging||CCCC First Harbour Consultants Co|
|China||Nanshen Terminal dredging||CCCC Water Transportation Consultants Co|
One company set to benefit specifically from China's port investment story is China Communications Construction Company (CCCC); as a state-owned entity the firm's dredging subsidiaries are consistently awarded dredging contracts in China.
Safer On Land Than At Sea
While benefiting from the 'bigger is better' trend, dredging firms also enjoy relative security due to the nature of their sector. Once a port has been dredged the operation will need to be performed regularly to ensure against silting and retain the depth of draught. This is displayed in dredging companies' results.
While profit growth may have gone through patches of strengthening and weakening, at the top three dredging companies (Royal Boskalis Westminster, CCCC and Van Oord) over the last three years, they have not been exposed to the excesses of the market that have impacted other maritime players, as all dredging companies have managed to remain in profit.
|Dredging Remains In The Black|
|US$mn Net Profit|
This further highlights BMI's view that it is better to be on shore than at sea, a trend we first highlighted when comparing container lines and terminal operators, with port operators exposed primarily to demand and so sheltered from the oversupply issues that have hit the container shipping sector.
Dredging firms have benefitted from port operator's continued profit, as operators have had the ability to continue investing in expansion projects. Using data from Royal Boskalis Westminster, Maersk Line and its sister firm, the port operator APM Terminals (APMT), BMI highlights the differing fortunes of firms that all play a role in the global maritime sector.
|Port Operator And Dredging Firms Maintain Consistent Growth|
|Average Revenue Growth (2008-2012)|
Over the past five years (2008-2012), Royal Boskalis Westminster's revenue has grown by 47% to reach EUR3bn in 2012. APM Terminals revenue has expanded by 53% to reach US$4.8mn, while the underperformer has been the container shipping line bellwether Maersk Line, which in 2012 posted revenue of US$27bn, 5% off the company's revenue of US$28.7bn in 2008.
Over this period Maersk Line has recorded a loss for two years, while the dredging bellwether Royal Boskalis Westminster and the terminal operator APM Terminals have both remained in profit.