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Gulftainer’s US foray and future developments

Gulftainer’s US foray and future developments
What are the implications of Gulftainer's ground-breaking entry in the US in June? Five months on, Seatrade Global spoke to four of the world's leading ports consultants to find out.

When the UAE's Gulftainer Group reached agreement to invest $100m in a 35-year concession at Port Canaveral in Florida, the global ports industry sat up. Something had obviously changed since DP World unilaterally walked away from its attempt to take over P&O's US portfolio in 2006.

Before winning Canaveral, Gulftainer made at least one other attempt, ultimately unsuccessful, to enter the US East Coast. John Burr, editor-in-chief, Jacksonville Business Journal, where Gulftainer's bid for access failed, implicitly criticised then-Jacksonville Port ceo Paul Anderson for not taking Gulftainer up on its May offer. At the time, Peter Richards, Gulftainer md, said: "We are very disappointed and confused about the port's reaction. It was a case of 'No, we don't want you.'"

DP World ended interest in six US ports, after howls of protest in Congress over what might be called "security concerns" post 9/11. The Canaveral deal won approval from the Committee on Foreign Investment in US in August, after it determined it was a "simple lease" rather than an "asset sale".

"While there were some security issues raised in Congress and elsewhere, there was absolutely nothing like what happened with DP World. Both Gulftainer and Port Canaveral handled this very well, emphasising job creation and the positive impacts on the regional economy. I think politically, security concerns may still be there, but this is a big step forward," said William Hall, president, Seaport Consultants, Lynnwood, WA.

"The company is keen to expand its global footprint and appears to be prepared to consider opportunities in both the developed and emerging world markets," said Neil Davidson, senior analyst in Drewry's Ports and Terminals practice.

"There are only two real options: large-scale capital investment [through] purchase of another company, taking over an existing operation, or competing for new concession agreements. Since their Port Canaveral market entry strategy was a 35-year concession to operate a multi-purpose container terminal, it appears to be the latter of the two strategic options," said Darryl Anderson, md, Wave Point Consulting, of Victoria, BC, Canada.

Anderson cited US Customs port statistics from the American Association of Port Authorities which ranked Port Canaveral at 65 overall by value of trade in the US, or 61 by exports and 53 by imports.

"Based on this, it is not unreasonable to think they might try to continue a mid-market port strategy in the US. They could perhaps also leverage their experience with inland container depots to develop a strategic partnership with US railways, or other regional 3PLs to develop their business and not just on the marine terminal side."

Gulftainer's US entry looks likely to shake up a sector crying out for rationalisation. "The benefit to the US comes from the experience and expertise that a company like Gulftainer can bring, in particular because the Port Canaveral deal is clearly a very important and high profile development for Gulftainer as it [continues] its international expansion," said Davidson.

"It is more relevant to see it as the US benefitting from as many different terminal operators as possible. The container carriers' need for increased terminal efficiency makes it a necessity that terminals develop their operations to match these needs—and the introduction of additional international players will ensure that competition between such players will drive such efficiency gains, irrespective of the national origin of such players," said Alan Murphy, coo and partner at Denmark's Seaintel Maritime Analysis.

"The impact of the recession of late 2008-2009 has changed the landscape... Investment capital for ports initially dried up and has started to recover. While there is always lots of attention on the major port complexes, the mid-tier ports that serve primarily a local or regional market need capital investment," Anderson said.

Gulftainer's success in the US prompts the question of whether other UAE or Middle East port players seek entry to the US. "In the light of the 2006 developments, it is unlikely a major entry will be attempted soon," said Murphy.

"This is a very complex and interesting time for US container terminal operators and those seeking to enter the US market. Much depends on how the new larger ships will be deployed via Panama and also through Suez and Europe to the US. Many ports are preparing to handle these vessels. Ultimately, we will probably see overcapacity in the system," Hall said.

"On the land side we are contending with increased rail congestion due to massive volumes of domestic petroleum as well as other traffic. There are significant truck congestion and chassis management issues at some ports. So new infrastructure and better coordination mechanisms urgently are required. And terminal productivity in the US could be better."

Anderson said bifurcation between asset valuations for top- and mid-tier facilities was likely. "Everyone is faced with the same strategic choices so it depends on capital available and risk appetite. A successful market entry in a mid-market port will help push up asset prices for the top-tier ports and assets, but won't make much difference for other secondary targets since it is the local or regional market potential that will drive the asset values and availability of opportunities."