Investors, rely on standard asset metrics when measuring the value of port operations. The classic benchmark is the EBITBA (Earnings Before Interest, Taxes, Depreciation and Amortization) multiple, essentially a multiple of a facility’s projected annual free cash flow or the unencumbered cash generated by an operation. The EBITDA multiple generally is used by investment bankers to value an asset.
Cash-starved North American container terminal operations were undervalued through 2005 for a number of reasons including:
• the capital-intensive nature of the landside terminal business (gantry cranes with extended reach to accommodate post Panamax container ships can cost as much as $8 million each. China-based ZMPC, owned by Shanghai Zhenhua Heavy Industries Co., is the world’s largest supplier, displacing Italian rivals)
• the violently cyclical nature of the maritime business that results in “lumpy” or irregular cash flows, a factor upsetting to debt holders and equipment lessors.
• Contentious dealings with well-paid organized labor that staffs these facilities.
To increase productivity, TraPac LLC Los Angeles terminal, among the most efficient in the U.S., uses robotic cargo-handling equipment (four-story rail mounted automated stacking cranes) to move containers along the dock. 5 It’s one of only four in the U.S. to do so.
TraPac benefits include cutting in half the speed to load and discharge ships and reduced diesel/soot emissions. 6
At the nearby Port of Long Beach, the competing Orient Overseas (International ) Ltd. terminal is automating cargo handling in phases.
TraPac claims that robotic cargo handling can reduce ship turnaround time by 30 percent and demand for shore side labor by 50 percent. Ideally, many displaced workers will be redeployed.
By comparison, APM Terminals, an AP Moller/Maersk unit, says that automation of its Rotterdam terminal, arguably the world’s most efficient, requires half the labor of a conventional terminal in the same port.
Given what were resultant low valuations in the early 2000s, some traditional private terminal operators gradually cashed out of under funded port investments. Concurrently, cash-starved local governments were hard-pressed to make big required capital investment.
Meantime, foreign and institutional investors and U.S.-based private equity funds, spotting value, rushed in with investment.
After Sept. 11, 2001, this new generation of investors realized that competing demand for finite, premium space along seaports meant that developing new terminals or expansion of existing ones was unlikely. Essentially, urban planners had rediscovered the inherent value of popular, alternative waterside attractions that trumped terminal expansion.
New stringent environmental rules governing waterside terminal expansion significantly increased the difficulty and cost to build or expand these facilities. Blame that on increased public input and sometimes NIMBY (“Not In My Backyard”) opposition toward expansion of an industrial operation located in a “sensitive” environmental or residential area.
It can take a decade or more from initial project planning to the completion of a project, as costs continue to escalate, as was the case in Tacoma, Washington. This “optimistic” scenario assumes the developer can secure local, state and federal project approvals quickly.
“It took 16 years to get permits from the Army Corps of Engineers to dredge the harbor in Savannah, Georgia. At least 10 federal and state agencies in Georgia and South Carolina weighed in. Work began in 2015.”
The new generation of investors generally consider marine terminals an attractive, viable opportunity, especially if targeted investments in cargo-handling automation equipment and software control systems increase volume and productivity, and lower per-unit cost. “The opportunities for well-run foreign terminal operators to grow in the United States are clear.
Hence marine terminal EBITDA multiples mushroomed as much as fourfold, to 20 in the several years before the 2008-2009 economic crisis. This admittedly frothy market then retreated to high single-digit EBITDA multiples, before inching up in 2015 to near-record levels. However, those margins were under modest pressure in 2016 when profit-starved container sought modest reductions in terminal handling charges.
“Having exhausted numerous other means of reducing costs, struggling liner companies are focusing more intently on bringing down terminal handling bill,” The Journal of Commerce reported.
North America’s most prominent ICTF is the $2.4 billion Alameda Corridor. It features a dedicated below-street-grade 20-mile freight railroad on which nearly 50 trains per day haul 11,500 TEUs from the Ports of Los Angeles and Long Beach to a staging area well north and east of these ports.
The dedicated freight rail lines that run below grade through Los Angeles could handle twice-daily traffic, but are hamstrung by a major bottleneck – lack of rail capacity in both ports.
“Plans to expand the capacity with construction of a new railyard near the port have been stymied for years. This project, dubbed the Southern California International Gateway, faces neighborhood opposition, environmental complaints and a lawsuit filed by the City of Long Beach against the City of Los Angeles, which gave the Burlington Northern Santa Fe Railway permission to build the facility.”
Students are required to read chapter 6- Ship Size & Port size and the above hand out, and express their evaluation and views not less than 150 words.